Frustrated Wall Street Donors Turn Away From Democrats

Kelly Faircloth — Mon, 08 Feb 2010 11:51:01 +0000

The days when Obama could solicit a record $89 million in campaign funds from the financial industry are over, the New York Times reports. After the White House's months of harsh rhetoric and attempts to tighten regulation, even Wall Street’s big Democratic donors are turning on him. His proposals, especially the Volcker rule and the “financial responsibility tax” on bigger banks, are angering many in the industry. For example, JPMorgan Chase (JPM), formerly friendly to Democrats, has shifted donations to the Republican House and Senate campaign committees. Meanwhile, Republicans are actively working to take advantage of “buyer’s remorse” on Wall Street. Says one source: “If the president wanted to turn every Democrat on Wall Street into a Republican, he is doing everything right.”

This week, Ben Bernanke will start laying out the Fed’s plan for tightening credit once the economy begins to recover, according to the Wall Street Journal. Any action is several months away, but after dumping huge amounts of cash into the system in 2008 and 2009, the board is already considering ways to pull back safely. The Journal says one key weapon in the central bank’s arsenal will be the “interest on excess reserves,” which charges interest on banks’ money on reserve at the central bank. The paper says a “higher rate would entice banks to tie up money they otherwise might lend to customers or other banks,” reducing the amount of money in the economy.

With sovereign-debt worries escalating, thanks to the troubling balance sheets of Greece, Portugal, and Spain, it’s falling to Central European Bank president Jean-Claude Trichet to handle the crisis, the New York Times reports. Technically, the bank is only responsible for controlling inflation. But the troubles are exposing the downside to the EU’s weak political arm, which can’t enforce debt limits or other financial agreements. And so Trichet is taking an outspoken leading role, reminding EU member governments, “When you share a single currency with others, the counterpart is that you have to have a sound fiscal policy.”

The feds are cracking down on companies that turn to bribery to secure overseas defense contracts, according to the Washington Post. On Friday, defense contractor BAE Systems cut a $400 million deal with the FBI on allegations related to the Foreign Corrupt Practices Act, which forbids bribing officials to win contracts. The settlement comes shortly after the highly public arrest of several businessmen in defense and law enforcement on FCPA-related charges—most of whom were at an industry trade show in Las Vegas at the time.

Ever tried to buy something online—say, a DVD player or piece of jewelry—and had to add it to your cart to see the price? The hidden price tags are part of the growing conflict over e-commerce pricing, which isn’t limited to book publishing, the New York Times reports. After years of deep Internet discounting, many companies and manufacturers are experimenting with ways to keep prices higher. Once, they would have encountered anti-trust issues, but a 2007 Supreme Court decision allowed manufacturers more leeway to dictate prices and set a higher legal bar for retailers to prove the behavior hurts consumers.

A devastated securities market is thwarting Citi’s (C) efforts to improve its balance sheet by unloading unwanted assets, the Financial Times says. The bank is in talks with private-equity firms and hedge funds to sell $3 billion worth of car loans, but some potential buyers are hesitating. According to the head of capital markets at a big firm, “Private equity can’t make a bid on anything where the business model requires a bet that the external funding markets and securitisation comes back.”

Other than the Saints, who were the big winners at the Super Bowl? According to the Wall Street Journal, which surveyed ad execs and consumers, the best ads came from Snickers, Denny’s (DENN), and Coke (KO). For those who missed the big game: The candy company's ad put Betty White in a rough game of football, while Denny’s relied on petrified chickens and Coke featured The Simpsons’ Mister Burns. Doritos' violent, fan-selected ads were also popular.

Finally, if you think your week ahead looks rough, think of Toyota (TM) U.S. head Yoshimi Inaba. The Wall Street Journal reports Inaba is popular with American dealers but has faced an uphill battle returning the North American division to profitability. The 6-million-car recall has dealt a blow to the company’s reputation for safety and reliability, and he’s unlikely to face a friendly audience when he visits Capitol Hill. Wednesday’s hearing title: “Toyota Gas Pedals: Is the Public at Risk?” The company is expected to add the 2010 Prius to the recall, the New York Times reports.

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Bank of America and Ken Lewis Are Getting Sued Left and Right

Paul Smalera — Fri, 05 Feb 2010 07:57:01 +0000

Even as Bank of America moved towards a $150 million settlement in its SEC lawsuit, New York State Attorney General Andrew Cuomo announced he was suing it, former CFO Joseph Price, and former CEO Ken Lewis, for fraud. The Washington Post reports the bank and the two officers “were accused of misleading federal officials about the size of losses at Merrill Lynch, the troubled investment bank that Bank of America was in the process of buying. The lawsuit alleges that the deception was part of a successful effort to trick the officials into providing an additional infusion of bailout money. Cuomo also charged the bank and the former executives with lying to investors about mounting financial losses at Merrill Lynch and concealing billions of dollars in bonuses paid to employees.” Needless to say, Bank of America and the executives denied and denounced the charges. The case, if it goes to trial, could involve calling some of the prime actors in the bank bailout to the stand. “The lawsuit names former Treasury secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke and other federal officials as participants in discussions about the merger between Bank of America and Merrill Lynch.” The New York Times has more on the SEC settlement, noting it is, “subject to approval by United States District Judge Jed S. Rakoff — the same judge who rejected a previous $33 million accord as woefully low and, in blistering terms, accused the S.E.C. of going too easy on Bank of America and its executives.” It’s not at all clear that the settlement addresses Rakoff’s complaint, which is that a settlement in lieu of trial would close the books on the government’s investigation, and allow the bank to neither admit nor deny any wrongdoing in the matter.

State Street, a Boston based money manager, settled its own SEC lawsuit for $310 million, the Times reports. The company told some of its investors to get out of bonds backed by subprime mortgage based securities, allowing them to get out while the getting out was good. “Others were kept in the dark, costing them millions of dollars,” says the paper. Of course, the article notes, “as part of the settlement State Street does not admit or deny the allegations.”

Chris Dodd is not happy about the state of financial regulatory reform. Dodd, as head of the Senate Banking Committee in charge of the reform bill, has had a front row seat to its stalled and stuttering progress, reports the Times. “The fact is, I am frustrated, and so are the American people,” Mr. Dodd said at the start of the hearing, adding that few of the rules of Wall Street had changed, nearly two years after the collapse of Bear Stearns at the inception of the financial crisis. Even though it’s the politicians on his committee, its house counterpart, and in the executive branch that are doing the bickering, Dodd said the banks and their lobbyists are to blame as well. “The refusal of large financial firms to work constructively with Congress on this effort borders on insulting to the American people, who have lost so much in this crisis,” he said. The article notes the proposed Volcker Rule is the latest proposal to face their collective wrath.

The Justice Department is not please with Google’s digital library, nor the class action settlement it’s proposed to authors and publishers whose books it wants to scan and index, reports the Times. While revisions to the settlement were seen as “much improved,” they were, “not enough to placate concerns that the deal would grant Google a monopoly over millions of orphan works, meaning books whose right holders are unknown or cannot be found.” Justice argued that Google is using settlement in a narrow case to try to open up future lines of business for itself, namely a legal basis to continue populating its digital library and bookstore. A ruling on the settlement will come some time after a hearing on it in New York on February 18^th.

Hachette, meanwhile, is reported by the Wall Street Journal to be joining Macmillan’s stance in the ongoing spat with Amazon over e-book pricing on the Kindle, a move that seemed to be spurred by the introduction of Apple’s iPad and its less controlling iBooks store. The Times writes that, “Just as America’s recession begins to ebb, trouble is brewing in Europe that may prolong a downturn on the Continent and ricochet through the global economy as it struggles toward a recovery.” Finally, Congress, including Saturday Night Live alum and former NBC employee Al Franken, had the pleasure of grilling Jeff Zucker and Brian Roberts today over the NBCU/Comcast merger, reports the Washington Post

NSA Working With Google To Understand Chinese Hacker Intrusion

Paul Smalera — Thu, 04 Feb 2010 08:02:20 +0000

Google (GOOG) is teaming up with the National Security Agency, reports the Washington Post. “Sources with knowledge of the arrangement, speaking on the condition of anonymity, said the alliance is being designed to allow the two organizations to share critical information without violating Google's policies or laws that protect the privacy of Americans' online communications.” The idea is to protect Google’s users from future attacks, by allowing the NSA to help Google figure out the root of the recent major attack on the firm’s systems in China. Matthew Aid, an NSA expert, expressed what is sure to be the first of many concerns on how working closely with the country’s leading intelligence-gathering agency will affect Google’s reputation: "When you rise to the level of Google ... you're looking at a company that has taken great pride in its independence," said Aid, author of The Secret Sentry, a history of the NSA. "I'm a little uncomfortable with Google cooperating this closely with the nation's largest intelligence agency, even if it's strictly for defensive purposes."

Amazon (AMZN) has bought a small technology company in what is widely seen as a move to bolster the Kindle to compete with Apple’s (AAPL) iPad, reports the New York Times. The retail giant bought Touchco, a startup that grew out of NYU’s media research lab. “Touchco uses a technology called interpolating force-sensitive resistance, which it puts into displays that can be completely transparent and could cost as little as $10 a square foot. The capacitive touch screens used in the iPad and iPhone are considerably more expensive. Unlike those screens, the Touchco screens can also detect an unlimited number of simultaneous touch points.” If you didn’t know anything about the company before Amazon’s purchase, you won’t learn it know. The company, the article notes, stripped all information about its technology from its Web site and YouTube pages several days ago.

Ben Bernanke was sworn in for his second term as chairman of the Federal Reserve and acknowledged critics of his leadership, reports the Washington Post, even while he defended the Fed and its institutional powers. The article kindly translated one of his quotes into a statement we can all understand: “Translation: I get that the economy is still in horrendous shape, and the Fed will keep doing everything it can to fix that, so long as we don't think those steps will cause an inflation problem.”

Ken Feinberg has vowed to push AIG (AIG) to lower its bonus payouts, the paper also reports, but has been hamstrung by its fat contracts and employees' refusal to modify them out pressure, a sense of decency, or both. “Outrage surfaced again this week with news that the bailed-out insurance giant would pay $100 million to employees at Financial Products, a year after $168 million in similar payments to the same set of employees sparked a national uproar. The most recent bonuses are going to employees who agreed to accept less money than AIG had promised in return for early payment,” the paper said. Feinberg is even having trouble getting back the full $45 million promised to be returned from last year’s bonus recipients, so far coming up $6 million short.

Speaking of bonuses, Goldman Sachs’ (GS) Lloyd Blankfein is due to receive his soon, and as the Times puts it, “guesses range from nothing to $100 million.” Speculation is rampant, and the figure, the paper says, will set a new benchmark for pay across the industry, whatever it may be. Blankfein, in Goldman tradition, apparently left a companywide voice mail explaining the bonus structure for 2009’s record-breaking profits, and said that the firm’s performance would speak for itself. He neglected to speak for himself, and in the process helped start the rumor mill, making Goldman’s spokesperson, Lucas van Praag, a bit apopletic about the whole thing: “There is speculation, and then there is stupidity,” Mr. van Praag said. “This speculation transcends the simply stupid and takes it to an entirely new level.” Goldman’s compensation committee actually includes 10 outsiders, including the president of Brown University, who will help decide Blankfein’s bonus.

