20 10 / 2011


* Trading volume surges in final hour* Banks rally; Bank of America up 10 pct* Indexes up: Dow 1.6 pct, S&P 2 pct, Nasdaq 1.6 pctBy Angela MoonNEW YORK, Oct 18 (Reuters) - U.S. stocks surged late in trading on Tuesday as buyers latched onto another report of agreements to strengthen the euro zone’s rescue fund to bid up stocks aggressively.All three major indexes rose sharply after a Britain’s Guardian newspaper said France and Germany will increase the euro zone’s rescue fund to 2 trillion euros as part of a plan to resolve the sovereign debt crisis.Investors and buyers piled into financial shares, which had started the day weak but gained momentum on the late news. Shares of Bank of America rose 10.1 percent to $6.64 and trading volume for the Direxion Financial Bull 3X ETF jumped to the highest since April 2010.The development from Europe is “really what we had been rallying on for the past two weeks before Germany yesterday signaled that the issue wasn’t quite resolved,” said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston.”But the direction of the market can easily reverse if we get something bad again from Europe.”Bank of America shares had been lower after it reported a third-quarter profit but showed its main businesses struggled as income from lending and investment banking fell.Goldman Sachs Group Inc added 5.5 percent to $102.25 after reporting a rare loss, but Goldman said it was moving to cut costs, including employee pay.Trading picked up shortly after the Guardian report, with 2.9 billion shares exchanging hands in the final hour on the New York Stock Exchange, NYSE Amex and Nasdaq. A total of 8.8 billion shares traded for the day, above the year’s daily average so far of about 8 billion.The Dow Jones industrial average was up 180.05 points, or 1.58 percent, at 11,577.05. The Standard & Poor’s 500 Index was up 24.52 points, or 2.04 percent, at 1,225.38. The Nasdaq Composite Index was up 42.51 points, or 1.63 percent, at 2,657.43.The CBOE Volatility Index VIX , Wall Street’s “fear gauge,” was down nearly 5 percent but still remained elevated above 30.Financial stocks were the top gainers. The KBW bank index advanced 5.6 percent.U.S. homebuilder stocks were helped by strong homebuilder sentiment data, signaling improvement in the housing market.Shares of KB Home rose 11.6 percent to $7.02.

