Finance in the WOrld

Asia stocks drop amid economic recovery doubts

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 08:41:00 +0000

Asian stocks markets dropped Thursday as the U.S. Federal Reserve failed to reassure investors that a lasting recovery in the global economy was taking hold.
The U.S. central bank decided Wednesday to keep a key interest rate at a record low and said cheap credit would continue for an "extended period" as the world's largest economy struggles to regain its footing after its worst downturn in decades.
For many investors, the news raised doubts about whether the turnaround under way in many economies was strong enough to extend a powerful eight-month rally in global markets. A key U.S. unemployment report due Friday, which could yield clues about the ailing U.S. consumer and demand for Asian exports, also kept traders on edge.
"Around these levels, it's hard to have conviction positions," said Jan Lambregts, head of research of Rabobank in Hong Kong. "There's a big question on investor confidence given issues about the sustainability of the global recovery once stimulus policies fade."
Japanese shares helped lead Asian stocks lower, with the Nikkei 225 stock average falling 95.16 points, or about 1 percent, to 9,749.15, as the strengthening yen undermined the competitiveness of the country's exports.
"The Japanese export sector is being killed by the yen, and I think yen strength is here for quite a while," Lambregts said.
South Korea's markets pulled back 1.6 percent to 1,554.87, while Hong Kong's Hang Seng was down 0.9 percent at 21,418.31 and India's market shed 1.2 percent. Markets in Indonesia, Singapore, Thailand and Australia also slid. Chinese shares, though, bucked the downward trend to gain modestly.
Among stocks, Japan's Nissan Motor Co. climbed over 1 percent after returning to a profit last quarter and predicting a narrower loss for the fiscal year with the help of stronger demand in China.
Wall Street traded largely sideways on Wednesday.
The Dow rose 17.53, or 0.3 percent, to 9,802.14. The broader Standard & Poor's 500 index rose 1.09, or 0.1 percent, to 1,046.50.
U.S. futures augured a lower open on Thursday. Dow futures shed 41 points, or 0.4 percent, to 9,744, while S&P futures lost 4.70, or 0.5 percent, to 1,042.30.
Oil prices fell in Asia, with benchmark crude for December delivery down 61 cents to $79.79 a barrel. The contract gained 80 cents overnight.
Gold, meanwhile, rose $1.6, or nearly 0.2 percent, to $1,088.90 an ounce.
The dollar slipped to 90.49 yen from 90.77 yen. The euro fell to $1.4844 from $1.4872

Toyota returns to profit in latest quarter

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 08:37:00 +0000

Toyota said Thursday it returned to a profit in the latest quarter as government incentives boosted sales, leading the world's largest automaker to trim its projected red ink for the year.

AP - Toyota vehicles are displayed at the D. Longo Toyota dealership in El Monte, Calif., Wednesday, Nov, 4, ...
Toyota Motor Corp. reported a 21.8 billion yen ($242 million) profit for the July-September period after three straight quarterly losses.
That marked an 84 percent plunge from the 139.8 billion profit racked up the same period a year ago, but underlined a gradual recovery for Toyota, which sank to its worst loss for the fiscal year ended March 31.
The news marked the latest in a series of recoveries for Japanese automakers. Rivals Honda Motor Co. and Nissan Motor Co. have both recently reported healthier earnings after taking a battering from the global economic crisis.
Toyota said it now expects to sell more vehicles for the fiscal year through March 2010, raising its projections to 7.03 million vehicles from 6.6 million.
The company, which makes the Prius hybrid and the Corolla subcompact, said sales in the last six months were proving better than earlier expectations as government stimulus measures around the world spur sales.
As a result, the company forecasts a smaller loss for the fiscal year of 200 billion yen ($2.2 billion) -- much better than the 450 billion yen ($5 billion) of red ink it had predicted earlier.
If Toyota can manage the latest forecast, it would be major improvement over the 437 billion yen loss it posted during its last fiscal year, the worst performance in the company's 72-year history.
For the latest quarter, Toyota recorded 4.542 trillion yen ($50 billion) in July-September sales, down 24 percent from the same period a year earlier.
Despite the results, Toyota is still struggling.
In a tearful news conference Wednesday, Toyota pulled out of expensive but glamorous Formula One racing, acknowledging it has to focus on its core car business.
Meanwhile, the company faces an investigation by American authorities into problem floor mats, suspected of jamming the gas pedal and possibly causing crashes. A recall would affect 3.8 million vehicles, including the top-selling Camry sedan, and is already endangering Toyota's pristine reputation for quality.
On the bright side, Toyota is benefiting from strong sales in China and other emerging markets, although that has yet to offset completely flagging sales in the key North American market.
Demand is also surging in Japan for its Prius hybrid, which is tax free because of a government stimulus measure that saves the buyer thousands of dollars (tens of thousands of yen).

House Dems in final push on health care

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 08:35:00 +0000

The House is steaming toward a historic vote on President Barack Obama's remake of the U.S. health care system, with Democratic leaders increasingly confident and the powerful seniors' lobby AARP about to get on board.

AP - Rep. Steve Scalise, R-La., center, holds a copy of the health care bill during a news conference on ...
A debate and vote are expected Saturday on the 10-year, $1.2 trillion bill that would extend coverage to 96 percent of Americans, require employers to insure their employees and bar such insurance company practices as dropping coverage for sick people.
Democratic leaders shrugged off Tuesday's election losses in governor's races in Virginia and New Jersey, focusing instead on their wins in two House races, a Democratic seat in northern California and one in New York that had long been held by the GOP. Both winners will be sworn in ahead of Saturday's vote.
Leaders stopped short Wednesday of declaring they had the 218 votes needed to pass the bill, and they were still negotiating language on abortion and immigration. But scheduling the vote meant those issues would have to be resolved and undecided lawmakers would have to declare themselves.
"It is human nature to sort of keep discussing until decision time is at hand," Majority Leader Steny Hoyer, D-Md., said after meeting with second-year lawmakers Wednesday evening. "Decision time is upon us."
Said House Speaker Nancy Pelosi, D-Calif.: "We are on our path. We're very excited."
Action is slower on the other side of the Capitol, where senators are awaiting an analysis from the Congressional Budget Office on legislation written by Senate Majority Leader Harry Reid and others. The timeline there appears likely to spill into next year.
The House effort is getting a big boost from the AARP, which was set to endorse the bill, something that proved a crucial stamp of approval when then-President George W. Bush pushed the Medicare prescription drug benefit through a closely divided Congress in 2003.
Officials with knowledge of the group's decision disclosed it ahead of Thursday's scheduled announcement, speaking on condition of anonymity because it was not yet official.
If the AARP's clout doesn't close the deal for House Democrats, Obama is expected to try to do it himself with a visit to Capitol Hill on Friday.
With no Republican backing for the measure, Democrats will need overwhelming support from their own. A festering intraparty disagreement over how to prevent federal funds from being used to pay for abortion has not yet been entirely resolved, though language being circulated by one anti-abortion Democrat, Rep. Brad Ellsworth of Indiana, was getting interest from House leaders Wednesday.
Ellsworth's language would strengthen stipulations already in the bill against federal money being used to pay for abortions but still would allow people to pay for abortion coverage with their own money. That distinction doesn't satisfy the most ardent anti-abortion groups, which dismiss it as an accounting gimmick since the same insurance companies paying for abortions might also be getting federal money for other coverage plans.
The National Right to Life Committee issued a blistering press release Wednesday night calling Ellsworth's proposal "a political fig leaf made out of cellophane."
Ellsworth said that didn't bother him.
"I know what's in my heart, I know what's in my head and I think the big guy upstairs knows," Ellsworth said. He said that if his language is adopted he could "rest assured that no public dollars are going to fund abortions."
House leaders are also still grappling with illegal immigration, specifically whether illegal immigrants -- who would be barred from getting federal subsidies -- should be able to purchase insurance coverage within new government "exchanges" using their own money.
The White House does not want this allowed, but some members of the Congressional Hispanic Caucus and other Democrats view that position as too extreme. Caucus officials were scheduled to meet with Obama at the White House on Thursday.
The House bill would provide government subsidies beginning in 2013 to extend coverage to millions who now lack it. Self-employed people and small businesses could buy coverage through the new exchanges, either from a private insurer or a new government plan that would compete. All the plans sold through the exchange would have to follow basic consumer protection rules.
Seniors in traditional Medicare would get improved preventive benefits. Also, the prescription coverage gap known as the "doughnut hole" would be gradually closed. However, seniors signed up for private insurance plans through Medicare could lose some benefits, as the bill scales back extra payments that the plans have been getting.
In addition to raising money by cutting payments to hospitals and other medical providers, the House bill boosts taxes on upper-income earners.
Meanwhile, the CBO released an analysis of the House GOP bill that found it would reduce the number of uninsured by just 3 million in 2019. By comparison, the more expansive Democratic bill would gain coverage for 36 million.
While the Democrats' bill would cover 96 percent of eligible Americans, the Republican alternative would cover 83 percent -- roughly comparable to current levels. The budget office said the Republican plan would reduce federal deficits by $68 billion over the 10-year period and push down premiums for privately insured people.

'Clunker' data show pickup-for-pickup trades

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 08:11:00 +0000

Billed as a way for the government to put more fuel-efficient vehicles on highways, the $3 billion Cash for Clunkers program sold thousands of commuter-friendly cars, even hybrids, and more: Turns out, the most common deals replaced old Ford or Chevrolet pickups with new ones that got only marginally better gas mileage, according to an analysis of new federal data by The Associated Press.