The Wall Street Journal reports that homeowners with adjustable-rate mortgages are watching their rates dip, rise, and generally behave unpredictably, even in relation to similar loans, thanks to obscure indexes that are behaving unpredictably. A Senate subcommittee will look into lax standards by which American banks helped launder millions for “Politically Exposed Persons”—rich leaders from corrupt foreign countries, reports the Times. And finally, the paper reports about 210 community and nonprofit banks will be eligible for $1 billion in low-cost capital from the TARP program, as part of the Obama administration’s plan to help small businesses.

On Capitol Hill, Volcker Rule Faces Criticism

Kelly Faircloth — Wed, 03 Feb 2010 11:41:56 +0000

Hearings on Obama’s two new proposed Wall Street regulations started yesterday, with former Fed Chairman Paul Volcker testifying in defense of his proposed ban on proprietary trading. According to the New York Times, the suggested caps on bank size and the controversial Volcker rule are already facing criticism. Sen. Chris Dodd, chairman of the Senate Banking Committee, warned that the administration risked overreaching and derailing the entire reform effort: “I don’t want to be in a position where we end up doing nothing because we tried to do too much.” Meanwhile, the Financial Times reports neither party was happy with the provisions’ lack of detail and the administration’s putting them forth months after introducing their initial reform plan. Republican Richard Shelby complained that “this concept was air-dropped into the debate,” the paper says.

More and more distressed homeowners are wondering why they should keep paying their mortgages, and many are simply walking away, according to the New York Times. Once a property’s value falls below 75 percent of the mortgage, even those who can afford the payments begin to consider defaulting. Says one man, who paid $215,000 for a Miami Beach condo now worth $90,000, “People like me are beginning to feel like suckers. Why not let it go in default and rent a better place for less?” By late 2009, more than 4.5 million Americans owed more than the worth of their homes.

Community banks want in on Obama’s $30 billion small-business lending program, the Washington Post says. Any attempts to spur lending that exclude struggling banks for stronger organizations will fail, argues the president of an industry trade group. The question of whether to include these banks is a dilemma for the administration, now deciding how the money will be distributed. “The government wants to give money to healthy banks that are best positioned to increase lending, but most of those banks don't want federal aid. Many weaker banks are eager for aid, but helping them is less likely to spur new lending,” the paper says.

The recession is accelerating radical changes to the nation’s manufacturing base, the Wall Street Journal reports. With poor earnings reports for 2009, even icons like Dow Chemical and Whirlpool are moving away from heavy sectors and toward specialized products, as well as adjusting to lower demand and shifting production to where labor is cheaper. Economists are split over what the impact means, with some arguing it’s a necessary streamlining and others saying deep cuts will kill healthy companies. "The earthquake that we felt was so big, and the aftershocks so strong, that we could easily destroy perfectly good manufacturers that are crucial in the supply chain," says economist Diane Swonk.

Underlying Obama’s budget are some grim economic projections, the Washington Post says. Unemployment won’t fall below 5 percent until the end of the decade, and the economy will only grow at an uninspiring 2.7 percent this year. Presidential budgets have a history of over-optimism, the paper reports, but this year’s numbers fit the predictions of other economists. The good news? If the economy makes an unexpectedly strong showing in the coming year, the conservative figures mean the $1.3 trillion deficit would narrow even faster than the president’s proposed timeline.

Congress isn’t buying Toyota’s (TM) explanations about sticky gas pedals and floor mats for its “unintended acceleration” problem. Instead, regulators are turning their attention to engine electronics as a possible cause, and they won’t be limiting their investigation to Toyota. The Washington Post says, “The government's review will look at the electronics systems across all manufacturers as well as the possibility that engine operation could be disrupted by electromagnetic interference caused by power lines or other sources.”

It’s bonus time again at AIG (AIG), the Times reports. Citing contractual obligations, the company is expected to distribute $100 million to employees today. It’s $20 million less than originally planned, thanks to a 10 percent cut for those in the financial products unit and a 20 percent cut for those who’ve left the company. But it’s not enough to appease critics like Iowa’s Republican Sen. Chuck Grassley: “The closed-door negotiations just add to the skepticism that the taxpayers will ever get the upper hand.”

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Banks Ready To Battle Over Volcker Rule

Paul Smalera — Tue, 02 Feb 2010 08:04:07 +0000

The battle over proprietary trading is about to be joined, reports the Wall Street Journal today. First things first: What is prop trading, as defined by Paul Volcker and the Obama Administration? That’s what banks, private equity, hedge funds, and regulators all want to know. Taking the general concept of investment banks using their own money to make trades and turning it into a well-defined behavior that can be measured and monitored by regulators is no small part of the issue. One of the main problems is what to do with market makers—traders who help customers execute a buy or sell when a counterparty isn’t readily available but is likely to be soon enough. They are thought to be important to a liquid and well-functioning market, but they, by definition, play with house money. The paper writes, “Here is one example of how hard it can be to untangle proprietary trading from market-making: As a market maker, a bank buys from a customer $25 million of 10-year bonds issued by government-sponsored mortgage company Fannie Mae. To offset the risk of those bonds falling in value if interest rates rose, the bank might then sell $25 million of 10-year Treasurys. That sale could be considered a proprietary trade.” So while Obama has been exhorting bankers to call their lobbyists off of the case of financial reform, the Volcker Rule proposal seems itself to be opening a whole new and perhaps even more crucial front in the regulatory reform battle. Meanwhile, the New York Times reports, the rest of the Obama/Senator Chris Dodd Senate regulatory reform proposal, including the TARP tax, continues to be derided by the Republican opposition as well.

The Federal Housing Administration is facing down the possibility of its first ever losses, reports the Washington Post. “About 9.1 percent of FHA borrowers had missed at least three payments as of December, up from 6.5 percent a year ago, the agency's figures show.” The FHA insures mortgages from qualified lenders to qualified homebuyers, which is supposed to make the process pretty safe. But lax standards, aggressive lending tactics, and the subprime crisis have conspired to put the agency at risk of dipping into the public kitty: “If the trend continues and the FHA's cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses -- a first for the agency, which has always used the fees it charges borrowers to pay for its losses,” the paper says. All this, of course, is now leading to tougher scrutiny of buyers and lenders, the kind of which might have averted the crisis at the FHA in the first place.

Could the New York Times’ paywall go up just as advertising revenue finally bounces back? The Journal says media companies believe advertising dollars are coming back to them. That’s something investors have been desperate to hear for quite some time now. Then again, some analysts believe reports of advertising’s rebirth may be a bit exaggerated: "Evidence of improvement in advertising trends since third-quarter earnings has been largely anecdotal," wrote UBS analyst Michael Morris, in a report quoted in the paper. To move stock prices, he said, "Results will need to significantly beat current expectations."

An Apple-made processor, the A4, powers the Apple (AAPL) iPad, reports the Times. That’s a first for a device of this complexity. Computer makers generally outsource the primary chip in the devices they make, to manufacturers like Intel, AMD, and others. In this case, Apple bought a chip maker, PA Semi, in 2008, and has put the team to work on building the A4 ever since. The company has had to work hard to keep engineers from leaving for competitors or startups in the lucrative and highly specialized field of chip design. The iPad’s excellent battery life is at least partially due to the A4 design, but unfortunately, little is yet known about the A4’s other features, as Apple is as secretive about its chips as it is about everything else.

Meanwhile, cheap commodity PCs are all Chinese hackers need to wreak havoc on bank accounts, Gmail, corporate servers, and all manner of online devices, reports the Times. The story dives into profiles of several Chinese hackers, explaining their motives, expertise, and of course giving them room to talk about the biggest hacks they’ve ever done, none of which are verifiable. The Times also has a story detailing the problems that Google (GOOG) faces—not in China—but in Europe, as data security and privacy concerns are rearing their heads there, even spawning a protest in Berlin. The German justice minister went so far—Google fans, cover your eyes—as to compare the company's budding monopoly to Microsoft’s.

Amazon Surrenders in Weekend E-Book Battle

Caitlin McDevitt — Mon, 01 Feb 2010 11:08:09 +0000

The under-10-bucks e-book may soon be a thing of the past. The Wall Street Journal reports that Amazon (AMZN) stopped selling books from publisher Macmillan on Sunday due to a dispute over e-book pricing. While the company says it plans to resume sales eventually, it has admitted that it will probably have to give in to Macmillan’s push for higher per-title price tags, more in line with those that Apple (AAPL) has proposed for the iPad. The paper says, “Amazon's flip-flop exposes how seriously Amazon is taking Apple’s challenge to its position as the market leader in e-book sales. It is the first of what is expected to be a series of upheavals as Amazon and Apple square off over the digital future of book publishing and retailing.” The New York Times dramatizes the face-off on the front-page of its business section: “After a weekend of brinksmanship, Amazon.com on Sunday surrendered to a publisher and agreed to raise prices on some electronic books.”

The New York Times reveals that the risky trading that led to the near-demise of AIG (AIG) wasn’t as isolated as it may have seemed at first. In addition to a London branch that has been blamed for much of AIG’s troubles, it turns out that another large insurance unit incorporated in Delaware was also playing around with credit-default swaps. The paper explains, “There is a continuing dispute over whether such swaps are insurance products or something else; who, if anyone, should regulate them; and whether insurers should have to set aside reserves to secure the promises that swap contracts make. A.I.G.’s insurance business did not set aside such reserves.”

President Obama will introduce his 2011 budget today, which the Wall Street Journal reports will push the U.S. deficit to an all-time high. The paper says, “The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year's $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor.” Obama has set a goal to eventually cut the deficit in half by 2013.

The Washington Post says that the cheap sale of the Silverdome in Pontiac, Mich.—former home of the eponymous popular line of cars—is just one of many signs of the suburb’s decline. The paper says, “Today, Pontiac is in such bad shape—a $7 million deficit, roughly $100 million in debt —that the state has declared a financial emergency and sent in a turnaround expert to oversee finances. The car is gone—General Motors is killing off its Pontiac brand. Most of the factories are deserted—GM has only 3,882 employees here now. And the turnaround expert, Fred Leeb, has sold the Silverdome to a Canadian developer, who paid just $583,000 for the 80,300-seat stadium and 127 acres of land—less than many Washingtonians pay for a house.”

Electric carmaker Tesla Motors is planning a $100 million initial public offering, according to the Los Angeles Times. The paper says, “The move brings the innovative car company, which has long enticed car enthusiasts, one step closer to becoming a household name. The price of shares or the timing of their availability is still unclear, but industry observers expect the much-anticipated offering to be well-received by investors.” The article also points out that Tesla recently won a $465-million loan from the government.

The New York Times’ media columnist David Carr weighs in on the iPad in today’s paper. Though he’s skeptical that content providers are prepared to take advantage of the new device from Apple, he’s pretty impressed with its potential. He writes, “Even as business models have yet to evolve, the iPad is clearly a next-generation media consumption device. The iPad is less gadget than pure frame on content. During the hands-on demo, I was so intent on what was on the screen that I all but forgot I was holding a piece of technology.”

And finally, the Wall Street Journal takes a look at Burger King's (BKC) clientele and posits that the fast food chain may be relying too heavily on customers who are on the brink of changing their eating habits for good. The paper says, “For five years, Burger King Holdings Inc. was on a roll, successfully courting its ‘super fans’—18- to 34-year-olds who account for half of all visits to Burger King restaurants. Thanks to high unemployment and healthier eating habits, those super fans haven't been so super lately. Burger King has felt the impact more acutely than its main rival, McDonald's Corp., whose sales are growing.”

