Thousands at Cow Palace seeking mortgage help

The Cow Palace, site of rodeos and rock concerts, was transformed into a foreclosure-prevention fair on Friday that drew thousands of struggling borrowers hoping for help to make their mortgages more affordable.

Armed with sleeping bags or folding chairs, many spent a chilly night on the pavement outside the Daly City event center.
 
"I'm just trying to keep my house," said Gerasim Karapetian of Yorba Linda (Orange County), as he waited in the bleachers to meet with a loan counselor. "I drove eight hours, got here at 2 a.m., and waited outside all night. The line wrapped around the whole parking lot."

He was among more than 4,000 people from around California and neighboring states who converged on the Save the Dream tour organized by NACA, the Neighborhood Assistance Corp. of America, a Massachusetts nonprofit ( www.naca.com).

The five-day event continues through Tuesday. Similar NACA tours in Cleveland, Chicago, St. Louis, Atlanta, Phoenix, Los Angeles and Las Vegas drew huge crowds, reflecting the nationwide spread of the foreclosure crisis.

The Cow Palace arena's concrete floor was a beehive of purposeful activity, set up with 300 tables where NACA counselors wearing bright red or yellow T-shirts met one-on-one with homeowners to enter their financial information into software for transmission to their lenders - who were across the hall. Banks sent dozens of representatives to review homeowners' cases and in some cases modify their loans on the spot to make them more affordable.

Standing at the arena's edge, Kieta Moreno sobbed as she called her mother back home in Las Vegas to report that OneWest Bank had modified her mortgage to a fixed 2 percent interest for 25 years, reducing her monthly payments from $3,600 to $2,300.

"This is the home we're going to die in; we're not going anywhere," she said.



The business she and her husband run selling memorabilia online had tanked along with the economy, making mortgage payments a struggle, she said.

"We used all the money we had," Moreno said. "We tried to talk to the bank but we kept getting a run-around."

Kieta and her husband, Victor Moreno, had already spent 19 hours at an NACA event in Las Vegas last week. Other homeowners just starting the process on Friday said they went through initial steps and were given vouchers to return in the morning at the head of the line.

Most get modified

NACA says that 80 percent of homeowners at its events get their loans modified. That number could not be independently verified. Some borrowers who asked not to be named complained that NACA focuses on "low-hanging fruit" and ignores the more difficult cases.

"We have pushed these lenders really hard but there are some cases where you have to fight even harder," said Bruce Marks, NACA founder and CEO. NACA's fighting tactics include what Marks calls "nonviolent terrorism," staging demonstrations at the homes of bank CEOs, for instance.

Marks, who calls himself a 1960s-'70s-style activist, said he got an MBA from New York University and worked for the Federal Reserve Bank of New York "to learn the enemy."

The Save the Dream events, which cost up to $1 million each, are funded by federal grants. NACA eventually expects to receive small payments from banks if borrowers stay current on their modified loans.

Elcis and Damian Nuñez left their two young children with their grandmother back home in Whittier (Los Angeles County) and drove up, arriving at 3 p.m. Thursday for the overnight wait.

Horror stories

"We were about 230th in line," she said. "Everyone was telling their horror stories. We made some new friends. We know we're not alone."

The recession ended her exporting business and reduced his commissions as a bank loan officer, they said. They owe $713,000 on a home worth about $365,000.

"We put a lot of sweat and money into our home," Elcis Nuñez said. "If we can save it, we want to go for it."

- Via SF Gate

Obama Admin using Hollywood to push propaganda

SWINE FLU PROPAGANDA: CDC says Swine flu cases to vaccine ratio are "sobering"

Powell warned of Terror Industrial Complex

Snow Leopard Beats Windows 7 In Almost Every Count on Mac Hardware

CNET has spent some time testing 64-bit Windows 7 and Snow Leopard on a MacBook Pro, currently the only machine that officially supports both of them natively. Snow Leopard wins in all accounts except one: Gaming.
Of course, you can argue that Windows is not as optimized as Mac OS X in that machine. On the other side, Apple's Intel-based hardware is really not that special. This shows in the gaming test, where Call of Duty 4 squeezes 5 more frames per second in Windows 7:



In other tests, however, Snow Leopard consistently beats Windows 7 running on this machine. Especially painful is the battery life test:



This one, however, can really be attributed to bad drivers, since the author of the tests says that he "was able to get just around an hour and a half with Windows 7 with general usage on the same machine" running Boot Camp 2.1 instead of the 3.0 version he used for the test.

- Via CNET


 

An Asteroid Could Have Killed Us Tonight

Rejoice, because you are alive: An asteroid named 2009 TM8 just passed only 216,000 miles from Earth, racing at 18,163mph. That's closer than the moon. But don't worry, there'll be plenty of opportunities to panic, says the JPL:

If it's typical density, it would create a 4 kiloton explosion in the Earth's atmosphere if it were to hit, which of course it won't. You'd expect an object of this size to fly within the orbit of the moon every few days or so.

That's what Don Yeomans—manager of the Near-Earth Object Program Office at Jet Propulsion Laboratory, Pasadena, California—said talking about 2009 TM8 and the other 7 million objects in the near-Earth space which, "needless to say we have discovered only a small fraction of them."
Great. At 30 feet, something like 2009 TM8 is not as big as the killer Apophis or as the superkiller that can destroy everything on Earth. But who cares about destroying everything when this thing is large enough to annihilate Brooklyn.

- Via Giz

Bailout Helps Fuel a New Era of Wall Street Wealth

Even as the economy continues to struggle, much of Wall Street is minting money — and looking forward again to hefty bonuses.

Many Americans wonder how this can possibly be. How can some banks be prospering so soon after a financial collapse, even as legions of people worry about losing their jobs and their homes?

It may come as a surprise that one of the most powerful forces driving the resurgence on Wall Street is not the banks but Washington. Many of the steps that policy makers took last year to stabilize the financial system — reducing interest rates to near zero, bolstering big banks with taxpayer money, guaranteeing billions of dollars of financial institutions’ debts — helped set the stage for this new era of Wall Street wealth.

Titans like Goldman Sachs and JPMorgan Chase are making fortunes in hot areas like trading stocks and bonds, rather than in the ho-hum business of lending people money. They also are profiting by taking risks that weaker rivals are unable or unwilling to shoulder — a benefit of less competition after the failure of some investment firms last year.

So even as big banks fight efforts in Congress to subject their industry to greater regulation — and to impose some restrictions on executive pay — Wall Street has Washington to thank in part for its latest bonanza.

“All of this is facilitated by the Federal Reserve and the government, who really want financial institutions to get back to lending,” said Gary Richardson, a research fellow at the National Bureau of Economic Research. “But we have just shown them that they can have the most frightening things happen to them, and we will throw trillions of dollars to protect them. I have big concerns about that.”
Not all banks are doing so well. Giants like Citigroup and Bank of America, whose fortunes are tied to the ups-and-downs of ordinary consumers, are struggling to turn themselves around, as are many regional banks.

But the decline of certain institutions, along with the outright collapse of once-vigorous competitors like Lehman Brothers, has consolidated the nation’s financial power in fewer hands. The strong are now able to wring more profits from the financial markets and charge higher fees for a wide range of banking services.

“They are able to charge more for all kinds of services because companies need banks and investment banks more now, and there are fewer strong ones to help them,” said Douglas J. Elliott of the Brookings Institution.


A year after the crisis struck, many of the industry’s behemoths — those institutions deemed too big to fail — are, in fact, getting bigger, not smaller. For many of them, it is business as usual. Over the last decade the financial sector was the fastest-growing part of the economy, with two-thirds of growth in gross domestic product attributable to incomes of workers in finance.

