Goldman Sachs' Shareholders Seethe

Matthew Yeomans — Fri, 20 Nov 2009 08:32:10 +0000

You can add some of Goldman Sachs' (GS) most important shareholders to the growing list of agitators who do not approve of the firm's plans to pay out record bonuses this year. The Wall Street Journal scoops the field this morning with an article about some of the firm's largest shareholders who believe Goldman should not be lavishing vast sums on management but instead should be turning over some of its "blockbuster earnings to investors." This truly is new ground for a normally staid investor group, the newspaper points out, adding that "their complaints in private conversations with the company and at analyst meetings show how anger over its big-money culture is spilling into the ranks of investors who typically shy away from debates over Wall Street pay." One major beef: Goldman is planning to pay out record bonuses even while earnings per share at the firm will come in 22 percent below the 2007 level. "Shareholders have said that reining in the bonus pool would deliver an upward jolt to per-share earnings and the share price, according to people familiar with the discussions," the newspaper writes, citing people in the know.

The Financial Times adds further analysis this morning to Goldman's much-criticized announcement earlier this week to launch a $500 million fund to help mom-and-pop businesses. What many see may as a questionable attempt to defuse public anger over gaudy bonuses may have another motive. Now, the FT wonders, was it merely a ploy to help the firm satisfy a 32-year-old law "designed to prevent banks from discriminating against minorities and poorer neighborhoods?"

To Washington now, where the question has been raised: Should Congress have the power to audit the Federal Reserve? Such a move is one step closer to reality now after the House Financial Services Committee on Thursday voted "to carry out sweeping new oversights of the central bank’s policy decisions and operations," the New York Times reports. The proposal, conceived by the GOP's chief Fed-basher, Rep. Ron Paul of Texas, comes despite fierce opposition from the Fed itself, which fears such a move "would undermine the central bank’s political independence and gravely threaten its credibility as a bulwark against inflation." Another House Republican from Texas, Rep. Kevin Brady, meanwhile, took aim at Timothy Geithner, demanding the Treasury Secretary's resignation yesterday. The WSJ reports that "Mr. Geithner, in an unusual public display of pique, fired back. 'What I can't take responsibility is for the legacy of crises you've bequeathed this country,' he told Mr. Brady." Both publications attribute the populist attacks to growing frustration over rising unemployment and lingering anger over the bailout of Wall Street.

The tech sector in general thinks it's on the road to recovery, but none of that upbeat feeling is being felt at Dell today. The PC maker saw its quarterly profit drop 54 percent, "raising questions about the personal-computer maker's strategy of focusing on profitability at the expense of market share," writes the WSJ. Dell's (DELL) results are thrown into greater relief when you consider that Hewlett-Packard (HP), IBM (IBM), Cisco, Intel (INTC), and Microsoft (MSFT) all have reported positive results in recent weeks. Talking of a certain Redmond, Wash., behemoth, Microsoft is delighted to report that its new operating system, Windows 7, is both performing and selling well—so well, in fact, that Microsoft has moved "twice as many copies of Windows 7 in its first few weeks than any previous version of the operating system," another WSJ piece notes. It's the sort of good-news Microsoft story that makes veteran tech watchers hark back to the software glory days of the late 1990s ... a period AOL would dearly like to return to. Instead, the former online powerhouse announced yesterday that it will cut one-third of its work force once it has spun out of its disastrous merger with Time Warner (TWX) next month. Some 2,500 jobs will go at the company that failed to adapt to a non-dial-up age, reports the NYT. In 2004, far past the peak of its perceived powers but when it was at its most bloated, AOL had more than 20,000 employees.

Staying in the world of disruptive media, Oprah Winfrey will pull the plug on her syndicated TV chat show in 2011 as she turns her attentions purely to a new cable channel she intends to launch, the WSJ writes. Oprah's been propping up daytime free-to-air TV since 1986, and her show still averages 6.6 million viewers per week. Her leaving will create a huge advertising hole that local TV stations will struggle to fill and will also hit CBS, which syndicates the show. But the move is also a risk for Winfrey herself, as she bets "that her popularity and golden touch with programming can sustain an entire cable channel and that she’ll remain a central cultural figure even without the mass exposure of broadcast television every day," the NYT notes.

For fiscal hawks, we're about to enter a lost decade, as Uncle Sam is now expected to rack up $9 trillion in public debt between 2010 and 2019. CNNMoney.com calculates much of that gaudy sum will be in the form of interest. "More than half. In fact, $4.8 trillion" will be nothing more than interest payments, CNNMoney.com bluntly writes.

Luxury Items in Short Supply

Caitlin McDevitt — Thu, 19 Nov 2009 10:58:50 +0000

Luxury retailers that have cut their inventories this season are already selling out of hot items, the New York Times reports. High-end stores, like Neiman Marcus and Saks (SKS), are treading carefully this holiday season, aware that consumer spending hasn’t yet bounced back entirely. Instead of luring shoppers with discounts—which can taint brand perception and cut into profits—the latest strategy relies on exclusivity. The paper says, “By carrying fewer goods and selling them at full price, Saks is essentially telling customers: buy it now or live without it.”

Money left over from the $700 billion financial bailout may be used to reduce the federal debt, the Washington Post reports. The paper says, “Administration officials are grappling with how best to announce the extension of the Troubled Assets Relief Program at a time when the economy is struggling and the unemployment rate is at its highest point in 26 years. The officials are hoping that by putting roughly $200 billion toward paying down the $12 trillion national debt, they could mitigate the political fallout, the sources said.” The administration is still figuring when it wants to tell everyone that it may extend the "unpopular" program, and there’s still some in-fighting over where the funds will end up. While some officials are pushing to put the money toward small-business programs to encourage new jobs, others inside the White House are feeling pressure “to show it is serious about reducing the nation's deficit.”

Some drug companies might be raising the prices of drugs to offset the future costs of the proposed health care reform, and legislators are not happy about it. The New York Times reports that congressional Democrats are involved in “two separate investigations” of drug-industry pricing to figure out whether pharmaceutical companies have been unfairly bumping up costs to consumers. In a letter directed to the Government Accountability Office, they wrote, “Recent studies have indicated that the industry may be artificially raising prices for certain pharmaceutical products in expectation of new reforms. ... Any price gouging is unacceptable, but anticipatory price gouging is especially offensive.”

Italian confectioner Ferrero, famous for its gold-wrapped chocolates, has said that it may make a competing bid against Kraft (KFT) for Cadbury (CBY). The Wall Street Journal says that in making the move, Ferrero is “throwing itself into a high-profile, international corporate battle, switching gears from the insular style that has guided the company for more than a half a century.” The paper adds that Hershey (HSY) has been in contact with Ferrero about “teaming up to buy Cadbury” but that Ferrero still has “a number of options” beyond that. BusinessWeek weighs in, mentioning that Hershey may push hard on the partnership because it will do what it takes to beat out Kraft. The article says, “One could argue that Hershey, because it is so dependent on U.S. sales, really needs Cadbury.”

If you had a Sony (SNE) e-reader on your Christmas list, better not get your hopes up. While the electronics company had aimed to have the product available for the holiday season, it has now said that the device won’t be shipped until sometime between Dec. 18 and Jan. 8, according to the Wall Street Journal. Even those dates are not “guaranteed,” the company has admitted, which makes the product a risky present. Barnes & Noble (BKS) will be shipping out its e-reader, called Nook, by Dec. 18, just barely in time to arrive by Christmas. The situation bodes well for sales of the Kindle, which according to Amazon (AMZN) is in stock and ready for immediate shipment.

Finally, Old Navy is turning a new page, the Wall Street Journal says. The retailer, which is a more affordable division of Gap (GPS), “is starting to pull its own weight again.” Old Navy contributed 41 percent of Gap’s sales last year and is expected to post a strong performance when quarterly earnings are announced today. This all comes as a turnaround for the retailer, which has struggled to define itself in recent years. “The problem, analysts and Gap executives say, is that the retailer has been stuck between two trends of bargain shopping. Big-box discount stores use their size to offer families low prices on basic items. Fast fashion retailers pump out inexpensive knockoffs of the latest styles,” the paper explains. Instead of chasing the latest trends, Old Navy is winning more customers by returning to its roots: T-shirts and fleece.

Goldman's Mea Culpa

Matthew Yeomans — Wed, 18 Nov 2009 09:02:06 +0000

Has the holiday spirit hit Goldman Sachs? On Tuesday, the Wall Street titan delivered a one-two punch, announcing its largest ever charitable contribution, a $500 million small-business assistance program on which billionaire investor Warren Buffett will play an advisory role. And hours earlier, Chairman and CEO Lloyd Blankfein apologized for Goldman's (GS) role in the credit crisis. A skeptical press couldn't help point out that the $500 million is but a mere fraction of what it's paying its top executives. As the Wall Street Journal writes, "Goldman has earmarked $16.71 billion for compensation so far this year and repaid in June the $10 billion capital infusion it got from the U.S. government in 2008."

The New York Times is even more blunt in its coverage. "A little more than a week after Goldman’s chairman and chief executive drew fire for saying the Wall Street giant was 'doing God’s work,' the bank said Tuesday that it would spend ... about 3 percent of the $16.7 billion it has so far set aside to pay its employees this year ... to help thousands of small businesses recover from the recession," the newspaper writes. For the record, Goldman is saying there is no connection between the apology and the Buffett-branded $500 million charitable mom-and-pop business fund.

The chocolate war is heating up again, according to a sweet scoop in today's Journal. Kraft's (KFT) unsolicited move to acquire British candy maker Cadbury could be challenged by a rival bid that teams the makers of Reese's Peanut Butter Cups with that of Nutella spread. According to the WSJ, Hershey (HSY) and Italy's Ferrero SPA "are in talks with banks to line up billions of dollars" to trump Kraft's $16 billion bid for Cadbury. Cadbury rejected Kraft's initial bid, calling it "derisory." Kraft maintains it's "fair and attractive." From candy to aviation now, where Delta Airlines has offered a $1 billion lifeline to struggling Japan Airlines (JAL) if it defects from the One World Alliance to Sky Team, of which Delta is a member, the BBC reports. JAL needs the funding, while Delta needs a way to crack into the Japanese market. This morning though the matter got all the more interesting as private equity firm TPG put a $1.1 billion funding offer on the table as precursor to a JAL tie-up with American Airlines, Reuters reports.

A Chinese court yesterday ordered Microsoft (MSFT) to cease selling some versions of its Windows operating system after it ruled that the company had infringed the intellectual property rights of Zhongyi Electronic, a Beijing-based software company. The surprise decision centred around two Chinese character fonts developed by Zhongyi that were not covered by a license agreement between the software makers and "has renewed worries among foreign patent experts about China’s management of IPR disputes," writes the Financial Times. Sticking with U.S.-Sino tensions for a moment, both President Barack Obama and Dominique Strauss-Kahn, managing director of the International Monetary Fund, are urging China to "look to its long-term interests and allow its tightly controlled currency to rise," the WSJ writes. Surprisingly the Beijing government appears more worried about protecting its economy in the short term.

More than 14,700 Americans have joined an Internal Revenue Service amnesty program in recent months and disclosed their secret foreign bank accounts, the NYT writes. The reason for this collective act of self-disclosure is the fact that Swiss bank UBS in August finally agreed to divulge to the IRS the names of some 4,450 American clients suspected of using the bank’s offshore services to evade taxes. The Washington Post has some more details on the deal UBS and the Swiss government made with U.S. authorities. If your Swiss bank account holdings are less than $248,200 (250,000 Swiss francs) or if you receive less than $99,280 (100,000 Swiss francs) in annual revenue from them, then the Swiss are not required to share the information with the IRS. Anything over that and you better be disclosing your income from said accounts.