Ben Bernanke Wins A Second Term

Caitlin McDevitt — Fri, 29 Jan 2010 10:31:58 +0000

After some heated back-and-forth and an eventual vote of 70-30, the Senate confirmed Ben Bernanke’s second term Chairman of the Fed yesterday. The New York Times notes that the vote “was the weakest endorsement ever extended to a chairman in the Fed’s 96-year history.” The Washington Post says:

That congressional anger at the Fed -- and at Bernanke himself -- will color Bernanke's second term. The Fed is designed to be insulated from politics so that its leaders can take a long-term view, especially in setting interest rates. But the Fed is now under greater pressure than at any time in recent history. And after his relatively close call on confirmation, Bernanke may not have the political clout to fend off attacks on the central bank, said people who study the Fed.

The Wall Street Journal reports that Toyota (TM) may have found a way to resolve the sticking pedal problem that forced it to initiate a massive recall. The paper says, “The Japanese auto maker is seeking approval from the National Highway Traffic Safety Administration for a ‘selective spacer,’ or shim, that would be inserted into the gas-pedal assembly of the 2.3 million vehicles affected by a recall announced last week, three people briefed on the plans said.” The Washington Post says that the car company could have possibly prevented the whole fiasco in the first place. The paper explains, “Toyota Motor began facing complaints of runaway cars years ago, but the company did not install ‘brake override’ systems in those vehicles, even as several other automakers deployed the technology to address such malfunctions.”

The Journal has a round-up of reactions from iPhone app developers to the new iPad. Many are thrilled that the device will support the apps that they already developed. Some are excited about adapting their apps to fill a bigger screen. And a few are not so happy about the limitations of the iPad. For example, online music service Pandora isn't pleased that the device can’t run more than one application at once. The paper says that because of the iPad's bigger size, "users are more likely to want to do other things like read an e-book while listening to tunes.” The iPad’s lack of flash technology and a camera are other common complaints from app developers.

Obama’s pledge to double exports in five years at Wednesday’s State of the Union address was a pretty bold statement, according to a piece in today’s New York Times. The paper says, “The trouble, trade experts say, is that meeting that goal would require the president to engage in a fight to the death with the liberal wing of his own party, persuade China to allow its currency to appreciate 40 percent, get global economic growth to outperform the salad days from 2003 to 2007, and lower taxes for American companies that do business abroad.”

Amazon (AMZN) announced that its profits leaped 71 percent last quarter. Amid that piece of good news, its executives “brushed aside” worries that its Kindle e-reader could lose marketshare to the newly introduced Apple (AAPL) iPad. The WSJ explains, “A day after Apple's splashy entry into the digital book market, Amazon Chief Financial Officer Tom Szkutak said Amazon is 'very excited' about its Kindle business and that ‘millions of people’ now own one of the devices. Responding to a question about competition from the iPad, he said, ‘We believe that readers deserve a dedicated device.’ ”

The LA Times reports that wine shipments from California fell in 2009 for the first time in 16 years. The paper explains, “Consumption of wine is up 2.1% nationally, but industry analyst Jon Fredrikson told the audience at the annual Unified Wine & Grape Symposium on Wednesday that the American public was snubbing tonier bottles from the Golden State and instead opting for cheaper bulk wine imports from overseas winemakers.”

And finally, the Wall Street Journal lists the lessons that the rest of the music business can learn from Lady Gaga. The paper says, “Underneath Gaga's haystack wigs is a case study of what it takes to succeed in the music business today. Gaga, 23 years old, has made shrewd use of new digital platforms, while still leveraging the clout of a major label, an institution deemed obsolete by many proponents of DIY culture. She is a product of a new kind of recording contract which goes beyond just selling records to encompass everything from touring, merchandise–even her make-up deal.”

Big Banks Cutting Loans to Employees With "Hardship"

Paul Smalera — Thu, 28 Jan 2010 07:46:27 +0000

The big banks are inventing creative ways around the executive compensation limits, reports the Wall Street Journal today. “Bank of America Corp. and Citigroup Inc. are doling out shares that employees can sell within months—much sooner than normally allowed. Other giant banks, including Goldman Sachs Group Inc. and Royal Bank of Scotland Group PLC, let certain employees borrow money to relieve personal cash crunches. And some U.K. banks have considered raising base, or cash salaries—funds that won't be subject to the country's new 50% tax on bonuses.” The banks, one industry expert seems to be saying, aren’t out to purposely annoy regulators or the public. It’s just that they have to: "I know it sounds ridiculous to Main Street, but it's a hardship," Gary Goldstein, who runs Whitney Group, a financial-services job-search firm in New York, told the paper. What with multiple residences, private school tuitions, domestic employees, and various membership fees, a banker’s expenses can demand a lot of cash. That means bankers are increasingly doing something previously reserved for the rest of the public: going into debt. “Loans are the most popular form of financial aid for traders and investment bankers. Gustavo Dolfino, a senior managing director at recruiting firm Accretive Solutions, says loans ‘are happening all over’ Wall Street. They include a type of bridge loan made to tide over employees whose fixed expenses outstrip available cash resources,” the paper says.

One Swiss bank, meanwhile, is temporarily reneging on its promise to provide the IRS with the names of 4,450 account holders who may be evading taxes, reports the Washington Post. Its excuse is that the government made it. “The announcement came days after a Swiss court ruled that it would be illegal for Switzerland to comply with the August accord. The court essentially declared that long-standing secrecy protections trumped the agreement. The decision came in a test case involving a UBS account holder who was fighting to stay in the shadows,” the paper reported. The move appears to be a surmountable hurdle to the IRS, but, “If Switzerland fails to deliver the information, the IRS could resume the civil suit against UBS. What's more, following through on the criminal prosecution of the bank ‘cannot be excluded,’ the Swiss Justice spokesman said.”

Treasury Secretary Tim Geithner was on Capitol Hill yesterday, testifying in a contentious hearing about his role in the AIG bailout. The Post and New York Times both carry some of the acrimonious exchanges, starting with Rep. Edolphus Towns saying, “The taxpayers were propping up the hollow shell of AIG by stuffing it with money, and the rest of Wall Street came by and looted the corpse.” Representatives alternately yelled and groused about Geithner’s actions as the chairman of the New York Fed, the role he had during the AIG bailout, immediately before he became Treasury secretary. But none was as effective in showing how Geithner and his counterparts seemed to hold themselves to a different standard than everyone else, as Rep. Marcy Kaputer of Ohio, who asked Mr. Geithner for the letter giving his now famous recusal in AIG matters: “Mr. Geithner said he did not have one. Instead, he said, he had simply made sure everyone at the New York Fed knew that he had withdrawn from day-to-day management decisions. ‘This was very important to do,’ he started, but Ms. Kaptur cut him off. ‘A lot of people think the president of the New York Fed works for the government, but in fact he works for the banks on the board that elected you,’ she said.” Geithner then disagreed with her characterization.

Toyota halted the sale of eight models in the United States at the request of the Ray LaHood, secretary of the Department of Transportation, after concerns over their safety continued to surface, even after two recalls, reports the Times. One expert “said Toyota was also paying for taking its eye off the message that has been central to its marketing. 'When your whole deal was quality, every mistake is a big deal.' " Meanwhile, the paper also reports that other carmakers are taking advantage of Toyota’s public relations nightmare to try to poach customers, as even car rental agencies began removing the make from their fleets.

The Federal Reserve, one day ahead of the confirmation vote on Chairman Ben Bernanke, left interest rates alone and confirmed its intent to exit several of the special programs it had set up to stabilize the economy during the crisis, reports the Times. The Journal reports some private investors are quite pleased about that decision. And finally, the Times, and seemingly every other news outlet in the world, reported that Apple (AAPL) showed off its new iPad, which will hit the market in 60 days.

Gas Pedal Problem Forces Toyota To Halt Sales

Caitlin McDevitt — Wed, 27 Jan 2010 10:17:10 +0000

Toyota Motor Corp. (TM) “is halting sales and production of eight models that the automaker recalled last week to fix gas pedals that could get stuck,” according to today's Detroit News. The car company asked dealers to stop sales of the vehicles yesterday. The paper says, “The Japanese automaker's move will be costly, affecting models that account for close to half of its U.S. sales as well as production at five assembly plants and one engine factory in North America for about a week.” The Washington Post leads its business news with this story and lists the affected vehicles as the “RAV4, Highlander and Sequoia sport-utility vehicles; Corolla, Camry and Avalon cars; Matrix hatchbacks; and Tundra pickups.” The WSJ weighs in, calling the decision to halt sales “a stunning and unprecedented move.”

The book-publishing industry may be in for another business model shake-up when Apple (AAPL) introduces its long-awaited tablet device this afternoon. The Wall Street Journal says that, according to details from last-minute discussions that Apple had with publishers, Apple will make the e-books it provides more expensive than those sold on Amazon’s (AMZN) Kindle. The paper explains, “Apple's business model for books, which the company has kept under tight wraps, shifts the focus away from the bargain-basement prices Amazon has made popular, according to publishers that have met directly with the company. Apple is asking publishers to set two e-book price points for hardcover best sellers: $12.99 and $14.99, with fewer titles offered at $9.99. In setting their own e-book prices, publishers would avoid the threat of heavy discounting. Apple would take a 30% cut of the book price, with publishers receiving the remaining 70%.”

The New York Times reports that at least two Federal Reserve Board officials were skeptical about payouts that American International Group (AIG) made to its trading partners around the time that it was bailed out. The paper says that in 2008, Fed officials turned down a proposal that would have obligated AIG’s trading partners to give back $30 billion that they had recently received from the insurer. “The Fed chose instead to let the banks keep the cash and to receive additional billions from taxpayers. This decision was made, internal documents show, after two Fed governors expressed concern that such a plan might be ‘a gift’ to the company’s trading partners, including Goldman Sachs (GS) and Société Générale, a major French bank,” the paper says.

GM may have found a new home for Saab. The New York Times explains, “Saab, the Swedish automaker that seemed destined for the junkyard a month ago after its owner, General Motors, said it could not find a buyer, won a new lease on life Tuesday when G.M. agreed to sell Saab to a tiny Dutch maker of high-end sports cars.” Spyker Cars, the prospective buyer, would pay GM $74 million in cash and $326 million in preferred shares under the terms of the agreement.

President Obama will be talking a lot about jobs in tonight’s State of the Union address, says the Wall Street Journal. The paper notes, “He will make small-business hiring the centerpiece of that message, pressing Congress to act on a slate of tax cuts that have languished for months, administration officials said Tuesday. Mr. Obama will call for eliminating capital-gains taxes on investments in small businesses. He will redouble efforts to give small employers a tax credit for new hires. And he will call for extending bigger tax breaks to those that purchase new facilities and equipment.” Today's New York Times discusses the pros and cons of a tax incentive for businesses that make new hires—an idea that Obama endorsed last month and could possibly discuss more seriously in the speech tonight.

And finally, the Financial Times reports that the United Kingdom has at last been able to “crawl” out of its recession. The paper says, “The UK became one of the last big economies to emerge from recession on Tuesday, but growth is so anaemic that strategists from the ruling Labour party fear that the country could contract again before the general election, expected in May.”

TARP Cop Says He's Building a Case for a Trial

Paul Smalera — Tue, 26 Jan 2010 08:32:40 +0000

Details of President Obama’s State of the Union proposals are starting to trickle out, and the Washington Post reports on one meant to show the administration’s commitment to fiscal restraint: a three-year freeze on federal funding not related to national security. The story says the freeze won’t save a lot of money right now—but it will slow down the growth rate of the budget and save many billions over the next decade. The freeze will apply only to one-eighth of the budget and won’t affect the economic stimulus package or the health care bill, should it pass. The story quotes an ABC News interview where Obama says, "I'd rather be a really good one-term president than a mediocre two-term president.” As administration sources note, the freeze could severely hamper the wide-ranging plans Obama brought to office with him, which could certainly affect his chances for re-election.