AP - FILE - In this Aug. 23, 2009 file photo, an old pickup truck is displayed outside a car ...
The single most common swap -- which occurred more than 8,200 times -- involved Ford F150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford F150s. They were 17 times more likely to buy a new F150 than, say, a Toyota Prius. The fuel economy for the new trucks ranged from 15 mpg to 17 mpg based on engine size and other factors, an improvement of just 1 mpg to 3 mpg over the clunkers.
Owners of thousands more large, old Chevrolet and Dodge pickups bought new Silverado and Ram trucks, also with only barely improved mileage in the middle teens, according to AP's analysis of sales of $15.2 billion worth of vehicles at nearly 19,000 car dealerships in every state. Those deals helped the Ford F150 and Chevy Silverado -- along with Ford's Escape midsize SUV -- climb into the Top 10 most-popular vehicles purchased with the government rebates. The most common truck-for-truck and truck-for-SUV deals totaled at least $911 million.
In scores of deals, the government reported spending a total of $562,500 in rebates for new cars and trucks that got worse or the same mileage as the trade-ins -- in apparent violation of the program's requirements. The government said it is investigating those reports and said in some cases they were probably entered incorrectly by dealers or based on outdated fuel economy figures.
The National Highway Traffic Safety Administration is still reviewing the reports, and any dealers that submitted invalid trade-ins will be directed to return the government rebate, spokesman Eric Bolton said.
The new data, obtained by the AP under the Freedom of Information Act, include details of 677,081 clunker trade-ins processed by the government through Oct. 16. More than 95,000 of the new vehicles purchased under the program -- or about 1 in 7 -- got less than 20 mpg, according to the data.
The new figures, requested four months ago by the AP, represent the first substantial outside accounting of the clunkers program, lauded by the White House and the Transportation Department for improving fuel economy, stimulating sales and taking the dirtiest vehicles off the road. The data show the average fuel economy was 15.8 mpg for the old vehicles and 24.9 for the new ones.
The overall mileage increases over the clunker fleet represent a decline of 1.87 million tons of carbon dioxide per year, based on families driving an average of 12,000 miles, a yearly savings equivalent to the amount of carbon dioxide spewed in the U.S. in just 2.5 hours.
But plenty of consumers bought relatively low-mileage trucks and SUVs with the help of government checks.
"If we're looking for the environmental story here, we're going to be disappointed," said Jeremy Anwyl, chief executive at Edmunds.com, an analyst firm. "It might have started out from the perspective of improving the environment, but it got detoured as a way to stimulate the economy."
Popular high-mileage commuter cars, including the Toyota Corolla, Honda Civic, Toyota Camry and Ford Focus, also were among the Top 10 most popular new vehicles bought under the four-week program, with 105,280 of those models sold for a total of about $2 billion.
Bolton, the NHTSA spokesman, said the program "proved to be a win for the economy and the environment" because it helped financially struggling dealerships and auto manufacturers, and because, under the program's rules, clunkers necessarily were replaced with vehicles that got better mileage.
Chris Moss of Smithtown, N.Y., traded in his 1992 white Ford F150 pickup -- "it had 5 million miles on it and needed $50,000 in repairs, if you know what I mean" -- for a new Chevrolet Malibu hybrid for his wife. When he drove his old truck to the dealership's back lot with the rest of the clunkers, "90 percent of what you saw were old 150s and Explorers," he said. Moss posted a video on YouTube of his old truck's final day, called "Rust In Peace."
The $3 billion program, known officially as the Car Allowance Rebate System, ran from July 27 to Aug. 25 and generally required that new vehicles get better mileage -- at least 22 mpg for cars and either 15 mpg or 18 mpg for trucks, depending on class -- and that trade-ins get no more than 18 mpg. The trade-ins were required to be destroyed in exchange for either $3,500 or $4,500 rebates.
Some deals raise eyebrows:
-- In at least 145 cases, mostly involving trucks, the government reported consumers traded old vehicles that got better than or the same mileage as the new vehicle they purchased. The government said it was continuing to investigate. "It's possible some quirky deal slipped through the cracks," Anwyl said.
-- In at least 15 deals in nine states, owners of large pickups cashed in old trucks for between $3,500 and $4,500 toward new Hummer H3 SUVs that got only 16 mpg.
-- In at least 32 deals, drivers traded older vehicles for new large trucks -- including versions of Toyota Tundras, GMC Sierras, Chevrolet Silverados, Dodge Rams and Ford F150 pickups -- that got only 14 mpg.
Car-crazy California led clunker sales with more than 76,000 trade-ins, followed by Texas with roughly 43,000 and New York with nearly 37,000. In California, the Honda Civic was the No. 1 new car and no pickups ranked higher than 18th. In New York, the Hyundai Elantra was No. 1.
The clunkers program was very good for Longo Toyota of El Monte, Calif., just east of Los Angeles, which sold more than twice as many vehicles under the program as any other dealership in the country, worth more than $30 million. That sole dealership was responsible for 1,432 sales worth nearly $6 million in clunkers rebates, mostly from its sales of 323 Toyota Camrys, 277 Corollas and 171 Priuses.
"We knew it was just a matter of when, not if, we were going to get paid, so we kept our foot on the gas," Longo president Tom Rudnai said.

Big Four accountants face further criticism

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 08:07:00 +0000

The collapse of energy giant Enron and the problems at WorldCom have placed the accountancy profession under the spotlight as never before.
Both companies were revealed to have exaggerated their profits and hidden the extent of their debts and their auditor, Arthur Andersen, failed to expose the practice and has paid the price.
Now the remaining members of accountancy's so-called Big Four - KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte & Touche - are coming under pressure to answer allegations they operate an effective closed shop.
It has also been suggested their performance as auditors is compromised by their enthusiasm for lucrative consulting contracts.
Big Four
There's a new buzz-word doing the rounds in the financial community - low-balling.
If the large firms are themselves auditing all the large listed companies then it is not surprising every time there is a problem it is one of those firms that's involved
Peter Wyman, UK Institute of Chartered Accountants
Low-balling describes a practice which many commentators insist is becoming increasingly common in the accountancy profession.
According to some observers, the Big Four have deliberately lowered their prices in order to keep smaller, middle ranking accountancy firms out of the audit market.
The criticism is that smaller firms have been denied access to the more lucrative large scale consultancy roles.
Denials
Gavin Hinks, editor of the industry journal Accountancy Age, said the profession as a whole would argue that they haven't been low-balling, that they have been charging reasonable prices.
"That's ironic given that recently one of the responses of the profession to proposed new legislation and regulation is that audit fees will have to jump enormously to cover their extra cost, which seems to suggest that they haven't been really putting the effort into the work that they perhaps could have done," he said.
Peter Wyman, chairman of the UK's Institute of Chartered Accountants and a senior partner at PricewaterhouseCoopers said only the top four companies are capable of doing this work.
He said mid-size firms can't carry out the work because of the investment needed to be able to audit on a global basis.
"If the large firms are themselves auditing all the large listed companies then it is not surprising every time there is a problem it is one of those firms that's involved," he said.
Ongoing investigations
Since the recent accounting scandals broke, there have been calls for all auditing work to be distributed more widely - a sharp contrast to the current situation, where major contracts are monopolised by the elite.
The whole suggestion that somehow the audit is the loss-leader to get lucrative consulting work is completely unproven
Peter Wyman
This is despite the fact that some of the Big Four are currently being scrutinised by the US Securities & Exchange Commission for alleged irregularities.
Britain's financial watchdog, the FSA, the dominance of the four firms is worthy of the attention of the competition authorities.
Peter Wyman dismisses suggestions that audit work can be influenced by the prospect of lucrative consultancy contracts.
"The whole suggestion that somehow the audit is the loss-leader to get lucrative consulting work is completely unproven," he said.
"We've looked very carefully at the independent reports of audit failure and in not one single case is there any connection between consulting work or any other non-audit work and some alleged cause of failure," he added.
"So the whole notion that somehow audit quality is effected by doing consulting work is completely without foundation."
But however the accountancy profession fights its corner, it's clear that investors are likely to remain suspicious.

Enron board 'ignored financial warnings'

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 08:03:00 +0000

The board of Enron ignored evidence of financial problems at the company, a US Senate subcommittee has found.
"Much that was wrong with Enron was known to the board," the Senate Permanent Subcommittee on Investigations said in a report into the scandal.
The report said the board - which included the UK Conservative peer Lord Wakeham - failed to protect shareholders, and contributed to Enron's collapse last year.
Lawyers representing Enron and the company's former directors have disputed the findings.
'Red flags' missed
Enron collapsed last December, becoming the biggest company bankruptcy in US corporate history.
The firm's collapse was blamed on complex financial arrangements and questionable accounting practices.
The Senate subcommittee said that claims by former directors that they were not told about dubious practices were not true.
The report said directors failed to heed "more than dozen red flags that should have caused the Enron board to ask hard questions, examine Enron policies and consider changing course."
But attorney Robert Bennett, who is representing Enron, said the report was "grossly unfair" and that it leapt to "unfounded conclusions".
And an attorney representing Enron's former directors, W Neil Eggleston, said the board was "misled by Enron management and outside auditors about now-suspect transactions."
High-risk accounting
The report said that former Enron auditor David Duncan had warned directors on the audit committee about some of the company's accounting practices.
It said Mr Duncan told them that told directors on the audit committee some of the actions were "pushing the limits" and were "at the edge" of normal accountancy procedures.
Mr Duncan pleaded guilty to obstruction in the investigation into Enron's collapse, and last month was the chief prosecution witness in the trial of accountants Arthur Andersen
The firm was found guilty of obstruction of justice after it shredded documents relating to Enron.
Action needed
The report also said that the board failed to question the cash being generated by outside partnerships operated by Enron's Chief Financial Officer Andrew Fastow.
And it said the board gave the opportunity for company executives to improve Enron's accounts by waiving conflict-of-interest rules for Mr Fastow.
It also criticises the board for approving "lavish" pay packages for senior staff, and for failing to monitor a credit line used by Enron's former chief executive Kenneth Lay.
The report adds that the independence of some of the directors was compromised by consultancy payments they received from Enron.
The chairman of the subcommittee, Senator Carl Levin, said the findings showed the need for legislation tightening controls over accountants and corporate conduct.
On Monday an accounting reform bill is set to reach the floor of the US Senate.
The bill would establish an independent body to oversee accountants, and attempt to close regulatory loopholes.

Congress pushes accounting reform

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 07:59:00 +0000

US legislators' willingness to crack down on accounting scandals faced a major test on Monday as senators debated a bill to crack down on the accountancy business.
The bill, proposed by Senate Finance Committee chairman Paul Sarbanes, a Maryland Democrat, aims to create an independent board to oversee the profession.
The board would include two retired accountants, and would have power to set standards, fine or even ban accountants and auditors, and police sharp limits on what extra services - such as lucrative consultancies - they can offer clients.