Now, the industry has new tools at its disposal, courtesy of the government.

With interest rates so low, banks can borrow money cheaply and put those funds to work in lucrative ways, whether using the money to make loans to companies at higher rates, or to speculate in the markets. Fixed-income trading — an area that includes bonds and currencies — has been particularly profitable.

“Robust trading results led the way,” said Howard Chen, a banking analyst at Credit Suisse, describing the latest profits.

To prevent a catastrophic financial collapse that would have sent shock waves through the economy, the government injected billions of dollars into banks. Some large institutions, like Goldman and Morgan, have since repaid their bailout money. But most of the industry still enjoys other forms of government support, which is helping to stoke profits.

Goldman Sachs and its perennial rival Morgan Stanley were allowed to transform themselves into old-fashioned bank holding companies. That switch gave them access to cheap funding from the Federal Reserve, which had been unavailable to them.

Those two banks and others like JPMorgan were also allowed to issue tens of billions of dollars of bonds that are guaranteed by the Federal Deposit Insurance Corporation, which insures bank deposits. With the F.D.I.C. standing behind them, the banks could borrow the money on highly advantageous terms. While some have since issued bonds on their own, they nonetheless enjoy the benefits of their cheap financing.

Granted, banks are also benefiting from a stabilizing economy. The fear that gripped the markets earlier this year, when doomsayers predicted a second Great Depression, has largely dissipated. Stocks, corporate bonds, even risky corporate i.o.u.’s — have all rallied from their bear market lows, some spectacularly so. The Dow Jones industrial average has soared 50 percent this year, and touched 10,000 this week for the first time since the crisis.

Banks that had marked down the value of the assets on their books during the dark days of the crisis are now enjoying a rebound in the value of many of those assets.

“Confidence has returned,” said Shubh Saumya, a financial services specialist at the Boston Consulting Group. “Some of the assets that bankers wrote down last year in the midst of the crisis, now they have got some of that back.”

As the number of banks has dwindled, the survivors are moving into the void left by rivals that are either dead or limping and unwilling to take risks.

A big reason for Goldman Sachs’s blowout profits this year has been the willingness of its traders to take big risks — they have put more money on the line while other banks that suffered last year have reined in such moves. Executives say there are big strategic gaps opening up between banks on Wall Street that are taking on more risks, and those that are treading a safer path.

Banks that have waded back into the markets have been able to exploit large gaps in the prices of various investments, a feature of the postcrisis financial markets. The so-called bid-ask spreads — the difference between the price at which banks are willing to buy things like bonds, and the price at which they are willing to sell — are roughly twice what they were two years ago.

Still, the newfound success is largely limited to the big securities houses on Wall Street. This week, Citigroup and Bank of America reported losses from credit card delinquencies and mortgage defaults — a sign of the lingering pain on Main Street.

- Via NY Times

"How Today's Market Is Like Dot-Com Bubble"

Elizabeth Warren: Banks’ Chutzpa “Astonishing”

Orange County Fairgrounds put on auction block

The Orange County Fairgrounds was placed on the auction block Thursday in an attempt to cut into the state deficit.

The state Department of General Services issued a request for proposals for the 150-acre property in Costa Mesa, giving bidders until Jan. 8 to make offers.

Earlier this year, Gov. Arnold Schwarzenegger proposed liquidating state properties -- including the Los Angeles Memorial Coliseum, San Quentin State Prison and three state-owned fairgrounds -- to raise cash to help balance the state budget. If a buyer is found, the property could be in a new owner's hands in a year, said Eric Lamoureux of the General Services Department.

The Orange County Fairgrounds is the highest-value property listed in a July 24 budget bill that authorizes the sale of state assets.

The Orange County Fair Board and Orange County Board of Supervisors each passed resolutions supporting the idea to sell the fairgrounds to a government or nonprofit agency, saying they wanted it to remain in local hands and continue to be used for a fair.

Over dinner Wednesday night at a restaurant in Newport Beach, fair board members, local politicians and attorneys signed papers to form the Orange County Fair and Event Center Foundation, which will be made up of six members from the existing fair board, two members from Costa Mesa, two members from the county and one public member elected by the board.

The foundation was formed to put together a bid but hasn't yet come up with a way to pay for it, said Kristina Dodge, chairwoman of the fair board and the new foundation.

"We don't want to see it go away, so we're there to protect, preserve, promote and enhance the fair," she said.

But the document filed Thursday shows the state is prepared for the possibility that the new owner could use the land for something other than fairs: "The state will retain the right to profit participation in the property in the event that all or a portion . . . is no longer used for fairground and event uses."

No minimum bid has been established, and the state is not required to accept any bid deemed too low. The governor's office has estimated the site could sell for $96 million to $180 million.

The sale has been opposed by fair vendors, who fear the new nonprofit's ability to keep the land from being developed.

"They have yet to show . . . how they intend on coming up with the $40-plus million to buy the place," said Chris Gaggo of Escondido, who has sold watches and clocks at the fairgrounds for nine years. "Who's to make sure it's still a fairgrounds five years from now? What city official is going to fight against the redevelopment of the property?"

 - Via LA Times 

California bank becomes 99th to fail in U.S. in 2009

California regulators on Friday closed the San Joaquin Bank of Bakersfield, which became the 99th U.S. bank to fail in 2009.


The Federal Deposit Insurance Corp. said Citizens Business Bank of Ontario, Calif., will buy almost all the assets of the failed bank and assume all the deposits.

As of Sept. 29, San Joaquin Bank assets of $775 million and deposits of $631 million, the FDIC said.
The cost to the Deposit Insurance Fund will be $103 million, the FDIC estimated.

San Joaquin Bank was the 10th in California to fail this year. Before Friday, the most recent failure in the state was Affinity Bank of Ventura on Aug. 28.

- Via Market Watch

Drop in Natural-Gas Prices Deflates South Texas

BEEVILLE, Texas -- The county clerk's office in this South Texas town was abuzz last year as natural-gas prospectors pored over property records, searching for the next place to sink a well.

As Gas Prices Fall, Life in Beeville Slows.


 
Eli Meir Kaplan for The Wall Street Journal

Chris Bernal entered the Bee County courthouse Wednesday. The letter B is laid out in the entry hall's tile floor.

But things are much quieter now in the domed courthouse in the town square; natural-gas prices have plunged and energy companies have pulled way back on drilling, particularly in older gas fields like those that dot this part of the state.

People across the country who heat their houses with natural gas have benefited from falling gas prices, which have dropped nearly 65% from their high in July 2008 of more than $13 per million British thermal units, to about $4.78 per million BTUs on Friday.

But here in Beeville, about 100 miles southeast of San Antonio, the price drop has made life a little tougher. The unemployment rate has climbed to 10% from 6.9% a year ago; the jobless rate is the highest here since 1993 and is among the highest in this part of the state. Residents say there are fewer cars on county roads and fewer customers at the local movie theater's evening shows.

Things were different last year, when oil and gas companies flocked here to search out energy reserves. That push boosted the local economy, starting with landowners who saw fatter royalty checks and industry workers who found themselves in strong demand. It spread, too, through companies that provide services to the industry and the restaurants and stores where the additional money was spent.

"When [the gas] price goes up, everything booms," said Dan A. Hughes, chief executive of an oil and gas production company in Beeville that bears his name.

But with prices down, Mr. Hughes said he will drill about half as many wells as usual in the region this year and has choked back output from existing wells in the hope that gas prices will rebound.

