By LINDA A. JOHNSON, AP Business Writer Linda A. Johnson, Ap Business Writer   – Fri Jul 30, 7:14 pm ET

Drugmaker Merck & Co. on Friday reported a 52 percent drop in second-quarter net income, weighed down by big restructuring charges from buying Schering-Plough Corp., generic competition and other factors.

Merck, the world’s second-biggest drug company by revenue, beat analysts’ profit expectations by 3 cents a share, but came up short on revenue and slightly reduced its sales forecast for the year. Given those factors, a 2010 income forecast now below Wall Street expectations and several pressures that could affect its full-year results, investors drove shares down in morning trading.

Leerink Swann analyst Seamus Fernandez termed it a “slightly disappointing quarter.”

The maker of allergy medicines Singulair and Nasonex and cholesterol drugs Vytorin and Zetia said its net income was $752.4 million, or 24 cents per share. That’s down from $1.56 billion, or 74 cents a share, a year earlier.

Excluding one-time items, income would have been $2.71 billion, or 86 cents a share. That beat the forecast of analysts surveyed by Thomson Reuters. They expected 83 cents a share, excluding items, on revenue of $11.45 billion.

The charges, including $1.7 billion in asset and inventory write-downs and $894 million in merger-related restructuring costs, cut net income by a total of $1.96 billion, or 62 cents per share.

“Our strong bottom-line performance in the second quarter demonstrates Merck’s continued success in executing our post-merger strategy,” Chief Executive Richard T. Clark told analysts. “Already we’re seeing positive signs of what can be achieved — despite patent (expirations) and a challenging economy.”

Merck shares fell 60 cents, or 1.7 percent, to close at $34.46 Friday.

“We don’t expect investors to get overly excited,” Credit Suisse analyst Catherine Arnold wrote in a research note, “as the beat was mainly due to lower expenses and lower taxes.”

Analysts noted that Merck’s tax rate was down from 23 percent to 20.5 percent.

Merck forecast full-year net income of 82 cents to $1.16 per share, or $3.29 to $3.39 excluding items — a slightly narrower range than before, but with the same $3.34 midpoint. Analysts expect $3.37 per share, on average. Merck said it expects revenue of $45.4 billion to $46.1 billion, with the top end down $300 million from its April forecast.

The new outlook is based on Merck retaining rights to roughly $3 billions in annual sales of biologic drug Remicade and its successor, Simponi, in a dispute with Schering-Plough partner Johnson & Johnson that goes before an arbitrator in late September. Executives also noted Merck faces significant costs in the second half of the year for the ongoing restructuring, new product launches and expansion in emerging markets, on top of increasing price reductions by cash-strapped European governments trying to hold down health spending.

Second-quarter revenue nearly doubled to $11.35 billion, due to Schering-Plough’s prescription drugs and consumer and animal health products. Merck, based in Whitehouse Station, N.J., bought its New Jersey neighbor in November for $41 billion, also gaining its biologic drug business and a strong pipeline of drugs in development.

Prescription drugs sales totaled $9.78 billion in the quarter, down 2 percent from the combined revenue of the two companies a year earlier. Sales were led by allergy and asthma drug Singulair, although they were flat at $1.26 billion, and by Remicade, for rheumatoid arthritis and other immune disorders, up 18 percent at $669 million.

Recent generic competition slashed sales of related blood pressure drugs Cozaar and Hyzaar by 46 percent, to $485 million. Sales of cholesterol drug Vytorin, hurt by ongoing efficacy and safety concerns in the U.S., fell 8 percent, to $490 million. Meanwhile, diabetes pills Januvia and Janumet were each up at least 30 percent, to $600 million and $218 million, respectively.

The animal health division had sales of $731 million. The consumer business, led by strong sales of Coppertone sun care items and nonprescription allergy pill Claritin, posted $422 million in sales.

For the first six months, net income totaled $1.05 billion, or 33 cents per share. That was down 65 percent from $2.98 billion, or $1.41 per share, in the first half of 2009.

By MARCY GORDON, AP Business Writer Marcy Gordon, Ap Business Writer  – Thu Jul 29, 8:50 pm ET

WASHINGTON – Banking titan Citigroup Inc. is paying $75 million to settle civil charges that it misled investors about its potential losses from subprime mortgages as the housing bust hit in 2007.