And finally, if you're mulling overseas expansion, you might want to first consider New Zealand, named yesterday the world's least corrupt country in an annual ranking by Transparency International. And the most corrupt? Somalia, a terrible place to do business, apparently, unless you're in the piracy business. The United States ranks 19th out of 180 countries.

Was the AIG Bailout Botched?

Caitlin McDevitt — Tue, 17 Nov 2009 10:55:47 +0000

The New York Fed succumbed during “high-pressure negotiations” during last year’s bailout of the American International Group (AIG), according to a government report detailed in today’s New York Times. The paper says that the New York Fed seemed to have “little leverage” during the discussions, largely because it had already spent $85 billion to keep the insurer alive. However this report says that, in reality, the Fed “refused to use its considerable leverage.” Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, writes in the report that the Fed’s half-hearted negotiations provided what he calls a “backdoor bailout” to A.I.G.’s banks. Goldman Sachs (GS) was on that list of banks. According to the article, "Among its notable findings, the report challenged Goldman’s position that it should not have been forced to bear losses on its dealings with A.I.G. because it had successfully hedged away any exposure. Mr. Barofsky said that Goldman’s hedges were unlikely to have held up amid the market turbulence of late last year."

GM lost $1.2 billion in the third quarter, but the automaker has begun paying back part of the $50 billion bailout that it got from the federal government. Yesterday’s earnings report was encouraging news, even for those who are skeptical about the car company’s prospects, the New York Times says in a front-page story. The paper says, “G.M.’s results showed a healthier balance sheet, ample cash, and factory production much more in line with consumer demand—improvements it owes largely to the bankruptcy process, the helping hand of the federal government and a modest increase in car sales.” Still, the article places the news in context of Ford’s (F) latest earnings report, in which GM’s “cross-town rival” boasted a $1 billion third-quarter profit without any federal help.

This morning’s Wall Street Journal would like to introduce you to “America’s newest land baron: The FDIC.” The paper explains, “In the past two years, the FDIC has taken over 150 failed banks. In the process, it has seized more than 5,000 houses, subdivisions, buildings, parcels and other foreclosed assets. The current backlog of property stuck on the agency's books, with an appraised value of $1.8 billion, ranges from an $18,700 clapboard home with stained carpets in Birmingham, Ala., to a $1.7 million mountainside lodge with a heated driveway in Steamboat Springs, Colo.” It takes the agency, on average, half a year or more to sell a property, many of which are run-down or not even completed. Summing it up, the article says that the government—and taxpayers—are paying for other peoples’ bad real-estate decisions. It says, “The financial crisis started with Americans buying homes they couldn't afford. It is ending with the government struggling to sell buildings it never wanted.”

Ben Bernanke is still talking about our jobless recovery, according to the Washington Post. In a debate at the Economic Club of New York, the Fed Chairman reminded everyone about the sorry state of unemployment. Bernanke said, "The best thing we can say about the labor market right now is that it may be getting worse more slowly." Unemployment hit 10.2 percent in last month and is expected to keep rising. The WSJ’s write-up of the event agrees that Bernanke’s evalutation of the economy was “dreary” and noted that his warnings that “persistent high unemployment, tepid bank lending and continued troubles in commercial real estate would blemish and weaken the rebound.”

The latest SEC filings reveal that Warren Buffett’s investment in Wal-Mart (WMT) have almost doubled. The Wall Street Journal reports, “Mr. Buffett increased his holdings of Wal-Mart, the world's largest retailer, to 37.8 million shares on Sept. 30 from 19.9 million shares at the end of June.” The stock isn’t a very startling pick. The retailer has been a safe bet throughout the downturn, handily beating out other stores in terms of customer traffic and discount offerings. Besides Wal-Mart, the legendary investor also blessed various other companies across a diverse range of industries—including a corporate insurance company, food company Nestle, and a waste-management firm—with increased investment.

Finally, the New York Times says that airlines are experimenting with selling more retail products to fliers. The paper reports that American Airlines has started selling Heathrow Express train tickets on flights to London, in addition to internet access and catalog items to people on board. The flying customer does seem to be a retailer’s dream. “Look at what’s going on in airports,” says a marketing professor interviewed in the article. “Anytime you have customers who are captive, who have nothing better to do, they’ll shop.”

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Tue, 17 Nov 2009 10:55:47 +0000

Payback for GM

Matthew Yeomans — Mon, 16 Nov 2009 08:36:50 +0000

Taxpayers, payback begins next month. That's the vow General Motors is expected to make later today, some business press reports this morning. According to the Washington Post, G.M. "plans to pay $1 billion per quarter until the $6.7 billion loan is repaid, according to a source familiar with the matter." The Wall Street Journal, also working on information from a single unnamed source, calculates that if G.M. begins repayment as early as next month, it would pay back the entire loan by mid-2011. "But in a move that could be controversial and risky, the car maker plans to use other money it received from the government to pay back the borrowing," the newspaper adds. Still, some in-flows are sorely needed for indebted Uncle Sam these days. And G.M. would be making good well before Washington expected. "GM did not have to pay back the loan until July 2015, and the government did not expect to receive the money before then," the New York Times writes, citing, yep, a single source.

Meanwhile, General Electric is looking to tap Uncle Sam and various other governments around the world for business contracts. According to the WSJ, GE (GE) CEO Jeffrey Immelt believes that "over the next three years or so it could bring in as much as $192 billion from projects funded by governments around the globe, such as electric-grid modernization, renewable-energy generation and health-care technology upgrades."

Are U.S. lawmakers protectionist bullies? China thinks so. As President Obama plans his first official state visit to China, the country's commerce ministry is already stirring up tension with "unusually blunt" comments about recent U.S. international trade policy, Dow Jones News Wire reports this morning. "We've always known the U.S. and the West as free market economies," commerce ministry spokesman Yao Jian is quoted as saying at a news conference today in Beijing. "But now we're seeing a protectionist side. This is not a normal U.S.-China trade relationship. We hope the U.S. will continue to (pursue) free trade." The United States denies the charge. Dow Jones caught up in China with U.S. Commerce Secretary Gary Locke, who shrugged off the criticism, saying "trade disputes with China are a natural part of bilateral trading ties," the news wire writes and they "affect just 1.3% of Chinese exports to the U.S." Staying in Asia, Japan this morning reported some promising news: Its economy grew for the second straight quarter in Q3, this time by 1.2 percent, "faster than economists had predicted," the BBC reports. Still, growth is expected to be sluggish at best for the next few years.

Bristol-Myers Squibb Co. has decided to buck the current Big Pharma trend of diversifying services and instead will focus on its core medical business, the WSJ reports. To do so, the drug maker will spin off its Mead Johnson nutrition unit, best known for its Enfamil infant formula, in a deal valued at about $6.5 billion. Bristol-Myers shareholders will be able to swap "all, some or none of their company stock for shares in Mead Johnson. For each $1 of Bristol-Myers common stock, tendering shareholders will receive about $1.11 of Mead Johnson stock," the WSJ writes. Also in medical news: It appears that the nation's drug makers are rushing to line their own pockets before any new health care legislation takes affect. "In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. ... By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992," writes the NYT.

The rate at which U.S. businesses are filing for bankruptcy finally is on the wane, as credit lines are reopened and businesses grab those lifelines and refinance with new debt, the WSJ reports. But don't get too excited: "Many analysts worry the refinancing wave is just 'kicking the can' down the road, without fundamentally fixing companies' deeper problems. Among weaker companies, about $1.4 trillion in bonds and loans will still come due in the next five years," it writes.

And, finally, don't underestimate the demand for Bernie and Ruth Madoff's former possessions. According to CNNMoney.com, an auction held over the weekend that included Bernie's Mets jacket and Ruth's jewelry, plus family duck decoys, brought in $900,000, a much better figure than expected. Among the lots up for auction (all to benefit victims of his record-breaking fraud), the Madoff Mets jacket went for $14,500, and the duck decoys fetched $11,500. If you missed out this weekend, not to worry. More auctions are planned. (Read more from TBM on the Madoff auction: Chadwick Matlin writes a dispatch from inside the auction hall.)

Google Gives Ground on Book Settlement

Paul Smalera — Sun, 15 Nov 2009 08:13:54 +0000

Google, in response to authors, publishers, critics, lobbying efforts and renewed focus on antitrust laws in Washington, is changing its tune on books. As the Washington Post writes, the company filed a revised legal settlement that, “scaled back its ambitious plan to digitize books from U.S. libraries and created an opening for other companies to license its catalogue of copyrighted, out-of-print books.” The article notes other technology companies are also treading lightly in the changed political environment. Google proposed ceding some control over international rights of the so-called “orphan” books it has been digitizing and adding to its massive search engine. The new settlement will be open for a public comment period. It is still drawing criticism, and, the paper writes, it still might not satisfy the Justice Department.

Turns out cutting $500 billion from Medicare as part of health care reform will have an impact on coverage, says a study from the Centers for Medicare and Medicaid Services. The Post writes that House Republicans requested the study, which “found that Medicare cuts … are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.” Democrats responded by noting the report says health care spending will increase just 1 percent over the next decade, even with millions of newly covered Americans, and the Medicare savings will keep the program funded longer than currently estimated. The White House also said that President Obama, “made clear that no guaranteed Medicare benefits will be cut."

On his trip to China, the president, says the New York Times, “will, in many ways, be assuming the role of profligate spender coming to pay his respects to his banker.” The paper notes that previous presidents were able to exhort China to become more like the West, but Obama’s task will be to assure leaders there that the Western economic model—and China’s massive investment in it—are still both viable. The article recounts multiple concessions President Obama and his advisers have made to China, a contrast in message and tone from senator and candidate Obama. While the U.S.-China relationship isn’t characterized as a troubled one, it is, with the rapid shifts in roles and relative power over the past two years, a tense one.

The Times also tells the story of Bloomberg LP, the eponymous financial news and information company started in 1981 by Michael Bloomberg, now the mayor of New York City, after his exile from Wall Street. Bloomberg, thanks to its financial products and famous Bloomberg Terminal, has a stream of cash that its formerly high-flying competitors can only look upon with envy. The feature recounts Bloomberg (the company’s) humble rise, a-list talent, stunning success, massive spoils and future ambitions. Writers and editors who end up at the company seem to either get the Bloomberg religion, or get incensed by it. One newer executive, Andy Lack, calls the company, “a new kid on the block in a new world order.”

Apple files patents all the time; decoding them is the stuff of tech blogs and message boards. But today the Times is in on the action, noting a particularly insidious one. The company has a technique for an “enforcement routine,” built into hardware that would force users of its products to watch and respond to advertising. “The technology can freeze the device until the user clicks a button or answers a test question to demonstrate that he or she has dutifully noticed the commercial message.” The story goes on to question whether a company as cool as Apple would risk its reputation with customers to implement such a devious scheme.

There’s logic in cell phone plans, companies swear. The Times carries a compelling explanation of how and why American pricing plans, which even baffle some economists, are actually honed in to maximize revenue and minimize churn. The analysis is worth reading for anyone with a cell phone: It explains why we tolerate the billing annoyances phone companies stick us with. Hint: They’re better than the annoyances cell phone plans are designed to filter out, like unpredictable monthly bills. The Times reports that home builders, who made fantastic profits on the back of the housing bubble, got a gift from Congress and the president: About $33 billion in tax relief. And, finally, the paper says new drugs can take eight years and cost $800 million to develop; turns out pharmaceutical companies would like to reduce both of those numbers.