Sarbanes: "Strain on the economy is deep"The proposals are harsher than a bill passed by the House of Representatives in April, and come less than 24 hours before President George W Bush is due to offer his own proposals for reform.
The proposal passed the Senate Banking Committee late last month, and on Monday went before the full 100-member Senate, which has a slim Democrat majority.
Threat
At a press conference on Monday, Mr Sarbanes said Wall Street scandals were depressing the chances of a healthy economic recovery.
"It is becoming increasingly clear that something has gone seriously wrong," he said.
"The strain on the economy is deep and spreading."
Recent corporate scandals demonstrated that self-regulation for the accounting industry did not work, he said, promising his bill would ensure that federal regulators have the power to halt corporate fraud.
He also suggested that Senate Democrats are ready to attach separate legislation authored by Senate Judiciary Committee chairman Patrick Leahy to his bill - legislation that would punish any scheme to defraud shareholders a criminal offense with 10 years in jail.
Head to head
However, the Sarbanes bill is not the only legislative attempt to clean up the bean-counting business.
The House, whose own Financial Services Committee is due to hold hearings into WorldCom, passed a bill proposed by Republican Michael Oxley in April.
The Oxley bill is less stringent than its Senate equivalent, and some pressure groups have suggested this is because accountancy firms have spent more on lobbying the House than the Senate.
In all, the Big Five have contributed more than $27m in the past 10 years to federal politicians.
Campaigners say even if the Sarbanes bill makes it through the Senate unadulterated, the joint committee to bring the two bills in line will almost certainly dilute it severely.
"There is an extraordinary gulf between the Osley bill and the Sarbanes bill," said Joel Seligman, dean of the Washington University School of Law in St Louis, Missouri and an expert on securities law.
"Here is where you need SEC (Securities and Exchange Commission) and White House leadership."
Too close for comfort?
The commission, which oversees quoted companies such as Enron and WorldCom, has its own take on reform, which is much closer to the House proposals than those of the Senate.

Pitt: SEC trying to restore lost credibility
But its chairman, Harvey Pitt, is himself in the firing line.
His previous career as a Wall Street lawyer means that all the Big Five are past clients, not to mention dubious figures such as insider dealer Ivan Boesky.
He now faces calls from senior lawmakers on both sides to stand down.
For the Democrats, Senate Majority Leader Tom Daschle told CBS TV that the US could "do a lot better than Harvey Pitt", labelling his relationship with those he is meant to oversee as "cosy" and "permissive".
On the Republican side, John McCain - the Senator who ran against George W Bush for the presidential nomination and is the most vocal proponent of campaign finance reform - also wants Mr Pitt to go, thanks to his "slow and tepid" response to the scandals.
Taking the initiative
As for the White House, President George W Bush is due to unveil his own proposals tomorrow for cleaning up US Inc.
Criminal penalties including jail terms will probably be on offer for executives who sign off on inaccurate - if not actually fraudulent - accounts.
The White House is facing its own embarrassments about corporate misbehaviour, including an investigation into alleged improprieties in the accounts of Halliburton, the oil company run till 2000 by Vice-President Dick Cheney.
Mr Bush, too, is in trouble, following revelations that he delayed reporting stock sales worth more than $1m while serving as a director of Texas-based Harken Energy more than a decade ago.

WorldCom chiefs refuse to testify

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 07:51:00 +0000

Bernie Ebbers, former chief executive of WorldCom, has refused to testify to a US Congressional committee on the basis that his testimony might incriminate himself.
Ex-chief financial officer Scott Sullivan followed suit, while other witnesses tried to shift the blame between one another for WorldCom's alleged misdeeds.
It looks like you were General Custer and WorldCom was the Indians, and you got slaughtered
Rep. Sue Kelly, New York Democrat, to Andersen's Mel Dick The committee hopes to discover how a $3.8bn (£2.5bn) accounting fraud could have gone unnoticed for more than a year.
Fresh from a scathing probe into collapsed energy firm Enron, the committee is striving to establish what, if any, laws were broken by WorldCom, and to what extent the current law needs tightening.
At the same time, efforts by Democrats to pass a tough bill regulating the accounting industry begin on the floor of the Senate, while Tuesday will see President George W Bush outline his own - slightly more lenient - vision of corporate regulation.
Taking the Fifth
But Mr Ebbers - who resigned in April, two months before WorldCom admitted its numbers for 2001 and 2002 were wrong - told the committee his counsel advised him to refuse to answer, as the Fifth Amendment to the Constitution allows.
He added: "When all of the activities at WorldCom are fully aired... I believe that no one will conclude that I engaged in any criminal or fraudulent conduct during my tenure."

Sullivan: said nothing except to take the FifthThat, and other asides, brought condemnation from two Republican Congressmen, Max Sandlin from Texas and Richard Baker from Louisiana, who said that by making a statement after refusing to answer, he had waived his Fifth Amendment rights.
The chairman, Ohio Republican Michael Oxley, told Mr Ebbers that the committee reserved its right to recall him and ask him questions about matters covered in his initial statement, and perhaps to charge him with contempt of Congress.
"Make no mistake, the consequences to this sort of criminal activity... should be severe, and that may mean time in federal prison" if it was proved that he or others were responsible for hiding nearly $4bn in expenses, Mr Oxley added.
Ex-WorldCom chief financial officer Scott Sullivan also took the Fifth.
Taking the stand
Aside from Messrs Sidgmore, Ebbers and Sullivan, chairman Bert Roberts, Salomon Smith Barney telecoms analyst Jack Grubman and Melvin Dick, a former partner at WorldCom auditor Andersen, are taking the stand on Monday.
It's incomprehensible to me that a major accounting firm can have such a dismal record
Bernie SandersVermont independent on Arthur Andersen Their testimony is unlikely to be especially controversial, since the firm's current management have expressed their willingness to assist investigators in any way they can.
In prepared testimony released to reporters ahead of time, Mr Sidgmore implied the failure to spot the accounting irregularities was the fault of the auditors, Arthur Andersen.
"In effect, we audited our external auditors, we found what they missed, and promptly brought this matter to the attention of the Securities and Exchange Commission," he said.
Right back at you
WorldCom chairman Bert Roberts said in his prepared statement that the accounting problems were an "outrage".
"To my mind, the failure of our outside auditors to uncover them is inconceivable," he said.
Ex-Andersen man Mel Dick, though, sent the ball straight back.
"Neither I nor any of my team had any inkling that these transfers had been made," he told the committee.
"I would be very interested in how and when (WorldCom's internal auditors) found these entries."
Under fierce questioning, he told the committee that it was entirely reasonable for Andersen to miss the figures amid "thousands and thousands" of transactions", and for them to have matched generally accepted accounting practices (GAAP).
He was asked over and over again whether his company had any wider responsibility, but simply repeated that Andersen's job was to ensure the audit happened according to GAAP.
"We did our audit in accordance with all the things we were expected to do," he said.
That was not enough for New York Democrat Sue Kelly, who told Mr Dick: "It looks like you were General Custer and WorldCom was the Indians, and you got slaughtered."
Bernie Sanders, an independent from Vermont, was more outspoken.
"It appears very clearly that Arthur Andersen failed in their audit of WorldCom, you failed in the audit of Enron," he said. "It is incomprehensible to me that a major accounting firm can have such a dismal record."
Buy, buy, buy
As for Mr Grubman - WorldCom's biggest cheerleader on Wall Street - he told the hearing he had no idea that WorldCom had dug itself such a hole.
Speculation that inside knowledge had informed his decision to downgrade the company on 21 June - ahead of WorldCom's admission - from 'strong buy' to 'underperform' was "categorically false", he said.

Dick: "Never an inkling" there was anything wrongHis testimony was littered with admissions that he "could not recall" specifics - and when asked for them, typically tried to rely on commenting on his firm's "typical" behaviour.
He admitted that favourable reports on a company made it easier for his firm to sell it investment banking services.
And he acknowledged going to three board meetings - a "rare" occurrence for an analyst.
But he insisted: "I have always formed my own independent opinions. Right or wrong, I have always called them as I saw them."
WorldCom's mis-statements meant he was not responsible if his predictions turned out wrong.
"Our judgements are only as good as the public statements," he said.
Political pressure
In recent months, a number of congressional committees have held hearings into a number of corporate governance issues, particularly in relation to Enron.

Ebbers hoped to avoid "negative inferences"But Congress has so far produced little in the way of tangible results, and the current investigation may be hobbled by the upcoming summer recess.
Mr Bush is also under pressure to produce results, since he is accused of having been too cosy with big business.
The Republican party is eager to show itself independent of commercial interests, after the embarrassment of the collapse of Enron, a major donor in the 2000 presidential campaign.
Mr Bush and his vice-president, Dick Cheney, have also had their own business dealings called into question by regulators.
The White House is tight-lipped over the exact contents of Tuesday's speech, but it is believed to contain a package of measures to make life tougher for delinquent executives, many of whom have avoided criminal charges in the past.