Meanwhile, the paper also reports that if Ben Bernanke is pushed out of his job as chairman of the Federal Reserve, it won’t be Obama’s handprints on his back. The administration seems to have rallied senators to rally behind Bernanke, staving off the 15 who so far have publicly opposed his reconfirmation bid. But the clock is ticking. “If Bernanke is not confirmed by Sunday, when his current term expires, Fed Vice Chairman Donald L. Kohn would probably take over as interim chairman,” though Bernanke would remain a governor of the Federal Reserve System and part of the Federal Open Market Committee, which sets interest rates for the central bank.

The Financial Times says Neil Barofsky, the TARP inspector general, is investigating the Federal Reserve Bank of New York over its disclosure of congressionally requested documents related to its bailout of AIG. “E-mails between New York Fed officials, some of which have been obtained by the Financial Times, show the institution trying to keep private details of the $27.1bn in payments to AIG counterparties, arguing that specifics did not have to be disclosed to the SEC,” the paper writes. The New York Times also picks up the story and rounds it out with a profile, saying, “Mr. Barofsky is setting off fireworks on Capitol Hill as he quietly and methodically pieces together the most complete historical record yet of the financial bailout. His reports are careful but not cautious, showing a willingness to stand up to some of the most powerful people and institutions in Washington or on Wall Street.” Barofsky has gone after the boldface names in the bailout and attempted to piece their mistakes of omission and comission together for the public record. He’s not a legally a special prosecutor, but he told the paper he thought of his job as “building a case for a trial.” The profile, in advance of his testimony before the Senate on Wednesday, is a valuable insight into the man who says, about the geographic expansion of his D.C. office to New York and California, “We’re following the TARP crimes.”

Some of the very bankers Barofsky is after are returning this year to Davos, Switzerland, for the annual World Economic Forum held there this week, reports the Times. Though their numbers will be up, they will apparently still keep a low profile this year, even as debates over the worldwide regulation of their industry are held right there. For example, only Goldman Sachs’ president, Gary Cohn, is attending while CEO Lloyd Blankfein stays home.

Apple (AAPL), a day before the announcement of its latest revolution-in-a-box, announces its most profitable quarter ever, on the backs of its computer lines more than its other consumer devices, reports the Times. The paper also continues its near-daily ruminations on the nature of the forthcoming device, examining how various media will adapt to the new technology. The paper’s real estate reporters look at the fallout of the Tishman Speyer handover of $5.4 billion Stuyvesant Town complex in Manhattan, thanks to default on its loans. Wind power grew 39 percent in the last year, the paper also tells us. And finally, the Wall Street Journal reports, after a months-long search for a new CEO, General Motors’ chairman and interim CEO Ed Whitacre finally picks one: himself.

Metrics Firm Detects 50 Apple Tablets Testing iPhone Apps

Paul Smalera — Mon, 25 Jan 2010 08:13:54 +0000

The New York Times buries the lead in its story on Apple’s (AAPL) new device, presumed to be a tablet computer. A company named Flurry, the Times has learned, has detected the new tablet’s software signature through applications in which its analytics code is embedded. The company licenses tracking software to developers of iPhone apps to record metrics about the way their apps are used. Lately, says a Flurry executive, about 50 new devices running apps have been detected. What’s more, the devices never leave Apple’s Cupertino campus, indicating they’re probably being tested in secure locations. “We saw a lot of testing of applications that deal with daily media consumption, like news, books, streaming music and radio,” the executive told the paper. “But we are also seeing so many social apps, like multiplayer games you can play with your friends.” Flurry can’t talk specifics about the type of data that has led them to this conclusion, citing their contracts with licensees of its software, but they also told the paper the types of apps being tested had, “a heavy emphasis on what people can do during those in-between moments and while in transit,” indicating an emphasis on a mobile device.

The Washington Post has a story looking at the wind-down of the Federal Reserve’s direct intervention in the housing market. The paper says that for more than a year, the central bank has invested more than $1 trillion into keeping mortgage rates down, but with its exit comes “a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama's efforts to get the economy on track.” Some critics are very worried about the Fed’s exit. The thinking is the Fed must get out to allow private investment to reenter and stabilize the mortgage market. But if the exit gets bumpy, the Fed could turn right around and start investing again, making the housing sector even more reliant on the government’s aid. The story talks to economists and officials across a broad swath of sectors and duties, but the gist is that no one is really sure whether the Fed’s exit will go swimmingly or plunge the economy into a recession.

All the discord around the actions of the Federal Reserve are at least part of the reason that Fed Chairman Ben Bernanke continues to face an uphill road to confirmation to a second term after his renomination for the post by President Obama. The Wall Street Journal reports that two Democratic senators, Barbara Boxer and Russ Feingold, have joined ten Republicans, two other Democrats, and an independent in publically announcing their opposition to his confirmation. The 15 public nays have created some fear that Bernanke might not be able to muster the 60 votes needed to win another four year term at the Fed. The whole thing is giving the markets agita, the paper says, as they’d just rather know already whether Bernanke (and his policies) will stay or go. While every objecting senator has his or her own particular home-state beef with Bernanke, none boiled it down better than Jeff Merkley of Oregon: "He did a good job with the fire hose this last year, but he certainly also—in his roles over the last eight years—he helped create the circumstances that set the house on fire.” If Bernanke’s not reconfirmed, he wouldn’t be chairman of the Fed itself, but would be able to retain a strong voice and leadership of the Federal Open Market Committee, the Fed’s most important policy-making body, indefinitely.

Populists and politicians are happy that bank executives are being paid in stock, reports the Journal, but shareholders are likely to be less than pleased about the dilution of their stakes. Google (GOOG) is taking on the problems of Africa, reports the Times, in order to improve the quality of life there, while also raiding an untapped market. The Times argues that Conan O’Brien should be cynical about the ratings boom he rode out of NBC on—after all, weren’t those fickle young males supposed to there for him all along, not fractured among a thousand cable channels’ niche offerings? And, finally, Tishman Speyer, which bought two humongous New York City apartment complexes at the top of the 2006 real estate market, and which has paid a price for them ever since, is turning the investment over to its creditors; as the Journal reports, the deal’s economics continue to worsen.

Is Geithner on the Outs in Obama's White House?

Paul Smalera — Fri, 22 Jan 2010 08:32:33 +0000

The Washington Post today speculates on whether Treasury Secretary Timothy Geithner is on the outs in the Obama Administration. The story hits all the dramatic notes from yesterday’s announcement that President Obama was proposing Paul Volcker’s version of a new Glass-Steagall Act over Geithner's and economics advisor Larry Summers’ more modest plans for reform. Volcker, standing right behind the president, beamed. Geithner, further away, struck an emotionless pose. An anonymous figure says, “His influence may have slipped.” Geithner has actually agreed with Volcker’s thinking all along, just, you know, not enough to actually support his actual proposal until now. The second half of the article explains how Volcker, finding little support in the White House or Treasury, took his campaign out to the streets, or wherever it is economists and retired CEOs hang out, and picked up advocates outside of government. After reaching a critical mass, Austan Goolsbee, aligned and along with Vice President Biden, started pushing Volcker’s views. By late December, Obama was telling Geithner and Summers to go along and draft a legislative proposal incorporating Volcker’s ideas rather than theirs. As a reminder, the heart of Volcker’s proposal is to prevent banks from taking advantage of their government protection as key components of the financial system to engage in prop trading, or investing with their own money, sometimes in direct conflicts with their clients’ interests. Of course, the proposal must now be voted on by Congress. The New York Times, by the way, examines the populist overtones in Obama’s message and mentions the fact that the political team considers the economic team of Geithner and Summers, “politically tone deaf.” Flooding the zone, it also gives voice to the plan’s critics.

What happens when Goldman Sachs (GS) makes lots of money but chooses to give out smaller bonuses to employees is that the firm makes a record amount of profit, in this case $13.39 billion for the year. The Journal says, “Reducing the bonuses boosted Goldman's profits by more than 50%.” Not that the change completely appeased critics: "I think the steps taken Thursday appear to be encouraging but there are still important open questions to be addressed. One of them is, is this a fundamental change or a one-time action?" said Hye-Won Choi, head of corporate governance at TIAA-CREF, which owns $1 billion of Goldman shares. Though the bank had no obligation to do so, it also consulted Ken Feinberg about its compensation plan. And, the paper noted, “to further diffuse popular anger about banker bonuses, Goldman announced plans to give another $500 million to charity, bringing its annual contribution to charity to more than $1 billion in 2009.”

With Republican Scott Brown being elected to fill Ted Kennedy’s Senate Seat in Massachusetts, and health care reform seeming to be a victim to the resulting shift in the balance of Senate power, insurance companies sound a little worried that they may have killed, well, not the golden goose, but the farmer who had been taking care of it all these years. The Times reports that, “Now, in the possible absence of forced change to their business, the insurers still face the daunting challenge of selling a product that is increasingly out of reach for more Americans as the cost of medical care — and thus premiums — continues to climb.” Turns out with employer-sponsored plans declining—thanks to record unemployment—insurance companies are a little worried about where their customers and revenues are going to come from. “Congress was potentially delivering as many as 30 million new customers to the insurance market — many of whom would be able to afford coverage because the government would subsidize the cost of premiums,” the paper said. Now, without the government’s thumb on the scale, the insurers won’t be able to negotiate effectively with doctors and hospitals, and therefore will watch somewhat helplessly as fees charged by them likely continue on their stratospheric ascent into unaffordability.

Economies in China and India are somehow bouncing back faster than ours from the financial crisis, reports the Post. Nokia is serious about its war with Google (GOOG) (whose business, by the way, is back “full-blast”), putting free GPS software on several of its phones to fight the Nexus One, says the Times. Dubai remains a financial mess and an absolute monarchy, the paper also reports. And finally, the rumors are true: The Times reports we have late-night talk-show peace in our time.

An Obama Reboot? President Proposes Volcker's Glass-Steagall Redux.

Paul Smalera — Thu, 21 Jan 2010 07:59:44 +0000

Sure to dominate the media cycle today is the Obama administration’s surprise announcement of what some observers are already calling Glass-Steagall II, after the late, oft-lamented law that separated investment and commercial banking activity, whose repeal under President Clinton has been blamed in part for the financial crisis. The New York Times reports, and the Wall Street Journal details, that Paul Volcker, an Obama adviser who was reported as being marginalized in the White House just a week ago, is behind this sudden and unexpected announcement. “The proposal will put limits on bank size and prohibit commercial banks from trading for their own accounts—known as proprietary trading. ... Only a handful of large banks would be the targets of the proposal, among them Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo. Goldman Sachs (GS), the Wall Street trading house, became a commercial bank during this latest crisis, and it would presumably have to give up that status,” the paper said. “On the one hand, they are commercial banks, taking deposits, making standard loans and managing the nation’s payment system. On the other hand, they trade securities for their own accounts, a hugely profitable endeavor. This proprietary trading, mainly in risky mortgage-backed securities, precipitated the credit crisis in 2008 and the federal bailout.” That’s not to mention, of course, that investment banks, with Goldman being the prime example, used prop trading to bet against some of the very securities products they were selling to customers. Despite the focus on Volcker’s proposal, the paper makes the curious note that Timothy Geithner will appear with the president during the announcement.