More Madoff Accomplices Nabbed

Caitlin McDevitt — Sat, 14 Nov 2009 11:13:29 +0000

Federal prosecutors have charged two men with providing the technical support that enabled Bernie Madoff to conduct his massive Ponzi scheme. The Wall Street Journal says, “They face a maximum of 30 years in prison for allegedly conspiring to falsify the books and records of the firm, as well as creating programs that enabled Mr. Madoff to generate thousands of client account statements and fraudulent reports that fooled regulators and investors.” The New York Times says that, according to complaints, “After a confrontation with Mr. Madoff in September 2006, they demanded pay raises and bonuses—what securities regulators called ‘hush money’—and agreed to remain silent about the fraud.”

Also from the Wall Street Journal, Wal-Mart (WMT) wants to give its suppliers a break in time for the holidays by offering them a new way to finance deliveries. Under the “Supplier Alliance Program,” certain suppliers “can get payment for their orders in 10 to 15 days within its receipt of goods, compared with the more typical 60 to 90 days.” The paper explains: “Under the program, suppliers can sell their Wal-Mart invoices to the retailer's partner banks … at interest rates based partly on Wal-Mart's credit rating. In traditional factoring, lenders give manufacturers cash for their receivables and collect payments on those invoices.”

Two months after Google (GOOG) initiated its map-embedded photography feature, Street View, in Switzerland, the country’s “data protection watchdog” is working hard to get the it taken down, the Financial Times reports. The paper says, “Hanspeter Thür, the federal data protection and information commissioner, said Google had not done enough to make faces and vehicle number plates unrecognisable on the service, which provides panoramic, street-level photos.” While the service has raised privacy concerns in other countries around the world, this marks the first time Google has been sued by a government agency over the feature.

The Washington Post says that Europe “has officially climbed out of its worst recession since World War II.” According to numbers released yesterday, the 16 nations using the euro finished the most recent quarter with 0.4 percent growth, as opposed to a 0.2 percent contraction in the previous quarter. While this may prompt one big collective sigh of relief, the paper says that the good news isn’t cause for celebration just yet. The Post writes, “At the same time, economies in emerging giants such as China and Brazil are roaring ahead. Though several countries in Europe—most notably Britain, Spain and Ireland—are still mired in sharp downturns, even troubled nations such as Italy are beginning to post positive growth.”

Caffeinated alcoholic drinks may soon be banned by the FDA, the New York Times reports. In a statement released yesterday, the agency warned close to 30 drink manufacturers that if their products are proven to be unsafe, they’ll be taken off the market. The FDA is worried about consumption of these beverages—which contain alcohol concentrations of about 10 percent—especially by college students. The paper says, “Caffeine may lead people to underestimate how drunk they are, giving drinkers a false sense of confidence that they can perform tasks they are too impaired to undertake.”

And finally, Congress is investigating the fees that airlines are increasingly using as way to bring in revenue without bumping up ticket prices. While the fees are a bother for travelers, it seems that lawmakers aren’t happy with them either. But it’s not the traveler’s piggy banks they're worried about filling up. The New York Times says, “The reason for the Congressional interest is money. Fees, for the most part, are not taxed, so the government is concerned it is missing out on extra revenue that could help airports.”

Chip War Truce Declared

Matthew Yeomans — Fri, 13 Nov 2009 09:26:35 +0000

A truce has been called in the chips war. The world's business press this morning report that Intel (INTC) finally agreed Thursday to pay AMD $1.25 billion to settle a series of contentious antitrust and patent disputes that spanned the past two decades. The settlement, the Wall Street Journal reports, "may help defuse the mounting antitrust scrutiny Intel faces across the globe. ... Many of those probes were triggered by AMD's complaints." The payment goes only so far. It appears Intel will still be able to offer its customary rebates and discounts to computer makers and it likely won't stop antitrust regulators from investigating Intel's business practices. The payment may not help AMD much either, the New York Times adds. "The truce may not be enough to turn around the fortunes of A.M.D, which has struggled to come up with chips that give it any significant technological or performance edge over Intel, which supplies about 80 percent of the microprocessors that sit at the heart of personal computers," the newspaper writes.

With the benefits of the settlement deal in doubt, BusinessWeek asks its readers to pick a winner. In a poll, its readers say the settlement will be good for Intel by nearly a 2-to-1 margin (as of press time).

The federal government broke all kinds of records for fiscal irresponsibility in October, the first month of fiscal year 2010. According to the WSJ, Uncle Sam racked up a $176.36 billion deficit last month, "more than $20 billion wider than the shortfall recorded in October 2008, driven up by lower tax receipts, stimulus-related revenue reductions and consistently high government outlays." That's about $1.3 billion higher than the Congressional Budget Office's estimate "and wider than the $165.9 billion expected by analysts surveyed by Dow Jones Newswires." The federal government, though, has plenty of shiny stuff in its vaults. With the price of gold topping $1,100 an ounce, CNNMoney.com asks: Is it time to sell the federal gold reserves? It calculates the value of U.S. gold reserves at $288 billion, a sum that would be, at this rate, wiped out by two quarters of deficit spending. It's a moot point. "The government is hanging onto its bullion," CNNMoney.com writes.

British Airways and Spain's national carrier Iberia finally have agreed to merge, the WSJ and others report. After 15 months of drawn-out negotiations, the deal, if approved, would create one of the world's largest airlines, but it could still fall through "if the British flag carrier is unable to agree a deal with its pension trustees over how to fund its massive £2.6 billion pension," the Times of London writes. Staying in the air (or not), Boeing says it has fixed "the problem that had forced it to postpone the maiden flight of its long-delayed 787 Dreamliner," the WSJ writes. A source tells the paper Boeing is still aiming to get the first Dreamliner airborne on Dec. 22.

The Fed could be on a collision course with the White House if the economists canvassed by the WSJ are correct, They predict that the Fed will hike up interest rates in September 2010, "a politically sensitive time considering midterm elections will be right around the corner and unemployment is forecast to still be over 9.5%." The prediction comes as part of a larger survey of 52 economists who expect the unemployment rate to rise to 10.3 percent by the end of this year from its current 10.2 percent before dropping to above 9.5 percent through 2010.

And finally, has Playboy Enterprises (PLA) found a worthy suitor? According to the Los Angeles Times, two credible bidders—Brand management firm Iconix Brand Group and a group led by Jim Griffiths, Playboy's former entertainment president—have emerged to take over Playboy, take it private for a bit more than $300 million, with a plan to restore it back to health. It won't necessarily mean the end for founder Hugh Hefner. "A buyer would have to persuade Hefner not only to relinquish control of the company he started 56 years ago, but probably also to stay involved given his importance to the brand," the newspaper writes.

How Goldman Sachs Gives Back

Caitlin McDevitt — Thu, 12 Nov 2009 11:04:14 +0000

The most recent Goldman Sachs Foundation tax filing was released yesterday, and the New York Times says that it’s “as thick as a phone book” thanks to the firm’s heavy trading and diversified investments. “The list of trades is more than 200 pages, single spaced. Goldman, it seems, invests like no other, even for its own charity,” the paper says. The charitable foundation’s assets have nearly doubled this year to more than $400 million, thanks to the firm’s recent big investments. While that makes the foundation one of the top 10 biggest, Goldman (GS) still can’t escape being called greedy. The paper explains, “the money allotted for its foundation is dwarfed by the sums that will be doled out to its bankers. In the first nine months of this year, the firm set aside about $17 billion for bonuses and other compensation.”

Television anchor Lou Dobbs caught many co-workers and viewers off-guard when he announced his resignation from his position at CNN yesterday, the New York Times reports. While many were surprised by the announcement, it turns out that months ago Dobbs was given the choice by his boss to either tone down his opinions on the newscast or move on from CNN. Even if he chose to express his strong views on a radio program, the network still wanted Dobbs to take a more even-handed approach to delivering the news on television. The paper explains, “Well known for his opposition to illegal immigration, Mr. Dobbs was an outlier at CNN, which has sought to be seen as the neutral turf of cable news.”

Exxon Mobil Corp. (XOM) is ramping up its presence in China, the Wall Street Journal reports. The company opened the doors to a $4.5 billion “refining and petrochemical complex” in Fujian province yesterday. This comes in the wake of its newly opened gas station on the China mainland, which, the paper says, is one of at least 750 that it’s planning. These moves also come at a time when Exxon is scaling down its U.S. presence. The paper explains, “Evidence is mounting that Chinese and Western oil demand is moving in opposite directions. The International Energy Agency said in its annual outlook, issued this week, that it expects demand for oil to fall in developed economies through 2030 while Chinese demand increases by 3.5% a year. In 15 years, China is expected to surpass the U.S. as the world's largest spender on oil and natural gas.”

“Under fire as in no time since the Great Depression,” the Federal Reserve is feeling increasing political pressure, which may make it even more difficult for the bank to steer the country out of the recession, says today’s Washington Post. The article cites Senate Banking Committee Chairman Chris Dodd’s appeal this week to remove the central bank’s “long-standing authority to regulate banks along with changing how regional Fed banks are governed.” Citing the dramatic rescue efforts that the Fed has been involved with over the past year, various politicians and groups have questioned the bank’s ability to remain unbiased moving forward. "The current unpopularity of the Fed will make it more difficult for them to raise interest rates when the economy recovers," a former senior Fed economist told the paper. She says, "With the Fed under such close scrutiny, any move to raise interest rates will be challenged even more strongly than in the past."

In an attempt to end speculation over his resignation, Robert Benmosche, chief executive of American International Group (AIG), said yesterday that he’s still "totally committed to leading AIG through its challenges,” according to the Wall Street Journal. Benmosche recently made comments to suggest that he was quitting because of difficulties working with executive compensation guidelines from the government. And that wasn’t the first thing he said that’s upset people. The paper explains, “Mr. Benmosche's resignation threat was the latest in a string of provocative remarks over the last few months that reflect the strong-willed executive's approach to restructuring AIG and his discontent with restrictions imposed by the company's government overseers.”

Walt Disney Studios Chairman Rich Ross has had been in the position for only a month or so, but he’s already on his way to leaving a big footprint. The Los Angeles Times says that he “has carried out a broad restructuring of marketing, distribution and operations to reflect a focus on cultivating entertainment franchises—and finding new ways to reach audiences through technology.” In what Ross called a “studio restructuring” yesterday, 20 people were laid off and the president of marketing was “pushed out.” The cuts and shuffling around of other executives suggests that Disney (DIS) higher-ups have been less than pleased with recent marketing efforts.

New AIG CEO Ready to Walk

Matthew Yeomans — Wed, 11 Nov 2009 08:40:51 +0000

Has the AIG (AIG) CEO Robert Benmosche, just three months into the job, had enough? The Wall Street Journal scoops the field this morning with news from inside the AIG board room that Benmosche has informed the board "he is considering stepping down as chief executive of the government-controlled insurer." Benmosche dropped the bomb last week, saying he was "done." According to the Journal's sources, Benmosche "is chafing under constraints imposed by AIG's government overseers, particularly a recent compensation review by the Obama administration's pay czar, Kenneth Feinberg." He's not quite out the door yet, though. He agreed to think over his hasty comments at the behest of a shocked board. The newspaper adds that it's unclear whether Benmosche would really resign so soon, as it's his style to be blunt and "ruffl[e] feathers." But maybe Benmosche, the 65-year-old ex-CEO of MetLife Inc., just wants to return to his Croatian idyll where he spent his first weeks on the job at the teetering insurer, as Reuters reported in August.