17 10 / 2011


* Big donor to education, children (Adds links to Breakingviews columns, Insider program)By Anna DriverHOUSTON, Oct 17 (Reuters) - Judging by Wall Street’s warm embrace of Richard Kinder’s $21 billion deal to buy El Paso Corp, he is still — to borrow the phrase once used to describe his former Enron colleagues — the smartest guy in the room.With the deal, the Texas billionaire who started his business in 1997 by buying pipeline assets from Enron for $40 million, will create the largest oil and gas transportation company in North America with 80,000 miles of pipeline.Analysts applauded the deal, which used Kinder Morgan’s relatively high stock valuation and relatively low cost of capital to pick up the nation’s largest natural gas network.”He’s still perceived to be the smart guy out of the old Enron organization,” said Duane Grubert, an analyst at Susquehanna Financial Group. “The respect for his creative dealmaking continues to be really high.”If Kinder, CEO and chairman of Houston-based Kinder Morgan Inc (KMI.N), manages to sell off El Paso’s (EP.N) exploration and production assets around the same time the deal closes, he could almost immediately pay back most of the money his company is borrowing for the $11.5 billion cash portion of the deal.Kinder Morgan’s shares rose as much as 10 percent on Monday, the day after the deal was announced. [ID:nN1E79F06X]>^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^For Breakingviews columns on the deal, please click on[ID:nN1E79G0GN] [ID:nN1E79F0BG]For a Reuters Insider program click on:link.reuters.com/xed54s^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>Kinder Morgan was put together through a string of deals, including some with marquee private equity names including Carlyle Group [CYL.UL], Goldman Sachs Inc’s (GS.N) buyout arm Highstar Capital and Riverstone Holdings.”This is not the first rodeo we’ve done,” Kinder reminded analysts on a conference call with investors on Monday.HEIR APPARENTKinder, a Missouri native, joined Florida Gas in the early 1980s and was reunited with University of Missouri friend Kenneth Lay when Lay’s Houston Natural Gas acquired the Florida company.In 1985, Houston Natural Gas merged with Nebraska’s InterNorth to form Enron Corp, with Lay as CEO.As Enron’s president and chief operating officer, Kinder was known as the guy who made the trains run on time and kept spending in check.Unlike Lay, whose extravagant lifestyle included a liking for Gulfstream jets with catered lunches, Kinder was satisfied with a cheaper Cessna for quick business trips.Until the mid-1990s, Kinder, now 66, had been considered Lay’s heir apparent as CEO. But Jeffrey Skilling, whom Enron had poached from consultancy McKinsey & Co years earlier, caught Lay’s attention by engineering Enron’s transformation from a pipeline company into a trading giant and became the CEO-in-waiting.Kinder left Enron in December 1996, and in February 1997 he founded Kinder Morgan with longtime friend Bill Morgan, the pair having spent about $40 million to acquire some Enron pipeline and associated assets that the energy giant no longer considered core to its ambitious operations.Enron collapsed in 2001, its demise chronicled in a best-selling book “The Smartest Guys in the Room,” by Bethany McLean and Peter Elkind.In December 2006 Kinder, then-retired Morgan and other members of the board, including Houston financier Fayez Sarofim, acquired Kinder Morgan for $15 billion and took it private.STRAIGHT SHOOTERKinder, who ranks 46th on Forbes’ list of richest Americans, has an estimated worth of $6.4 billion, according to the magazine.Still, the affable and plain-spoken executive parks in the same garage as his employees and is often spotted in his office building lobby sporting short-sleeved shirts, not the dark suit normally expected of an oil industry billionaire.Kinder, who served as a captain in the U.S. Army in Vietnam, and wife Nancy are generous donors to a number of philanthropies benefiting education and children.They are a fixture on Houston’s social circuit, often appearing in photos in magazines and websites that chronicle the city’s glitterati.”Both of them are some of the most highly philanthropic people in this city,” said Shelby Hodge, editor-at-large for Houston’s dominant social and entertainment website, culturemap.com. “They are straight shooters and very careful stewards of that money.”Kinder’s mother was a schoolteacher and in her memory, the couple has lavished on millions on the cause of furthering education, Hodge said.Through a foundation, the Kinders have already given millions to fund an urban research institute at Rice University in Houston, a program to award teachers, and a research effort to screen middle-school students with difficult-to-detect heart abnormalities.Kinder and his wife have also joined the Giving Pledge movement, launched by Warren Buffett and Bill Gates, by committing to give the majority of their wealth to charity.Kinder Morgan shares closed 4.8 percent higher at $28.19 on a day that the S&P 500 index fell 2 percent.

14 10 / 2011


* Resolves all govt investigations regarding co’s China unitOct 14 (Reuters) - Plumbing products maker Watts Water Technologies Inc agreed to pay U.S. regulators about $3.8 million to settle allegations of bribery against employees of its former unit in China.The company had received information from the U.S. Securities and Exchange Commission in July 2009 regarding possible improper payments to foreign government officials by employees of Watts Valve Changsha Co Ltd.Watts Water, which makes valves that control water flow, filtration systems and drainage devices, agreed to pay the SEC $3.6 million in interests and $200,000 in penalties.Watts Water expects that the settlement will resolve all government investigations concerning the unit’s sales practices and potential U.S. Foreign Corrupt Practices Act violations, it said in a filing with the SEC.Shares of North Andover, Massachusetts-based Watts Water were up 2 percent at $29.68 in afternoon trading on Friday on the New York Stock Exchange.