Making money from financial news

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 07:44:00 +0000

People tumbled headlong into stock markets last year.
Before parting with their cash, they headed to finance news websites, where they could get the news, opinion and prices needed to inform their decisions.
But watching share prices fall is nowhere near as much fun as watching them rise. So as the dot.com bubble burst, some of these financial news sites have run into trouble.
Now that those heady days of internet growth appear to be over - what kind of future is there for finance websites?
Going, going, gone
Their growth was driven by the development of the internet, the opportunities it offered and the demand for information it created.
Potential revenue streams for these kind of sites include subscription, advertising and syndication.
While some users do subscribe and some advertisers do advertise, it is by no means clear that enough do to ensure these companies can move into profit.
Even well-established brands have made some cutbacksThestreet.com pulled the plug on its high-profile UK subsidiary thestreet.co.uk last year, even though it had met its targets. It hoped that axing its UK arm would enable it to become profitable more quickly in the US.
Ecountries.com - the website which sought to provide high-level economic analysis online - has shut its virtual doors.
Globalnetfinancial - the parent company of Ukinvest.com - cut 50 jobs in March.
Even the more established media brands, such as the Financial Times, have cut down on their online offshoots.
Some of the print advocates of the internet economy have also suffered.
The Industry Standard, the parish magazine of the electronic economy, "suspended" its European edition in April, sacking 60 workers.
In a valedictory editorial, editor-in-chief James Ledbetter wrote: "It is one of the painful ironies of business cycles that at high economic points, companies are often willing to overspend just to ensure they remain in the game."
"At shakier times, they will shy away from what they acknowledge to be good investments, just to insure against losses."
Who wants them?
There is a mixed bag of evidence as to demand for financial information from European consumers.
Forrester Research suggests that viewing stock market prices is the seventh most popular online activity across Europe.
Jupiter MMXI's consumer research shows that financial information is a minority interest in the UK.
Only 4% to 5% of consumers surveyed are actively interested in managing their money, senior analyst Nick Jones points out.
"For the vast majority of people it is a painful process that is not pleasurable," he added.
Advertisers
But while it is hard to come up with a definitive figure of interested consumers, it does seem clear that advertisers like the people who log on to financial websites.
"They were one of the first group of advertisers to take the web... [however] the overhead of building content to put those adverts next to is very expensive," Jupiter MMXI's Nick Jones said.
Finance-related websites attracted more than 11% of overall online advertising spending in December last year, according to Forrester Research's Luca Paderni. But falling share prices has seen traffic to these sites fall, he wrote in April. Instead they are turning to sites which offer a pleasant distraction, such as entertainment.
In February this year, Europe's financial news sites saw 10.2 million unique visitors compared with 9.1 million in January, according to NetValue. Advertising revenues for financial sites fell from 3.9 million euros in January to 3.1 million euros in February.
US difference
By contrast, in the US, not only do more people hold and trade shares, but there is a far wider range of financial products on offer.
The sheer variety of financial products on offer means that there was a role for sites which detail them, Rob Sterling, financial services analyst at Jupiter in the US said.
"There are 8 or 9000 mutual funds in the US, there is a real service for cataloguing and trading them," he pointed out.
These sites may find viewers in longer-term traders, who don't log on as frequently, but provide steady custom.
Unique site visitors to financial news websites in the US were slightly up in February, despite the drop in the Nasdaq, indicating a more dedicated readership.
Syndication
The sites that could do best "are the ones that provide content for banks and brokers, syndicated content and advice services, those will be the ones that make the strongest showing," Rob Sterling said. He points to some 10,000 US banks, who either have websites or will want them. "Where are they going to get the content? They are not going to get it themselves, they will get it from syndicated content providers," he said. This approach leaves news providers such as Reuters in a strong position.
This model is similar to that adopted by Onvista, the German company - already profitable in its home country - which launched in the UK in April. A spokeswoman for Onvista.de said: "We are making most of our money by licensing our content to other websites. We have about 45 licensing clients, mostly banks, stock exchanges and media companies. "
Depressingly for the journalists who have been laid off from financial websites, she says one of the secrets of their success is that they don't employ their own journalists.
She added:"One of our success factors is we don't have an editorial team...it is less expensive to buy [news] and display it."

Australia shares end down 0.7 pct; miners, property drag

noreply@blogger.com (Sajan Lama) — Thu, 05 Nov 2009 07:09:00 +0000

Australian shares fell 0.7 percent on Thursday, with miners and property groups dragging the market lower and health-care stocks limiting the declines, after an unconvincing rally on Wall Street.
Brokers said the market was teetering around 4,500, and said there was little news that would drive it much higher before the end of the year, with few results left to come.
"There's just a bit more uncertainty. Overseas markets seem to be skittish, and the recovery's uneven," said David Spry, research manager at broker FW Holst.
The benchmark S&P/ASX 200 index .AXJO lost 32.1 points to finish at 4,508.0.
New Zealand's benchmark NZX 50 index .NZ50 also fell 0.7 percent, ending at 3,144.5.
"It's very hard to see the share market going sky-high without some improvement in the U.S. Even China needs the U.S., too," said Spry.
The top performer on Thursday was toll road operator Transurban Group (ASX: TCL.ax) which soared 19 percent to A$5.24, a nine-month high, after two Canadian pension funds made a $4.4 billion buyout bid that was rejected by the board. [ID:nSYD544423]
Retailers slipped after department store chain David Jones (ASX: DJS.ax) reported 2.2 percent growth in first-quarter sales, well below analysts' forecasts, while newly listed rival Myer MYR.AX said first-quarter sales rose 5.2 percent.
David Jones fell 4.2 percent to A$5.19. Myer dropped 2.1 percent to A$3.76, sliding further below its A$4.10 issue price. Top supermarkets group Woolworths (ASX: WOW.ax) ended down 0.9 percent at A$27.66.
Miners BHP Billiton (ASX: BHP.ax) and Rio Tinto (ASX: RIO.ax) both lost about 1.3 percent, with BHP closing at A$36.44 and Rio at A$62.59.
In the property sector the two biggest trusts, Westfield Group (ASX: WDC.ax) and Stockland Group (ASX: SGP.ax) , fell 1.2 percent and 2.1 percent respectively.
Among the banks, Australia and New Zealand Banking Group (ASX: ANZ.ax) was the only loser, down 2.9 percent at A$22.07 after its shares traded without rights to its dividend. Commonwealth Bank of Australia (ASX: CBA.ax) led the banks' gains, ending up 0.9 percent. (Reporting by Sonali Paul and Adrian Bathgate; Editing by Mark Bendeich)

How much do I need to save?

noreply@blogger.com (Sajan Lama) — Thu, 29 Oct 2009 09:18:00 +0000

Question: I'm 36 and have saved only about $20,000 for retirement. How much per year should I try to save for the next 30 years to assure I'll have a reasonable retirement? --Beth, Grove City, Ohio
Answer: I'd love to be able to give you a quick and simple answer like some people do: Save 10% of your salary each year and you'll be fine!
But while that may be satisfying for you today, you may not be so pleased 30 years from now if you don't have enough savings to support you comfortably in retirement.
Not to worry, though. I'll tell you what you need to know so you can put away enough for a reasonable retirement, but without saving too much and end up living an unnecessarily meager lifestyle during your career.
Before I do that, though, I think it's worthwhile to take a minute to explain what goes into a savings target and why you've got to be careful about accepting glib answers to this question.
There are a number of reasons that the "how much to save" issue doesn't lend itself to easy solutions. One is that you're dealing with such a long time frame -- in your case, 30 years until you retire and then maybe another 30 in retirement -- that accurate forecasting is difficult to say the least.
Another is that the amount you need to save each year depends on so many factors: your income, how you invest your savings, what your investments earn, how much spending money you'll need in retirement and how much assurance you want that you won't outlive your savings, just to name a few. Changing just one of these can make a big difference in how much you need to put away.
Take annual income. Generally, the more you earn during your career, the larger the nest egg you'll need in retirement to maintain something close to your pre-retirement standard of living. So, all else equal, the more you earn, the more you must save.
To get an idea of how much your savings target can rise as your income climbs, I entered your age (36) and the amount you've already saved ($20,000) into our What You Need to Save calculator. Since this tool also asks for your annual pay (which you didn't divulge), I assumed a salary of $30,000. At that level, our calculator estimates that you would need to save 7.2% of your salary each year to be able to retire at age 65 with 80% of your pre-retirement income.
If I assume your annual salary is $60,000, however, the recommended savings rate rises to 14.1% of salary. And if I bump up current annual earnings to $120,000, the target savings rate climbs to 19.3%. (These percentages, by the way, would include any employer-matching funds you might be getting in a 401(k) or similar plan.)
Why, you may ask, should the percentage of salary you need to save increase as your income rises? It's obvious you'll have to set aside more dollars to create a nest egg large enough to maintain a higher living standard. But why should the savings requirement increase on a percentage basis as well?
Two reasons. The first is that our calculator naturally assumes that you'll be getting a portion of your retirement income from Social Security. But Social Security was designed to replace a smaller portion of your pre-retirement income as your salary rises. Which means that the more you earn during your career, the more you'll have to kick in from your own savings to maintain the lifestyle you had during your career.
The other reason relates to the amount you've already saved. The larger your pot of savings, the less new money you'll have to save on an ongoing basis to build the nest egg you'll eventually need. But while $20,000 is a relatively large amount if you're in your 30's and earning $30,000 (two thirds of a year's salary), it's not as impressive if you're earning $60,000 (one third of salary) or $120,000 (one sixth). In short, the more you have tucked away in savings relative to your annual earnings, the lower the percentage of salary you'll need to save going forward.
So given all this, how can you determine how much you should put away each year to give yourself a decent shot at a secure retirement?
You've got a few choices. One is to rev up a calculator that will crunch the numbers and give you an idea of how much you need to save. For a very quick ballpark figure, you can check out the What You Need To Save calculator I mentioned above.
But other tools allow you to plug in much more information -- details about your investments, retirement age, other potential sources of retirement income, etc. -- and thus get a more nuanced estimate of how much you should put away. Tools that I put into this category include our Retirement Planner, T. Rowe Price's Retirement Income Calculator and Fidelity's myPlan Retirement Quick Check. And, of course, you can always consult a financial planner if you don't want to run the numbers yourself.
However you decide to go, don't forget that you're getting an estimate, not an engraved-in-stone guarantee. To be on the safe side, I suggest you to try to save a little more than recommended rate in case your best-laid plans go awry.
Finally, remember that arriving at a savings rate isn't an exercise you do once and then forget about it for the next 30 years. Too many things can change. So check again every year or so to see if you need to make any adjustments.
After all, the last thing you need is to faithfully sock away 10% (or whatever) of your salary only to find in the twilight of your career that you've been saving way too little (or too much) all along.

Clunkers: Taxpayers paid $24,000 per car

noreply@blogger.com (Sajan Lama) — Thu, 29 Oct 2009 09:15:00 +0000

A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com.
The program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.
0:00 /4:57Why I fired GM's CEO
vidConfig.push({videoArray: ["/video/fortune/2009/10/20/f_sl_rattner_GM_Wagoner.fortune.json"], collapsed:false});

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.
"It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone," said Bill Adams, spokesman for the Department of Transportation. "There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most."
In order to determine whether these sales would have happened anyway, Edmunds.com analysts looked at sales of luxury cars and other vehicles not included under the Clunkers program. Using traditional relationships between sales volumes of those vehicles and the types of vehicles sold under Cash for Clunkers, Edmunds.com projected what sales would normally have been during the Cash for Clunkers period and in the weeks after.
Edmunds.com's estimate of the ultimate sales increase generally matches what industry experts had thought, said George Pipas, a sales analyst with Ford Motor Co (F, Fortune 500). But that misses the point, he said.
"The whole purpose of the program was to provide some kind of catalyst to kick-start the economy," he said, "and by all accounts the extra production that was added this year was a boost to the economy."
Ford was one of the biggest proponents of the Cash for Clunkers program and several Ford models were among the top sellers under the program.
While auto sales in September were hurt because auto dealership inventories were drained of products by the program, sales this month are already back on track or better, Pipas said. "I think the October sales results will show Clunkers is behind us and there's no more payback or inventories issues."
Emunds.com's projection indicates that, without Cash for Clunkers, October's sales increase would be even higher.