Things aren't so turbulent in the boardroom of General Motors. According to the New York Times, GM Chairman Edward E. Whitacre said the carmaker would be able to pay back the billions it was loaned by Uncle Sam and that it "would begin doing so soon."

Score one for Wall Street. Ralph Cioffi and Matthew Tannin, the ex-Bear Stearns managers on trial for securities fraud, were acquitted Tuesday, dealing the U.S. government a loss in "its first major criminal trial spawned by the financial crisis," the WSJ reports, adding the loss may impact the Fed's ongoing criminal investigations into Lehman Bros. and AIG. BusinessWeek, in its "Unstructured Finance" blog, argues that Cioffi and Tannin may have won this round, but the damage the duo allegedly did in pumping up the subprime market with collateralized debt obligations is hardly disputed on Wall Street and damaged Citigroup (C) and Bank of America (BAC). "Left unexplored and unanswered for the public is to what extent Cioffi and Tannin were responsible for significant losses at Citigroup and Bank of America. The men were certainly involved," BusinessWeek writes, citing deal documents.

Chris Dodd, Democratic chairman of the Senate banking committee, has unveiled plans to "strip the Federal Reserve of nearly all of its power to oversee banks," writes the Washington Post, leaving it to focus on interest rate (monetary) policy. His idea is to create a "single banking regulator, a powerful council of regulators to monitor systemic risks to the economy and a Consumer Financial Protection Agency to write and enforce rules on products such as mortgages and credit cards," adds the WSJ. While the new proposals would give the White House and Congress some new powers in overseeing banks, it sets up a potential policy war with the Obama administration, "which has argued for the central bank to play a pivotal role in addressing financial threats." How will Fed chief Ben Bernanke counter this broadside? By coming off his academic pedestal and learning the rough and tumble of Capitol Hill politics, suggests the NYT. And what better mentor can he have found than the combustible congressman from Massachussetts, Barney Frank?

The International Energy Agency has published its annual World Energy Outlook and it makes for grim reading writes the NYT. Ahead of next month's (already written-off) UN conference on climate change in Copenhagen, the IEA warns that, "Continuing on today’s energy path, without any change in government policy, would mean rapidly increasing dependence on fossil fuels, with alarming consequences for climate change and energy security." But it's what the agency isn't saying about dwindling oil reserves that has the Guardian interested. It quotes an unnamed "whistleblower" who claims the IEA "has been deliberately underplaying a looming shortage for fear of triggering panic buying."

And finally, federal prosecutors have indicted a gang of cyber thieves accused of perpetrating a year ago the largest ever bank heist in scope, all virtually. The WSJ reports that the U.S. Justice Department indicted the hackers—eight Russian and Eastern Europeans—"alleging they were part of a crime ring that allegedly broke into ATMs in hundreds of cities world-wide and stole $9 million in a matter of hours." In announcing the indictments yesterday, the FBI admitted "more money is stolen electronically or [in] data breaches than through bank robberies."

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Doubting the Dow

Caitlin McDevitt — Tue, 10 Nov 2009 11:10:00 +0000

The Dow Jones Industrial Average closed at its highest level in 13 months yesterday, but don’t get too excited. The Wall Street Journal calls the leap a “skeptics' rally” in which investors are feeling “uneasy.” The paper explains, “For these people, the market is taking on a ‘greater fool’ feel, meaning that many don't really believe in the investments they are making. They are banking on being able to sell to a ‘greater fool’ later.” In other words, some people are making “risky bets in order to keep up with the market,” but many of them aren’t optimistic about the investments they’re making.

The will of Jeffry Picower, the Madoff investor whose drowning death made news recently, reveals that his estate is worth billions. The New York Times says that may be “a spot of good news for Mr. Madoff’s victims.” Picower had been accused of knowingly engaging in the fraud by the trustee seeking assets for victims of the Ponzi scheme and was sued for all of the money he accumulated from Madoff accounts over many years. The paper says, “Mr. Picard has demanded the return of $7 billion he says Mr. Picower and his wife withdrew from their Madoff accounts over several decades. Lawyers for the Picowers say they withdrew $2.4 billion during the six-year recovery period allowed for the trustee’s claims under New York State law and contend that should be the limit of Mr. Picard’s claim.” Even if only the lowest estimate of cash is recovered from the estate, the amount will come close to doubling the $1.4 billion that the trustee has collected for victims of the scheme thus far.

In what the Wall Street Journal calls one of Google’s (GOOG) largest deals, the search giant has announced it will eat up mobile advertising company AdMob Inc. for $750 million in stock. The paper explains, “AdMob sells ads across thousands of Web sites that are tailored for cellphones and was one of the first companies to offer ads that run inside software for Apple (AAPL) Inc.'s iPhone and devices that run Google's Android operating system.” While Google has not had great success with mobile ads that it’s sold in the past, the capability and screen size of smartphones is creating greater potential in the space. As the paper puts it, “Consumer adoption of big-screen phones is whetting advertisers' appetites.”

In other Google news, the company has asked for more time to figure out the terms of its book settlement. According to the Wall Street Journal, “Google Inc., the Authors Guild and the Association of American Publishers have asked a judge for permission to delay filing a revised version of their agreement over books scanning and copyright until Nov. 13, according to people familiar with the request, as they finalize changes to address concerns that the agreement is anticompetitive.” The new settlement should answer critiques from the Justice Department and others who have said that the original deal that Google struck with authors was too sweeping.

The Washington Post says that there could be another taxpayer bailout coming our way soon. The paper reports that the Federal Housing Administration is running low on money, and unless things turn around for the government agency, it could require what the paper calls “an automatic taxpayer bailout.” The paper explains, “The agency, which collects premiums from borrowers who take out FHA-insured mortgages, has been automatically drawing down on money it deposited with the Treasury Department when the FHA was flush with cash. Those funds have dwindled as the FHA's losses grew. If the losses continue unabated, the FHA would still receive money from Treasury.”

And finally, the back-and-forth between the British confectionary company Cadbury (CBY) and U.S. food conglomerate Kraft (KFT) drags on, the Financial Times reports. Yesterday, Cadbury “defiantly rejected” Kraft’s takeover bid, calling the offer “worse than the proposal the board has previously rejected." Kraft has said that it’s not shutting the door just yet and could consider higher offers. Business Week says that Kraft is being persistent not only because brand-name candy has proven that it can be recession-resistant, but also because of its growth potential. The article explains, “Kraft macaroni-and-cheese may be an American favorite, but it won't necessarily catch on in China or India. Sweets are different.”

How To Fund the Next Bank Bailout?

Matthew Yeomans — Mon, 09 Nov 2009 08:41:07 +0000

Does Europe know something about imminent "future bank bailouts" that we don't? British Prime Minister Gordon Brown surprised many at the G-20 Summit in Scotland over the weekend with a proposal to create a new global tax on financial transactions "to pay for future bank bailouts," the Wall Street Journal reports, dividing policymakers of the world's biggest economies straight down the middle. Germany, France, and Brown are solidly behind such a tax; Canada, Russia, and U.S. Treasury Secretary Timothy Geithner are dead against it. Ah, but the genie may already be out of the bottle. The tax idea is gaining momentum, the WSJ reports, particularly now that the IMF is investigating such a levy.

There was some consensus reached at St. Andrews, Scotland, this weekend, however. Geithner and his counterparts spoke of the need to continue pumping stimulus monetary support into the economy to ensure growth. When will taxpayers no longer be needed to prop up the global economy? It could be some time still, warns Geithner. "Government policy has to provide a bridge to growth led by the private sector," Geithner was quoted by Reuters as saying. "We're now in the middle span of that bridge." Perhaps it's this "do-your-part" duty that has spooked consumers into a state of extreme frugality, as the WSJ reports this morning. The newspaper speaks to consumers and big brands about the upcoming holiday season. The conclusion? "People are digging in for a long, frugal winter," the WSJ writes.

Maybe it's not such a risky gambit to buy a railroad for $26 billion, not when your company is still making gaudy profits. According to the BBC, Warren Buffett's Berkshire Hathaway (BRK.A) reported a tripling in net profit to $3.2 billion last quarter. "Most of that was due to an unrealised $1.1bn gain on some derivatives its insurance unit holds," the BBC writes. In announcing the impressive profits windfall, Buffett announced that "the credit crisis has abated," Bloomberg reports, adding that it helped "provide a cushion for Buffett as he buys railroad Burlington Northern Santa Fe Corp." The WSJ takes a look this morning at another of Buffett's successful investments in his portfolio, MidAmerican Energy Holdings Co. (MWPSP.OB), which is trying to crack the Midwest's clean-tech market, mainly through wind power. "Iowa has become second in the nation in wind-energy capacity, behind Texas, due in part to MidAmerican," the newspaper writes.

Kraft (KFT) is set to go hostile against Cadbury, having been rebuffed in its attempts at a friendly merger, the NYT reports. Kraft has until 5 p.m. GMT today to launch a formal offer or be forced to walk away for six months under U.K. takeover rules, notes the Guardian. Kraft will take a cash-and-stock offer direct to Cadbury shareholders with the hope of reaping $625 million in annual pretax cost savings by combining "its Ritz crackers and Oreo cookies with Trident gum and Dairy Milk chocolates." That's one mixed-up power snack, or maybe a new food group in its own right?

The "equivalent of Godzilla swallowing Rockefeller Center." That's how one media watchdog describes Comcast's plans to buy NBC Universal at a reported price of $30 billion, the NYT and the WSJ write. Comcast and General Electric (GE), which owns 80 percent of NBC Universal, are inching toward a deal that would give Comcast 51 percent control in NBC. In the past, Vivendi, which owns the other 20 percent of NBC, expressed an interest in selling its stake but it is "unclear whether Vivendi has agreed to the deal being considered by Comcast and GE," writes the WSJ. Meanwhile, another Comcast (CMCSK) joint venture, Clearwire, is set to receive another $1.5 billion from its partners in an attempt to shore up the underperforming wireless-broadband firm. Lead partner Sprint (S) would kick in $1 billion with Comcast, Time Warner (TWX), Intel (INTC), and Bright House Networks LLC, adding the extra $500 million, the WSJ writes. Also: "Sprint's plans for a higher-speed data transmissions are heavily tied to Clearwire's success."

And, finally, the Pittsburgh Post-Gazette reports the IRS may be looking for some of you—to give you a check. "The agency is holding federal income tax refunds totaling about $124 million that it tried to distribute this tax season, but were returned as undeliverable," the newspaper writes. All told, there are about 108,000 people owed a tax refund that the IRS simply cannot find.

Goldman Sachs Bonuses Doubled Due to Bailout

Paul Smalera — Sun, 08 Nov 2009 08:05:11 +0000

The issue of health care reform took a huge step yesterday, with the House of Representatives voting to pass the plan reported out of committee by Democratic lawmakers. Nearly one out of every five dollars nationwide is spent on health care; it’s one of the few industries in America experiencing both employment and fiscal growth, and yet millions of Americans aren’t covered under any provision of the current system. Reformers aim to change that, but they also, the New York Times reports, included provisions on nutrition labeling for vending machines, programs to educate parents on child interactions, tax reductions for gay couples, and, in a last-minute concession to conservative Democrats, a ban on coverage of abortions by federally funded insurance plans.