12 10 / 2011


"We agree on a whole host of issues," Romney said. "We’ve spent time together over the last year getting to know each other better. I’ve asked for his counsel on policy matters and so I think we’re pretty sympathetic on the issues that matter."Asked if, as party nominee, he would have Christie on his vice presidential short list, Romney replied: "Of course. He’d be on anyone’s short list."Christie, a popular Republican figure who many hoped would seek the party’s presidential nomination, officially withdrew from consideration last week and endorsed Romney on Tuesday to be the party’s choice to run against President Barack Obama in the 2012 presidential campaign.The move by Christie, known for his straight-talking conservatism, could go far in dispelling doubts about Romney’s conservative credentials that have kept many potential supporters on the sidelines.Christie told NBC he endorsed Romney without any promises from the candidate, who recently reclaimed his Republican front-runner status from Texas Governor Rick Perry.Christie was characteristically demure about the possibility of running for national office as a vice presidential nominee. "Honestly, I don’t know I’d be anybody’s good match," he said.But Romney seemed to disagree."The truth is that Governor Christie is one of the leading figures in the Republican Party," he said."Anyone who becomes our nominee is going to look at people like Governor Christie and say: ‘Well, that would be a terrific person to have on the ticket.’"

12 10 / 2011


The arrests came a day after thousands of people including teachers, religious leaders and union workers marched in downtown Chicago to voice mounting anger over joblessness and economic woes in protests that snarled rush-hour traffic.Those marches, organized by the “Stand Up Chicago” coalition, had appeared to target financial events in the city including a conference of the Mortgage Bankers Association, which was also subject to protesters’ ire on Tuesday.Organizers said Monday’s march was inspired by, but not formally affiliated with, the Occupy Wall Street movement that began in New York last month and sparked smaller protests nationwide.On Tuesday, 16 people were arrested at a protest at the Hyatt Regency in downtown Chicago where the annual conference of the Mortgage Bankers Association was underway, the Chicago Police spokesman said.The people arrested at the conference were facing charges of misdemeanor trespassing, he said.Separately, five women aged 55 to 80 from the Action Now group were also arrested after they took garbage from a foreclosed home owned by Bank of America Corp and dumped it in one of the bank’s branches, the group’s website said.Police said that group was also facing charges of misdemeanor trespassing.Action Now, which calls itself an organization of working families fighting for change, said Bank of America had not properly shuttered the foreclosed home from which the group took the furniture and garbage.”Since Bank of America will not go to our neighborhoods and clean up their vacant properties, Action Now members brought the neighborhood to them,” the group said on its website.Bank of America did not immediately respond to an after-hours request for comment.Chicago has also seen several weeks of daily protests outside the Federal Reserve Bank by “Occupy Chicago,” an echo of the larger Wall Street protests.