Unemployed tap their 401(k)s

noreply@blogger.com (Sajan Lama) — Thu, 29 Oct 2009 09:08:00 +0000

Nearly half of U.S. workers who left their job last year cashed out their 401(k) accounts, according to a study released Wednesday, despite ongoing efforts to dissuade Americans from doing so.
Hewitt Associates, a global human resources consulting firm, said 46% of employees who left their job last year took a cash distribution from their 401(k) plan.
The "alarmingly high" number, which was based on a study of 170,000 401(k) participants, has remained virtually unchanged since 2005, the group said.
Pamela Hess, Hewitt's director of retirement research, said employers and policymakers need to work together to change employee behaviors and reduce 401(k) cash-out rates.
"Otherwise, millions of Americans who rely on defined contribution plans will find themselves unable to achieve a financially secure retirement," Hess said in a statement.
While cashing in a 401(k) can make sense for some workers, most financial advisers say breaking your nest egg before retirement is a bad idea because of the penalties involved and the loss of potential interest.
"Over the course of 20 or 30 years, modest amounts of savings can turn into surprisingly large sums of money," Hess said.
Among the workers who did not cash out their plans, 29% left their savings in their prior employer's 401(k) plan, while 25% rolled over their money into an IRA account or other retirement plan.
The study also showed that younger workers were more likely to take the money and run. Six out of ten workers in their 20s took a cash distribution from their 401(k) last year, compared with just one-third of employees in their 50s.
Hess said the high cash-out rate among young workers is troublesome because those employees are missing out on "decades-worth of tax-deferred growth on their investments."
Not surprisingly, the study found a correlation between 401(k) plan balances and cash-out rates.
Only 8% of workers with 401(k) balances of $100,000 or more cashed out their plans last year. That compares with 85% of workers with a balance of $1,000 or less who did take a cash distribution.

$8,000 home credit still in play

noreply@blogger.com (Sajan Lama) — Thu, 29 Oct 2009 09:04:00 +0000

Confused about whether lawmakers will extend the $8,000 first-time homebuyer credit and what it would look like?
That's understandable, since the situation is still very fluid.
Here's where things stand.
Support for the credit: There is still bipartisan support in Congress for extending the credit past Nov. 30 and making it available to more homebuyers.
Some of the issues still in play: Just how far past Nov. 30, the size of credit and how many more buyers would qualify.
It's still not clear where President Obama stands on the issue. Last week, Housing Secretary Shaun Donovan said the administration wanted to review more data to better assess the cost of the credit before weighing in.
What's on the table now: There appears to be movement toward a compromise deal that falls between the most and least generous proposals that have been put forth so far.
"There is bipartisan compromise to extend the credit through spring and expand it to existing homeowners who are stepping up to a different home," financial policy analyst Jaret Seiberg wrote in a research note for Concept Capital's Research Group.
The latest idea under discussion is a credit worth up to $8,000 for first-time homebuyers and up to $6,500 for homeowners looking to trade up to a bigger primary residence and who have already lived in their current home for five years. (CNN: Senate compromise may be in the works.)
To qualify for the full credit, however, homebuyers must have adjusted gross income of less than $125,000 ($225,000 for married couples filing jointly).
In addition, the credit would only apply to homes sold for $800,000 or less. Contracts to buy a home must be signed by April 30, 2010, and the deals must close by June 30 in order for a buyer to qualify for the credit.
Rationale for extending the credit: Supporters of the credit say it has helped to boost existing home sales in recent months. Extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected rise in foreclosures next year, which is expected to put downward pressure on prices.
If the credit is allowed to expire, they say, the housing market and the broader economy will grow moribund again.
"The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," said Mark Zandi, chief economist at Moody's Economy.com. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."
What critics say: Though extending the credit has bipartisan support, it is not without its critics.
Critics, while acknowledging that the credit has helped to generate additional home sales, say it has been poorly targeted and therefore not cost-effective.
They point to estimates that only 10% to 20% of the nearly 2 million homebuyers who will have gotten the credit by Nov. 30 bought solely because of the tax break.
In other words, a large majority of homebuyers who benefited from the credit would have bought their homes without it.
By one economist's estimate, the government may have spent $43,000 for each sale that occurred strictly because of the credit.
In a position paper published this week, the liberal Center on Budget and Policy Priorities said making the credit available to existing homeowners would not help stabilize housing prices or reduce inventory.
0:00 /2:24'Beautiful' homes for under $20K
vidConfig.push({videoArray: ["/video/pf/2009/09/30/m_detroit_foreclosure_investing.moneymag.json"], collapsed:false});

"When [they] purchase a new home, they simultaneously put their current home up for sale. As a result, there is no net effect on supply or demand in the housing market."
Timing on a vote: An amendment to extend and expand the credit could be attached to a bill that would extend unemployment benefits and which could pass the Senate as early as this week.
However, there's a chance the housing credit will be dealt with separately. It could be attached to another piece of legislation or put in a standalone bill with other proposals to extend tax breaks.

Goldman Sachs rally markets

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 08:21:00 +0000

Markets reflect investors’ best estimate of long-term value. Markets also reflect the strength of investors’ own short-term cash-flow. Right now, the second may be more relevant than the first.Equity, credit and commodities markets had fallen so far that the latest uptick is really a "feel less bad" rather than a "feel good" rally. But it is still dramatic. The S&P 500 index is up 27 percent since March 6 and the iTraxx European index of investment grade credit spreads has narrowed by 24 basis points to 258bps. The oil price is up 47 percent.There has been some good news. Chinese exports rose 7.5 percent in March. Sales of existing houses in the US were up 4.4 percent month-on-month in February. And big bank executives have been exuding optimism about profits, validated partly by a strong first quarter at US investment bank Goldman Sachs.But this is not much to justify a sustainable market rally. The bull case goes like this: the economy is stabilising, banks are lending again and higher prices breed confidence. Markets are looking ahead.That argument relies on a few thin green shoots of recovery. But the alternative explanation, that the market rallies are driven by investor cash-flow, rests on much bigger numbers. The US Federal Reserve’s balance sheet has expanded from 7 percent to 29 percent of GDP. That equates to huge transfer of cash into the banking system. It’s supposed to support lending, but trading may be the first beneficiary.The US government deficit – the excess of cash put into the economy over cash taken out – was $957bn for the last six months, up from $313bn in the previous year. Add in the effective near-zero policy interest rate in most of the world and there is more than enough new cheap and free money to push up asset prices.Investors seem to be forgetting that mass produced money can lead to inflation. They also seem to be paying insufficient attention to unemployment and other signs of weak business conditions. The predominant trend in the real economy remains downward. In the real world, there are complicated imbalances that cash cannot necessarily heal.

It's good to be a bank

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 08:16:00 +0000

Imagine a deal where the buyer only has to put up 29 percent of the purchase price and the new company ends up with debt equal close to eight times earnings. Sounds like a throwback to the days when the world was awash in cheap money and Blackstone boss Stephen Schwarzman was booking Rod Stewart for his birthday parties.In fact, those are the terms accompanying Barclays' sale of its iShares business to British private equity firm CVC, which was announced Thursday. Cincinnati bank Fifth Third did something similar for buyout group Advent International just two weeks earlier with the sale of its credit processing business. Leveraged buyouts look to be back - but only when the lender is the seller.Take the iShares deal. Barclays is selling the US purveyor of exchange-traded funds for $4.37bn. But CVC is only putting up $1bn of that in cash. Barclays, which owns iShares through its money management arm, is lending CVC $3.1bn, including $1.7bn of senior debt and another $1.1bn in vendor financing.That means leverage will comprise 71 percent of iShares' enterprise value. Moreover, the debt load will represent around 7.5 times the $411m of earnings before interest, tax, depreciation and amortization that iShares reported for last year. These are the kinds of debt levels not seen since the credit crisis hit more than a year ago.So does this mark a return to the halcyon days of private equity? Don't bet on it. The sale of the iShares business bolsters Barclays' capital ratios across the board. Combined with some other measures the London-based bank has undertaken to avoid accepting UK government funds and the strings attached, Barclays says the iShares deal will increase its Tier 1 capital ratio to about 10.3 percent.Fifth Third's leveraged sale of its processing business boosted its capital ratio by nearly a full percentage point to a pro forma 11.5 percent. It's hard to believe that Barclays or any of its competitors would offer such terms to just any old private equity firm. As with Fifth Third's foray into leveraged lending, there's more at stake in these deals than mere banking fees.

Financial employment down

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 08:14:00 +0000

It’s already April, and business students would normally be weighing which investment bank's job offer to take. But this year’s crop of MBAs faces bleak prospects - for the same reason it’s hard to place new asset-backed debt. A shrinking and cautious finance industry means lots of already seasoned assets - including people - are available at cheap prices.The problem, of course, is that Wall Street has been savaged by layoffs. Financial employment shrank by 43,000 in March according to newly released government figures. That’s the 15th month of steady decline.That means that not only are many banks still cutting back, but if they are hiring there are plenty of recently-fired youngish bankers available with experience. As with financial investments in the current climate, there's no reason to go with the new thing when there are plenty of assets available with track records. And the students can’t count on a government programme to jump-start demand for their services.Sure, US investment banks and especially boutique firms are still doing the rounds of business schools, but they aren't hiring many people. Even top-tier Ivy League schools have seen Wall Street acceptances halved. Job offers to foreign students have even been rescinded because banks that have received government funds face extra hurdles securing visas.There is a bright side. The number of students wanting to work on Wall Street reached historic highs before the bubble burst. Just shy of half of Harvard’s MBA crop last year went into finance. The hotter areas now, according to the universities, are venture stage businesses, the energy sector and overseas firms. Even in these areas, acceptances are down perhaps by a quarter. Regardless, this is probably a better use of talent. Finance, after all, should be an accessory for, rather than the engine of, wealth creation.At least, that is, until the next time. MBA classes have a history of piling into expanding bubbles. The few that land banking jobs today will face less competition. When markets rebound, they will be well placed to profit handsomely. A new crop of young and ambitious students with short memories will notice - and a new race to Wall Street could be on.