In the paper’s main story on the House action, Senate Majority Leader Harry Reid promised to bring the bill up for a vote, “as soon as possible.” Republican representatives fought hard against the vote, introducing legislative obstacles that were defeated and promising to fight every step of the way. “This bill is a wrecking ball to the entire economy,” said Rep. Jack Kingston, R-Ga., said, by way of explaining the opposition. Most opposition centers around mandatory insurance coverage, provided by employers, on penalty of increased payroll taxes. There’s also a tax penalty for individuals who decline coverage. The legislation aims to offset both penalties by providing a variety of low-cost options, including a government insurance plan, and a national insurance exchange. Democrats backing the plan also claim the changes will contain costs, or at least the rate at which health care costs increase. Regardless, a major hurdle in what can be viewed as a restructuring of a huge portion of the American economy has been cleared.

In the meantime, banks would like to continue paying their executives large amounts of money, thank you, except in the form of stock. (They call it compensation.) As bank stocks crashed last year, firms issued their bonuses in the form of stocks and stock options. Once the government bailout of the banking industry was under way, stock prices rebounded, making the grants worth more, in some cases much more, than their original value. The Times has the story, along with the example of Goldman Sachs’ (GS) general counsel, who has watched his bonus’s value double to nearly $12 million in less than a year thanks to the rebound in the firm’s stock price. Perversely, many compensation experts have advocated for stock-based bonuses as a way to tie compensation to performance. Most did not seemingly consider a scenario in which stock performance was backstopped by billions of dollars of taxpayer money and guarantees. One academic told the paper “When you issue stock in a period of economic distress, you’ve often given someone a gift.”

The Times also digs into the “global gold frenzy.” As in nearly every time of economic uncertainty, investors are turning to the asset of last resort. It’s not just investors who are buying, but apparently, shoppers in Harrod’s gold department, where the venerable store sells ingots, bricks, bars, and coins of the stuff. The only argument in the sector seems to be over how high the price of the precious metal will go, and the only question is which big investor, from Asian central banks, to Paul Tudor Jones, will get into the market next.

One market some investors would like to get out of, but can’t, are auction rate securities. As markets froze up everywhere last year, auctions did too. The problem is, auctions have yet to resume; banks simply can’t find buyers to match with sellers. Yet many ARS were sold as being almost as secure, liquid, and safe as cash. Investors have filed lawsuits and generally thrown the kitchen sink at banks, but it’s been arbitration that has shown the most promise in getting them their money back, reports the Times. The process is not without risk, but many investors who thought they were holding safe assets have been able to get at least some capital returned.

Finally, Ruby Tuesday (RT) has spent years and $100 million repositioning itself as a purveyor of refined cuisine for the masses, the paper reports, going so far as to include wine pairing information on its menu. “If you really care what you put in your body, Ruby’s is a good place for you,” Ruby's CEO and founder told the paper, suggesting that those who care about the foods they ingest need not fret about Ruby Tuesday’s ice cream, which managed to stay unmelted on the Timesman’s plate for 20 minutes.

Profit Not Satanic, Says Wealthy Banker

Paul Smalera — Sat, 07 Nov 2009 08:22:47 +0000

The moment everyone expected but no one was waiting for has arrived: Unemployment is in the double-digits. The New York Times says that 10.2 percent is a 26-year high in the 60-year history of government record-keeping. Only 1982, when 10.8 percent of workers were sidelined, was worse. Dampening the bad news, President Obama signed an extension of unemployment benefits for the jobless, allowing them to spend nearly two full years on the dole. The article dives into the metrics but also the psychology of long-term unemployment. It cites one worker who, after a year and a half, continues to drive to his unemployment office, send out job applications, and return home to “his sagging couch and his television, where cheerful news anchors tell him that the economy is looking up.”

But, is unemployment 10.2 percent or 17.5 percent? The latter figure includes underemployment, and that actually beats the high of 17.1 percent set in December of 1982. The discouraged and the part-timers who want to be full-timers are counted in this figure, notes the Times. “Ten percent is a terribly important number,” a democratic pollster noted in the Wall Street Journal’s take on the figures. No word on his thoughts regarding 17.5 percent.

Citigroup (C) is granting its employees options to convince them to stay, the Times writes. Options grants, which the article says have long been criticized as creating perverse incentives, are being presented by the bank as a way for employees to rebuild their nest eggs while remaining with the company. Employee savings were nearly wiped out when Citigroup stock plunged in value during the height of the financial crisis. Despite the long-standing criticisms of options programs, the construction of this one may make sense: It requires three years of vesting, has a strike price slightly above current share pricing, and preserves capital for the bank. As such, one critic of options grants told the paper, “They are trying to reward staff that had the guts to hold onto their stock during this turbulent period for the company.”

Hedge funds are on edge after several high-profile arrests on insider trading charges were made in recent weeks. The Times reports that executives are dropping a dime—to their lawyers—to re-examine their compliance with insider information laws. “Defcon 2” is how one executive described the effort not to run afoul of the rules. Because the executives fear wiretaps, they’re telling staffers to think of phone conversations the way they think of e-mail: as if it could end up on the “front page of The New York Times.” Meanwhile, the Journal says SAC Capital may soon be part of the broader and ongoing insider trading investigations.

AIG (AIG) is profitable again, but executives say the road the company is on won’t necessarily remain smooth. Regulatory filings indicate that its investments are performing well, even as insurance sales are faltering. Looming over future balance sheets is the massive debt the firm must repay to the U.S. government and a $5 billion charge related to its restructuring. A topic AIG didn’t discuss in its filing was employee retention, but the Times notes several executives have jumped ship to work on a competing venture with Hank Greenberg, who was AIG’s CEO for nearly 40 years.

Goldman Sachs (GS) wanted to buy tax credits from Fannie Mae (FNM), which has lost so much money that the credits are useless. The government said no, reports the Journal, because the deal would be a net loss for taxpayers and because it didn’t want to appear to be favoring the pre-eminent investment bank in such savvy deals. Meanwhile the Times says Fannie will soon ask for another $15 billion in bailout funds, on top of the $50 billion it’s already received.

The Obama administration wanted the Federal Reserve to be Wall Street’s primary regulator, but Congress didn’t get a copy of that memo. In fact, the Washington Post explains that Congress basically doesn’t like the Fed and thinks it has failed one too many times. So legislators are proposing their own regulatory reform proposals, further dragging out the fight over reform.

The Times catches up to the story of the virtual goods economy, which generated $5 billion in real cash. Skype’s founders reached a settlement with eBay (EBAY) over the auction house’s sale of the online call service. The founders had long railed against the sale, wanting to remove the pressures of short-term profitability from their grander plans for reacquiring the calling firm. Finally Barclays’ (BCS) CEO, in defense of his industry, recently said, “profit is not satanic.” A Goldman Sachs International adviser seconded the thought, adding, “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.”

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Sat, 07 Nov 2009 08:22:47 +0000

Wall Street Meets "The Wire"

Matthew Yeomans — Fri, 06 Nov 2009 08:57:37 +0000

Shady hedge fund honchos, beware. That's the message the business press declares this morning in its coverage of new charges brought down yesterday against 14 money managers, Wall Street lawyers, and other well-connected investors with ties to the Galleon insider-trading probe. The Wall Street Journal describes their alleged criminal dealings as something out of a James Bond movie, "including packages of money, throwaway cellphones, a ringmaster nicknamed 'Octopussy' and an associate called 'the Greek.' " The New York Times adds the racket "was pierced in part through surveillance and wiretaps." The subterfuge enabled the band of conspirators to net a cool $20 million in profits from dodgy "inside" trades, prosecutors say.

The case came to light last month after federal authorities charged hedge fund tycoon Raj Rajaratnam, founder of Galleon Group, and five others with masterminding a vast insider trading racket. And, the NYT reports, more arrests are expected in the coming weeks as a special FBI unit expands its broader probe into the more murky dealings of hedge funds. Where might the wire take investigators next? "For the first time, the authorities hinted that they might be brushing against the pinnacle of the hedge fund world, S.A.C. Capital Management, a $12 billion Connecticut fund company," the NYT writes, adding, "neither S.A.C. nor any current employee has been charged with wrongdoing."

Elsewhere on Wall Street Thursday, there was reason to celebrate. The Dow once again topped the 10,000 mark after its biggest one-day rise since July. "Today's big news was that we saw fewer claims for unemployment benefits," said Mike Stanfield, chief investment officer at VSR Financial Services, told CNNMoney.com. "That suggests that the underlying economics are continuing to improve." Ah, but of course we've been here before. The Dow has been wildly gyrating above and below 10,000 for much of the month. But there is some cause for sustained hope this time. According to the WSJ, the Labor Department reported on Thursday that U.S. worker productivity improved at its most vigorous rate since the Kennedy administration "even as employers pushed forward with layoffs and cuts in working hours across a wide range of industries."

Ever since the government threw billions of dollars at the financial system last year, pols and analysts have been trying to work out where exactly the money went, who really benefited and whether the policy worked. Well, according to the NYT, one side effect was to allow "a handful of giant institutions to save up to $25 billion on their borrowing costs," including General Electric Capital ($1.9 billion in savings) and Goldman Sachs (GS) ($606 million) as well as smaller sums for Citigroup (C), Bank of America (BAC), and Morgan Stanley (MS). The savings were part of the $4.3 trillion safety net and came in the form of "federal guarantees on more than $300 billion of bonds issued by banks and other financial institutions." But before we get too outraged, it turns out the government has turned a profit on this risky business, collecting $9 billion in fees for guaranteeing the bonds.

To the world of Big Oil now and news that, six years after the overthrow of Saddam Hussein, Iraq has agreed a series of new foreign consortium deals to reinvigorate its sleeping giant of an oil industry. On the heels of a big deal earlier in the week with BP (BP) and China National Petroleum Company, Iraq's Oil Ministry has granted the first drilling concession to a U.S. company in the form of consortium deal led by Exxon Mobil to develop the West Qurna-1 oil field (holding an estimated 8.7 billion barrels of reserves) in the south of the country. Exxon, working with Royal Dutch Shell, offered the highest bid and beat out rival consortiums led by OAO Lukoil, ConocoPhillips (COP), and CNPC.

And finally, how is it that employees of Wall Street's most powerful firms were first on the list to get the precious rations of the swine-flu vaccine? According to the WSJ, "Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. are among several large New York City employers that got doses of the H1N1 vaccine," prompting an uproar over how the doses should be distributed to the public. As a result, the Centers for Disease Control and Prevention is warning regional health officials around the country now to distribute the doses to high-risk groups first. And, no, "high-risk" does not necessarily mean bailed-out financial firms.

Mickey Mouse’s Makeover

Caitlin McDevitt — Thu, 05 Nov 2009 09:17:31 +0000

Disney’s (DIS) signature cartoon character Mickey Mouse is getting a makeover, says today’s New York Times. Concerned that kids these days aren’t connecting with the character as much as older generations did, the media and entertainment company is planning to update Mickey by making him edgier. The paper explains that in his new personality, “the formerly squeaky clean character can be cantankerous and cunning, as well as heroic.” The new version of the mouse will make his debut in a video game to be released next year called Epic Mickey. The redesign is a big move and one that the company is making cautiously, the paper explains: “Disney executives are treading carefully, and trying to keep a low profile, as they discuss how much they dare tweak one of the most durable characters in pop culture history to induce new generations of texting, tech-savvy children to embrace him.”

