Crude Oil Surges After Explosion at Enbridge’s Pipeline to U.S.
By Eduard Gismatullin and Grant Smith

Nov. 29 (Bloomberg) — Oil surged more than $4 a barrel, the most in a month, after an explosion at an Enbridge Inc. pipeline from Canada to the U.S. cut supply to the world’s largest energy user.

Enbridge closed four pipelines, with a combined capacity of 1.5 million barrels a day, that meet at its Clearbrook, Minnesota, terminal after a blast yesterday killed two workers. The company said today the fire was still burning.

“It’s an important pipeline and it’s also where it’s being hit, these pipeline junctions are a nightmare,” said Rob Laughlin, a senior broker at MF Global Ltd. in London. Oil “could go up further if it’s shut for some time.”

Crude oil for January delivery gained as much as $4.55, or 5 percent, to $95.17 a barrel in electronic trading on the New York Mercantile Exchange. That’s the biggest gain since Oct. 31. The contract, which gained for the first time this week, traded at $94.17 at 9:29 a.m. in London.

“All our lines are shut down until we can safely start up the system,” Enbridge spokeswoman Denise Hamsher said today by telephone. “At least one or two lines will be shut down for quite sometime.”

Brent crude oil for January settlement climbed as much as $3.01, or 3.4 percent, to $92.82 a barrel on the London-based ICE Futures Europe exchange. The contract traded at $91.99 a barrel at 9:29 a.m. in London.

U.S. crude oil stockpiles fell 452,000 barrels to 313.2 million last week, the Energy Department said yesterday. Oil inventories in Cushing, Oklahoma, were at 152.3 million barrels as of Nov. 23, the lowest since October 2005.

`Huge Reaction’

This oil is “pumping into the Midwest, into Cushing,” where the New York-traded contract is priced, said Edo Gerbrands, a trader with Fortis Bank in Brussels. “Stocks, which are pretty low at the moment, will get lower. Therefore, we see this huge reaction today.”

The leak and explosion occurred at the No. 3 pipeline, which was undergoing maintenance, according to Enbridge.

U.S. refineries operated at 89.4 percent of capacity, the highest since the week ended Sept. 14, the energy department said. Refiners usually start in November units that were shut during the previous two months for repairs after the summer driving season ends and before demand for heating oil picks up.

The Organization of Petroleum Exporting Countries has no plan to raise oil output when it meets next week in Abu Dhabi because the market is well supplied, Qatar’s oil minister said yesterday.

Libya’s top oil official, Shokri Ghanem, said OPEC is already producing all the oil that it can sell and is left with “no big room” to increase output further.

“OPEC is selling to anybody who wants to buy, it is doing all it can,” Ghanem, who heads Libya’s National Oil Corp., said in an interview yesterday.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net

Last Updated: November 29, 2007 04:30 EST

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Tony Allen-Mills, New York

MORE than 20 years after the term “glass ceiling” was first coined to describe the invisible obstacles preventing women reaching the top jobs on Wall Street, one of the last bastions of male supremacy may soon be shattered by a Cruz missile.

Zoe Cruz, 52, a co-president at Morgan Stanley, one of America’s best-known investment banks, was identified last week as a likely successor to John Mack, the bank’s 63-year-old chief executive.

Cruz, who has been likened to a missile for her single-minded pursuit of trading profits, would become the first woman to lead a top US bank. She is the richest woman on Wall Street, having earned more than $50m (£24m) in bonuses over the past two years.

The appointment of a female chief executive would end more than a century of male domination of financial markets and, ironically, seems set to occur at a bank that only three years ago was forced to pay out $54m to female employees to settle a sex discrimination lawsuit.

While Cruz is unlikely to take over for at least two years, Mack has been under growing pressure to designate his successor in advance, following the recent meltdown in US mortgage lending and multi-billion-dollar loss-es at big investment banks.

The chief executives of both Merrill Lynch and Citigroup have been forced to step down after writing off up to $20 billion of bad debts. Their sudden departures have triggered a scramble to find replacements with the authority and experience to steer America’s most formidable financial institutions through what some experts predict may be a new recession. “The masters of the universe have fallen on their swords,” one investment banker said last week. “Maybe it’s time for a mistress.”