Those kinds of cutbacks -- combined with the recession -- have hit the bottom line at the courthouse, too. When gas prices were high, Bee County took in $10,000 a month from photocopying deeds, leases and other documents for the energy workers known as landmen. That revenue fell to as little as $2,500 a month this summer.

"We have less money, period," said David Silva, the county's top administrator.

Two workers run pipe into a natural-gas well in Karnes County, Texas, tied to a firm in the town of Beeville.



Low prices aren't the only reason for worry about the gas industry in the county, which has about 33,000 residents. The traditional wells found here have fallen out of favor as energy companies have turned to more lucrative gas deposits in dense shale rock: the Barnett in Texas, the Fayetteville in Arkansas, the Marcellus in Pennsylvania and the Haynesville in Louisiana.

Shale wells were until recently more expensive and difficult to exploit than traditional gas wells. But with the advances in technology, shale wells have become about twice as productive as conventional gas wells and less risky, allowing companies to drive down costs.

Bee County, which is more than half Hispanic and has a per-capita income of $12,000 a year, compared with about $26,000 nationally, relies heavily but not solely on oil and gas drilling.

Ranching is also a big business here. And dove hunters pack into the hotels here along state Highway 59 in the fall, giving the local economy a seasonal boost.

Beeville, the county seat, boasts a Wal-Mart and a state prison that provide jobs and help sustain the town even through tough economic times. But this year, local businesses are still feeling the pinch.

Syd Hall, president of Rio Entertainment, said fewer people are attending the $5 evening shows at his six-screen movie theater in Beeville and instead are opting for the $3 matinees.

Joe Henry Alaniz, who is co-owner of both a Chevrolet dealership and an auto garage in Beeville, said customers have become reluctant to put money into their cars. "It trickles down and everybody gets hurt," Mr. Alaniz said.

Some Beeville natives, however, refuse to believe the decline here is permanent. One, Raymond Welder, president of San Antonio-based Welder Exploration & Production Inc., said he expects drilling to thrive again in South Texas.

Over the years, "people have called for the death of the oil and gas business in South Texas," he said. "But it keeps coming back."

CIT Group Amends $29 Billion Debt Exchange to Avoid Collapse

CIT Group Inc., the 101-year-old commercial lender seeking to avoid collapse, changed the terms of its $29 billion debt exchange to increase support among its bondholders.

Maturities on new notes issued in exchange for existing bonds will be shortened, the New York-based company said yesterday in a statement distributed by Business Wire. CIT will also boost the amount of equity offered to subordinated debt holders and include notes due after 2018 that previously weren’t part of the exchange offer or reorganization plan.

CIT is seeking to reduce debt by at least $5.7 billion after being locked out of the unsecured debt markets it relies on for funding and posting nine quarters of losses totaling more than $5 billion. It turned to bondholders in July for $3 billion in rescue financing after failing to win access to a Federal Deposit Insurance Corp. program to sell U.S.-backed debt.

“Given our expectation for the exchange to fail, they would have to amend it to avoid bankruptcy,” Adam Steer, an analyst at CreditSights Inc. in New York said in a telephone interview Oct. 14.
Moody’s Investors Service said Oct. 8 that CIT may need to liquidate if too few investors agree to either the swap or a prepackaged bankruptcy. Credit rating firm Egan-Jones Ratings Co. recommended that bondholders reject the offer. CIT said Oct. 13 that Chairman and Chief Executive Officer Jeffrey Peek plans to resign at yearend.

Under the out-of-court restructuring, bondholders were to receive 70 cents to 90 cents on the dollar in the form of new debt, plus 94 percent of the equity in the company, CIT said Oct. 2 in a filing with the U.S. Securities and Exchange Commission. This excluded most unsecured notes.

Oct. 29 Deadline 

With the prepackaged bankruptcy plan, bondholders would have received 70 cents on the dollar in the form of new 7 percent notes, plus 83.4 percent of equity in the reorganized company, according to an Oct. 8 report from CRT Capital Group LLC in Stamford, Connecticut. This excludes most unsecured notes maturing after 2018, which are left in place, CRT said.

The exchange offer expires at 11:59 p.m. on Oct. 29, according to the filing. CIT said yesterday that the offer to exchange notes due after 2018 will expire Nov. 13.

CIT may receive a loan of as much as $6 billion from bondholders that helped provide the emergency financing, a person familiar with the matter said this month. The funds are intended to finance a prepackaged bankruptcy if the out-of-court exchange fails to gain enough support, another person familiar with the matter said this month.

CIT, which has $42.8 billion in bonds and loans outstanding, funds about 1 million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue, Washington. The company says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier.

Pimco, Baupost 

A collapse would ripple across the “small and medium-sized businesses who rely on the finance company to operate -- to pay their vendors, ship goods to their customers and make their payroll,” CIT said in internal documents obtained by Bloomberg News in July that make the case for its importance to the U.S. economy.



Talks with regulators broke off July 15 and “there is no appreciable likelihood of additional government support being provided over the near term,” CIT said in a statement at the time. The U.S. government committed $2.33 billion in taxpayer funds in December to keep CIT afloat.

Pacific Investment Management Co. and Baupost Group LLC resigned more than a month ago from a steering committee that had to approve the restructuring plan. The remaining creditors on the committee are Centerbridge Partners LP, Oaktree Capital Management LLC, Capital Research & Management Co. and Silver Point Capital LP.

The lender may be unable to create a “long-term, viable” source of funding even if the debt swap succeeds, Moody’s said in its Oct. 8 report.

- Via Bloomberg

Goldman exec named first COO of SEC enforcement

WASHINGTON — A Goldman Sachs executive has been named the first chief operating officer of the Securities and Exchange Commission's enforcement division.

The market watchdog agency said Friday that Adam Storch, vice president in Goldman Sachs' Business Intelligence Group, is assuming the new position of managing executive of the SEC division.
The move came as the SEC has been revamping its enforcement efforts following the agency's failure to uncover Bernard Madoff's massive fraud scheme for nearly two decades despite numerous red flags.
Storch, who will be responsible for project management and operations, will report to SEC Enforcement Director Robert Khuzami.

Along with the enforcement division's deputy director, Storch also will supervise the SEC's Office of Market Intelligence, with an eye to improving the monitoring, collection and analysis of the hundreds of thousands of tips and complaints the agency receives annually.

Before joining Goldman Sachs, Storch was a senior consultant at accounting firm Deloitte & Touche. He is a certified public accountant and certified fraud examiner, and has an MBA from New York University and bachelors of science in business administration from the State University of New York in Buffalo.

Storch has a strong background in technology systems and project management, Khuzami said in a statement. "He will help to make us more efficient and nimble, and permit us to put more of our investigators on the front lines to detect and stop fraud," Khuzami said.

Khuzami, a former federal prosecutor who came to the SEC in March from Wall Street investment firm Deutsche Bank, says he has undertaken the most extensive restructuring of the enforcement division in at least 30 years.

In addition, SEC Chairman Mary Schapiro ended a policy requiring agency enforcement attorneys to get approval from the SEC commissioners before negotiating fines and penalties with companies accused of violations.

The SEC inspector general recently recommended a new system for handling tips and complaints to prevent another breakdown like the one that allowed Madoff's Ponzi scheme to flourish for 16 years.
The proposals from SEC Inspector General David Kotz for the enforcement and inspections operations also include making it easier for junior-level enforcement attorneys to bring their concerns to top managers.