Banks have been fighting tooth and nail against nearly every regulatory proposal to come out of Washington these days, but they certainly aren’t making things easier on themselves when things like Morgan Stanley’s (MS) bonus structure comes to light. The Times reports, “Despite the first annual loss in its 74-year history, Morgan Stanley earmarked 62 cents of every dollar of revenue for compensation, an astonishing figure, even by the gilded standards of Wall Street. In all, the bank set aside $14.4 billion for salaries and bonuses.” There are some details about how accounting charges having to do with appreciation on previously underperforming investments have skewed the results to look, well, bad, but if, the bank said, those adjustments were taken out, its compensation levels would’ve looked like every other banks, about 50 percent of revenue. Fine, the paper notes, “But critics said those justifications ignored the fact that Wall Street’s resurgent revenue and bonuses were possible only after billions of taxpayer dollars had been pumped into Morgan Stanley and other banks, directly through the federal bank bailout program, as well as indirectly through a panoply of other generous government programs.” So, a Yale professor, asks, “Where is the column adjusting their performance for that, too?”

The Wall Street Journal gets some major scoops about Apple’s forthcoming tablet device. Apple (AAPL) sees major value in old media and has been asking publishers all over New York to prepare content for the new device. The paper also reports Apple is thinking about dropping Google (GOOG) for Bing on its iPhone, which would be a stunning divorce of the two once closely intertwined companies. The Times, meanwhile, has a story talking not just about the Apple device but some changes to Amazon’s (AMZN) Kindle, namely, “on Thursday it will take a page from Apple and announce that it is opening up the Kindle to outside software developers.” The article also notes that Google has plans to begin selling e-books, which may completely change the e-book market by this time next year.

AIG (AIG) may sell a part of itself to MetLife, reports the Journal, which could help it repay some of its bailout money but also raises concerns about the company’s long-term plans. Meanwhile, Warren Buffett’s General Re paid $92 million to settle a lawsuit, reports the Washington Post, that charged it helped AIG overstate its financial strength.

Finally, stories of the SEC’s failures at listening to whiste-blowers continue to surface, with the latest in the Post as well: “The SEC has no system in place to guide how officials should handle tips and complaints from outsiders, making it difficult for investigators to take advantage of an invaluable source of information.” Chairman Mary Schapiro has announced plans to formulate such a system, but the examples, including one where the SEC ratted out an informant to his employer, JPMorgan, which fired him, paint a bleak picture of any hope for change.

AIG Deal Looks Good for Uncle Sam

Caitlin McDevitt — Wed, 20 Jan 2010 10:45:31 +0000

If American International Group (AIG) sells its life-insurance unit to MetLife (MET), the government could at last see some payback on the funds it provided to prop up the insurer throughout the downturn. The Wall Street Journal explains, “A deal would return $9 billion already earmarked for the Federal Reserve Bank of New York, which largely directed the AIG bailout in September 2008. The rest would go to AIG, which could also use it to reduce its debts to the government, which has an 80% controlling stake in the insurer.” The New York Times explains the deal as it stands now: “Under the terms now being discussed, MetLife would pay about $14 billion to $15 billion for the A.I.G. subsidiary, which has an attractive foothold in fast-growing Asian markets, according to people briefed on the negotiations. That price suggests a handsome premium, although insurance company values can be difficult to judge, and prices have gyrated in the last two years.”

According to the Washington Post, Ben Bernanke said yesterday that he’s not afraid of a “full review” of the AIG bailout by the Government Accountability Office. The paper says, “In a letter to Gene L. Dodaro, director of the Government Accountability Office and acting U.S. comptroller general, Bernanke said the Fed would make available ‘all records and personnel necessary’ if the GAO undertook such a review. Bernanke noted that the Fed already had made ‘a large amount of information’ about the AIG bailout public, including regular reports about outstanding loan balances, and that it had provided testimony and documents to members of Congress and other oversight bodies.”

“It is make or break time for Vikram S. Pandit,” says this morning’s New York Times. In light of a $7.6 billion quarterly loss announced by Citigroup (C) yesterday, the firm’s chief executive is under pressure to fix things at the bank as soon as possible. The paper explains, “For the last two years, Mr. Pandit has tried, with mixed success, to clean up the financial mess that is Citigroup. But some of his employees and shareholders are starting to lose patience. After many billions of dollars in losses, Mr. Pandit must deliver profits in 2010, or risk losing his job as chief executive, they say.”

Kraft (KFT) has finally sealed the deal to eat up British candy company Cadbury (CBY). According to the Wall Street Journal, it took “four months of public sparring” to reach an agreement. The terms of the settlement were revealed yesterday morning. The paper says, “In addition to increasing the value of its bid by 10%, Kraft, of Northfield, Ill., reconfigured it to substantially increase the cash portion, which now constitutes 60% of the offer. That came in response to calls from Warren Buffett and other Kraft shareholders—as well as from many Cadbury shareholders—to include more cash in the deal, which originally was structured with 60% of the offer in stock.” Meanwhile, the WSJ adds that the new team-up will only make things harder for chocolate company Hershey (HSY), which is already struggling to grow in emerging markets.

The New York Times reports on a one-on-one meeting that occurred yesterday between President Obama and Democratic Sen. Chris Dodd, D-Conn. The paper says that the fate of a proposed consumer protection agency that Obama has supported and congressional Republicans have fought was a likely topic of their conversation. There has been speculation that Dodd has considered dropping the independent agency from the Senate bill to win more support. The paper says, “While administration officials declined to discuss the Obama-Dodd meeting, one said the president’s proposal for a consumer protection office was ‘nonnegotiable.’ The administration sees political advantage in that position, believing that a consumer protection agency is the element mostly likely to be popular with the public in a complicated bill.”

Finally, Business Week reports that Apple (AAPL) may be considering switching out Google (GOOG) for Microsoft’s (MSFT) Bing as the default search engine on the iPhone. The article says, "Being the default search engine on the iPhone carries financial benefits for Google, which collects revenue from ads placed alongside its search results and shares a portion of that with Apple. ... To clinch the deal, Microsoft may be willing to share a higher portion of its revenue or pay a larger flat annual fee than Google does.”

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Wed, 20 Jan 2010 10:45:31 +0000

Big Banks Hire Big Gun To Fight TARP Tax

Paul Smalera — Tue, 19 Jan 2010 08:23:52 +0000

The New York Times reports the bank industry is preparing to fight the Obama administration’s proposed TARP tax and fight it rather vigorously. “A top Supreme Court litigator,” Carter G. Phillips, has been brought in by Wall Street’s lobbying group to work out whether the tax might be “unconstitutional.” That’s something the administration and outside legal experts are dubious about, the paper reports. The hire defies the president’s plea to bankers that, “instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities.” The paper notes, despite Obama’s plea, that there’s lots of middle ground that can be worked out by Congress and the administration to possibly assuage the bankers while still collecting hefty tax revenues. A phalanx of lobbyists it is, then.

The head of the Federal Housing Administration is trying to figure out how large a role the FHA should play in the housing market, balancing its duty to facilitate loans against the need for reform inside the agency and in the marketplace. The Wall Street Journal reports the current commissioner, David Stevens, has the most private sector experience of any FHA chief in years and is uniquely positioned to see his agency’s strengths and flaws. The issue is that the FHA’s role as a mortgage insurer is exposing it to marketplace dynamics—such as a defunct program where homebuilders paid down payments on FHA loans for home buyers with marginal credit—that make it vulnerable to financial peril. Stevens, though, says the FHA is not facing a bailout situation but needs to simply be vigilant about how its programs are used while still helping first-time buyers make investments into homes they could otherwise not qualify to purchase.

Google (GOOG) is facing a spate of issues around the globe. The China fallout continues, the Journal reports, as more hacked e-mail accounts have been uncovered there. Its threat to pull out of China has gotten competitor Yahoo (YHOO) in trouble with Alibaba, its Chinese venture partner, for condemning the attacks. The Times runs with more details of the attacks themselves, noting at least two foreign journalists have seen their accounts compromised, with e-mails being forwarded to an unknown address. “The attacks on e-mail accounts were separate from those weeks ago aimed at the security infrastructure of Google and more than 30 other companies and entities, most of them based in Silicon Valley in California.” One of the targets was an Associated Press television producer stationed in Beijing. Google is still considering the possibility that a mole within the company helped enable the attack, but the paper notes the sophisticated attacks would’ve worked no matter what Google’s status was in China, and there’s no evidence of employee involvement, as of now. The paper also notes Google is under fire in Germany in an antitrust case based on its Google News product, which provides snippets of text from articles it indexes. “Google says it brings us traffic, but the problem is that Google earns billions, and we earn nothing,” a spokesman for the German Newspaper Publishers Association said. The complaint goes beyond a simple economic one, though. The spokesman added, “We often feel like Web sites are elevated in Google’s search results if they have a strong business relationship with Google, and we think we can prove it.” And turmoil continues at Google’s Chinese competitor Baidu, as the company’s CTO follows its COO out the door less than two weeks after his departure, reports the Financial Times. Declining revenues tied to a new advertising system may have something to do with the exits.

How did French banks, which “aren't always the best negotiators” receive a full price payout as a counterparty to AIG (AIG), from the New York Fed? That’s a question, the Journal reports, the Financial Crisis Investigation Commission should be asking. Across the border in Switzerland, a former banker has promised to divulge client secrets related to the billions of dollars in tax evasion he claims were perpetrated under his country’s secretive banking laws, reports the Times. The banker, Rudolf Elmer, has caught the U.S. government’s attention, as he has already handed over dozens of documents about tax evading trusts and U.S. citizens, and seems poised to do more, building on the separate disclosure by nearly 15,000 Americans with secret UBS accounts who disclosed them last year.

HarperCollins may be a partner with Apple (AAPL) for its soon-to-be-announced tablet computer, reports the Journal, selling books with extra features above the current $9.99 e-book price point that publishers desperately want to erase. Finally, the Financial Times takes yet another look at the bizarre logic by which the pink-sheet stock of the bankrupt husk of General Motors continues to trade above $0. The best explanation for the trading, according to Pink Sheets CEO? The company “could discover oil on one of their properties, weird things can happen.”

The New CEO of Morgan Stanley Is “Definitely Not a Slimeball.”

Paul Smalera — Sun, 17 Jan 2010 08:36:53 +0000

After a week of following the gritty play-by-play in the late-night talk-show wars between Conan O’Brien and Jay Leno, the New York Times takes advantage of the weekend to print a story looking at the run up to the blow up at NBC. Jeff Zucker, CEO of NBC Universal, tells the paper, "We live in a society today that loves a soap opera.” But, the story notes, “The network’s long fall from grace, particularly in prime time, culminated over the last decade,” under Zucker’s stewardship. Fred Silverman, who has programmed the schedule at the three major broadcast networks, took aim at that stewardship: “ ’[W]hat could have fixed [declining ratings] was not a lot of tricks,’ said Mr. Silverman, mentioning some of Mr. Zucker’s moves, like expanding ‘Friends’ to about 40 minutes. ‘What could have reduced the downward trend was a couple of hit shows.’ ” Zucker has a three year contract to shepherd NBC Universal through regulatory issues due to its pending merger with Comcast, but the paper says rumors about his departure soon after the merger closes are swirling. While Steve Capus, the head of NBC News, defended Zucker to the Times reporter, Zucker’s old boss, Bob Wright, had less enthusiastic words for his former protégé: “Mr. Wright added, ‘I’m very disappointed that they are losing Conan, who is very talented. To get squeezed out like that is very tough. They could have done it another way.’”

