Credit markets: Bond insurer downgraded
Ambac, one of the world’s largest bond insurers, lost its triple-A rating last week, a development that’s likely to magnify losses for already hard-hit bond investors, said Alistair Barr in Marketwatch.com. Bond insurers promise, for a fee, to take over principal and interest payments if a bond issuer goes into default. Bond issuers use the insurance to obtain a higher credit rating and lower their borrowing costs. But “when a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well.”
Mortgage-related bonds were Ambac’s undoing, said Karen Richardson and Aaron Lucchetti in The Wall Street Journal. The insurer “wandered into sectors and asset classes where it didn’t comprehend the risks,” said Thomas Abruzzo, managing director at Fitch Ratings, the firm that downgraded Ambac. Now it may be unable to honor its guarantees. But Ambac complains that the downgrade makes it impossible for it to raise money to shore up its finances. “It is very, very difficult to raise capital in the public market” with a downgrade looming, said Peter Poillon, Ambac’s head of investor relations.
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Pharmaceuticals: Are statins good medicine?
Statins, the cholesterol-reducing drugs that are among the pharmaceutical industry’s most profitable products, may have limited therapeutic benefit, said John Carey in BusinessWeek. Canadian researchers have found that while statins such as Lipitor, Crestor, and Zocor can help middle-aged men who have already had a heart attack, they produce “no benefit in people over the age of 65, no matter how much their cholesterol declines, and no benefit in women of any age.” Statin makers argue that more research into the drugs’ long-term effects is needed.
Profits: Overseas demand lifts GE
Strong overseas demand for railroad locomotives and power-generating equipment propelled General Electric to a 4 percent earnings gain in the last quarter of 2007, said Christopher Hinton in Marketwatch.com. GE earned $6.7 billion in the quarter, up from $6.4 billion in the year-earlier period, on sales of $48.6 billion. Developing countries are upgrading their transportation and energy systems, and GE CEO Jeffrey Immelt said he sees “no signs that this global infrastructure boom is slowing at all.”
Retailing: Sears gets an overhaul
Sears Holdings CEO Eddie Lampert plans to break the venerable retailer “into several businesses with broad authority to shape their own future,” said Gary McWilliams and Joann S. Lublin in The Wall Street Journal. The restructuring “would create separate units to manage Sears’ real estate holdings and run brands such as Kenmore, Diehard, and Craftsman.” The new structure would make it easier for Lampert, 45, who also runs a hedge fund, to close or sell underperforming businesses.
Publishing: Editor out at Los Angeles Times
For the second time in two years, the Los Angeles Times has lost its top editor in a budget dispute, said Thomas S. Mulligan and Dawn Chmielewski in the Times. James O’Shea, the paper’s editor since 2006, said that “he was forced out after disagreeing with publisher David D. Hiller’s plan to shrink the newsroom budget.” O’Shea had replaced Dean Baquet, who was fired by the paper’s parent, Tribune Co., in an earlier budget showdown. Last month, financier Sam Zell completed an $8.2 billion buyout of Tribune Co.