In a report issued in August, Kotz detailed how the SEC bungled five investigations of Madoff's business between June 1992 and last December, when the financier confessed the scheme to his sons. He found that enforcement staff lacked adequate guidance on how to properly analyze complaints, and therefore failed to thoroughly review a complaint on Madoff brought to them in 2001 by private fraud investigator Harry Markopolos.

Madoff, who pleaded guilty in March, is serving a 150-year sentence in federal prison in North Carolina for what could be the biggest Ponzi scheme in history. It destroyed thousands of people's life savings, wrecked charities and gave the financial system another big jolt.

- Via AP

Harvard Paid $500 Million to Exit Backfired Interest-Rate Swaps

Harvard University, the world’s richest school, paid almost $500 million to investment banks to escape interest-rate swaps that backfired, according to the school’s annual report released today.
Harvard paid $497.6 million during the fiscal year ended June 30 to get out of $1.1 billion of interest-rate swaps intended to hedge variable-rate debt for capital projects, the report said. The university in Cambridge, Massachusetts, said it also agreed to pay $425 million over 30 to 40 years to offset an additional $764 million in swaps.

The swaps began losing value last year when benchmark interest rates fell in the global credit crisis, forcing the school to post collateral to the banks that sold the swaps, said Daniel Shore, Harvard’s chief financial officer. Harvard sold $2.5 billion in bonds, in part to pay for the swap exit, even as the school’s endowment recorded its biggest loss in 40 years, the Harvard annual report said.

“When we went into the fall, we had some serious liquidity management issues we were dealing with and the collateral postings on the swaps was one,” Shore, who is also Harvard’s vice president for finance, said in an interview today. “In evaluating our liquidity position, we wanted to get some stability and some safety.”


Swaps are a type of derivative where two parties agree to exchange payments tied to a financing, typically a variable-rate for a fixed-rate payment. The terminated swaps include three tied to $431.7 million of bonds the university sold in 2005 and 2007, the annual report said.

- Via Bloomberg

Geithner Says U.S. Must Instill Confidence in Fiscal Management

Treasury Secretary Timothy Geithner said the U.S. must reduce its record budget deficit as soon as the economy returns to a sustainable growth rate without relying on government assistance.

“Americans understand that we have to go back to living within our means as a country,” he said in an interview broadcast today on CNBC. “When we have an economy that’s growing again and we get unemployment down, we’re going to have to bring those deficits down.”

The U.S.’s 2009 budget gap widened to $1.42 trillion as the deepest recession since the 1930s crippled tax revenue and the administration increased spending to rescue the economy. The shortfall for the 12 months ended Sept. 30 was more than triple the $455 billion record set a year earlier, the Treasury Department said today in Washington.

Geithner cautioned that a lack of confidence that the U.S. will return to fiscal sustainability may lead to a weaker economic recovery, higher interest rates and constrained investment.

“That’s why deficits matter. That’s why deficits in the end can be very damaging to growth,” he said. “That’s why you cannot live with future deficits as large as ours are likely to be.”

The Treasury chief said he hasn’t decided yet whether to extend the $700 billion Troubled Asset Relief Program, adding that it’ll be important to businesses and the housing market that the government has the ability to “continue to put in place programs to help make sure they get credit.”


Asked whether tax cuts enacted during the Bush administration should be allowed to expire next year, he said, “it does not make sense to raise taxes in a recession” and that “getting growth on track led by the private sector is still our most important priority.”

Geithner also said he sees a “good case” for Congress to pass legislation extending unemployment benefits.

- Via Bloomberg

Global banking body may be needed-FSA

Raj Rajaratnam, the billionaire founder of Galleon Group, and former directors at a Bear Stearns Cos. hedge fund were among six people charged in a $20 million insider trading scheme federal prosecutors called the biggest ever involving hedge funds.

Prosecutors also arrested Rajiv Goel, who worked at Intel Capital as a director in strategic investments, Anil Kumar, who worked as a director at McKinsey & Co., and IBM Corp. executive Robert Moffat. The former officials at Bear Stearns Asset Management are Danielle Chiesi and Mark Kurland, who were affiliated with the firm’s New Castle Partners, which managed about $1 billion.

“The defendants operated in a world of, you scratch my back, I’ll scratch your back,” U.S. Attorney Preet Bharara in Manhattan said at a press conference today. “Greed, sometimes, is not good.”

It’s the largest ever hedge fund insider trading case, Bharara said. It’s the first time wiretaps have been used to target insider trading, signaling the government will now use the same tools against Wall Street that it employs in organized crime and drug cases, he said. Bharara called the case “unprecedented.”
Tips came from insiders and others at hedge funds, investor relations firms, and companies including Intel, IBM, McKinsey, and companies whose shares were traded in the scheme, Bharara said. The prosecutor said the investigation was continuing and declined to say whether others would be charged.


Plane Ticket 

Rajaratnam and his firm earned from $17 million to $18 million from the fraud, Bharara said. In recent days, he may have been aware he was under investigation. According to one of two criminal complaints filed today, he told an acquaintance that he believed a former Galleon employee was wearing a “wire.” Rajaratnam bought a plane ticket on Oct. 14 for travel to London today, the complaint says.

“Galleon was shocked to learn today that Raj Rajaratnam was arrested this morning at his apartment,” the firm said in a statement. “We had no knowledge of the investigation before it was made public and we intend to cooperate fully with the relevant authorities. Galleon continues to operate and is highly liquid.”

The Securities and Exchange Commission also today sued Rajaratnam for engaging in insider trading. The SEC’s complaint said that Rajaratnam didn’t deserve his reputation for “genius trading strategies” or “astute study of company fundamentals or marketplace trends.”

Master of the Rolodex 

“Raj Rajaratnam is not a master of the universe, but rather a master of the Rolodex,” Robert Khuzami, director of enforcement at the SEC, said at the press conference. “He cultivated a network of high-ranking corporate executives and insiders, and then tapped into this ring to obtain confidential details about quarterly earnings and takeover activity.”

Rajaratnam, 52, a graduate of the University of Pennsylvania’s Wharton School, was identified this year by Forbes as the 559th richest person in the world, with a net worth of $1.3 billion. Galleon Partners is based in Manhattan and has offices in London, Singapore, Mumbai, and Menlo Park, California. He faces 13 fraud and conspiracy counts, many of which carry 20-year maximum sentences.

Rajaratnam lives in New York City, as do Chiesi, 43, and Kurland, 60. Goel is 51 and lives in Los Altos, California. Kumar is also 51 and lives in Santa Clara, California. Moffat, 53, lives in Ridgefield, Connecticut.

Rajaratnam’s lawyer, Jim Walden, Kurland’s attorney, Lawrence Iason, and Chiesi’s lawyer, Alan Kaufman, didn’t immediately return calls.

Arrested 

Five of the defendants were arrested in the New York City area and are to appear today in Manhattan court today. Goel was arrested in California.

“My client is shocked and distraught,” said Kerry Lawrence, Moffat’s lawyer, in an interview in court today. He said his client learned only this morning of the U.S. investigation.

The six are charged with using insider information in two overlapping schemes to trade in shares of companies including Google Inc., Polycom Inc., Hilton Hotels Corp. and Advanced Micro Devices Inc., according to the complaints.

Since November 2007 

Prosecutors said they’ve been investigating the case since at least November 2007, when a person they don’t name in the complaint began meeting with agents of the Federal Bureau of Investigation. The person, who has pleaded guilty and is cooperating with authorities, had used inside information to trade securities and tipped Rajaratnam since 2006, prosecutors said.

The person, who had sought a job at Galleon in 2005, helped prosecutors by “making consensual recordings of four telephone conversations” with Rajaratnam, the complaint says.