The Times also profiles James Gorman, the new CEO of Morgan Stanley (MS), who replaced “high risk” trader John Mack when he retired at the end of 2009. But the article also includes a truly fascinating look back at Mack’s tenure. He presided over a 32 percent decline in Morgan Stanley’s stock price in his four-year run as CEO. Gorman specifically said the firm wouldn’t do as much prop trading as it had in the past, saying, “We are a very focused investment bank, very client-centered.” The risks the bank takes will be less aggressive under his watch, he suggested, by saying, “we will not have the outsize risk positions that will endanger the firm.” The paper, though, spoke to an analyst who noted the bank "has been taking less risk for years, even at times when it could get paid richly. ... The net result is they zigged when they should have zagged. There is an issue in that they have fallen behind their peers, though I believe they can resolve it.” Mack may have gotten risk-shy based on soured bets, but also because, the analyst says, the firm lacked the kind of risk management controls that would’ve enabled it to keep apace with Goldman Sachs (GS) without worries that one bad deal could sink it. Gorman, for his part, pushed for Morgan’s acquisition of Smith Barney, which helped the firm’s retail business bump up to become 35 percent of the combined firm’s revenue. Though Gorman has effusively praised Mack, the sentiment in the firm seems to be he’s the right person for the job, or at least worth an extended tryout. “Definitely not a slimeball,” is how one colleague of Gorman’s put it.

The Washington Post sees in Haiti’s destruction “a chance to rebuild a nation.” The paper notes, “Development efforts have failed there, decade after decade, leaving Haitians with a dysfunctional government, a high crime rate and incomes averaging a dollar a day. But the leveled capital, Port-au-Prince, must be rebuilt, promising one of the largest economic development efforts ever undertaken in the hemisphere.” While those the paper spoke to note some unease in talking finance while thousands are still suffering, hundreds of millions of dollars have gone to Haiti for years, the story says, “with little to show for it.” The article closes by quoting a former USAID official who thinks the process for redevelopment has to begin quickly. "If you don't start it now, something will take the world's attention away from Haiti."

The Times also tells of the rise and flatline of Tishman Speyer, the New York-based real estate behemoth that bought several massive properties at the top of the market and is now trying to renegotiate terms on them as the economy soured, rents fell, and mortgages ended up with new owners, including the government. The father-and-son team who run the company aren’t likely to end up in the poorhouse though, as their firm has no debt and only earns money on managing the individually funded property deals they assemble for other investors: “This means that if the deal goes bad, the lenders can take back the property, but they cannot seize other assets owned by the fund or demand that Tishman Speyer make up for any losses.”

Finally in the Times, economist Greg Mankiw examines how Fed Chairman Ben Bernanke will tackle the looming threat of inflation.

Please note Today's Business Press will return on Tuesday, Jan. 19, following the Martin Luther King Jr. Day of Service.

Hershey Heats Up Chocolate War

Sara Behunek — Sat, 16 Jan 2010 11:48:30 +0000

The battle for British confectioner Cadbury plc (CBY) continues to top headlines. Late Friday, the Wall Street Journal reported that Hershey will next week likely muster a bid of at least 800 to 820 pence, or $17.9 billion, to compete with Kraft Foods' (KFT) hostile bid. “Boards of the two companies have held a flurry of talks in recent days. Cadbury board members have said they would not recommend a price of less than 850 pence to their shareholders,” the Journal, which cited anonymous sources, said. Hershey will need to show its hand with a fully financed bid by Jan. 23.

A couple of weeks ago, Kraft sweetened its bid by raising the cash portion by 60 pence, while keeping the overall value—760 pence per share, or $17.2 billion—the same. Analysts and investors maintain that Kraft will need to ramp up its bid to at least 800 pence. It has until Jan. 19 to do so. Cadbury shares are trading around 790 pence.

According to Reuters, Cadbury on Friday also received support from its second-largest shareholder, Legal & General Investment Management Ltd., which has a 5.1 percent stake. The news came as little surprise as the New Jersey-based firm also formally rejected Kraft’s hostile bid when it was made public in September. Bloomberg adds that activist investor William Ackman of Pershing Square Capital Management LP, bought a $950 million, or 2 percent, stake in Kraft, and, repeating Warren Buffett’s Jan. 5 warnings, has urged Kraft CEO Irene Rosenfeld to limit the amount of stock she uses on the bid. “The more Kraft stock they issue, the less interesting this deal is,” Ackman said in an interview. “Fortunately, the seller also prefers cash." According to the billionaire investor, Kraft’s stock is “extremely undervalued.” Ackman plans to purchase more of Kraft’s stock soon, he said.

Friday was a bad day for Johnson & Johnson (JNJ). The consumer products giant said it was voluntarily recalling more than 53 million bottles of Tylenol, Motrin, Benadryl, Rolaids, and St. Joseph's Aspirin after consumers reported "an unusual moldy, musty, or mildew-like odor that, in a small number of cases, was associated with temporary and non-serious gastrointestinal events," including nausea, stomach pain, vomiting, and diarrhea.

According to Reuters, the recall “drew a sharp rebuke from U.S. regulators.” The FDA said the company's response was slow and it sent a warning to J&J's McNeil Consumer Healthcare unit. The latest recall comes after J&J reported to the FDA in 2009 that it had received about 70 complaints an intestinal problem or an unusual smell with Tylenol caplets a year prior. The recalls are mainly in the Americas, the United Arab Emirates, and Fiji.

In other J&J news, the Justice Department on Friday charged the company with paying tens of millions of dollars in illegal kickbacks to Omnicare, Inc. (OCR), a nursing-home pharmacy company. The kickbacks were made to boost sales of antipsychotic Risperdal, among others, to nursing-home patients, the New York Times and WSJ report. The latter characterizes the charges as the "latest case in the government's campaign against abusive drug-marketing practices."

In a complaint filed in federal court in Boston Friday, proscutors alleged that the payments led Omnicare to submit false claims to Medicaid. The supposed kickbacks took place between 1999 and 2004. The government’s civil complaint joins a whistle-blower suit against Johnson & Johnson brought by two former employees of Omnicare.

CNN Money tops its business news with a story on how Starbucks Corp. (SBUX) has raised the price on “larger and more complex beverages,” according to a Starbucks spokesman, by as much as 35 cents in large U.S. markets and in Canada. The price hikes were rolled out Tuesday and were part of what the coffee chain calls its "normal course of business." The price hikes target California, Washington, D.C., New York, and other large U.S. markets. At one location in New York, prices went up by 20 cents, making it more than $4 for a tall mocha latte, the site details. Prices went down on some of the company's most popular drinks and sizes, including tall brewed coffees and tall iced teas. “The move could be a risky one for Starbucks, which has suffered declining sales for two years as consumers switched to lower priced brands like McDonald's and Dunkin Donuts,” writes CNN Money. In September, prices for the first time in two years went up by 5 cents, or about 2 percent.

The FT reports that China on Friday “sought to portray Google’s threat to pull out of the country as a narrow commercial dispute rather than a pressing political issue.” The government provided its first public statement on the matter, which involves Google’s announcement earlier this week that there had been large cyber attacks out of China on it and other U.S. companies, by saying that the “the dispute would not affect broader Sino-US trade and economic relations.”

“Foreign companies including Google should all follow international standards and respect local law and regulations and local culture and customs to shoulder social responsibility,” said Yao Jian, ministry of commerce spokesman. He added that China would try its best to create a sound investment environment. Jian added that the ministry had so far not received any formal notice that Google would exit China. The cyber attacks have “revived global debate about the security threat that China poses to western nations,” the FT writes.

More fuel was added to the Wall Street compensation debate when on Friday JPMorgan Chase (JPM) reported that the bank's profit and pay for 2009 soared, according to the NYT. JPMorgan earned $11.7 billion last year, more than double its profit in 2008, and generated record revenue. It also earmarked $26.9 billion for pay, about 18 percent more than in 2008. JPMorgan employees, on average, now earn about $129,000. Workers in JPMorgan’s investment bank, on average, earned roughly $380,000 each.

“The strong results—coming a day after the Obama administration, to howls from Wall Street, announced plans to tax big banks to recoup some of the money the government expects to lose from bailing out the financial system—underscored the gaping divide between the financial industry and the many ordinary Americans who are still waiting for an economic recovery,” the Times writes. Over the next week or so, Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), and Morgan Stanley (MS) are expected to report similar surges in pay when they release their year-end numbers.

Financial Crisis Enabled Bankers To Pay Themselves a Record $145 Billion

Paul Smalera — Fri, 15 Jan 2010 08:36:14 +0000

“Major U.S. banks and securities firms are on pace to pay their people about $145 billion for 2009, a record sum that indicates how compensation is climbing despite fury over Wall Street's pay culture,” says the Wall Street Journal today. Yes, it’s executive compensation season, and it starts in earnest as JPMorgan Chase (JPM) reports its earnings, salaries, and bonus figures today. That’s something the Obama administration is not at all happy about and is a big reason the White House is introducing the TARP tax on banks that helped cause the financial crisis. “In detailing the tax, Mr. Obama aimed some sharp words at bankers. ‘I'd urge you to cover the costs of the [financial] rescue not by sticking it to your shareholders or your customers or fellow citizens with the bill, but by rolling back bonuses for top earners.’ ” The paper explains how the crisis bred opportunity for the record pay: “The increase in both revenue and compensation is due partly to the industry's consolidation during the financial crisis. J.P. Morgan, for example, acquired Washington Mutual Inc. and Bear Stearns Cos. Bank of America bought Merrill Lynch & Co. and Countrywide Financial Corp. Those deals inflated revenue and compensation because the acquirers' financial results now include the purchased companies.”

The Starwood hotel company, the Journal writes, has filed a revised lawsuit against competitor Hilton, detailing the sort of corporate espionage and subterfuge that, if true, could earn the company a substantial penalty in court. “In February 2009, Hilton delivered to Starwood a batch of Starwood confidential documents, which included among other things details on development sites and marketing strategies. Hilton's general counsel attached a letter to the boxes saying that much of the material appeared ‘to be neither sensitive nor confidential’ and were being returned ‘in an abundance of caution.’ ” Starwood believes Hilton knew about the documents for months and that they were spread all over Hilton’s computer networks. Hilton employees, according to the lawsuit, even e-mailed developers about information from the Starwood papers. Further, “the case has been an embarrassment for Hilton and its owners, New York-based private-equity investors Blackstone Group, which purchased the company in 2007 for $26 billion in its largest investment ever. The storied hotel chain, which was founded by Conrad Hilton in 1919, owns or manages about 3,500 hotels with some 585,000 rooms worldwide.”

The Journal questions whether Paul Volcker’s influence in the Obama White House is on the wane. Just Thursday, he expressed to the Economic Club of New York a series of views that appeared to be out of step with the administration’s stances on financial regulatory reform. “A widely respected former central banker who helped tame the inflation crisis of the 1970s, Mr. Volcker was, for a time, a lonely critic of the deregulation that helped fuel the recent recession. Two years ago, when the brokerage firm Bear Stearns Cos. was on the ropes, he secretly advised Timothy Geithner, then president of the New York Federal Reserve Bank, on its emergency merger with J.P. Morgan Chase & Co., which helped stave off financial calamity.” But those days have come and gone, it seems to outsiders. Volcker, at troubles to not “get in trouble,” maintains his views are still welcome in Obama’s camp: "It was his idea to do this," Mr. Volcker said of Obama's creation of the President's Economic Recovery Advisory Board. "He listens. Enough said."