12 10 / 2011


The rule, required by last year’s Dodd-Frank financial oversight law, is aimed at avoiding a repeat of the 2007-2009 financial crisis by curbing excessive risk-taking.It has been difficult for the government to craft a rule that reins in Wall Street while protecting the trades that big banks execute on behalf of clients.Regulators are giving the public until January 13, 2012, to comment on the rule. That is more time than expected, and could result in more pressure to change elements of the rule.The proposal includes more than 350 questions that regulators want interested parties to weigh in on, particularly on how the government should write exemptions that allow banks to still make markets for their customers and hedge risk in their portfolios.”Only in today’s regulatory climate could such a simple idea become so complex, generating a rule whose preamble alone is 215 pages, with 381 footnotes to boot,” American Bankers Association Chief Executive Frank Keating said in a statement.”How can banks comply with a rule that complicated, and how can regulators effectively administer it in a way that doesn’t make it harder for banks to serve their customers and further weaken the broader economy?” he asked.On the other side of the issue, the consumer coalition Americans for Financial Reform said regulators warped a simple ban into a weak crackdown that is weighted toward preserving banks’ flexibility.”Unfortunately, the proposal issued today falls well short of what the Volcker Rule could and should achieve,” AFR said.The Federal Reserve and other bank regulators acknowledged in the proposal that it will be challenging for the government to identify “proprietary trading” that will be banned under the rule.The proposal said drawing the line between prohibited and permitted trading “often involves subtle distinctions that are difficult both to describe comprehensively within regulation and to evaluate in practice.”The rule is expected to have the most impact on large banks such as Goldman Sachs, Morgan Stanley and JPMorgan Chase, and could shave off billions of dollars in annual revenues.”CUMBERSOME” RULEThe Volcker rule, named after former Federal Reserve Chairman Paul Volcker who championed the measure, aims to prevent banks from making risky trades by prohibiting short-term trading for their own profit in securities, derivatives and other financial products.It will also prohibit banks from investing in, or sponsoring, hedge funds or private equity funds.The idea behind the rule is to prevent banks that enjoy some sort of government safety net, such as deposit insurance on customer accounts or access to Fed money, from using that backstop to make money for themselves.Industry groups have argued for broad exemptions for trades done to make markets for customers, and for trades used to hedge against certain risks in the banks’ portfolios.The proposal includes both types of exemptions, but it is difficult to determine how they will work in practice.At a minimum, the proposed rule would increase costs and discourage firms from making markets in securities, said Dwight Smith, a partner at Morrison & Foerster LLP, a law firm which works with investment banks.”It calls for some very precise management of that business and some very detailed record-keeping,” said Smith. “It becomes very cumbersome.”The impact of the proposed rule will likely be discussed with investors as banks host quarterly earnings calls starting Thursday with JPMorgan.Barclays Capital analyst Jason Goldberg said in an October 7 research report that executives would be well-served to show investors how they will cope with the Volcker rule restrictions, with bank stocks already beaten down this year.Regulators on Tuesday acknowledged that controversy has surrounded the Volcker rule from the outset.”The proposed rule has been noted as long, the issues are complex, so I think we made the right decision in allowing the full 90 days for comment,” said John Walsh, acting director of the Office of the Comptroller of the Currency, which oversees the nation’s largest banks.Walsh spoke at a meeting of the Federal Deposit Insurance Corp board which agreed on Tuesday to put the proposal out for comment.The Securities and Exchange Commission is due to discuss the Volcker rule proposal at a meeting on Wednesday. The Commodity Futures Trading Commission has yet to announce how it will proceed.The proposal released by bank regulators on Tuesday is largely similar to a draft of the rule leaked last week that received a mixed reaction from industry groups.The Securities Industry and Financial Markets Association, for instance, raised concerns about whether the exemption for market-making trades is too narrow.Randy Snook, a SIFMA executive vice president, said on Tuesday that financial firms need to be able to provide capital and liquidity to markets.”There is a real legitimate concern here that everything gets cast as prop trading. This isn’t just about speculative activity, in our mind,” Snook said.A note released on Monday by Bernstein Research said, based on the draft, that the rule “will have a very negative impact on the business models of fixed-income trading for Wall Street brokers.” Bernstein estimates the impact could be 25 percent less in revenues.To stop foreign-owned banks reaping a windfall or skirting the rule, prohibited trades cannot be conducted if a party to the transaction is a U.S. resident or a bank employee involved in the transaction is physically located in the United States.Under the Dodd-Frank law, the Volcker rule goes into effect on July 21, 2012.

11 10 / 2011


Depending on how you look at it, August may not have been as bad a month for stocks as advertised. For the month as a whole, the MSCI all-country world stock index  lost more than 7.5 percent.  This was the worst performance since May last year, and the worst August since 1998. But if you had bought in at the low on August 9, you would have gained  healthy 8.5 percent or so. In a similar vein, much is made of the fact that the S&P 500 index  ended 2009 below the level it started 2000, in other words, took a loss in the decade. That completely ignores, however, a more than doubling of the index between 2002 and 2007. There is a danger sometimes in allowing the calendar to dictate your interpretation of financial market behaviour.