The Securities and Exchange Commission announced the settlement with Citigroup on Thursday. It said the company repeatedly made misleading statements in calls with analysts and regulatory filings about the extent of its holdings tied to high-risk mortgages. As borrowers defaulted, Citigroup’s losses reached tens of billions of dollars on complex instruments linked to mortgages, pushing the bank to a financial precipice.

Citigroup had said the exposure was $13 billion or less. The SEC said it exceeded $50 billion.

Citigroup earned $2.7 billion in the second quarter of this year. So the penalty represents less than 3 percent of its net income from April through June.

The settlement marked the second time in weeks that the agency reached an agreement on punitive action against a major Wall Street firm in connection with the financial crisis. Earlier this month, Goldman Sachs & Co. agreed to pay $550 million to settle civil fraud charges that it sold mortgage investments without telling buyers that the securities had been crafted with input from a client that was betting on them to fail.

Citigroup was one of the hardest-hit banks during the financial crisis. It received $45 billion from the $700 billion financial bailout — among the largest of the government rescues.

A current and a former Citi executive also settled charges with the SEC. Former Chief Financial Officer Gary Crittenden agreed to pay a $100,000 civil penalty. The former head of investor relations, Arthur Tildesley Jr., agreed to pay $80,000. Tildesley now is the head of cross marketing at the company.

New York-based Citigroup, Crittenden and Tildesley neither admitted nor denied the SEC’s allegations. But they did agree to refrain from future violations of the securities laws.

“We are pleased that we have reached agreement with the SEC to put this matter concerning certain 2007 disclosures behind us, and that the SEC is not charging Citi or any individual with intentional or reckless misconduct,” the company said in a statement.

SEC Enforcement Director Robert Khuzami said in a statement that Citigroup boasted of its superior ability to reduce its subprime exposure, even in the fall of 2007 as the subprime mortgage market quickly weakened.

“In fact, billions more in … subprime exposure sat on its books undisclosed to investors,” he said. “The rules of financial disclosure are simple — if you choose to speak, speak in full and not in half-truths.”

The SEC charged Citigroup with unintentional civil fraud.

Of the $45 billion that Citigroup received from the government bailout, $25 billion was converted to a government ownership stake in the company last summer. The bank repaid the other $20 billion in December. The government has said it will sell the $25 billion in stock by the end of 2010.

The SEC said in its lawsuit that Citigroup left out two categories of assets tied to subprime mortgages when it reported its exposure of $13 billion. The company didn’t disclose until November 2007 that it had more than $40 billion of additional exposure from those categories, the SEC said. By then, the value of those assets had declined.

Citigroup posted a $10 billion loss for the fourth quarter of 2007, the biggest in its 196-year history. Then-CEO Charles Prince was replaced by Vikram Pandit in December of that year.

The SEC also said that Crittenden and Tildesley were repeatedly given information about the full extent of Citigroup’s potential losses from subprime mortgage securities.

“Mr. Crittenden is pleased to have resolved this matter,” his attorney, John Carroll, said in a statement.

By Jonathan Stempel Jonathan Stempel  – 2 hrs 18 mins ago

NEW YORK (Reuters) – The Securities and Exchange Commission charged billionaire Samuel Wyly and his brother Charles with fraud for reaping more than $550 million of illicit gains by trading stock in four companies while they were serving as directors.

Samuel Wyly, 75, and Charles Wyly, 76, were accused of concocting a sham web of trusts and subsidiaries in the Isle of Man and the Cayman Islands to conceal over a 13-year period more than $750 million of stock sales in Michaels Stores Inc, Sterling Commerce Inc, Sterling Software Inc and Scottish Annuity & Life Holdings Ltd.

In its 78-page complaint filed in Manhattan federal court, the SEC said the Wylys also reaped a $31.7 million insider trading gain by making a “massive and bullish” bet in Sterling Software in October 1999 after they, as chairman and vice chairman, decided to sell the company. They would sell Sterling to Computer Associates International Inc in early 2000.