Securing business opportunities in Libya

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 08:07:00 +0000

Libya is the fourth largest economy in Africa. It has a rich culture, varied landscapes, a strategic position and the continent's largest oil reserves. Once shunned by the international community for its involvement in the 1988 bombing of PanAm Flight 103 above the Scottish town of Lockerbie; its nuclear weapons programme; and its support for various militant groups, Libya began making amends with the world in 1999. The country is now out of political isolation and full of potential. Potential which the UK Government and European leaders should help the Libyans harness for a variety of economic, strategic and humanitarian reasons. For the past decade, international firms have been lining up for a greater share of the opportunities presented by Libya's reintegration into the global economy. Much of the interest has been in the oil and gas sector, which accounts for 95 percent of the country's export revenues and one quarter of GDP. But opportunities have also been identified in the tourism, construction, education and financial services sectors. In response to all this interest, the government has begun to overhaul the country's socialist economy to enable and encourage trade and investment. State-owned enterprises have been privatised; the banking system has been commercialised; and the Central Bank has been reinvented as a supervisory organisation, as opposed to a controlling one. With this, the widespread dismantling of barriers to trade and investment, and the country's broader programme of legal and administrative reform, Libya is making itself a much more attractive place to do business, and companies are responding accordingly. UK visible exports to Libya, which are principally industrial machinery for the oil and gas sector, have risen by 35 percent in the past ten years. Over that period, UK imports from Libya have increased sevenfold and both inwards and outwards investment have risen sharply.Libya has made great progress in the past decade. But there is clearly more that can be done to encourage further progressive reforms and greater returns for the business community in Libya, the UK and elsewhere. Firstly, the European Commission should accelerate negotiations to establish a Framework Agreement between the EU and Libya. Officials have been given a broad mandate to negotiate a pact that will enhance political, economic, cultural, social and security cooperation between the two partners. This is a positive step and discussions have progressed well to date. However, the substantive details of a draft agreement are yet to be agreed, or even discussed in some areas, and the devil, as everyone knows, is in the detail. It is in Europe's interests to negotiate a comprehensive and ambitious agreement, and to do it quickly. Not least because getting in early will provide European businesses with a first-mover advantage that one expects will pay dividends in a relatively short period of time. Negotiations stand to assist Europe to take forward a number of key policy objectives. Underpinning cooperation with Libya on energy issues should provide Europe with a reliable partner to meet long term energy requirements at a time when alternatives are in increasingly short supply. It is not just in terms of energy supply that Europe stands to gain. The Libyan government has expressed a strong desire to further cooperation on key components of the climate change agenda, working with Europe to improve Libya's energy efficiency and develop its capacity in renewables.An agreement should also boost cooperation with the EU towards preventing illegal immigration, a key stepping stone towards reducing of the misery associated with human trafficking between Africa and Europe via Tripoli. Libya's further integration into the global community will help to safeguard the security of the Mediterranean region and to strengthen our relationship with a country that plays a leading role in the Arab world and in the African continent, a position that was consolidated by its recent appointment as Chair of the African Union.Secondly, the UK and Europe should support Libya's bid to become a member of the WTO. The legislative, policy and institutional changes that Libya would be required to make in order to join the organisation would ensure that the country develops an operating system that is truly 'fit for purpose'. It would discipline the Government in its dealings with the private sector, and, since WTO commitments are binding, create a more predictable, secure and enticing business environment for internal and external investors alike. Membership would provide Libyan businesses and consumers with a broader range of competitively priced goods and services. They would also benefit from greater competition and the levels of investment required to stimulate innovation, diversification and the more efficient allocation of capital throughout the economy. Libya's WTO aspirations and its interest in negotiating a bilateral pact with the EU present real opportunities for business, consumers and taxpayers throughout the EU. We should hope that decision-makers in London and Brussels recognise this and engage accordingly.

Assessing the US Treasury's bail out plan

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 07:58:00 +0000

Misc-->
It had to happen. In the face of catastrophic losses, massive unemployment and an economy that is still scratching its head as to how the whole crisis unfolded, the US government has stepped into the breach in an effort to bail out the country’s banks, protect consumers, and restore investor confidence so that the economy can pick up some momentum and leave the dark days of the sub-prime mortgage crash behind. In February Treasury Secretary Timothy Geithner unveiled his raft of measures aimed at restoring investor and consumer confidence in the country’s banking sector, while also curbing executive pay in those financial institutions which the government was forced to bail out. Mr Geithner’s Financial Stability Plan aims to assure taxpayers that every dollar used in the bank bail out is directed toward lending and economic revitalisation, and that there will be a new era of accountability, transparency and conditions on the financial institutions receiving funds. He said: “The American people will be able to see where their tax dollars are going and the return on their government’s investment, they will be able to see whether the conditions placed on banks and institutions are being met and enforced, they will be able to see whether boards of directors are being responsible with taxpayer dollars and how they’re compensating their executives, and they will be able to see how these actions are impacting the overall flow of lending and the cost of borrowing.”“We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks… and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments.”A key aspect of the plan is an effort to strengthen financial institutions so that they have the ability to support recovery. This will be achieved through a number of measures. Firstly, the plan will create a comprehensive stress test, which is a forward-looking assessment of what banks need to keep lending even through a severe economic downturn. Mr Geithner believes that the test will succeed for a number of reasons. Firstly, increased transparency will facilitate a more effective use of market discipline in financial markets. The Treasury Department will work with bank supervisors and the SEC and accounting standard setters in their efforts to improve public disclosure by banks. Secondly, all relevant financial regulators – the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS) – will work together in a co-ordinated way to bring more consistent, realistic and forward looking assessment of exposures on the balance sheet of financial institutions. And thirdly, all banking institutions with assets in excess of $100bn will be required to participate in the coordinated supervisory review process and comprehensive stress test.Testing stressAs well as a bank stress test, the US financial stability plan will create a capital assistance programme. Once a financial institution has undergone a comprehensive “stress test” it will have access to a Treasury-provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private capital. Added to that, any capital investments made by the Treasury under the capital assistance programme will be placed in a separate entity – the Financial Stability Trust – set up to manage the government’s investments in US financial institutions.The US government says that the plan will also herald a new era of transparency, accountability, monitoring and conditions as firms will be required to show how assistance from the financial stability plan will expand lending. The new rules state that all recipients of assistance must submit a plan for how they intend to use that capital to preserve and strengthen their lending capacity. This plan will be submitted during the application process, and the Treasury Department will make these reports public upon completion of the capital investment in the firm.It also states that firms must detail, in monthly reports submitted to the Treasury Department, their lending broken out by category, showing how many new loans they provided to businesses and consumers and how many asset and mortgage-backed securities they purchased, accompanied by a description of the lending environment in the communities and markets they serve. This report will also include a comparison to their most rigorous estimate of what their lending would have been in the absence of government support. For public companies, similar reports will be filed on an 8K simultaneous with the filing of their 10-Q or 10-K reports. Furthermore, all information disclosed or reported to Treasury by recipients of capital assistance will be posted on www.financialstability.gov – the government’s dedicated website on the issue – because taxpayers have the right to know whether these programmes are succeeding in creating and preserving lending and financial stability.The plan also aims to put strict limits on the “bonus culture” that is seen by many as being at the root of the crisis. The government says that limiting common dividends, stock repurchases and acquisitions provides assurance to taxpayers that all of the capital invested by the government under the Financial Stability Trust will go to improving banks’ capital bases and promoting lending. All banks that receive new capital assistance will be restricted from paying quarterly common dividend payments in excess of $0.01 until the government investment is repaid. That presumption will be the same for firms that receive generally available capital unless the Treasury Department and their primary regulator approve more based on their assessment that it is consistent with reaching their capital planning objectives.Shackled assets Banks will also be restricted from repurchasing any privately-held shares, subject to approval by the Treasury Department and their primary regulator, until the government’s investment is repaid. They will also be restricted from pursuing cash acquisitions of healthy firms until the government investment is repaid. Exceptions will be made for explicit supervisor-approved restructuring plans. Firms will also be required to comply with the senior executive compensation restrictions announced on February 4, including those pertaining to a $500,000 total annual compensation cap plus restricted stock payable when the government is getting paid back.Mr Geithner has stated that transparency and greater accountability are at the heart of the newly launched plan, which has prompted the Treasury Department to announce measures to ensure that lobbyists do not influence applications for, or disbursements of, Financial Stability Plan funds, and will certify that each investment decision is based only on investment criteria and the facts of the case.Added to that, the Treasury Department will post all contracts under the plan on its website within five to ten business days of their completion. Whenever the Treasury makes a capital investment under these new initiatives, it will make public the value of the investment, the quantity and strike price of warrants received, the schedule of required payments to the government and when government is being paid back. The terms of pricing of these investments will be compared to terms and pricing of recent market transactions during the period the investment was made, if available.However laudable Mr Geithner’s efforts, his plans have received a very mixed response. The main problem with the financial stability plan is that it does not come clean to the American public about how the losses from the financial meltdown will be divvied up, say critics. The plan is deliberately short on detail, they say, especially on the much anticipated public-private partnership. While the Obama Administration hopes to get private investors to start buying up the toxic mortgage-backed securities that are clogging up banks’ balance sheets, it is not clear what would make those private investors suddenly want to buy assets that until now they have treated as radioactive. “I don’t see how you’re going to get confidence in the markets with a plan that’s so difficult to penetrate,” says Harvard University economist and occasional World Finance contributor Kenneth Rogoff.Although Mr Geithner repeatedly promised that the new plan would be transparent, it was precisely the lack of detail of how the plan would work and be financed that contributed to the stock market’s negative reaction. US stock averages fell as Mr Geithner was speaking, and were down four to five percent in late trading. “It was scary watching him,” says R Christopher Whalen, Managing Director of Institutional Risk Analytics, a consulting firm. “The markets are tough. As long as they sense that there’s bull – and indecision – they’re going to reject it.” Investors on both sides of the Atlantic immediately expressed disappointment following the announcement, sending markets into freefall. The FTSE 100 index closed down 2.2 percent or 94.53 points at 4,213.08 and the FTSE 250 index fell back 2.5 percent or 164.02 points at 6,495.66. “They were going to have to say something pretty special to kickstart trading today,” said a London-based trader. Even the plan’s supporters are sceptical about how well it may work in practice – precisely because the Treasury has been so scant on details. Moody’s, the credit rating agency, supports the plan, but thinks that it may be of more benefit to larger banks than to smaller ones in the US. “Despite the lack of specifics… Moody’s views the Financial Stability Plan (FSP) positively for major banks’ depositors and debt holders, as it reflects the US government’s commitment to providing bridge capital and liquidity support to these institutions until the economy and capital markets recover,” it said in a statement.Chairman and CEO of UMB Financial Corporation, a multi-bank holding company headquartered in Kansas City, Mariner Kemper, says that the plan remains too vague and lacks essential details on how the $2trn will be put to good use. As seen from the first round of the Troubled Asset Relief Program (TARP) devised by former President George W Bush and former Treasury Secretary Henry Paulson, actions taken to promote loan growth have essentially been ineffective as lending remains stagnant, he says.“As is, the premise for the plan calls for pumping more capital into the system. However, this is somewhat flawed logic as financial institutions primarily loan against deposits, not capital,” says Mr Kemper. “More capital dollars won’t necessarily increase loan demand because the root of the problem is the fragile state of the economy that has people pulling back on consumption. By injecting capital, the plan does more to promote unsound lending practices than addressing the systemic problem.”“To truly be productive in solving the economic crisis, it must be realised that the core issue is that we, the government, businesses and consumers, have overextended for several years. It’s counterintuitive to solve a leverage problem with more leverage. The principles that guide the free market must be allowed to unfold by letting the ‘problems’ within the system fail and the ‘successes’ thrive.”As a result, Mr Kemper suggests that the Treasury should seek counsel for solutions in moving forward from those who operated soundly rather than from those who broke the system, and offer incentives rather than penalties for those not taking “oversized risks for oversized rewards”. He also believes that government intervention should become more of a last resort than an immediate backstop.Many economists argue that some of the biggest US banks are in such bad shape that the only reasonable alternative is to nationalise them, which would mean getting rid of their top executives, wiping out their shareholders, and forcing creditors (other than government-insured depositors) to take a big hit. Once in full control of the banks, the government could strip out their bad assets for sale later, give them a huge injection of public funds, and then spin them back out to the public. However, unlike the UK, this is not an option that the US wants to explore. But private investors remain well aware of the possibility; and as a result, they are unwilling to put more capital into banks if they fear they could lose it in future government takeovers. This means that the US plan may stall, or at least not create the desired economic stimulus, say some. Charles Calomiris, a Columbia University economic historian who has studied banking crises, says that the key mistake of the Obama Administration is trying to come up with a plan that emphasises political palatability over economic reality. To buy support, Mr Calomiris says, the plan emphasises “very careful investments over a period of time with a lot of upside potential for taxpayers, and with all sorts of limits on what bankers can do.” The problem with that approach, Mr Calomiris says, is that it does not do enough to really make the banks truly healthy, and just prolongs the crisis. He favours taking strong action to improve banks’ health dramatically and quickly by guaranteeing them a floor price on their real estate assets, even though such action would be criticised as a giveaway. Says Mr Calomiris: “What makes sense economically doesn’t make sense politically, so I’m not very optimistic.”