Born in Greece, Cruz has worked for Morgan Stanley since she graduated from Harvard Business School in 1982. She survived a messy corporate power struggle when several senior Morgan executives rebelled two years ago against the leadership of Philip Purcell, the chief executive at the time.

Cruz supported Purcell against his critics and seemed on her way out when Purcell lost the battle and was replaced by Mack. But her track record managing the bank’s sprawling foreign currency and commodity interests propelled her through an awkward period when she held the title “acting president”, prompting jokes among junior staff that she was only “play-acting” at being president.

She has rarely spoken publicly about the daunting pressures of combining a high-profile banking career with marriage and raising three children. She is half of one of Wall Street’s most renowned power couples – her husband is Ernesto Cruz, a senior executive at Credit Suisse.

Sovereign funds upbeat on growth of financials

By Peter Thal Larsen in London and David Wighton in New York

Published: November 27 2007 22:04 | Last updated: November 28 2007 00:10

Investment funds from the Middle East and Asia have invested an estimated $37bn in shares of western financial companies this year in a sign the funds are taking a more optimistic view than other investors of the growth prospects for banks, exchanges and asset managers.

Shares in banks around the world rose on Tuesday as investors reacted to news that Abu Dhabi Investment Authority had injected $7.5bn into Citigroup in the form of convertible shares. Analysts said the ADIA investment was a possible template for other banks hit by the US subprime mortgage crisis, such as UBS, to shore up their capital base.

EDITOR’S CHOICE

Lex: Citi taps Abu Dhabi - Nov-27

Martin Wolf: Banking, an accident waiting to happen - Nov-27

Sovereign funds put cash in the banks - Nov-27

According to analysts at Morgan Stanley, the investment in financials by sovereign wealth funds far outstrips the amount they have committed to other sectors. Bankers say there is a big appetite among wealth funds for further investment in financial assets hit by the credit market turmoil.

Citi shares closed up 1.7 per cent, with observers pointing out ADIA was prepared to put $7.5bn into a company without a permanent chief executive.

Citi is searching for a replacement for Chuck Prince, who stepped down as chairman and chief executive three weeks ago.

Names that have been discussed in the search process include Sir Fred Goodwin, chief executive of Royal Bank of Scotland, and Dick Kovacevich, chairman of Wells Fargo.

However, neither is thought likely. The serious contenders for chief executive include Vikram Pandit, head of Citi’s institutional businesses, and Bob Willumstad, chairman of AIG. Robert Rubin might stay on as chairman.

Copyright The Financial Times Limited 2007

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Sovereign wealth funds

Published: November 27 2007 02:00 | Last updated: November 27 2007 02:00

With private equity sitting on the sidelines, it is reassuring to see sovereign wealth funds starting to flex their muscles around the world. Dubai International Capital on Monday indicated a hunger for Asian assets, kicking off its shopping trip with a small stake in Sony Corp.

Oil exporters, including Norway, Russia and the Middle East, held up to $3,800bn in foreign financial assets through sovereign wealth funds, central banks and wealthy individuals at the end of 2006, according to the McKinsey Global Institute. Asian central banks, part of whose foreign exchange reserves have been split off into more actively managed vehicles, held a total of $3,100bn.

That is more than double the total assets managed by hedge funds and roughly four times that held by global private equity. These numbers, measured at the end of last year, already look out of date. So far this year, Asian foreign exchange reserves are up 20 per cent to $3,700bn, and MGI calculates that if oil prices remain above $70 a barrel, nearly $2bn of new petrodollars will enter global financial markets every day.

If Asia is the beneficiary of the new investment dynamics, does it necessarily follow that the US suffers? At the end of June 2006, China held $700bn of US debt, according to US figures. A mass withdrawal is unlikely. China, with $1,400bn of mostly dollar-denominated foreign exchange reserves, has no incentive to drive down the greenback by flogging dollar-denominated assets. Second, the pace at which funds are growing means they can buy several asset classes simultaneously. Third, the political impact is being felt keenly by Asian wealth funds: witness Temasek, the Singapore state agency, which is switching to a lower-profile strategy and avoiding stakes in “iconic” companies overseas.