The Wall Street Journal reports that chipmaker Intel (INTC) now faces antitrust charges from the New York attorney general’s office. The suit accuses Intel of using threats and “billions of dollars in kickbacks” to persuade tech companies to use its products. The paper says, “Though the charges are familiar, the latest complaint increases the pressure on Intel, which has already paid a $1.45 billion fine to antitrust authorities in Europe and faces an investigation by the U.S. Federal Trade Commission.” This new complaint also brings to light e-mail correspondences between executives at Intel and other companies, as well as offering up estimates for just how much Intel may have paid to maintain business with its partners.

More than one-quarter of all businesses are owned by women, according to a report from the Center for Women’s Business Research discussed in the New York Times. The center’s report also revealed that a mere 4.2 percent of all revenue generated from U.S. businesses comes from those owned by women, and that only one-fifth of these businesses have employees. So while the seeds of leadership are there, women-owned business development still has a way to go. The paper says, “Armed with the new research, center officials and other women business leaders are approaching the Obama administration, the Small Business Administration and House and Senate small-business committee members to ask for more resources and new programs to support women-owned businesses.”

The Federal Reserve will most likely keep interest rates at near-zero for the next six months, the Financial Times says. While that's nothing new, the paper notes that the Fed has changed its tune ever so slightly, reporting that “[t]he US central bank tweaked guidance in its policy statement that had been unchanged since March, edging away from a simple forecast that it expects to keep rates at 'exceptionally low levels' for an 'extended period'—commonly understood to mean at least six months.” Now, the Fed has spelled out the conditions that could prompt it to raise rates earlier, including “low rates of resource utilisation, subdued inflation trends and stable inflation expectations.”

Automaker Chrysler, still building itself up since its government bailout and hasty partnership with Fiat, has embraced a softer tone, the New York Times reports. At a meeting yesterday, its executives spoke in a “subdued” and “understated” way about the company’s financials and future plans. “Many in the audience remarked on the decided lack of sizzle from an automaker that once sponsored a ‘Lingerie Bowl’ of women playing football in underwear,” the paper says. Sean McAlinden of the Center for Automotive Research told the Times, “They were the ones who mixed the drinks, wore turtlenecks and told all the best jokes. … They let the G.M. and Ford (F) guys wear the gray suits, but I guess things have changed.”

Finally, toys are the new Hollywood A-listers, according to the Wall Street Journal. The paper explains that as toys like Stretch Armstrong and the Transformers steal the spotlight in feature films, they’re increasingly getting treated like star actors in Tinseltown. “Toys now are receiving the same A-list treatment that any bankable movie star here has come to expect,” the article says. “That includes top billing and contracts with special perks. They even have their own talent agents.”

Buffett the Betting Man

Matthew Yeomans — Wed, 04 Nov 2009 08:46:17 +0000

Evidently, Warren Buffett is a betting man. And a big one at that. The Wall Street Journal and the New York Times strike nearly identical headlines this morning in describing Buffett's surprising $26.3 billion acquisition of Burlington Northern Santa Fe Corp, both declaring "Buffett bets big" on, of all things, freight trains. The NYT notes the investment seems more 19^th century than 21^st century, but this is not just the move of a wealthy old man who likes to play with trains. "Mr. Buffett is wagering that as the economy revives, so will the demand for goods to be shipped by train. Burlington Northern carries coal and timber from the West, grain from the Midwest and imports arriving directly from Mexico and Canada, as well as through California ports," the newspaper writes. The move, the WSJ notes, completely transforms Berkshire Hathaway "into a megaoperator of industrial firms, moving the Omaha, Neb., conglomerate further from its roots as a nimble investment outfit." The thinking is that high fuel costs are here to stay and therefore freight trains will be a more efficient way to move goods around the country than trucks.

The world demand for oil, however, has never been so uncertain. According to the WSJ, the world may be on the cusp of shaking off a global recession, but that's not having the expected lift for oil demand. The newspaper writes, citing sources, that "the International Energy Agency next week will make a 'substantial' downward revision to its long-term forecast for global oil demand ... marking the second year running the group has slashed its view of the world's thirst for oil."

General Motors stunned the automotive world yesterday with news that, no, it will not be selling its European division, Opel. "The decision was a blow to the Canadian auto supplier Magna, which was poised to acquire a 55 percent stake in Opel with the backing of the German government and labor unions," the NYT writes. Instead, the new GM board decided it would keep Opel and pour billions into restructuring the unit, which includes British automaker Vauxhall. "GM's change of heart reflects the car maker's increasing confidence about its outlook as well as the direction of its aggressive new chairman, Edward E. Whitacre Jr. The former AT&T Corp. chief, who was picked by the U.S. government for his post, has told GM executives to concentrate on expanding its market, not shrinking it," the WSJ writes. Don't feel so bad for Magna though. In a separate article, the WSJ reports that "being dumped by GM is a blessing." Turning around Opel would be costly and time-consuming for Magna, the newspaper notes. Across town, Chrysler's new turnaround maestro, Sergio Marchionne, the CEO of Fiat, will unveil his plan to restore Chrysler's business later today. How can Marchionne save Chrysler, which has seen U.S. auto sales drop by 40 percent in the past year? With Fiats, writes Business Week. "Marchionne will lay out his plan, which, according to industry insiders, involves plugging Chrysler's product holes with Fiat-engineered cars."

Retail bounced back in October as sales figures show "robust sales growth for the first time in more than a year," the NYT writes. Sales for women's apparel have increased for the first time since August 2008 and across-sector sales in California also appear to be stabilizing. Overall, Thomson Reuters, "which aggregates analysts' estimates for 30 companies, predicts a 2% increase," writes the WSJ. Of course this good news is only relative to how bad things had become during the last 12 months but still, as the NYT writes: "Contrary to predictions made only a few weeks ago, the nation’s stores could be poised for a merrier Christmas this year than last."

China is on a tear with its economy now expected to grow 8.4 percent this year, according to the World Bank’s latest projection, the NYT writes. The Bank raised its forecast for growth in China, "though it cautioned that more policy adjustments would be necessary in the medium term to ensure the country’s recovery would be sustained." But the World Bank also worries that a new Asian economic bubble might be on the rise, notes the WSJ. The sudden injection of billions of dollars in investment capital in the region is "raising concerns about asset price bubbles" in Asian equity markets and in China's, Hong Kong's, Singapore's, and Vietnam's real estate markets, the bank said.

And finally, consider the rotten job the poor human resources manager has these days. Whenever they post a "help wanted" ad, they get inundated with résumés and cover letters, most of them unqualified. CNNMoney.com reports that there are quality job positions that continue to go unfilled despite the highest unemployment rate in generations. The reason? Not enough qualified candidates. CNNMoney.com cites a recent survey by Human Capital Institute and TheLadders. It concluded: "[M]ore than half of employers said 'quality of candidates' or 'availability of candidates' are their greatest challenges—despite the recession."

Ford Is Back on Track

Caitlin McDevitt — Tue, 03 Nov 2009 10:52:34 +0000

Ford (F) released a surprisingly good earnings report yesterday and announced its first profitable quarter in North America since 2005. The automaker earned a profit of nearly $1 billion for the third quarter, says the Detroit Free Press. The paper says, “A much smaller Ford Motor Co.—with 45% fewer workers and more than a dozen fewer factories than in 2005—is heading into the last stretch of 2009 with more money, optimism and fuel-efficient passenger cars than it has had for years.” Ford beat analyst expectations thanks to a combination of cost-cutting and improving sales. Still, the paper says, “Ford owes more debt than its domestic competitors,” and it “has a labor agreement with the UAW that the Dearborn automaker says isn't competitive.” The New York Times agrees that the automaker may still hit some rough spots down the road. The paper says the automaker may not be able to maintain its lead over competitors for long, noting, “Both General Motors and Chrysler, with the stigma of their bankruptcies receding, are moving ahead with their own comeback plans.”

The most recent recession left many economists scratching their heads and revising the trusty models they’d been relying on. But the Wall Street Journal leads today with one economist, John Geanakoplos of Yale University, who got it right. According to the article, he watched his “previously obscure theory about collateral's role in the credit bubble gain currency after it burst.” It’s possible that theories like his could be part of a bigger shift in the way economists think about the markets. The past two big swings in mainstream economic theory occurred after the Depression and following high rates of inflation in the 1970s. The paper says, “Now that the financial crisis has exposed flaws in the models central banks use, economists have launched into a flurry of activity that is likely to reshape the field.”

Two tool makers, Stanley Works (SWK), which is known for its hand tools, and Black & Decker (BDK), which is known for its power tools, have finally decided to merge after nearly 30 years of discussing the possibility. The New York Times reports that “Stanley agreed to buy Black & Decker for about $3.5 billion in an all-stock transaction, creating a global tool maker worth about $8.4 billion.” The new business will be called Stanley Black & Decker. The Times sees the deal as yet another glimmer of hope that the recession has indeed subsided. The article says, “Together with a slate of other deals announced in recent days, the Stanley-Black & Decker combination may represent continuing confidence that the worst of the economic problems have passed.”

Despite sinking company share prices, executive pensions swelled last year, says the Wall Street Journal. The paper’s analysis has revealed that in 2008, executive pensions grew 19 percent on average. “The executive-pension growth stemmed partly from generous pension formulas, which are based on executive pay, according to the filings. Also adding to the pension jumps are arcane techniques that have received little scrutiny, including increases triggered when an executive reaches a certain age or when companies change interest rates used to calculate the pensions,” the paper says.

Finally, the Federal Trade Commission is taking action against the company behind the credit monitoring service freecreditreport.com for its misleading commercials, the New York Times reports. The paper says that the FTC believes the company is “deliberately diverting people from a government-mandated site where consumers can get free credit reports by law, and using the reports as a lure for a $14.95 monthly service that alerts subscribers to important changes in their credit status.” The government has, in what the Times calls an “unusual salvo,” created its own commercials mocking the service and prescribing caution. Here’s an excerpted verse: “Other sites may turn your head; they say they’re free; don’t be misled. Once you’re in their tangled web, they’ll sell you something else instead.”

Did CIT Kill Christmas?

Matthew Yeomans — Mon, 02 Nov 2009 09:04:12 +0000

The most popular day of the week to file for bankruptcy protection, troubled commercial lender CIT (CIT) once again proves, is Sunday. CIT filed for Chapter 11 on Sunday afternoon, doing so with the vast approval—some 90 percent, the Wall Street Journal reports—of its most influential debt holders. This is crucial backing if CIT is to reorganize itself, shed some $10 billion in debt, "and emerge with a new business model by year's end." Year's end may not be soon enough for some retailers. The critical Christmas season is just a few weeks away and CIT's uncertain future is putting even more pressure on small and midsize retailers. "The company provides badly needed credit to thousands of small and mid-sized businesses, and is a critical part of the flow of capital in the retail sector," the Associated Press reports. For example, about 60 percent of the retail industry suppliers rely on CIT credit, according to the AP. Another big loser in the CIT bankruptcy is you, the taxpayer. According to Bloomberg, "the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout."

There's some promising news for bailed-out mortgage lender Fannie Mae (FNM), however. The WSJ reports that Goldman Sachs (GS) is in talks to buy millions of dollars of tax credits from the government-controlled lender, but only if it can get approval of the Treasury for the transaction. The Treasury is saying there's no deal "unless it is clearly in the taxpayers' interest."