Authorities say they have other taped conversations of the billionaire as well. On March 7, 2008, the government got court approval to intercept a cell phone Rajaratnam used, according to one of the complaints. Prosecutors said they’ve also been listening to two of Chiesi’s landlines since August 2008.

“A number of the calls intercepted over the wiretap consist of Rajaratnam either providing, receiving, or seeking material nonpublic information about various publicly traded companies,” a complaint says.


Leaks From Insiders 

Prosecutors say Rajaratnam traded in 2006 and 2007 on leaks from insiders at Polycom, Moody’s Investors Services Inc. and Market Street Partners. A Moody’s analyst offered news about Hilton, and the Market Street Partners source provided tips about Google, prosecutors said. Rajaratnam earned $12.7 million on the leaks and gave a confidential government informant inside information on other companies in return, they said.

Goel, who had been working in the treasury of Intel Corp., the world’s biggest chipmaker, passed along news about Clearwire Corp. that he learned from investments made by Intel, and Rajaratnam earned about $579,000 in profits, prosecutors said.

In return, “Rajaratnam placed profitable trades for the benefit of Goel in a personal brokerage account maintained by Goel at Charles Schwab,” Bharara said in a statement.


Tips Generated Others 

In another alleged scheme, Chiesi got secret tips from an unidentified person at Akamai Technologies Inc. and from Moffat, who passed along information about IBM, Sun Microsystems Inc., and Advanced Micro Devices Inc, one of the complaints says. Chiesi passed along the tips to Kurland and the two traded on the news, the complaint says.

These tips generated others, prosecutors said, as Chiesi passed them onto to Rajaratnam, who in turn gave Chiesi inside information about AMD and other companies, prosecutors said.

The complaint quotes from conversations between Chiesi and Rajaratnam, including a July 24, 2008, discussion that they had after she spoke to the Akamai executive. That day, Akamai stock had closed at $32.18.

“Akamai,” Chiesi told Rajaratnam, according to the complaint. “They’re gonna guide down. I just got a call from my guy.”

After Chiesi said that the company would bring the stock down to $25 a share, Rajaratnam replied that he would be “radio silent” and asked when Akamai would report, the complaint says.

“Just keep shorting every day,” Chiesi responded, the complaint says. “We got a lot of days.”

The complaint also quotes from a conversation on or about August 27, 2008, between Chiesi and a co-conspirator not named as a defendant.

Martha Stewart
“You just gotta trust me on this,” Chiesi is quoted as saying. “Here’s how scared I am about what I’m gonna tell you on AMD.” Chiesi and the co-conspirator talk a little more and Chiesi says, “I swear to you in front of God, you put me in jail if you talk.” Still later, she’s quoted as saying “I’m dead if this leaks. I really am … and my career is over. I’ll be like Martha f---ing Stewart.”

Kumar gave Rajaratnam tips about a McKinsey’s clients, and Moffat tipped Chiesi about an AMD venture in Abu Dhabi in which IBM participated, the complaints allege.

“The firm was distressed to learn that Mr. Kumar was arrested and is looking into the matter urgently,” said McKinsey spokeswoman Yolande Daeninck.

Goel “has been placed on administrative leave as we look into this matter,” said Chuck Mulloy, an Intel spokesman. The company has started its own investigation and will cooperate if contacted by the authorities, he said.


Moody’s Comment 

“The alleged wrongdoing by an individual at Moody’s would be an egregious violation of Moody’s policies and values,” said Michael Adler, a spokesman for the rating company, in an e- mailed statement. Moody’s will help the government with its investigation, he said.

IBM spokesmen Ian Colley and Ed Barbini did not immediately respond to phone and e-mail messages seeking comment.

Galleon, which started as a hedge fund firm focusing on technology and health-care stocks, grew to more than $5 billion in 2001 from its start in January 1997. Rajaratnam founded Galleon with three other colleagues from Needham & Co., an investment bank that focused on technology and health-care companies. None of the other co-founders are still at the firm, according to a Galleon marketing document.

Galleon Management, the company’s advisory business, oversaw more than $2.6 billion at the end of March, mostly on behalf of hedge funds, according to regulatory filings it submitted to the SEC at the time. Rajaratnam held a 50 percent to 75 percent controlling stake in the advisory, the documents show.

The cases are U.S. v. Rajaratnam, 09-02306, and U.S. v. Chiesi, 09-mag-2307, U.S. District Court, Southern District of New York (Manhattan).

- Via Bloomberg

Global banking body may be needed-FSA

A global body with legal powers may be needed over time to enforce the world's new financial rules, the Financial Services Authority (FSA) said on Wednesday.


The FSA's newly appointed and first director of international affairs, Verena Ross, said the Financial Stability Board (FSB) was key to ensuring all gaps in regulation between securities, insurance and banking sectors were plugged.

Formerly known as the Financial Stability Forum, the FSB was expanded in April to include central bankers and finance ministry and regulatory officials from all Group of 20 (G20) countries.

The G20 has asked the body, chaired by Bank of Italy Governor Mario Draghi, to coordinate global efforts to introduce new financial rules in light of the sector's worst crisis in 70 years.

"I would advocate to make sure the FSB have a strong secretariat to support their work," Ross told a City and Financial Conference.

"The role of the FSB is crucial. We will need to make sure it is able to play its role forcefully... Success depends on real progress over the next six to 12 months," she said.

But the board has no legal teeth and there are "real questions" about whether the world can continue with such informal arrangements in the longer term, Ross said.

There may be a case for exploring the need for a more formal global regulatory framework, such as a body with legal powers of enforcement like the World Trade Organisation, Ross added.

"Any move in that long-term direction would have the FSB very firmly at the centre of that global regulatory architecture," Ross said.

Regulators need to be better at checking on the enforcement of the new rules and banks have a role in this, she said.

COST OF EXTRA CAPITAL

Banks have urged a coordinated global approach to regulation to stop some countries having an unfair advantage, especially in tougher bank and liquidity rules due to take effect by the end of 2012.
Angela Knight, chief executive of the British Bankers' Association, said it was clear the minimum 8 percent of capital banks must hold under the global Basel II accord would rise.
 
"The crisis has demonstrated that the Basel international capital rules were wrong. They neither judged correctly the amount of capital that was needed to be in the system nor the amount that banks needed to hold," Knight said.

Basel is being toughened up to include a leverage ratio or cap, minimum liquidity levels, capital charges on trading books and improvements in the quality of capital that must be held.

"Capital, that is the big cost. That will have the greatest consequence on how the industry will be able to perform its business," Knight said.

Banks in Britain have already doubled their capital requirements from the 8 percent Basel minimum, she added.

A proper impact assessment is therefore needed on the effect of tougher capital rules on lending and economy as well as timing of the new rules, Knight said.

FSA Chairman Adair Turner has called some banking services "socially useless," but Knight warned against using "buzzwords and catchphrases" as activities such as securitisation were being maligned even though they provided finance raising.

The securitisation market has just started to reopen after freezing during the credit crunch and must be allowed to continue reviving, she said.

Banks are also concerned about global plans for a cap on leverage, saying it should only be a backstop and not interfere with capital requirement rules for "normal business as usual."


Katharine Seal, a director at the London Investment Banking Association, said: "It's an area where an ability to be flexible is absolutely paramount."

Knight expects the European Union to beef up consumer protection, such as direct product regulation, which UK lawmakers may support.

"There is a case for looking at that issue," said John McFall, chairman of Britain's parliamentary treasury committee.

Sorry, no jobs. This is California

If you're looking for work, don't look in California.