China is unlikely to risk negative publicity by launching all-out takeovers of Asian peers. Ultimately, the movement of capital flows will change significantly - but it will be a slow process.

Copyright The Financial Times Limited 2007

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Leveraged loans

Published: November 25 2007 19:29 | Last updated: November 25 2007 19:29

Having stuffed themselves with turkey at Thanksgiving, Wall Street’s bankers must be hoping to avoid vulture at Christmas. Distressed debt funds are circling the Street’s pile of unsold leveraged loans – about $168bn worth.

The prospect of getting these shifted at a decent price this side of new year looks pretty dismal. Alltel and Chrysler are just two issuers that have had to scale back or postpone the sale of leveraged loans.

Having staged a brief recovery after the initial financial market turmoil of August, the high-yield loans market has deteriorated again. Standard & Poor’s LCD’s composite index tracking high-yield loans has hit 94.74 cents on the dollar – a record low – down from 98.24 on October 11. The private equity party has given way to a serious hangover. Structured credit markets have all but dried up. Meanwhile, high-yield bond spreads have widened faster than those on loans, with the difference rising from less than 100 basis points in early September to 137 today. Any high-yield bond buyers thinking of dabbling in loans now have less incentive to do so.

There are some bright spots amid the gloom. Cable manufacturer CommScope managed to place $1.35bn of loans last week to back its acquisition of Andrew Corp, priced at 99 cents on the dollar. Moreover, while banks had to mark down many unsold leveraged loans in September, the brief recovery until mid-October will have helped them make back some losses on loans they managed to sell. In addition, some deals and their associated loans have simply evaporated.

Conditions are now clearly deteriorating again. Even the vulture funds may bide their time in the hope that prices fall further. The hope is that the new year will herald a break in the log-jam. But with weak economic data raising the prospect of low default rates ticking up next year, don’t bank on it.

Copyright The Financial Times Limited 2007

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GETTING GOING By JONATHAN CLEMENTS

Yield-Hungry Bond Investors Have a Risky Option: Stocks November 28, 2007; Page D1 If you’re a bond investor hankering for higher yields, here’s a radical suggestion: Try stocks. Since mid-July, the Dow Jones Industrial Average has slumped 8%, bounced back 10% and then dropped another 10%, before rallying 1.7% yesterday. Yet, if you look beyond the wild stock-price swings, you will find shares are a remarkably reliable source of income. Want an alternative to 10-year Treasury notes, with their skimpy 3.9% yield? High-yield stocks could be just the ticket. • Whipping inflation. Suppose you were born at year-end 1925 to affluent parents, who immediately bestowed $1 million upon you. Let’s assume they took the safe route, stashing the entire sum in Treasury bills and then left you to live off the interest. In 2006, your income would have been $48,000, versus $33,000 in 1926, according to Ibbotson Associates, a unit of Chicago investment researchers Morningstar. Trouble is, because of inflation, $1 of interest in 2006 had less than a tenth of the spending power of $1 in 1926. Now, imagine instead that your parents rolled the dice and plunked the $1 million in large-company stocks. If you spent the dividends but didn’t sell any shares, you would have pocketed a robust stream of income that climbed in 65 years and fell in just 15, Ibbotson calculates. Even more impressive, your $1 million would have ballooned to $111 million over the 81 years — and your income would have jumped from $54,000 in 1926 to almost $2 million in 2006. Indeed, your income would have grown at an average 4.6% a year, easily outpacing inflation’s 3.1%. • Getting cut. Admittedly, buying stocks for income has its drawbacks. The broad U.S. market currently yields less than 2%, so you will need to own high-yield shares if you want a healthy amount of income. These high-yield shares are typically beaten-down “value” stocks. Value stocks, especially small-company value stocks, held up well through the 2000-2002 bear market and then posted market-beating gains during the recovery that followed. But in 2007, the cycle has turned in favor of growth companies — and thus a high-dividend strategy could push you into value stocks at just the wrong time. Relying on stocks for income will also leave you at the economy’s mercy. “If this advice is wrong, it will be very wrong,” warns Laurence Siegel, research director in the Ford Foundation’s investment division. “The dividend strategy would be a terrible one if we had a prolonged economic downturn. During the Great Depression, companies cut dividends dramatically.” Even if dividends hold up, you will need to shut your eyes to share-price swings. That’s easier said than done. “The imaginary investor who doesn’t care about price probably doesn’t exist,” Mr. Siegel says. • Banking dividends. For high-yield investors, the ride could prove especially nerve-racking. The reason: To collect handsome dividends, you often have to buy the market’s least-loved companies. For instance, financial planner Ross Levin likes high-yield stocks such as Bank of America, U.S. Bancorp, Wachovia and the exchange-traded iShares Dow Jones U.S. Regional Banks (IAT). “They look extremely cheap,” argues Mr. Levin, president of Accredited Investors in Edina, Minn. “The only problem is, we don’t know whether they’ll get cheaper.” Bank stocks could get roiled by more bad news, including dividend cuts. Still, if you own a basket of these stocks, you should enjoy bond-like yields, plus your dividends ought to grow over time. An added bonus: While a bond’s yield is dunned at federal income-tax rates of up to 35%, qualified dividends are taxed at a maximum 15%. Don’t like the idea of betting just on bank stocks? You can get broader diversification with high-yield exchange-traded index funds such as Claymore/Zacks Yield Hog (CVY), Claymore/Zacks International Yield Hog (HGI), iShares Dow Jones EPAC Select Dividend (IDV) and PowerShares High Yield Equity Dividend Achievers (PEY). These funds should yield 4% to 6%. Sound like an attractive option for retirees? Given the risks, high-dividend stocks shouldn’t be your sole investment. But if you’re hunting for more income in today’s low-yield market, they could be a good choice for a chunk of your portfolio. URL for this article: http://online.wsj.com/article/SB119621153050405993.html