The Washington Post reports that the FCC wants to place regulation of Internet connections under its auspices. Right now, a case where the FCC has already done so is in court, and the commission is expected to lose. But that just means the administration or Congress will work on providing the legal framework for the job, according to FCC Chairman Julius Genachowski and his advisers. “At issue, some FCC officials say, is the future of how Americans will communicate and receive information,” says the article, noting that broadband and wireless services are fast replacing traditional ones, yet not receiving the same level of government scrutiny.

The CFTC will stop commodity traders from amassing positions that can move the markets, the New York Times reports. Speculators are the traders being targeted, but right now the positions limits are so high as to affect only a handful of traders. One commissioner said the limits could be lowered if necessary. Finally, the paper covers Day 2 of the hearings on the financial crisis. The message from a panel of regulators who testified was that more regulation is needed.

Blankfein Argues Crisis Was Act of God; Angelides Warns It Was Act of Man

Paul Smalera — Thu, 14 Jan 2010 09:10:42 +0000

The big papers all led with recaps of day one at the Financial Crisis Inquiry Commission hearings in Washington, D.C. Chairman Phil Angelides led the way in what every paper described as strong questioning of four big-bank CEOs he called to testify. The New York Times writes that Angelides "asked Mr. Blankfein to explain how his firm could have sold bundles of troubled mortgages at the same time it placed bets with Goldman’s own money that their value would fall. Mr. Blankfein tried a variation of the tagline used by the Syms clothing chain: 'An educated consumer is our best customer.' He said that Goldman’s (GS) clients knew what they were buying and that his firm was simply providing a customer service. ‘These are professional investors who want this exposure,’ Mr. Blankfein said. But Mr. Angelides had his comeback: ‘It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.’"

The Washington Post reports that bankers “seem torn” on their role in the crisis. Indeed, it seems the CEOs tried to deflect as much criticism as possible while self-flagellating just enough to avoid being critiqued as callous or indifferent to the wreckage they caused. For example, “when Lloyd C. Blankfein, chief executive of the storied Wall Street firm Goldman Sachs, likened the financial crisis to the fluke of four hurricanes hitting the East Coast in a single year, Angelides shot back that the crisis was not caused by ‘acts of God.’ ‘These were acts of men and women,’ Angelides said. ‘These were controllable.’ ” The Wall Street Journal has a profile of Angelides, calling him a “political pit bull” who has a history of going after big targets while treasurer of California and a trustee of Calpers, the largest pension fund in the United States. All of the papers paid scant attention to the committee’s afternoon session, which featured testimony from Michael Mayo, Kyle Bass, and Peter Solomon, who all saw the housing bubble coming and reacted in varying (and profitable) manners. Bass specifically warned his former colleagues at the now failed Bear Stearns about their risk exposure, only to be told to worry about his own risk instead. Bass’ hedge fund is up 340 percent due to his bets against subprime loans.

In noncrisis news, the SEC announced a broad restructuring of its investigative division, naming six people to lead new units focusing on specific practice areas. The Associated Press,i n the Times, notes that besides the new divisions, “the S.E.C. also set up a new Office of Market Intelligence to analyze the hundreds of thousands of tips and complaints it receives each year.” The Post’s story on the reforms notes that a “new policy will offer witnesses immunity from prosecution if they provide important information to aid an SEC investigation.” That’s a change that puts the SEC’s practices in line with those offered by the Justice Department to encourage witnesses to come forward in its investigations.

The SEC is also, says the Journal, proposing to ban “naked access,” a keystone of the high-frequency trading industry. “Naked access allows high-speed traders and others to rapidly buy and sell stocks directly on exchanges using a broker's computer code without exchanges or regulators always knowing who is making the trades.” The SEC would prefer brokers provide sponsors access, which forces trades to travel through the broker’s computer systems. The paper notes that whether access is naked or sponsored, trades always travel through the broker’s risk management controls. But sponsored access slows down trades by fractions of a second—which is enough, in high-frequency trading, to gain or lose substantial amounts of money. The ban, opponents fear, could coerce some high-frequency traders to become their own brokers, in which case they would be able to circumvent the very risk management processes the proposed ban is meant to encourage.

The Federal Reserve’s new “beige book,” says the Post, shows that a “modest recovery broadened during the last months of 2009 with the help of an uptick in home sales and improvements in the manufacturing sector.” French bank Société Générale will write down $2 billion in American mortgage assets for the fourth quarter of 2009, the Times reports, even as the bank manages to make a small profit. Finally, the paper says that if China is facing a world without Google (GOOG), it’s Baidu, already the top search engine in China, that is poised to take the company’s market share, in the process looking a lot more like Google does here in the United States.

Google May Totally Withdraw From China

Caitlin McDevitt — Wed, 13 Jan 2010 10:33:39 +0000

The press is abuzz this morning over the news that Google (GOOG) could pull out of China over a hacking attempt. The Wall Street Journal explains that the large-scale cyber attack “has been under way for weeks.” The paper continues, “Google said it suffered a ‘highly sophisticated and targeted attack on our corporate infrastructure originating from China’ in mid-December, which it said resulted in ‘the theft of intellectual property.’ The company said it found evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human-rights activists.” The attack may be the last straw for Google in China, since the search engine has begrudgingly put up with Chinese censorship policies for a while. The Times notes, “Since arriving here in 2006 under an arrangement with the government that purged its Chinese search results of banned topics, Google has come under fire for abetting a system that increasingly restricts what citizens can read online.”

Conan O’Brien has publicly announced that if The Tonight Show gets pushed back until after midnight, he won’t be the host. The New York Times explains, “Less than a week after NBC told him it intended to move his ‘Tonight Show’ to a new time, 12:05 a.m., Mr. O’Brien said he would not agree to what he considered a demotion for the institution of ‘The Tonight Show’—and his own career—by going along with the network’s plan to push him back a half-hour to make room for his most recent predecessor, Jay Leno.”

The Washington Post reports that President Obama will announce “a plan to impose a new fee on the nation's biggest financial firms” tomorrow. The fee, which has been under consideration since the summer, is a means of more quickly recovering federal bailout money. The paper says that, according to officials, “The fee could return as much as $120 billion worth of losses to the U.S. Treasury from the $700 billion Troubled Assets Relief Program, or TARP, which was designed to rescue the firms during the economic crisis.” However, critics have already spoken out against the fee, which they argue could ultimately get passed along to bank customers.

The Post also reports that the FDIC is moving forward with a proposal to punish banks that engage in what it considers perilous pay practices. The paper explains, “The FDIC, which collects fees from all banks to repay depositors in failed banks, is considering a plan to reduce the fees paid by companies that take specified steps such as paying bonuses in the form of stock that cannot be sold immediately. Banks that don't comply would face higher fees, on the theory that bankers paid solely for short-term results will take greater risks, increasing the chances of a bank failure.”

The New York Times reports that in an e-mail sent out to a few Goldman Sachs (GS) clients yesterday, an executive confessed that the firm doesn’t always give its clients complete trading information. The paper says, “In an e-mail message to select clients, Thomas C. Mazarakis, the head of Goldman’s fundamental strategies group, acknowledged that his unit often provided investment ideas that the firm had already traded on. Sometimes Goldman has even taken the opposite approach, betting against particular instruments that the group has recommended.”

GM is betting that truck sales are going to pick up once again. The Wall Street Journal reports that the auto company is planning “a major update of its full-size pickups” that could cost up to $1 billion. The business decision could be considered an affront to the government administration that bailed out GM and has been promoting the national adoption of smaller, less fuel-dependent vehicles. Still, the paper says, “administration officials said Tuesday that any decision by GM to move more heavily into trucks was the company's own business, and that neither the Treasury nor the White House was involved.”

And finally, the New York Times reports that Nintendo (NTDOY) and Netflix (NFLX) are teaming up. The paper says, “Nintendo is bringing Netflix’s online streaming video service to its Wii gaming console, the most popular in the industry, the companies plan to announce Wednesday. The service lets subscribers choose from a catalog of generally older movies and television shows and watch them instantly.”

World's Most Profitable Bank Paid CEO $200,000 Last Year

Paul Smalera — Tue, 12 Jan 2010 08:42:59 +0000

President Obama would like to raise $120 billion by taxing big banks, the Times reports. The strategy, still under development, indicates that Obama has rejected a bonus tax and a transaction tax as two other strategies by which to raise revenue from the banking industry, not to mention rein in some of the excess. Lobbyists, the paper notes, had a knee-jerk negative reaction to news of any new tax. “But the industry’s objections carry less weight at a time when Mr. Obama is under intense pressure to crack down on Wall Street. In coming days, big banks are expected to begin announcing huge bonuses for their top executives and traders.” Obama gains political cover, according to Rep. Barney Frank and others, because he’s required to try to recoup any losses from the TARP program by law. Since the law doesn’t state a specific method of recovery, the ball is in Obama’s court on taking money from bankers and returning it to taxpayers.

Citigroup (C) is sacking Teresa Dial, head of its consumer banking business, after poor performance reviews and a failure to turn around her division’s fortunes. The “human cyclone” as the Times notes she was dubbed, also failed to win the confidence of CEO Vikram Pandit. Citiroup named Manuel Medina-Mora, the former head of its Banamex division, as her replacement. 2010, the paper notes, looks to continue to be a tough time for banks saddled with mortgages and credit card accounts, which fall under the consumer-banking umbrella. According to the paper, the bank said Dial’s demotion allows her to spend more time with a sick relative. The Wall Street Journal, in other shakeup news, says Greg Curl, Chief Risk Officer of Bank of America (BAC) and a friend to the old regime, is expected to lose many of his duties under new CEO Brian Moynihan.

Google (GOOG) is admitting a mistake in its book scanning program—in China. The Times reports one Chinese writer is suing the company over its unauthorized scanning of her novels. That may have contributed to a letter Google sent to an 8,000 member association of Chinese authors apologizing for the way the program was run, though Google insists it will remove books from its library for any author who asks. Google is giving the group a complete listing of the books it has scanned into its program, something it called “unprecedented.” The gestures come amid hopes by the Chinese court that the dispute will be settled before reaching trial.

The most profitable American bank of 2009 was America’s bank. The Federal Reserve earned $45 billion in 2009 off its investments, according to calculations by the Washington Post. “The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy -- though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms.” The risks are significant. “If the price of Treasury bonds or mortgage-related securities issued by Fannie Mae and Freddie Mac were to fall in the years ahead, and Fed leaders decided they need to drain money from the financial system by selling off some of their portfolio, the central bank would lose money.” The paper notes the profits are a byproduct of the steps the Fed took to shore up the economy, and that its "CEO" Ben Bernanke made a measly $199,700, with no bonus. (Meanwhile, the paper notes the reappearance in the spotlight of New York State Attorney General Andrew Cuomo, who, after months of silence, is back on the case of excessive bank bonuses.)

Wells Fargo, facing continuing pressure from the government over mortgage modifications, is running a workshop for struggling borrowers in Baltimore, reports the Post. The bank hopes to attract 2,000 borrowers to hammer out new deals for their troubles loans. “Wells Fargo has helped 30 percent of its distressed borrowers enter the government program [called Making Home Affordable], according to Treasury data.”

Finally, AOL is set to lay off over 1,000 workers this week, reports the Post. The move comes as the newly independent company focuses on becoming a content publisher, rather than an ISP. The layoffs will lead to a $300 million annual savings.