The world's eighth largest economy is still finding its feet after suffering multiple economic shocks, including a housing slump, mortgage crisis and recession.

Employers in California, the most populous U.S. state, are expected to keep cutting staff in 2010 as the wider U.S. jobs market recovers.

As industries in other U.S. states prepare to rehire on signs of recovery, firms in California are still waiting for their economy to rebound.

The state has 12.2 percent unemployment, above the national U.S. level of 9.8 percent, and at odds with California's image as an oasis of opportunity in hard times.

California's economic engines -- Silicon Valley, Hollywood and gateway ports to Asia -- remain the envy of other U.S. regions but seem incapable of reducing Rust Belt-like unemployment rates.
That is largely because of the Golden State's housing and home building crisis.

In the 12 months through August, California's construction industry shed 142,000 jobs, or 18.5 percent of its work force, marking the largest decline on a percentage basis over the period of surveyed industry groups.

Those workers are struggling to find new jobs in construction or other trades, according to analysts.
House prices soared higher in California than in most other U.S. states earlier this decade and have crashed harder amid the credit crunch.

Developers are trying to unload unsold new homes and real estate agents are relying on selling foreclosures for a large share of business.

Tight credit and steep job losses have slimmed ranks of prospective home buyers, with many waiting for prices to drop further. At the same time, a number of other states are beginning to see home prices stabilize.

Tumbling personal, corporate and property tax revenues have put the brakes on government hiring as manufacturers wait for consumer spending to pick up before adding jobs.

"We're calling for a jobless recovery," said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp.

SURVIVAL MODE

California is not poised for relief from double-digit unemployment like the broader U.S. jobs market, which is expected to see joblessness peak at 10 percent in early 2010 and ease to 9.5 percent by the end of next year, according to the National Association of Business Economics.

Analysts expect California's jobless rate to climb well into next year even as other measures of the state's economy regain some of their luster.

Comerica Bank last week reported its California Economic Activity Index extended gains since March by rising to a reading of 101 in August and marking a "welcoming strengthening" of the state's economy, said Dana Johnson, the bank's chief economist.

"The key missing ingredient to a sustained and healthy rebound continues to be job growth," Johnson said. "It is the only component of our index that has not contributed positively since it bottomed five months ago."

Similarly, California purchasing managers expect manufacturing to grow this quarter -- without new jobs.

Chapman University's index tracking their views rose to 54.5 this quarter from 53.8 in the third quarter, a return to late-2007 levels and the second consecutive quarter of readings above 50, indicating expansion.

Job seekers, however, won't benefit. Chapman University's index report said output and new orders are projected to increase in the fourth quarter, but employment and inventories of purchased materials are expected to decline at a faster rate compared to the third quarter.

Manufacturers are reluctant to hire without definitive signs the recession is letting up, said Raymond Sfeir of the university's Anderson Center for Economic Research.

"They're trying to survive with as few workers as possible," Sfeir said. "They're not going to commit until they're more certain."

Small- to medium-sized companies need more than economic cues to boost payrolls, Kyser said: "They're having trouble accessing bank lending and are concerned about health-care reform and about environmental regulations out of Sacramento."


They're also waiting on consumers who have been stashing cash and paying off debt in a hurry instead of fueling job growth at shops, distribution centers, offices and factories.

"About every two weeks I do a 'mall crawl' to regional malls to see how many people are there and carrying bags," Kyser said. "They're out strolling around, getting out of the house. But they're not spending."

That doesn't bode well for Los Angeles County, California's most populous county. Kyser sees its jobless rate next year averaging 12.8 percent -- or worse. "That may be a conservative forecast because it's already at 12.3 percent," he said.

- Via Reuters

Fed Can't Wait Too Long for Policy Shift: Volcker

The enormous amounts of liquidity pumped into the U.S. financial system by the Federal Reserve are not inflationary "at the moment" but will become so at some point, Paul Volcker, the former Fed chairman and a White House adviser, said on Thursday.

Tina Fineberg / AP

Volcker, now an economic adviser to President Barack Obama, said it was difficult, but necessary, to start draining the billions of dollars in liquidity even while unemployment rates remained high as the U.S. battles out of recession.

"You have to act against what seems like common sense. If you wait, it's too late," Volcker said while answering questions after a speech on financial markets at Harvard University's Kennedy School of Government.

Volcker is best known for bringing down raging inflation in the United States after he was appointed Fed chairman in 1979 -- chiefly by pushing the federal funds rate, the central bank's key policy tool, to a peak of 20 percent in 1981.

Volcker's hawkish rhetoric, urging a pro-active policy shift by the Fed, helped push up the rate of the dollar against the Japanese yen to a three-week high of 90.99 yen in Asian trading, from the New York close of 90.55, according to strategists at 4CAST.

In the meantime, Volcker said the recent sharp rally in the U.S. stock market from recession lows and other signs of revival in financial markets should not lead to complacency in the push for financial reforms. Volcker chairs the Economic Recovery Advisory Board set up at the start of the Obama administration.

Financial markets have not yet fully healed, he said, and the economy remains plagued by structural imbalances that threaten to prevent a sustainable recovery taking hold from the deep recession.

"We have to regain our ability to produce goods. Moving money around does not necessarily provide dinner on the table," Volcker said. "You can't run an economy where the financial sector is making 40 percent of the profits."

Answering a question from the audience, Volcker said he doubted China would embark on a major reduction of its U.S. dollar-denominated assets, partly because the alternatives to the dollar, including the euro and the Japanese yen, do not look that great either.

China has "a great interest in the stability of the dollar," he said. Volcker said moral hazard -- the concept that investors may take greater risks if they believe the government will protect them from suffering losses -- remained an issue in the wake of the government's bailout of several major financial institutions, by creating expectations for future bailouts.

"There is this kind of hovering concern about moral hazard that could create another crisis down the road," Volcker said.

He urged a structure in which protections were offered to commercial banks, the "backbone" of the financial system because of their key role in providing credit to the economy, but not to all classes of financial institutions.

- Via CNBC

Consumer Sentiment Falls Unexpectedly in October

U.S. consumer sentiment fell unexpectedly this month on persistent worries that the "dismal" state of personal finances would not recover quickly from the worst recession in decades, a report showed Friday.

Consumer confidence fell unexpectedly in October.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for October fell to 69.4, from September's 73.5.

That was below economists' median expectation of a steady reading of 73.5, according to a Reuters poll.

"While consumers still anticipated gains in the general economy and now think that the unemployment rate is close to its cyclical peak, there has been no improvement in consumers' dismal assessments of their personal financial situation," the report said.

"Indeed, personal finances have undergone the longest and deepest decline in the 60-year history of the surveys, and few consumers expect their finances to improve anytime soon."

The report said diverging prospects for the general economy and personal finances would have a negative impact on the pace of the recovery, with consumers eager to increase their savings and pay down debts.

- Via CNBC

Chrysler Said to Plan Production of 100,000 Fiat 500s in Mexico

Chrysler Group LLC, the U.S. automaker run by Fiat SpA, is asking suppliers to plan to make enough parts for more than 100,000 Fiat 500 small cars to be built in Mexico, people familiar with the matter said.


Chrysler plans to sell three-fourths of the minicars in the U.S., Mexico and Canada and 25 percent in South America, said one of the people, who asked not to be named because the matter is private. The volume projections for the suppliers were for 104,000 to 120,000 vehicles annually.