Treasury Secretary Timothy Geithner acknowledged on Sunday what you've no doubt been grumbling about for some time: Yes, the federal deficit is a tad high. He also thinks economic recovery is going to be a "little choppy," the Associated Press reports. "Asked repeatedly on 'Meet the Press' on NBC whether that meant taxes would rise, Mr. Geithner avoided providing specifics," the AP writes. Geithner did suggest, though, that those making less than $250,000 are safe. For now. CNNMoney.com notes, Geithner did not declare the recession truly over.

Bank of America (BAC) might be one of the biggest financial institutions in the nation, but running it doesn't appear to be a very attractive proposition, at least not for Bank of New York Mellon CEO Robert Kelly. The WSJ reports that Kelly has been sounded out a couple of times about taking over from outgoing CEO Kenneth Lewis, but the BNY Mellon head has shown no interest in the position. B of A's overtures reflect a growing belief among some shareholders, regulators, and directors that the next CEO should be "someone with no connection to the problems dogging the bank."

Last Friday's opening of China's new Nasdaq-style stock exchange is being heralded as a "watershed moment for the country’s capital markets," the NYT writes. Trading was feverish on the launch day of the Growth Enterprise Market, or GEM, with shares of some companies soaring as much as 210 percent. Up until now, many Chinese tech companies have lacked access to financing. That looks set to change with GEM, though some observers warn that the exchange could quickly fall victim to over speculation. It's like the “V.I.P. table on top of a big casino,” one analyst told the NYT.

And finally, can Newsday columnist Saul Friedman's name become a rallying cry for preserving the status quo of free online news? Friedman quit his writing gig last week "over the paper’s decision to require some readers to pay for access to its Web site," the New York Times reports. And how is Friedman's protest message playing out among the chattering masses? So far, we count, as of press time, just 20 tweets acknowledging his sacrifice for online readers everywhere.

Citigroup Is on Its Fourth Government Bailout

Paul Smalera — Sun, 01 Nov 2009 07:25:44 +0000

The New York Times today has the fascinating story of the dissolution of the Rockrose real estate concern. Three brother of Iranian heritage grew from renovating a building in Greenwich Village to running one of the largest real estate businesses in New York. Yet all it took was a coin flip to split the holdings three ways. Henry Elghanayan, the eldest brother, was concerned for the succession rights of his son, Justin. So the brothers chose to split the company up ahead of any possible disputes. In doing so, they employed a sort of reverse game theory: The low bidder won the right to divide the firm’s holdings into three parcels each brother would select. But as the low bidder, he would choose last, hence, he had the incentive to draw up fair divisions. Henry won the right to the Rockrose name, but horse-trading among the brothers led to some interesting choices that none saw coming. The story is a fascinating tale of economic game theory as applied to a multibillion-dollar real estate company.

Citigroup (C) has been rescued four times by the U.S. government, the Times writes. As the quintessential “too big too fail” institution, the bank is in danger of becoming a caricature of its own maladies. The latest bailout includes $45 billion in TARP money plus $300 billion in FDIC guarantees. The story raises the question of what to do with a bank that is too big to fail but seemingly incapable of succeeding without government intervention. One of the tactics by CEO Vikram Pandit has been to practically undo the 1998 merger with Travelers Group, treating each asset pool as a separate business line. The second group of assets are businesses that CIti hopes to exit in time. Yet experts quoted in the article foresee little good for the bank. “Eventually what happens with Citigroup is the government is going to turn to the bondholders and say we can’t put any more money into this. You own the company now ,” one analyst told the paper.

States are likely to shape health reform, reports the Washington Post. As the health care plan in Congress is fleshed out, important decisions on opt-out clauses, benefits, and other major aspects are proposed to be left to the individual states. One economist said, "The plus side is that states are uniquely positioned to reflect the tastes of their residents and market conditions. Plus, we can really learn from the different approaches states take," he said. The downside "is that states can screw up and not meet ... minimum standards." In the example of Texas, given in the story, it can take months for residents to be enrolled in Medicaid. Overall, the article seems to be charting the politicization of health care issue, even in the context of solutions being proposed by the federal government.

The Supreme Court finds itself looking at issues of executive compensation, reports the Post, though not exactly in the Kenneth Feinberg way we have become accustomed to. The case revolves around mutual fund fees—whether companies are charging too much to clients who are “locked in” to their business. Yet the ruling could have an unmistakable impact on executive compensation practices throughout the financial services industry.

After years of underperformance, Texas Instruments has finally gotten religion and is revamping its executive structure and board, reports the Times. Shamrock, a money management firm that helped oust Michael Eisner from Disney (DIS), has taken the reins and is seeking to provide value to investors. Indeed, as the firm has won battles against management, “[p]eople are beginning to think like owners,” says Shamrock’s CEO.

Finally, the Times exaplains why Google (GOOG) doesn’t like its phone bills. A few weeks back, it was reported the firm’s Voice product was refusing to connect calls to certain rural phone numbers. It turns out those numbers aren’t Grandma's—they belong to adult entertainment firms and conference call Web sites eager to turn a profit on exorbitant connection fees. Google, which can end up, like any carrier, paying 10 times more to connect a rural number as opposed to a city one, has chosen to block about 100 phone numbers from connecting. It believes the numbers are less about communication and more a money-making scheme. “Grandma wouldn’t be on all day,” a Google lawyer told the paper.

SEC Probes of Madoff Were "a Nightmare"

Paul Smalera — Sat, 31 Oct 2009 06:26:08 +0000

One day after big gains, the stock market was down with its worst drop in six months, reports the Washington Post. Thursday, investors thought that rising consumer spending levels were shoring up the economy and the GDP. Friday, new economic data showed the biggest spending decline in nine months. In other words, the comeback is on hold, at best. The paper also says investors are questioning whether stock prices have climbed too far, too fast in recent months, making any more run-ups dubious in nature. Further complicating the issue is the question of what the “real” economic picture looks like. One investment officer told the Post, "Investors are trying to look past that, the stimulus, to see what is it we're ultimately going to be left with after the government isn't there to prod spending through."

Speaking of consumer spending (which the Post analyzes in a separate story), CIT (CIT), a lender that greases the skids of commerce for thousands of small businesses, could file for bankruptcy protection as soon as Sunday, reports the paper. The Wall Street Journal reports that $2.3 billion in taxpayer money is likely to be wiped out in the filing. CIT’s hand is likely being forced by an urgent need to restructure its debt. The government has encouraged speedy bankruptcies for those companies that have had no option, but in this case, one lawyer tells the paper the filing "is a risky proposition. It's far from a certainty that they will be able to exit ... because of all the challenges a financial services company will face, particularly in this market." CIT has locked up the support of Carl Icahn for its plan, but only after he failed to convince other investors to support liquidation rather than restructuring. The Journal follows the CIT story with another explaining how the lender’s failure could ripple through retailers’ and shoppers’ finances. Firms are scrambling to find lending replacements for the $60 billion CIT typically had outstanding.

The Bernard Madoff story continues to look bad for the regulators charged with catching swindlers like him. The Post reports on the interviews with Madoff conducted by an SEC inspector, where Madoff expresses disbelief that he wasn’t caught sooner. Thousands of pages of transcripts were released yesterday in support of a report that sharply criticized the SEC. Among statements Madoff made were that being probed, “was a nightmare for me," because his scheme "was very basic stuff." The New York Times has a story complete with extensive documents and the fact that the SEC received six substantive tips on the Madoff fraud and botched the investigation of each one. The paper reports that young SEC investigators pestered Madoff “over incidentals like e-mail messages," instead of checking “basics like his account with Wall Street’s central clearinghouse and his dealings with the firms that were supposedly handling his trades.” “If you’re looking at a Ponzi scheme, it’s the first thing you do,” Madoff said.

The Journal says General Electric (GE) and Comcast (CMCSA) are moving closer to an agreement on NBC Universal, with the main argument being over valuation of the unit. A deal could happen within three weeks. The paper also says federal guidelines for bank loans are changing, to encourage banks to modify loans rather than foreclose. There is criticism that the accounting change will allow banks to continue to hide bad loans, but the FDIC, Fed, and OCC have all signed off on the changes, which primarily affect the $1.4 trillion commercial mortgage market.

One might think megabanks are battling the Obama administration’s financial regulatory reform proposals hardest, but in fact a consortium of small community banks, writes the Post, are the ones trying to “kill” the reforms. Finding strength in numbers and local politicking, 8,000 banks and their lobbyists are adroitly pulling on the levers of power in Washington.

Google’s (GOOG) book scanning efforts are facing renewed criticism—from Chinese authors, reports the Times. Two groups there claim the project is violating authors’ rights. The story says Chinese authors had no idea about the project until reading about the proposed settlement in Google’s American lawsuit—which they, like some American companies, didn’t like. “We think that reconciliation is extremely unfair,” a copyright expert said. “We don’t accept it.”

The End of Recession or Another False Dawn?

Matthew Yeomans — Fri, 30 Oct 2009 08:35:43 +0000

At long last, growth! For one day at least, there were cheers for the resilient U.S economy, which the Commerce Department on Thursday declared grew at an annualized rate of 3.5 percent, or, as the New York Times points out, "matching its average growth rate of the last 80 years." Pulling out of the worst recession since World War II lifted the markets Thursday to their best trading day in the past three months as investors cheered a quicker- and stronger-than-expected recovery, the Associated Press reports. Ah, but nobody expects the good times to last very long. The Wall Street Journal is calling the recovery a false dawn, noting that third-quarter growth came from consumer spending aided by temporary stimulus programs that enabled Americans to buy cars and houses that they otherwise might not have been able to afford. "The problem: With much of consumers' spending driven by temporary government stimulus programs, and with more people losing their jobs, it is unlikely they can keep driving robust growth," the WSJ writes. What, then, can sustain growth and provide jobs? Perhaps a weak dollar may prop up exports for a while, the newspaper suggests, but "the signals are mixed."

There are few cheers these days coming from the executive suites of Big Oil. Cheap, or at least relatively cheap, oil is fouling up the profitability of the world's biggest oil companies, The Washington Post reports. The problem is "the recession"—or what's left of the recession—as it "continues to weigh on consumer demand, driving down energy prices," the newspaper writes. The latest oil producers to feel the pain were Exxon Mobil and Royal Dutch Shell, which both reported big profit declines on Thursday. As the Times puts it, "After posting record profits last year, major oil companies have struggled to adapt to a world of lower prices and slower economic growth. They have slashed costs, shed employees and pared high-cost investments made when prices were rising." There could be some good news for investors today, however, as Spain's Repsol is expected to announce a major a new oil discovery in the Gulf of Mexico in U.S. waters, the WSJ reports, adding to the company's recent lucky streak. As the WSJ writes, "For years, Repsol YPF SA was derided as the oil company with no oil, but its gamble on boosting exploration has paid off handsomely, with the Spanish company hitting the jackpot in Brazil, West Africa—and now the U.S."

There's a new twist in the Galleon hedge-fund insider trading case, the NYT reports. To bring everyone up to speed: Federal investigators allege that very wealthy investor Raj Rajaratnam, along with five other accomplices, ran a massive insider-trading operation targeting some of the biggest tech companies that, thanks to the information passed to them by a vast network of informants, brought in $20 million in profit from 2006 to 2009. Now it transpires that the government's main source in the current case, Rhoomy Khan, passed Rajaratnam information about her employer Intel as early as 1998. Khan was prosecuted in federal court in 2000, but the authorities did not pursue Rajaratnam or his firm, Galleon, at the time, leading the NYT to ruminate that, "It would seem to be another example of a missed opportunity by authorities to break up a nascent insider trading ring."