Beijing allows overseas investment after 17-month break

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 07:48:00 +0000

China has resumed approvals for institutions to buy overseas securities under its tightly managed offshore investment regime after a 17-month hiatus, suggesting Beijing believes the worst of the financial crisis is over.
The State Administration of Foreign Exchange granted new quotas to E Fund Management and China Merchants Fund Management to invest up to $1bn and $500m respectively in offshore securities, according to industry analysts.
EDITOR’S CHOICE
In depth: China - Jul-28
China quietly eliminates investment quota renting - Oct-18
Short View: Chinese growth - Oct-22
China growth underlines rapid rebound - Oct-22
Questions remain over China’s consumer power - Oct-22
China flat-screen boom fuels production race - Oct-23
The previous quota handed out under the qualified domestic institutional investor (QDII) scheme was granted in May 2008, before the worst of the financial crisis.
The resumption in approvals for outward investment also signals a return to Beijing’s earlier strategy of encouraging outflows to relieve pressure on the Chinese currency to appreciate.
As China’s largest trade partners in the west start to look past the immediate aftermath of the crisis, attention has turned again to the renminbi, which remains undervalued by most estimates and is still virtually pegged to the sliding dollar.
China’s huge trade surplus and large investment inflows create pressure on the renminbi to rise, but Beijing is unwilling to subject its battered export sector to any more pain, in spite of calls from trading partners for appreciation.
“In order to keep the nominal exchange rate stable the government has to allow more capital to flow out,” said Wang Tao, chief China economist at UBS Securities. “But they want to encourage outflows in a controlled way and as long as they have some kind of upper quota they will not be able to fully offset the appreciation pressure from inflows.”
Beijing has also been encouraging more direct investment by Chinese corporations in offshore industries and is considering allowing foreign institutions to raise capital through equity and bond sales in China; both actions encourage capital to flow out of the country.
Following a brief dip at the start of the year, China’s foreign exchange reserves have resumed their rapid growth, rising from $1,913bn at the end of January to $2,273bn by the end of September.
Z-Ben Advisors, a Shanghai-based consultancy covering China’s investment management industry, said at least four other fund managers – Changsheng, Bosera, UBS SDIC and China Universal – would receive quotas of at least $4bn in total by year-end, and they expect at least another 16 to be handed out by the end of next year.
“Friday’s events signal strongly to us that the QDII business is about to accelerate very quickly,” according to Michael McCormack, executive director at Z-Ben Advisors.
Beijing had previously approved 56 QDII institutions to invest a total of $55.95bn but of that total just $28.71bn had been remitted abroad by the end of August, according to Safe data.
The lacklustre utilisation of the scheme prompted Safe to warn this month that it would reduce quotas of QDII investors who did not make full use of them.
E Fund is expected to use its new quota to set up a fund that invests in securities in Asia minus Japan, while China Merchants is believed to be planning a global resources fund.

Japanese earnings on course for recovery

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 07:34:00 +0000

Japan’s short but intense first-half results season will this week confirm that a broad recovery in corporate profits remains intact.
But analysts are anxious for guidance on whether the strong yen will hurt exporters in the run-up to Christmas.
EDITOR’S CHOICE
JAL poised to receive $6bn long-term aid - Oct-22
Japan’s tech trade tumbles - Oct-21
Onward to a hybrid future at Toyota - Oct-21
“Guidance for the second half will be important in determining whether the market can resume a sustainable uptrend,” Kathy Matsui and Hiromi Suzuki, Goldman Sachs strategists, wrote to clients.
The earnings season, with more than 400 companies reporting on Friday alone, is expected to show the breadth of the recovery in the technology sector after strong results from US technology blue chips such as Apple and Microsoft.
Strategists have reason for confidence on improved earnings.
Japanese industrial production “has risen 7 per cent quarter-on-quarter, leading us to expect manufacturing operating leverage to again be the dominant driver of the results season”, according to strategists at Macquarie Securities in Tokyo.
Manufacturers make up a large part of the Japanese stock market. Because of the high fixed cost of factories and equipment, their profits are sensitive to even small changes in production and sales.
There is evidence that stimulus moves such as car scrappage programmes and Japan’s eco-points scheme for consumer durables have helped sales.
Shipments of flat-panel televisions in Japan were up 32.4 per cent in September on the previous year, according to the Japan Electronics and Information Technology Industries Association.
There have also been relatively few revisions to formal earnings forecasts.
Aggressive cost-cutting by Japanese companies is expected to have helped profit, if not a sustained recovery.
However, other sectors are continuing to suffer.
The motor industry, one of the worst hit by the plunge in global demand, is expected to see further losses.
Honda Motor, which has focused on small, fuel-efficient vehicles, has weathered the crisis better than most. Among the country’s top three producers, it alone is believed to have earned a small net profit.
Investors are likely to focus on carmakers’ full-year forecasts, which most analysts expect to be revised upward across the sector from the dismal figures projected at the start of the financial year.
In August, Toyota, the world’s biggest car manufacturer, cut its forecast net loss for the year to the end of March 2010 from Y550bn ($6bn) to Y450bn.
But analysts believe its loss will be smaller.
The strength of the yen remains a concern across all sectors.
The yen traded at an average Y93.7 to the dollar during the quarter, stronger than the level assumed by many Japanese companies for their profit forecasts.
With the currency trading at Y92, investors want to know what the effect will be on full-year profits.

Who cares if Wall Street 'talent' leaves?

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 07:29:00 +0000

There's no need to fear a Wall Street brain drain -- despite the crackdown on pay by Washington.
On Thursday, White House pay czar Kenneth Feinberg outlined compensation restrictions at seven firms that got special bailouts, and the Federal Reserve proposed to review pay practices at 28 unnamed giant banks.
Critics warn that reining in pay makes it hard to keep talented employees. Hemmed in, institutions like AIG (AIG, Fortune 500),Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) could lose their best people.
These firms would then perform even more abysmally, if that's possible, leaving them hard pressed to repay tens of billions of dollars of taxpayer-backed loans.
Still, we say Godspeed to this "talent." After all, the traders and suits in the corner offices don't exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses.
Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses -- including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general's office.
"Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks' financial performance," the report said.
Meanwhile, it's hard to imagine that defection-hit firms would have a lot of trouble finding qualified replacements in the current job market.
Unemployment has doubled nationally since December 2007, when the recession started. Securities industry employment has fallen 10% nationwide and 14% in New York from a mid-2008 peak, according to Bureau of Labor Statistics data, costing some 90,000 jobs in the U.S.
0:00 /04:04John Mack: We were wrong on pay
vidConfig.push({videoArray: ["/video/news/2009/10/16/n_johnmack_morganstantly_pay.cnnmoney.json"], collapsed:false});

And Goldman Sachs' (GS, Fortune 500) charm offensive notwithstanding, it looks like the official response to runaway pay is just starting.
The Fed's plan to weigh big banks' compensation plans against their potential for undermining the economy could eventually put pressure on pay at all the big banks.
"This could be a game changer," said Simon Johnson, an economist at MIT. "There will be a lot of pressure on them in Congress to stick it to the big firms."
But maybe the best reason not to fret about talent flight is one familiar to cubicle dwellers everywhere: just because someone has a big, high-paying job doesn't mean they're good at it.
Take Bank of America, for instance. The bank's longtime CEO, Ken Lewis, unexpectedly announced his retirement this month, while agreeing to give back his 2009 salary.
Lewis didn't say why he was leaving, but it seems that criticism over his empire building, mishandling of the Merrill acquisition and outsize pay got to him. The Charlotte Observer reported he had grown tired of the "mud being thrown on him day by day."
Another helping or two of that mud could be just what Wall Street needs.