Chrysler’s volume projections anticipate strong sales for the minicar, which is more than six inches shorter in length than Bayerische Motoren Werke AG’s Mini Cooper compact. The 500, called the Cinquecento in Italy, is a premium small car designed to compete with the Mini for customers, said Aaron Bragman, an analyst with IHS Global Insight Inc. in Troy, Michigan.

“We don’t think it will be priced much lower than the Mini Cooper, and if that is the case we think it will have a fairly limited appeal,” he said.

Chrysler Chief Executive Officer Sergio Marchionne has said he plans to begin selling the 500 in the U.S. by the end of next year. By aiming to produce about 80,000 for sale in North America, the company is indicating a sales volume that may surpass Mini Cooper in its first year on the market.
Global Insight projects U.S. sales of 40,000 to 50,000 for the 500 in its first full year. Mini Cooper sold a total of 60,992 vehicles in North America in 2008, with about 85 percent of sales coming from the U.S., according to the company.

Gas-Price Bet 

Sales may be elevated by rising fuel prices that make small cars more attractive to consumers, as happened in 2008, when gasoline topped $4 a gallon, Bragman said.

“They are assuming that fuel prices are going to return to levels that they were,” he said. “I think that is a bit optimistic.”



The Mini is a premium small car, with a starting price of $19,500 for the basic Mini Cooper model, according to the company’s Web site. In England, the Fiat 500 starts at 8,700 pounds ($14,152) while the least expensive Mini is priced at 10,950 pounds, according to the companies’ Web sites.
Shawn Morgan, a Chrysler spokeswoman, said the company “doesn’t comment on speculation.” Chrysler, based in Auburn Hills, Michigan, hasn’t said where it will build the 500 or detailed any future product plans since the company left bankruptcy on June 10. It has set up an event on Nov. 4 to explain its business plan to journalists and financial analysts.

The automaker plans to build the 500 at a factory in Toluca, Mexico, said the people familiar with the planning. That plant now makes the Dodge Journey and Chrysler PT Cruiser wagons. Fiat builds the 500 in Tychy, Poland. Marchionne said it will be sold in the U.S. as a Fiat -- the brand’s lone model -- with four different variants.

This year through September, Fiat has sold 380,000 of the small cars globally. Turin, Italy-based Fiat has a 20 percent stake in Chrysler and has management control of the company.

- Via Bloomberg

I would totally take a Fiat Abarth 500 SS how cool is this thing. Beats that metrosexual Mini.

 

U.S. Stocks Drop on GE, Bank of America’s Results; Dollar Gains

U.S. stocks fell as General Electric Co. reported sales that trailed analysts’ estimates and Bank of America Corp. posted a loss. The dollar rose for the first time in five days.


GE, the world’s biggest maker of jet engines, slumped 3.1 percent after reporting $1.9 billion less revenue than analysts forecast. Bank of America retreated 5.1 percent following its $1 billion loss. Google Inc. rose 3.1 percent as Chief Executive Officer Eric Schmidt said the worst of the recession has passed and the company is now more focused on acquisitions.

The Standard & Poor’s 500 Index slipped 0.8 percent to 1,087.03 at 9:32 a.m. in New York, trimming its second straight weekly advance to 1.5 percent. The Dow Jones Industrial Average fell 105.04 points, or 1 percent, to 9,957.90. The dollar strengthened 0.5 percent against the euro.

“The market is evaluating each bellwether as it comes through and showing its elation or disappointment,” said Philip Orlando, who helps oversee $400 billion as chief equity market strategist at Federated Investors Inc. in New York. “You had some blowout numbers yesterday, and the market moved up. Today, you had disappointing earnings from GE and Bank of America and the market responded accordingly.”

S&P 500 futures rose after the stock market closed yesterday following better-than-estimated earnings from Google. So far, 80.4 percent of companies in the index beat third- quarter earnings estimates. That compares with 72.3 percent during the entire April-through-June period, which matched the highest proportion in Bloomberg data going back to 1993.

Reversing Gains 

Stocks turned lower today, erasing a 0.5 percent advance in S&P 500 futures, after the reports from GE and Bank of America.

GE slumped 3.1 percent to $16.27. Third-quarter profit declined 45 percent as the company scaled back real estate and consumer lending and sold fewer medical machines, leading to a steeper drop in sales than analysts projected. Revenue decreased 20 percent to $37.8 billion.

Bank of America slipped 5.1 percent to $17.17. The lender’s $1 billion third-quarter loss, or 26 cents per diluted share, compared with a profit of $1.18 billion, or 15 cents, a year earlier.

International Business Machines Corp. dropped 4.1 percent to $122.79. The world’s largest computer-services company said new contract signings declined last quarter, a sign that customers aren’t yet ready to increase spending as the economy begins to recover.


Missing Forecasts 

Advanced Micro Devices Inc. fell 6 percent to $5.82 after the chipmaker predicted that sales will be “up modestly” in the fourth quarter, a forecast that fell short of some analysts’ estimates.

Google gained 3.1 percent to $546.21. The company reported profit and sales that beat analysts’ estimates after the recovering economy boosted demand for online ads and e-commerce.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against six major U.S. trading partners, rose from a 14-month low. The gauge added 0.4 percent to 75.764, rebounding from an almost 14-month low, after some investors bet that the currency’s four-day decline was overstated given signs of a U.S. economic recovery.

The yield on the 10-year Treasury fell 0.03 percentage point to 3.42 percent. The Federal Reserve said output at U.S. factories, mines and utilities in September rose more than three times as much as economists predicted. The 0.7 percent increase exceeded every forecast in a Bloomberg News survey and followed gains of 1.2 percent in August and 0.9 percent in July.

The Reuters/University of Michigan preliminary index of consumer confidence at 10 a.m. in New York may show that sentiment this month slipped from the highest level in more than a year, economists said.

- Via Bloomberg

GE Profit Falls 45% as Revenue Trails Estimates

General Electric Co.’s third-quarter profit declined 45 percent as the company scaled back real estate and consumer lending and sold fewer medical machines, leading to a steeper drop in sales than analysts projected.


Chief Executive Officer Jeffrey Immelt is shrinking the finance unit and weighing a reduced stake in NBC Universal as he builds energy, transportation and health-care businesses to help emerge from the recession. The GE Capital plan is ahead of schedule, Immelt said on a conference call after today’s earnings report. Higher losses in consumer finance and fewer real estate transactions reduced the unit’s profit and sales.

“The quarter looks mixed, with revenues disappointing,” said Joel Levington, the director who tracks GE for Brookfield Investment Management Inc. in New York.

Profit from continuing operations declined to $2.45 billion, or 22 cents a share, from $4.48 billion, or 45 cents, a year earlier, the company said in a statement. The average profit estimate of 13 analysts in a Bloomberg survey, excluding some items, was 20 cents a share. Results include 5 cents a share of restructuring costs, GE said.

Revenue fell 20 percent to $37.8 billion, trailing the average estimate of $39.7 billion. The figure was “in-line with our expectations,” GE said in the statement.

Fairfield, Connecticut-based GE fell 34 cents, or 2.7 percent, to $16.34 at 8:54 a.m. in trading before the opening of the New York Stock Exchange. The shares gained 3.6 percent this year through yesterday.

Orders and Backlog 

Total orders declined 18 percent, and equipment and service contract cancellations remain “insignificant,” GE said. Large equipment orders in the so-called infrastructure divisions also fell 18 percent from a year earlier, a slower pace than the second quarter’s 44 percent drop. The total backlog rose about 2 percent to a record $174 billion.

The third quarter was likely the low point in orders, Immelt said today on a conference call with analysts.