“The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws,” SEC deputy enforcement chief Lorin Reisner said in a statement. “They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders.”

The lawsuit seeks to recoup ill-gotten gains, impose civil fines, bar the Wylys from being an officer or director of a public company, and other remedies.

Also charged in the scheme were the Wylys’ lawyer Michael French, 67, and a stockbroker, Louis Schaufele, 55, the SEC said. All the defendants live in Dallas, the agency added.

NO MERIT TO CASE, WYLYS’ LAWYER SAYS

A lawyer for the Wylys said the charges lack merit.

“It will come as little surprise to those who know them that the Wylys intend to vigorously defend themselves, and expect to be fully vindicated,” said the lawyer William Brewer, a partner at Bickel & Brewer in Dallas, in a statement.

“At best, we believe the claims filed today are a misapplication of the law,” he went on. “At worst, the claims appear to represent an after-the-fact justification for a misguided six-year investigation.”

Martin Auerbach, a lawyer for Schaufele, declined to comment, saying he had yet to review the complaint. French’s lawyers did not return immediately calls seeking comment.

The SEC said French is now a consultant at Challenger Capital Group Ltd, and Challenger’s website says French is also a director at the financial services company. Challenger did not answer calls after market hours seeking comment, and did not immediately return an e-mail request for comment.

BLOCK TRADES

According to the SEC complaint, the Wylys and French knew or were reckless in not knowing their disclosure obligations tied to their roles as directors or owners of more than 5 percent of company stock.

The SEC said the defendants made hundreds of misleading statements that allowed the Wylys to conduct many trades, including large block trades of more than 14 million shares, without being detected, resulting in the $550 million of gains.

The Wylys built Michaels into one of the nation’s biggest arts and crafts retailers before selling it to private equity firms Blackstone Group LP (BX.N) and Bain Capital Partners LLC for about $6 billion in 2006.

They sold Sterling Software to Computer Associates, now known as CA Technologies (CA.O), for about $4 billion in 2000, and sold Sterling Commerce for the same price that year to SBC Communications Inc, now called AT&T Inc (T.N), the SEC said.

Scottish Annuity & Life Holdings Ltd is a reinsurer now known as Scottish Re Group Ltd (SKRRF.PK).

Forbes magazine in March estimated Samuel Wyly’s net worth at $1 billion.

The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.

(Reporting by Jonathan Stempel in New York; Additional reporting by Karey Wutkowski in Washington, D.C.; Editing by Tim Dobbyn, Steve Orlofsky and Richard Chang)

by P. Parameswaran P. Parameswaran   – Thu Jul 29, 5:20 pm ET

WASHINGTON (AFP) – China allowed an IMF report critical of its currency policy to be released Thursday for the first time in four years, signaling Beijing’s confidence that it can control the debate on the yuan.

The Washington-based International Monetary Fund staff report charged that the yuan was “substantially” undervalued despite Beijing’s decision more than a month ago to let the currency be traded more freely.

Aside from a clear difference in view on the current value of the yuan, which the United States and other nations think has been kept low by Beijing for a trade advantage, the report also reflected an opinion split on China’s current account surplus — the broadest measure of its trade with the world.

“I would hope to believe the fact that the Chinese decided to release the staff report reflects a view on their part that the report was balanced, was fairly reflective of their views as well as the staff’s views and the overall picture that it was even-handed,” said the IMF China mission chief Nigel Chalk.

“Obviously there was a difference of view on the currency and there was a difference of view on the prospects of the current account,” said Chalk, who led an IMF mission to China for annual consultations on Beijing’s policies ahead of preparation of the report.

China has disallowed the annual IMF staff report from being made public since 2006, protesting against the fund’s characterization of its currency and pressuring the board to omit its findings, sources said.

Under IMF rules economies can choose whether to allow the body’s staff reports to be publicly released.

Many analysts believe the yuan is vastly undervalued against the dollar — by as much as 40 percent — despite a June 19 decision by the Chinese central bank to let the yuan trade more freely.

Since the move, the yuan, which had been effectively pegged at 6.8 to the dollar since mid-2008, has appreciated by less than one percent.