Stocks tumble after rally

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 07:23:00 +0000

Stocks slumped Friday, in a broad-based selloff that was especially hard on the leaders of the most recent leg of the rally -- banks, energy shares and transportation companies.
The Dow Jones industrial average (INDU) lost 109 points, or 1.1%. The S&P 500 (SPX) index lost 13 points or 1.2%. The Nasdaq composite (COMP) lost 11 points or 0.5%.
Stocks had risen in the morning after upbeat results from Microsoft and Amazon.com, and an encouraging reading on existing home sales. But the tone turned negative in the afternoon.
The three major indexes all ended lower for the week, after two weeks of gains amid a bigger multi-month advance.
"After seven months of mostly rallying, the buyers weren't really here this week and the bears took that as an opportunity," said Paul Brigandi, vice president of trading at Direxion Funds.
Investors getting tired?: Since bottoming at a 12-year low on March 9, the S&P 500 has surged over 62% through its rally high earlier this week.
Although repeated predictions for a big 10% to 15% selloff haven't materialized, smaller selloffs of 1% to 3% have popped up periodically during the past 7 months. Friday appeared to be an extension of that trend.
While the S&P 500 lost 1.1% Friday, for individual sectors, the declines were bigger.
The Dow Jones Transportation (DJT) average, which includes railroads, truckers and airlines, had surged 88% through its rally high earlier this week. On Friday it lost 3.5%.
Some market pros have said the rise in the transports is a good indicator of the economic recovery. But downbeat comments Friday from railroads Union Pacific and Burlington Northern put that optimism into question. It also gave investors an opportunity to cash out after the massive rise in the sector.
The KBW Bank (BKX) index, which tracks 20 financial firms, including Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), has rallied over 140% between March and its peak this week. The bank sector slumped as well Friday, losing 1.6%.
A strong U.S. dollar -- bouncing back from one-year lows against a slew of other currencies -- added to the downturn Friday. A strong dollar pressures dollar-traded commodities including oil, which in turn drags on energy shares. Big multinationals that benefit from a weak dollar also slipped.
Stocks had rallied Thursday following upbeat earnings from 3M (MMM, Fortune 500), AT&T (T, Fortune 500) and other blue chips. The advance propelled the Dow back above 10,000 and the S&P 500 closer to 1,100. But that advance proved unsustainable Friday, even though corporate news was upbeat.
"Investors know that the earnings for the third quarter are going to be better than expected," Brigandi said. "That's no longer going to be a catalyst. They are going to want to see something else."
Results: Microsoft (MSFT, Fortune 500) reported weaker quarterly sales and income Friday morning that easily surpassed analysts' estimates. Cost cutting and strong sales of its Windows operating system fueled the advance.
On Thursday, Microsoft rolled out its new Windows 7 operating system, expected to boost PC sales in the coming months.
Shares of Microsoft, a Dow component, rose over 9% Friday morning, touching a one-year high, before giving up nearly half of that advance.
Late Thursday, Dow component American Express (AXP, Fortune 500) reported weaker quarterly sales and earnings that beat analysts' forecasts. Shares fell 5% Friday.
Also late Thursday, Amazon.com (AMZN, Fortune 500) reported a big surge in earnings and revenue, thanks in part to strong sales of its e-reader, Kindle. Shares jumped 27% Friday, hitting a ten-year high.
So far, 199 companies, or 40% of the S&P 500, have reported results. Profits are currently on track to have fallen 18.2% versus a year earlier, according to the latest from Thomson Reuters. Revenue is expected to have dropped over 10% from a year ago.
Bernanke: The Federal Reserve chairman, speaking Friday, said that the financial turmoil is abating, but that lawmakers have to reform the system to help prevent a crisis of this magnitude happening again.
On Thursday, the Federal Reserve proposed a broad overhaul of pay policies at 28 of the largest U.S. banks. Also Thursday, White House "pay czar" Kenneth Feinberg called for the seven biggest recipients of federal bailout money to cut in half what they pay their top executives.
Economy: Existing home sales jumped to a 5.57 million unit annual rate in September, according to a National Association of Realtors report released Friday morning. Sales were expected to have risen to a 5.35 million unit annual rate from 5.1 million unit annual rate in August.
World markets: Global markets were mixed. In Europe, London's FTSE 100 gained 0.7%, France's CAC 40 lost 0.3% and Germany's DAX gave up 0.4%. Asian markets ended higher.
Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.48% from 3.42% late Thursday. Treasury prices and yields move in opposite directions.
0:00 /06:09Why Ballmer loves Windows 7
vidConfig.push({videoArray: ["/video/news/2009/10/22/n_ballmer_microsoft_7_CEO.cnnmoney.json"], collapsed:false});

Currency and commodities: The dollar gained versus the euro, after falling to a 14-month low earlier in the week. The dollar gained versus the yen.
U.S. light crude oil for December delivery fell 69 cents to settle at $80.50 a barrel on the New York Mercantile Exchange, edging off a one-year high.
COMEX gold for December delivery fell $2.20 to settle at $1,056.40 an ounce. Gold has surpassed records repeatedly this month due to the weak dollar and longer-term worries about inflation.

Home sales rebound to highest level in 2 years

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 07:21:00 +0000

Sales of existing homes rebounded sharply in September to their highest level in two years, getting a strong boost from first-time homebuyers, according to a report released Friday.
Sales of previously-owned homes jumped 9.4% in September after falling for the first time in four months in August, said the National Association of Realtors. Year over year, sales of existing homes were up 9.2% in September.
"Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home," said Lawrence Yun, NAR chief economist.
Early information from a NAR report to be released next month suggests first-time homebuyers accounted for more than 45% of home sales in the past year.
September home sales hit an annualized rate of 5.57 million properties, up from 5.10 million units in August. A consensus estimate compiled by Briefing.com had forecast sales of 5.35 million units.
Prices still falling. Yun said the market is still underperforming as home values continue to decline.
The median price of homes sold in September was $174,900, falling 8.5% from a year earlier. The drop in prices has been led by an influx of distressed properties, which accounted for 29% of sales in September and include foreclosures and short sales.
"We're getting early indication of price stabilization but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy," Yun said.
With more than 75 million home-owning families having more wealth tied to their homes than the rising stock market, Yun said economic growth without a recovery in their homes' value "will be one of the weakest in U.S. history."
The $8,000 tax credit that has helped first-time home buyers take advantage of the most affordable conditions since 1970, but the looming expiration date of the incentive could hold buyers back from entering the market, said NAR president and real estate broker Charles McMillan.
"Our read is that housing overshot on the downside because homes are selling for less than replacement construction costs in much of the country, and the home price-to-income ratio has fallen below the historical average," McMillan said.
In order for prices to return to normal, Yun says that total housing inventory would need to drop at the 7.5% pace seen in September, which represents a 7.8-month supply, the lowest in almost three years.
To help boost home prices and sales, lawmakers are considering extending the tax credit and expanding it to all but the wealthiest homebuyers.
While keeping the credit would help lift housing prices, senior economist at PNC Robert Dye says it would only be a temporary effect until the program stopped, as was seen with Cash for Clunkers.
"First-time homebuyers don't represent the bulk of the market and there is strength well beyond them," said Dye. "If economic indicators such as consumer confidence show improving trends, then experienced homebuyers will stay in the market and take advantage of [the low] prices" even without the credit.
Where the homes are selling. Regionally, the strongest market was the West, where sales climbed 13% to an annualized rate of 1.3 million. That was 5.7% higher than last year's rate. The median price of homes sold during the month was $219,000, down 15% from last year.
In the Midwest, sales were up by 9.6% to a pace of 1.25 million, which was 7.8% higher year-over year. Prices there have dipped 1% since 2008 to a median of $147,600.
Sales in the South were up 9% from August and 10.8% from last September to a rate of 2.6 million. Prices have dropped 7.6% to $153,500 in the past 12 months.
The Northeast reported a modest rise, with existing sales up 4.4% from August to a rate of 950,000. That was 11.8% from a year ago. The median price there was $234,700, down 7.6% from last year.

Amazon shares close at record high

noreply@blogger.com (Sajan Lama) — Mon, 26 Oct 2009 07:16:00 +0000

Shares of Amazon.com surged to an all-time high Friday as investors bet that the online retailer would dominate e-commerce as shell-shocked consumers gradually begin spending again.
The rally came one day after Amazon reported a 69% surge in third-quarter profit, led by strong sales of the Kindle e-reader and other electronics and general merchandise.
The Seattle-based company's stock closed up 27%, to 118.49, shattering the previous high of $106.68 from December 1999.
"[Amazon] held up better than overall e-commerce and retail during the downturn and it appears to be one of the first to be spring-boarding out of it," said Frederick Moran, an analyst who follows the company for The Benchmark Company.
Moran said Amazon drew price-wary consumers away from online competitors and traditional retailers as the recession forced many households to cut back on expenses. Now that consumer spending appears to be gradually recovering, "the rate of growth at Amazon looks truly stunning," he said.
Amazon (AMZN, Fortune 500) said Thursday that sales climbed 28% to $5.45 billion in the third quarter, beating analysts' expectations for an 18% rise to $5.03 billion.
Sales of electronics and other general merchandise, which represent 43% of Amazon's revenue mix, grew 51% in North America and 48% internationally.
Looking ahead, Amazon said it expects fourth-quarter sales to range between $8.12 billion and $9.12 billion, or to grow between 21% and 36% compared with fourth quarter 2008.
Amazon could sustain a 25% growth rate through next year, according to Moran. "Amazon has very uniquely stood out above the retail crowd," he said.