Profit rose 11 percent at GE Energy Infrastructure, while GE Technology Infrastructure declined 8 percent, dragged down by lower results at health care, locomotive and factory automation units. NBC Universal posted a 13 percent increase. GE Capital posted profit of $263 million, an 87 percent decline, with only the GE Real Estate segment recording a loss.

“While it remains a tough environment for GE Capital, we are seeing signs of stabilization,” Immelt said in the statement. The segment has completed its plans to refinance debt in 2009 and is more than 90 percent of the way in meeting its need for 2010, the statement said.

Paring Businesses 

GE’s businesses include the world’s biggest makers of jet engines, locomotives and medical-imaging machines. Its power- generation equipment produces about a third of the world’s electricity. Immelt is seeking sales from emerging markets such as China, India and the Middle East, and more than half of all GE’s sales come from outside the U.S.

Cash generated from the company’s non-financial divisions was $4.4 billion in the quarter and $11.4 billion year-to-date, putting GE on track to reach $15 billion, Immelt said in the statement.
“This company is on track now to get back to what I think it’s capable of doing,” James Hardesty, president of Hardesty Capital Management, which holds GE shares, said today in an interview with Bloomberg Television.

Cost Reductions 

GE spent $600 million on cost reductions in the quarter, knocking about 5 cents a share off profit and bringing total year-to-date expenses to cut jobs, shut offices and consolidate some plants to $1.3 billion.

GE Capital, helped by tax credits, had a $997 million loss before taxes, spokeswoman Anne Eisele said. The company’s revenue was hurt by a stronger U.S. dollar than in last year’s third quarter. The consolidated tax rate was a negative 25 percent, driven by the GE Capital credits.


GE shares have almost tripled from an intraday low of $5.73 in March as Immelt began paring assets at GE Capital and emphasized businesses such as power generation. Immelt, 53, has said he plans to reduce GE Capital’s assets to $400 billion to $450 billion, from about $557 billion in the second quarter, by concentrating on mostly commercial lending.

The company is preparing to cut its stake in NBC Universal in a deal with Comcast Corp. and may divest the media unit entirely in seven years, according to people familiar with the discussions. The company is also looking to sell its GE Security unit, people familiar with GE’s plans said in August. Immelt previously marked the GE Consumer & Industrial unit and the private-label credit card division for sale, only to pull them off the block when buyers evaporated in the financial crisis.

Selling NBC Universal 

“You can’t sell them for under net asset value or below book value,” Nicholas Heymann, an analyst at Sterne Agee & Leach Inc. in New York, said in an Oct. 10 interview. “They don’t have much room and freedom for taking charges. This is why we haven’t seen lighting sold, appliances sold, security sold.”
Selling NBC Universal may help alleviate investor worries that GE would need to raise more capital for the finance division under guidelines yet to be set by legislators in Washington, analysts including Bank of America-Merrill Lynch & Co.’s John Inch wrote in notes to investors this week.

“I don’t think NBC strategically fits with his view of GE going forward as sort of the green company,” Hardesty said of Immelt.

- Via Bloomberg

Bank of America Posts Third-Quarter Loss on Defaults

Bank of America Corp., the biggest U.S. lender, posted its second quarterly loss in less than a year, unable to shake off effects of the economic contraction that drove the company to take two taxpayer bailouts.

The $1 billion third-quarter loss, or 26 cents per diluted share, compared with a profit of $1.18 billion, or 15 cents, a year earlier, the Charlotte, North Carolina-based bank said today in a statement. The loss was more than analysts estimated and the only one posted by the nation’s three biggest lenders. Bank of America dropped 5.4 percent in early New York trading.

The quarterly report will be the last supervised by Chief Executive Officer Kenneth Lewis, 62, who retires Dec. 31 after regulators and shareholders criticized his pursuit of Merrill Lynch & Co. The bank reported a fourth-quarter loss in 2008, its first in 17 years, and Lewis is trying to lead a rebound while fending off state and federal probes of the Merrill deal. He agreed yesterday to give up his 2009 salary and bonus.

“The idea that the financial crisis is over is a fantasy and it looks like the numbers bear that out,” said Harvard University professor Niall Ferguson on Bloomberg Television. “It’s clearly not over for Bank of America.”

Bank of America shares have rebounded five-fold since February when they traded at less than $3, their lowest in more than 20 years, on concern that the U.S. would seize a stake in the company. The stock closed at $18.10 yesterday in New York Stock Exchange composite trading, and slipped to $17.13 at 9:02 a.m. in New York.

Reserve Levels

Results were aided by profit from Merrill Lynch, with gains from trading bonds, stocks and currencies. Losses on home lending and insurance widened to $1.6 billion from $724 million, and the loss on credit cards expanded to $1.04 billion from $167 million.

The bank added $11.7 billion to its reserve for future loan losses, $1.7 billion lower than the second quarter, and $5.3 billion more than a year earlier, the statement said.

“Credit costs remain high, and that is our major financial challenge going forward,” Lewis said in the statement. “However, we are heartened by early positive signs, such as the leveling of delinquencies among our credit-card customers.”

Bank of America reported total revenue increased 32 percent to $26.4 billion. The total was 13 percent lower than forecast by Chris Mutascio of Stifel Nicolaus & Co.

Revenue, Write-Offs

Revenue from credit cards, brokerage services, investment banking and mortgage banking slid from the previous quarter, and Bank of America’s noninterest income dropped by 31 percent to $14.6 billion. Those declines offset a 57 percent gain in trading account profits.

Bank of America said net write-offs of uncollectible loans rose 11 percent from the second quarter to $9.62 billion. The bank wrote off $3.2 billion of home loans, including home equity loans, during the quarter, up 10 percent from the second quarter. Charge-offs on credit cards increased 5 percent to $2.17 billion.

Bank of America’s position as the largest U.S. consumer lender has hurt results since the recession began in December 2007. While Federal Reserve Chairman Ben S. Bernanke has said the economy may be growing again, the jobless rate rose to 9.8 percent in September, and Lewis said last month that “a near double-digit unemployment rate is bad medicine for a bank that serves consumers.”

JPMorgan Chase & Co., the second-biggest U.S. bank by assets, said this week that third-quarter profit climbed almost sevenfold to $3.59 billion. Goldman Sachs Group Inc. said its income more than doubled to $3.19 billion. Both New York banks repaid their U.S. bailout funds.

Accounting Charges

Citigroup Inc., the third-biggest U.S. bank, posted a $101 million profit yesterday as CEO Vikram Pandit said he wants to repay $45 billion in U.S. bailout funds as soon as possible. Bank of America also owes $45 billion.

The bank, largest in the U.S. by deposits and assets, was hampered during the quarter by accounting rules that require the lender to assess the value of its own $447 billion in debt each quarter. Falling prices entitle the bank to take gains, on the theory that the debt could be bought back and retired for less money, while rallies that boost the price lead to charges that reduce reported earnings.

Bank of America also earmarked $402 million to settle a dispute over a plan to share losses with the Treasury Department on $118 billion of loans and mortgage-backed securities, mostly acquired in the Merrill transaction.


Acquisitions 

Lewis has said the purchases of Merrill on Jan. 1 and home lender Countrywide Financial Corp. in July 2008 during the worst of the credit crunch bore fruit during the first part of this year, providing most of the company’s earnings growth.

Bank of America expects to add to its 20.5 percent share of U.S. home lending over the next five years, Barbara Desoer, president of home loans and insurance, said in an Oct. 14 interview.

“It has become hard to imagine Bank of America without Merrill Lynch,” Lewis told employees in a September memo announcing his departure.


- Via Bloomberg