Beijing’s allowing the publication of the IMF staff report “signals increasing confidence on China’s part that it can control the debate about its currency,” Eswar Prasad, former head of the IMF China division, told AFP.

The debate has divided the IMF.

The split appeared between the IMF executive board and the staff, who went on the mission, as well as within the board.

The IMF board, in a report Tuesday on the consultations with China, said not all directors agreed the exchange rate was undervalued and that “a number” of them disagreed with the staff?s assessment of the exchange rate.

The staff report points out that the yuan exchange rate is “substantially below the level that is consistent with medium-term fundamentals.”

The executive directors’ report felt the yuan was just undervalued and that a number of them supported China’s position.

“The fact that the IMF executive board was clearly much more supportive of China’s currency policy than the IMF staff seem to have been may also have emboldened China because it feels that it has fewer detractors in the international community,” said Prasad, economics professor at Cornell University.

The board also accused the staff of basing China’s current account surplus projections on “uncertain forecasts.”

The Chinese authorities argued that China’s current account surplus will remain about four percent of gross domestic product whereas the IMF staff projected that it will revert back to eight percent of GDP.

“This issue has broader implications because if China runs a big current account surplus, somebody has to be running a current account deficit on the other side,” Prasad said, citing the constant trade deficit row with the US.

Often blaming the burgeoning US trade deficit with China on the undervalued yuan, US lawmakers have been pushing Beijing to allow its currency to rise, saying it could reduce the flood of red ink.

Last year, the deficit rose to a whopping 227 billion dollars.

A key US House of Representatives committee with power over taxes and trade said Thursday it would hold a September 15 hearing to weigh possible new steps to press China over its currency policy, the panel’s chairman said Thursday.

“There is no real question that China’s deliberately undervalued exchange rate is unfair, contributes to global trade imbalances, and costs the United States jobs and economic growth, particularly in the manufacturing sector,” he said House Ways and Means Committee Chairman Sander Levin.

By ROBERT BARR, Associated Press Writer Robert Barr, Associated Press Writer   – Wed Jul 28, 6:27 am ET

LONDON – The governor of the Bank of England said Wednesday that the need to stimulate the economy still takes precedence over concerns about high inflation at a time when the outlook for the global economy remains uncertain.

Governor Mervyn King told Parliament’s Treasury Committee that Britain cannot be confident that a sustained recovery is under way despite last week’s report that the economy grew 1.1 percent in the second quarter — the third quarter of recovery from a deep recession.

“The debate is about the appropriate degree of stimulus, not about applying brakes,” King said.

The Bank’s Monetary Policy Committee has kept its key interest rate at an all-time low of 0.5 percent, though one member — Andrew Sentance — is advocating a hike to 0.75 percent because of his concerns about inflation remaining above the official 2 percent target.

“We continue to face the challenge of rebalancing our economy away from consumption towards net exports, and raising our national savings rate. During the rebalancing, there is a risk that the level of money spending in the U.K. will remain weak, with the economy operating below capacity. That would push down on inflation potentially to a rate that is significantly below the 2 percent target,” King said.

He said that consumer price inflation, now 3.2 percent, is likely to stay well above 2 percent through next year, especially since the government plans to raise the broad-based sales tax to 20 percent from the current 17.5 percent. He said there is a risk that expectations of high inflation could become ingrained, and feed continuing price rises.

“The (Monetary Policy Committee) faces a difficult challenge in balancing those risks,” King said.

“To do so, we judge that at present it is right to keep our foot firmly on the accelerator in order to stimulate the economy. As you would expect, there is a debate about quite how hard we should be pressing on the accelerator.

“In the months ahead it may be that the MPC judges that the inflation outlook warrants pushing down even harder or that we should ease back somewhat. The debate is about the appropriate degree of stimulus, not about applying the brakes.”

King said the economic situation was still far from normal, and that the improvement in credit conditions seen at the start of the year had stopped.

“The key underlying causes of the crisis in terms of the imbalances in global demand have still not been tackled. Those imbalances are likely to be larger this year than last, and will probably still be around three-quarters of their level at the peak immediately prior to the crisis,” he said.

Until these underlying problems are resolved, uncertainty about the outlook for the world economy will remain, King said.