Sony announced this morning its third straight quarter of losses in the July to September period, "hamstrung by the strong yen and still-soft demand for its electronics products," the WSJ reports. But echoing a general tech sentiment of cautious optimism, the giant Japanese electronics maker said that it had returned to operating profit in its core consumer-products business. "With a brighter global economic outlook in place for the second half, Sony said it now expects to lose less in the 12 months through March than it had originally expected," writes the WSJ.

And finally, score a victory for environmental activists against Big Oil. The Washington Post reports that activists at Amazon Watch have unmasked Chevron's prize mole who helped the oil company in August produce embarrassing video footage "that cast doubt on the integrity of a court in Ecuador, where the company is fighting demands that it pay billions of dollars to fix damage done years ago by oil exploration in the Ecuadoran Amazon." Turns out the undercover video producer is Wayne Hansen of Bakersfield, Calif., who went to jail in the 1980s "for conspiring to import 275,000 pounds of marijuana," the Washington Post writes. More recently, Hansen lost a local civil case after his put bull attacked a neighbor. Chevron on Thursday stood behind Hansen's video reportage.

Google May Redefine GPS

Caitlin McDevitt — Thu, 29 Oct 2009 06:05:09 +0000

Yesterday Google (GOOG) announced its plans to offer free mobile GPS, reports the New York Times. The smartphone service, which poses an intimidating challenge to established GPS device makers like Garmin (GRMN) and TomTom, will “offer turn-by-turn directions, live traffic updates and the ability to recognize voice commands.” While it will be accessible only through the Motorola (MOT) Droid phone at first, eventually Google would like to make it more widely available. The company also hinted that ads could eventually be incorporated into the service. On that note, the paper says, “That would make driving directions the latest form of information to shift from being a paid service to one that is ad-supported.”

The firms that got the most government assistance are now getting lots of unwanted attention from politicians, according to a front-page Wall Street Journal story. Some member of Congress would argue that the companies that have taken taxpayer funds now need to consider their constituencies when making business decisions. General Motors (MTLQQ) has felt this pressure more than most bailed-out firms since the government has taken on a majority stake in the business. The paper says, “Probably no company has been more on the receiving end of congressional attention than GM, whose widely scattered factories, suppliers and dealership network put it in touch with nearly every U.S. congressional district.” In GM’s case, lawmakers’ requests have included the reversals of a decisions to shut down various dealerships.

International workers hoping to come to the United States though the H-1B visa program may be out of luck, the Wall Street Journal reports. While historically the program has filled up quickly with highly skilled workers who land tech jobs, thanks to fewer employment opportunities this year, it’s “on track to leave thousands of spots unfilled for the first time since 2003.” While the economy has forced many companies to cut back on new hires, there are also political pressures involved. The paper says, “Companies that receive federal bailout funds must prove they have tried to recruit American workers at prevailing wages and that foreigners aren't replacing U.S. citizens.” Many potential immigrants aren’t having trouble finding jobs at home, though, especially in countries like India and China.

The Washington Post reports that the weakened dollar is “setting off alarm bells overseas.” While the sinking value of the dollar has helped to jump-start the U.S. economy, it has had the opposite effect on many foreign competitors. The article explains that the falling dollar “has made everything from American-made cellular phones to furniture suddenly become more competitive both at home and overseas,” while it’s “had just the opposite effect on German washing machines and Japanese cars, making them less price competitive in the world's largest market—the United States.”

Inching away from its traditional retail model, Saks Inc. (SKS) is experimenting with exclusive private sales online, the Wall Street Journal reports. Earlier this week, members of the Saks e-mail list were invited to a 36-hour exclusive online sale. While most big retailers have yet to dive into this market, small private-sale sites, like Gilt.com and RueLaLa.com, have been steadily winning over cost-conscious shoppers who still want high-end goods. The paper says, “The private-sales sites have been one of the few bright spots for sales of designer apparel this year.”

A new Washington D.C.-based local news organization is coming soon from the people who created Politico. The New York Times reports that the venture will employ a 50-person news staff, led by the former editor of washingtonpost.com, Jim Brady. It’s an expensive undertaking, but according to the paper, “Mr. Brady said they had concluded that the venture had to be done on a large scale or not done at all.” If successful, the site could compete with the Washington Post’s local coverage, which has been an area of renewed focus lately.

Finally, pay czar Kenneth Feinberg isn’t seeking any more authority, according to the Wall Street Journal. The paper says, “Mr. Feinberg, who last week slashed the average compensation for 25 employees at the seven firms by approximately 50%, said he was wary of exceeding his mandate.” While Feinberg mentioned that he’d like it if other companies took note of his pay guidelines, he’s not interested in doing much more beyond what he’s been tasked with already.

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Thu, 29 Oct 2009 06:05:09 +0000

House Price Bubble Redux

Matthew Yeomans — Wed, 28 Oct 2009 09:32:37 +0000

After a resurgent summer buying spree, the rally in house prices is about to run out of steam, the nation's business press glumly report this morning. Yes, there was some good news on Tuesday as the closely watched Standard & Poor’s/Case-Shiller home-price index registered a seasonally adjusted 1 percent increase in August. "That was the first time since early 2006 that the widely watched measure of 20 metropolitan areas put together three consecutive increases," the New York Times writes; the Wall Street Journal counts four consecutive months of house-price rises, but it, too, agrees on where the market is heading. The consensus is that the party appears to already be over. "Plenty of pain yet to come," is how Joshua Shapiro, chief U.S. economist for MFR, described his forecast to the NYT. He is predicting an imminent resumption of price declines. Robert Schiller himself, who is loath to make forward-looking statements about the housing market, told Reuters that home prices in certain regions, such as Minneapolis and San Francisco, appear to be in "bubble territory." He adds: "It is a time of great uncertainty."

GMAC Financial Services has gone back to Uncle Sam for a third helping of federal aid, the WSJ reports this morning. Citing sources, the newspaper writes, "The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008." If the aid goes through, the government would very likely gain a larger ownership stake in the financier—perhaps a full majority stake, the NYT reports; it now stands at 34.5 percent. The willingness of the Treasury to sink yet more taxpayer money into the firm reflects just how important it is seen in the overall recovery of the auto industry. Speaking of survival in the automotive industry, Ford lost a crucial union vote on Tuesday to cut labor costs. According to the NYT, "members of at least five local chapters of the United Automobile Workers union have turned down the proposed changes, which include a six-year wage freeze for newly hired workers, some job-classification changes and a provision that bars the union from striking over demands for better pay and benefits through 2015."

The criminal treasure chest that is the Galleon investigation has ensnared the ex-chief of chip-maker AMD, the WSJ reports. Hector Ruiz (who is not a defendant, it should be stressed) is alleged to have shared confidential information about AMD with a defendant in the expanding insider-trading case. According to the WSJ, Ruiz shared confidential information with Daniele Chiesi (a defendant in the Galleon case), who then worked at the hedge fund New Castle partners, about a 2008 reorganization of AMD. "Galleon and New Castle bought AMD shares in hopes of profiting when the deal was announced, according to the criminal complaint and a civil action by the Securities and Exchange Commission," notes the WSJ, though they didn't profit because the stock market slumped.

Operation Stick It to the Bankers continues apace with the Obama administration proposing new legislation that would give government "broad new powers to shift the cost of rescues of big, troubled financial institutions from taxpayers to other large companies," (read: financial companies) the NYT writes. The legislation, drafted in collaboration with Barney Frank, head of the House financial services committee, would "create a special fund, paid by assessments on financial companies with more than $10 billion in assets, to bear the costs of big firms that fail."

And finally, Bank of America (BAC) originally had hoped it would have a leading candidate or two by now to replace retiring CEO Ken Lewis. According to the WSJ's sources, the selection committee has hit some snags, though, "as directors sift through outside candidates that are in short supply." The main hurdle is that influential shareholders cannot reach a consensus on which type of candidate would be best for the job: an outsider with a strong pedigree or a taint-free insider.

AIG: The Sequel

Caitlin McDevitt — Tue, 27 Oct 2009 08:57:17 +0000

Maurice Greenberg, the ex-chief of American International Group (AIG), “has been quietly building up a family of insurance companies that could compete with AIG,” according to the New York Times. The new venture called C.V. Starr & Co. will be staffed by some of Greenberg’s former employees. Executive compensation limits announced last week may actually help Greenberg fill more of the ranks. “That may hasten the exodus of AIG’s talent, sending more refugees into Mr. Greenberg’s arms, since C. V. Starr is free to pay whatever it wants,” the paper says. Some people are rooting against Greenberg, with the belief that his success will end up hurting taxpayers. By “siphoning off” business from AIG, the beleaguered company could be much less likely to repay its government debt.

An autopsy revealed that Jeffry Picower, a prominent philanthropist accused of gaining about $7 billion in profit from Bernie Madoff’s Ponzi scheme, drowned Sunday after having a heart attack. The New York Times reports that Picower was found at the bottom of the swimming pool at his Palm Beach, Fla., mansion. The paper says, “Mr. Picower had been under growing pressure for months as he faced litigation over his disputed role in the Ponzi scheme operated by Mr. Madoff, who was arrested in December and pleaded guilty in March to operating a long-running fraud that cost thousands of victims billions of dollars.” Picower had a longstanding “professional and personal relationship” with Madoff. The paper says, “Besides investing their personal assets with Mr. Madoff, the Picowers had also entrusted him with money belonging to their personal foundation, which was forced to close in December, after Mr. Madoff’s arrest.”

According to the Washington Post, the White House will unveil a multimillion-dollar plan to convert a closed General Motors (MTLQQ) plant in Wilmington, Del., into an electric car factory. Fisker Automotive of Irvine, Calif., is expected to spend $175 million to fix up the plant. Fisker is also in the process of developing a car under the name “Project Nina,” after the Christopher Columbus ship. A company spokesman says that the name of the project is supposed to be "symbolic of the transfer from the old world to the new in terms of auto technology."

Also in auto news, the Wall Street Journal reports that Chrysler is set to reveal a new product lineup that discards many of its own models in favor of Fiats and vehicles using Fiat technology. The plan is to introduce the high-end, sporty Alfa Romeo brand to the U.S. starting in 2012, in addition to bringing over the 500, the small Fiat car that enjoys popularity in Europe. Some current Chrysler models including “a number of Dodge cars, the Dodge Grand Caravan minivan and several Jeeps” are going to be phased out. Still, the article suggests that new chief executive Sergio Marchionne’s greatest challenge is not winning over the country with this new lineup, but to keep the company afloat until 2012, when most of the new offerings will come to the market.

Betting on a pickup in business spending, technology companies are launching big advertising campaigns to win new customers, the Journal reports. Among the companies jockeying for attention is Google (GOOG). The search giant that typically shies away from traditional advertising recently launched a global ad campaign for its Gmail service and Google Docs offerings. Microsoft (MSFT) spent $300 million on ads to promote the release of its Windows 7 operating system, while Yahoo’s (YHOO) new “It’s You!” campaign, unveiled last month, is its first-ever global ad effort. In the words of one ad executive interviewed for the article, "This is a market now where you stand out or die."

Finally, Bloomberg reports that McDonald's (MCD) restaurants in Iceland will be closed at the end of the month “after the collapse of the krona eroded profits at the fast-food chain.” The closure is largely due to the cost of importing meal ingredients, which has doubled over the past year. “Our competitors all use domestic meat and lettuce and so on, while we are flying in these materials, which is extremely expensive,” says a person familiar with the matter. According to the article, the island has only three McDonald’s restaurants, “all of which will be closed.”

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