Copyright 2007 Dow Jones & Company, Inc.

Oil Producers See the World and Buy It Up

By STEVEN R. WEISMAN

Published: November 28, 2007

WASHINGTON, Nov. 27 — Flush with petrodollars, oil-producing countries have embarked on a global shopping spree.

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For Abu Dhabi and Citi, Credit Crisis Drove Deal (November 28, 2007)

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With a bold outlay of $7.5 billion, the Abu Dhabi Investment Authority is about to become one of the largest shareholders in Citigroup.

The bank had already experienced the petrodollar’s power this month when another major shareholder, Prince Walid bin Talal of Saudi Arabia, cleared the way for the ouster of its chief executive, Charles O. Prince III.

The Dubai stock exchange, meanwhile, is negotiating for 20 percent of a newly merged company that includes Nasdaq and the operator of stock markets in the Nordic region. Qatar, like Dubai a sheikdom in the Persian Gulf, might compete in that deal.

In late October, Dubai, which has little oil but is part of the region’s energy economy, bought part of Och-Ziff Capital Management, a hedge fund in New York. Abu Dhabi this month invested in Advanced Micro Devices, the chip maker, and in September bought into the Carlyle Group, a private equity giant.

Experts estimate that oil-rich nations have a $4 trillion cache of petrodollar investments around the world. And with oil prices likely to remain in the stratosphere, that number could increase rapidly.

In 2000, OPEC countries earned $243 billion from oil exports, according to Cambridge Energy Research Associates. For all of 2007 the estimate was more than $688 billion, but that did not include the last two months of price spikes.

“If you look at gulf countries, they have a total common economy that is about the size of the Netherlands,” said Edward L. Morse, chief energy economist of Lehman Brothers. “These are tiny countries, but they have to place collectively over $5 billion a week from their oil revenues. It’s not an easy thing to do.”

The explosion in investment has set up some of its own cross-currents. While the recent decline in the value of the dollar is making investment in the United States cheaper, many investors are holding back out of fear that the dollar will decline further, diminishing the worth of their dollar holdings.

Many oil investors are also worried about a potential political reaction in the United States similar to the furor of last year when Dubai tried to acquire a company that operates American ports. European leaders, at the same time, worry that Russia is using its oil revenues to snatch up pipelines and other energy infrastructure in their region.

