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World Bank President to G8: Economy Still Dangerous; Service Sector Improves for Third Straight Month; Rio Sells Packaging Business to Bemis for $1.2 Billion; Crude Prices Drop Again; Report: Bank of America Writeoffs to Rise; Brazil's Credit Rating Could Increase; DOJ Investigating Telecoms; Father of Web Browser Starts New Tech Venture Capital Firm
World Bank President Robert Zoellick warned in a letter to the Group of Eight nations that the global economy is not out of the woods yet and they should be cautious about pulling back on stimulus programs. Dated July 1, the letter was addressed to G8 host Italian Prime Minister Silvio Berlusconi and said interventions by central banks and governments appeared to have "broken the fall in the global economy" by stabilizing financial markets and boosting demand. "Yet 2009 remains a dangerous year. Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain," Zoellick wrote in the letter obtained by Reuterson Monday. The G8 heads of government are expected to issue a statement on the situation of the world economy during their meeting in the central Italian city of L'Aquila.
The Institute for Supply Management's index of U.S. service industries contracted last month at the slowest pace in nine months, as measures of new orders and employment improved. The survey of non-manufacturing firms, which make up almost 90% of the economy, rose to 47 -- higher than forecast -- from 44 in May, according to data from the Tempe, Ariz.-based group. Readings of less than 50 signal contraction. The index's third straight monthly improvement reflects signs of stabilization in housing and consumer spending. That combined with leaner inventories means companies may start expanding output again in coming months, Bloomberg Newsreported.
Anglo-Australian mining company Rio Tinto PLC (ADR NYSE: RTP) has agreed to sell its U.S. packaging business to Wisconsin-based Bemis Co. Inc. (NYSE: BMS) for $1.2 billion in cash and stock. Bemis, a food-and-beverage packager, will acquire 23 operations spread across the U.S., Canada, Mexico, South America and New Zealand that package and wrap such things as meats, cheese, bagged lettuce and snack foods, the Wall Street Journal reported. The deal should push its sales from $3.8 billion to $5.3 billion annuallyand significantly boosts Bemis's role in many foods and beverages purchased in U.S. grocery stores.
Economic worries pushed crude oil prices below $65 a barrel Monday for the first time since May 27 as investor doubts over a potential rebound in the global economy increased, Reutersreported. Prices fell more than 3% to $64 a barrel, after touching a five-week low of $63.40 in overnight trading. London Brent crude fell $1.29 from Friday's close to trade at $64.32 a barrel. Crude has fallen more than 13% after reaching nearly $74 a barrel on June 11 on optimism that an economic recovery could bolster demand. But recent weak economic data -- including a poor U.S. jobs report last week -- has weighed on markets.
Writeoffs for Bank of America Corp. (NYSE: BAC) may rise as much as 10% to $7.6 billion when it reports its second quarter results on July 17, according to a Credit Suisse Group AG (NYSE ADR: CS) report obtained by Bloomberg News. Among the bad debts was $1.9 billion related to home equities, and 10.4% of credit card loans. Stress tests conducted by the U.S. government in May estimated the lender may face $136 billion in loan losses through next year.
Moody's Investors Service put Brazil's credit ratings on review for an increase to investment grade, citing the country's "demonstrated resilience to shocks" in the global economy, Bloomberg Newsreported. "Confronted with a wide array of adverse conditions, the Brazilian authorities' policy response has been effective in containing the impact of the global crisis, thus providing evidence of increased resilience to shocks, a characteristic integral to an investment-grade credit profile," Moody's said.
Justice Department officials have begun an initial review of the largest telecom companies such as Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) are anti-competitive, The Wall Street Journal reports. While no company is being singled out at this point, the investigation could explore whether wireless carriers hurt smaller competitors by signing exclusivity deals with phone handset makers, such as AT&T's deal with Apple Inc. (Nasdaq: AAPL) that makes it the sole carrier of Apple's popular iPhone. Together, Verizon and AT&T control 60% of the 270 million wireless subscribers.
Marc Andreessen, co-author of the first web browser, has started a venture capital fund with longtime business associate Ben Horowitz for new companies with new technology ideas, The New York Timesreported. The duo's company, called Andreessen Horowitz, has raised $300 million for tech-related investments, and will risk as little as $50,000 on new ideas. Any successful ideas will get up to $50 million for the companies to grow globally. Five-year returns in the venture capital industry were just 6% last year, a far cry from 2000's 48% at the dot-com bubble's peak. Andreessen is a director at Facebook Inc., which started with just $500,000 but has since raised $600 million.