Such concerns seem to be driving investments to other parts of the world, many analysts say.

“The investments are diversifying outside the United States, though the U.S. still has the bulk of it,” said Diana Farrell, director of the McKinsey Global Institute, a research arm of the McKinsey consulting firm, which calculated in October that petrodollar investments reached $3.4 trillion to $3.8 trillion at the end of 2006.

“Europe is a prime target,” she added, “but at least 25 percent of foreign investments from the Persian Gulf are in Asia, the Middle East and North Africa.”

Though oil-producing countries have been looking at investments in the West since the 1970s, their strategies back then were largely confined to safe assets with a low return, like United States Treasury debt.

By 2001, with the collapse in oil prices, many of the oil exporters had depleted their dollar reserves, economists say.

But the boom in oil prices in the last five years has changed all that. It has persuaded oil producers to set up or expand “sovereign wealth funds” as vehicles to invest far more aggressively in the West, in their own economies and in emerging markets.

Other petrodollar investments are made through government-owned corporations, corporations and individuals like Prince Walid, who owns stakes not only in Citigroup but also News Corporation, Procter & Gamble, Hewlett-Packard, PepsiCo, Time Warner and Walt Disney.

The oil-rich nations are also investing more in real estate, private equity funds and hedge funds, analysts say, and increasingly they are investing the money on their own, bypassing the major financial institutions of the United States and Europe.

“The oil-producing countries simply cannot absorb the amount of wealth they are generating,” said J. Robinson West, chairman of PFC Energy. “We are seeing a transfer of wealth of historic dimensions. It is not just Qatar and Abu Dhabi. Investment funds are being set up in places like Kazakhstan and Equatorial Guinea.”

Precise figures of the global picture in petrodollars are not easy to come by, in part because the big investors in the Persian Gulf and elsewhere are not obliged to disclose their portfolios or activities.

The lack of transparency is a problem to leaders of Western industrial economies. In October, Henry M. Paulson Jr., Treasury secretary of the United States, and the finance ministers of other major industrial democracies called for an international code of “best practices” by cross-border investors requiring greater disclosure of assets and actions.

The petrodollar era has benefited the world economy, economists say, notably by enhancing liquidity at a time when foreign currency reserves of export giants in Asia are also making the world flush with cash.

Recently Ben S. Bernanke, chairman of the Federal Reserve, has spoken of a “global savings glut” that has lowered interest rates worldwide. Ms. Farrell, of the McKinsey Institute, estimates that petrodollars may have kept American interest rates three-quarters of a percentage point lower than they would otherwise be, a direct benefit to American consumers.

But the flood of investments is also causing problems, like overheated economies and asset bubbles in oil-rich nations.

“The gulf countries are pouring credit into their economies, adding to excess liquidity,” said Charles H. Dallara, managing director of the International Institute of Finance, an organization of leading private financial companies. “It is eroding the earning power of local citizens and becoming a source of economic instability over time.”

Some investment deals have fallen through, to the embarrassment of all sides. This year Qatar sought to do a leveraged buyout of a retailer in Britain, the J Sainsbury supermarket chain.

After starting the bid in July, Qatar faced concerns from unions, the Sainsbury family and others over whether the Qataris wanted Britain’s third-largest grocery chain just for the underlying real estate and whether the company could survive the amount of debt being incurred. The deal fell through three weeks ago, , when Qatar said that the global credit squeeze made the borrowing costs too high.

The decline in the dollar has also introduced new uncertainties into predicting petrodollar investment patterns. C. Fred Bergsten, director of the Peterson Institute of International Economics, said that while some countries in the gulf were trying to diversify their investments away from the dollar and into euros and pounds sterling, the Saudis were trying to quell that trend out of fear that the dollar will decline further and diminishing the value of their assets.

A measure of discord over the dollar was apparent at the OPEC meeting in Saudi Arabia this month. Iran and Venezuela, the two biggest political foes of the United States among the oil producers, complained that oil was being sold in a currency whose value was eroding by the day.

http://www.nytimes.com/2007/11/28/

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