Goldman Gets Ready for the Inevitable Bonus Backlash

Caitlin McDevitt — Mon, 11 Jan 2010 11:03:55 +0000

The New York Times reports that Goldman Sachs (GS) is considering stricter charitable requirements for employees in order to reduce backlash over the “big bonuses” it’s about to shell out. An unidentified source told the Times that the bank is still weighing the idea and trying to determine how effective it may be in swaying public opinion. The paper says, “The move would be the latest in a series of initiatives by Goldman to soften criticism over the size of its bonuses, which are expected to be among the largest on Wall Street, bringing average pay to about $595,000 for each employee—with far higher amounts for top performers.” The Wall Street Journal says that it’s not only the public anger over bonuses that big financial firms have to worry about. Many bank employees are peeved that they’re getting partly compensated in stock instead of cash this year. The paper says, “Some employees say the shift could leave them short of cash, since stock comes with restrictions on how quickly it can be sold. And since many people plan their household budgets around bonus expectations, they may need the cash to cover mortgages, school tuition and other expenses.”

The New York Times also reports on a new city initiative to reduce the population’s sodium intake. The paper says, “The plan, for which the city claims support from health agencies in other cities and states, sets a goal of reducing the amount of salt in packaged and restaurant food by 25 percent over the next five years.” The Wall Street Journal chimes in with the news that some food companies have been already quietly reducing the amount of salt in their products without filling in consumers. The paper says, “By next summer, ConAgra Food Inc.'s (CAG) Chef Boyardee canned pasta will have decreased its sodium by about 35% over the course of five years without a word on the package. Campbell Soup Co.’s (CPB) original flavor of V8 100% vegetable juice also silently dropped its sodium by 32% over eight years.”

Today’s Washington Post warns of a growing real estate bubble growing in China. The paper says, “For investors, many of the usual bubble warning signs are flashing. Fueled by low interest rates, prices in Shanghai and Beijing doubled in less than four years, then doubled again. Most Chinese home buyers expect that today's high prices will climb even higher tomorrow, so they are stretching to pay prices at the edge of their means or beyond. Brokers say it is common for buyers to falsely inflate income statements for bank loans.” Still, some economists are confident that the bubble won’t pop for years, since the factors driving its growth—like rising incomes and pent-up housing demand—don’t seem to be letting up.

The Detroit Auto Show begins today, and recession-battered automakers have a daunting task ahead of them. The Detroit Free Press calls it “rekindling the romance” between the American consumer and cars. The paper gives a preview of what to expect: “Toyota’s (TM) new mini-hybrid, Ford's (F) new Focus compact car and the Electric Avenue exhibit underscore the message that small is beautiful. Even truck maker GMC is unveiling a small crossover, the Granite.” The Journal highlights the Ford Focus this morning and points out that “a telling detail is a small bump on each of the vehicle's taillights.” What is it? The paper explains, “These lips jut out just enough to interrupt the airflow around the back of the car, reducing turbulence and allowing the redesigned Focus to travel a bit farther on a tank of gas.”

And, finally, a late-night television programming note, courtesy of the NYT: “NBC confirmed Sunday what the television world already knew—that the network would end Jay Leno’s prime-time show in one month and return him to 11:35 p.m., bumping ‘The Tonight Show’ and its host, Conan O’Brien, to 12:05 a.m.” In a separate article, the paper's media columnist, David Carr blames the whole ordeal on what he calls a NBC's “midlife crisis.” He writes, “In an effort to transition ‘The Tonight Show’ franchise, let’s just say that the network had, ah, some issues of adjustment to a new world of increased options and less relevance for broadcast networks.”

Rupert Murdoch's Son-in-Law is Ashamed of Fox News, Roger Ailes

Paul Smalera — Sun, 10 Jan 2010 09:18:12 +0000

The New York Times’ Sunday profile is of Fox News Chief Roger Ailes, who, the paper says, threatened to quit his job in the fall of 2008 if his boss, Rupert Murdoch, endorsed Barack Obama for president. In response, he got a lucrative new contract. The threat is something Ailes denied, saying his job performance was good enough to not have to issue ultimatums like that one. Indeed, the paper writes, “Mr. Ailes is certainly making money. At a time when the broadcast networks are struggling with diminishing audiences and profits in news, he has built Fox News into the profit engine of the News Corporation." The story explains how Ailes has consolidated power within parent company News Corp. and used Fox News as an ideological pulplit, much to the chagrin of the younger generation of Murdochs. “I am by no means alone within the family or the company in being ashamed and sickened by Roger Ailes’s horrendous and sustained disregard of the journalistic standards that News Corporation, its founder and every other global media business aspires to,” said Matthew Freud, who is married to [Rupert’s daughter, Elisabeth] Murdoch and who PR Week magazine says is the most influential public-relations executive in London. After chronicling his history as a political operative, the story explains how after running CNBC, he built Fox News into, an analyst said, “probably the single most important asset at News Corporation.”

Bankers, says the New York Times, pretty much know they’re going to be dogged by the public as bonus season kicks into high gear. The paper thinks this year’s edition will be “one of the largest and most controversial blowouts the industry has ever seen.” Six-, seven-, and even eight-figure bonus checks will be handed out to traders and executives, who expect most of their annual compensation in the form of the annual bonus. Some banks are trying to figure out how to balance rewarding performance with at least cutting a figure of austerity when many Americans are still hurting from the financial crisis. But most aren’t: The five big banks, Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), JPMorgan Chase (JPM), and Morgan Stanley (MS), set aside a total of $90 billion in compensation for this year. Two executives, John Mack of Morgan Stanley and Vikram Pandit of Citigroup, appear to try to be setting an example of austerity for their underlings, with Mack forgoing a bonus and Pandit taking home just $1 in salary and no bonus, but so far none of their respective institutions’ other top employees seem to be taking the hint.

Michael Pollan just warned Times readers, in his rules for eating food, that “ '[i]t’s not food if it’s called by the same name in every language.’ Think Big Mac, Cheetos or Pringles.” Ford’s Alan Mulally is sincerely hoping those rules don’t extend to cars, as, the Times writes, his brainchild, the global Ford Focus, “a single vehicle designed and engineered for customers in every region of the world and sold under one name,” is about to be launched to the world. Joking aside, the article points to a series of corporate transformations—everything from Ford’s $24 billion pre-crisis loan package to clearer decision making processes for management—that have made believers out of Mulally skeptics. Indeed, the Focus will reduce the current three compact car platforms at Ford (F) into just one, potentially saving billions in costs over the next several years. That is, if the world agrees with Alan Mullaly and is willing to buy his Focus everywhere from Brisbane to Berkeley to Berlin to Bombay.

The Washington Post takes stock of this year’s Consumer Electronic Show in Las Vegas. Part “venture-capital pitch,” the show stoppers were Internet-enabled TVs (with far more features than last year’s models—but still no Hulu), e-readers (of which there where a proliferation but no sign of the direction Apple’s entrant will take), and smartphones to combat Apple iPhone’s growing market dominance.

Despite the stock market’s rapid (some would say excessive) recovery, small investors are still looking towards bonds for safety, the Post reports. Most investors are looking at short term bonds, to be more specific, given the uncertainty surrounding the Fed’s actions on interest rates, and therefore the inflation rate, which is the primary way a bond investor can find his or her portfolio underperforming over time. Still, the tradeoff of security for stability is one that many Americans with money left to invest seem to be willing to make. Finally, given the troubles in the real estate market, the Times wonders whether REITs are still dangerous investment vehicles or whether they are once again worth a closer look.

Depressing New Employment Data

Caitlin McDevitt — Sat, 09 Jan 2010 11:27:22 +0000

The major dailies lead this morning with the dismal figures released in yesterday’s job report. The Wall Street Journal says that the fact that employers slashed 85,000 jobs in December is “dashing hopes of a turnaround in employment, even as the U.S. economy grows.” Here’s a rundown of the stats: In December, there were 7.2 million fewer jobs than in December 2007. The unemployment rate of 10 percent has been flat since November. And work-force figures dropped by 661,000—largely thanks to unemployed people who have stopped seeking jobs—which explains why the rate didn’t increase more. The New York Times points out that “the so-called underemployment rate—which counts people who have given up looking for work and those who are working part time for lack of full-time positions—now sits at 17.3 percent.” On a better note, the Washington Post says that the addition of 46,500 temporary jobs last month is a good sign. The paper says, “That may presage overall job growth in the months ahead, as companies bring on temps to help meet demand while waiting to see whether improved business conditions last.”

The Wall Street Journal’s weekend interview gives Hank Greenberg, former chief executive of American International Group (AIG), a loudspeaker. Greenberg recounts what went down leading up to the financial crisis and singles out Goldman Sachs (GS) as blameworthy in the fall of AIG. He told the paper, “There's too much smoke, too many smart people asking questions that deserve an answer. I would hope that investigative reporters do the job they love to do and bring out the truth. I would hope that Congress would then say we must do something about this in all fairness. The American people should know about this and then bring about the changes necessary to avoid the total destruction of a great company that was the pride of America in the insurance industry." Meanwhile, the Washington Post reports that the House Committee on Oversight and Government Reform wants Timothy Geithner to speak up more about AIG and “to testify about whether company executives were told to withhold key details about how they were spending taxpayer money.”

The New York Times reports on the “deluge of devices” for digital reading and Web-surfing that were introduced at this week’s Consumer Electronics Show in Las Vegas. Plenty of handy and cheaper products may undercut the popularity of Apple’s much-anticipated tablet that is expected to arrive this year. The paper says, “Apple’s tablet may not end up dominating the emerging market for tablets, as some seem to expect. One reason is price. Analysts think the Apple tablet could cost anywhere from $700 to $1,000. In contrast, the tablet design unveiled by Freescale this week will cost around $130 to manufacture and could sell for as little as $200.”

Also from the Times, unions are fired up about a possible tax tucked into the Senate version of the health care bill. The paper says, “[L]abor leaders are fuming that President Obama has endorsed a tax on high-priced, employer-sponsored health insurance policies as a way to help cover the cost of health care reform. And as Senate and House leaders seek to negotiate a final health care bill, unions are pushing mightily to have that tax dropped from the legislation. Or at the very least, they want the price threshold raised so that the tax would affect fewer workers.”

Funny-guy Conan O’Brien may be considering a new network, the Wall Street Journal reports. The paper says, “A person familiar with Mr. O'Brien's camp said there had been ‘approaches’ by other networks since it emerged Thursday that NBC hopes to return former 'Tonight Show' host Jay Leno to his longtime 11:35 p.m. eastern perch at the General Electric Co. (GE). network, displacing Mr. O'Brien.”

And, finally, some KFC franchise owners are angry that the company has shifted its focus away from fried chicken and toward the grilled variety. Even though KFC grilled chicken sales hit $1 billion in its first year, the local restaurant owners are worried that the company is caught up in the hype and losing sight of its core product. The Washington Post reports, “The simmering dispute erupted into a lawsuit filed by franchisees this week that claims KFC management ignored their pleas to stay true to the colonel's original recipe for a product that could be no more than a flash in the pan, and instead devoted the advertising budget to promoting the new grilled chicken.”

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Sat, 09 Jan 2010 11:27:22 +0000

Speculation About Geithner's Role in AIG Bailout Heats Up

Paul Smalera — Fri, 08 Jan 2010 08:32:38 +0000

It’s unclear what exactly the fallout will be regarding troubling new details about Tim Geithner’s role in the AIG (AIG) bailout, but the New York Times attempts to process the information today. Geithner, who was president of the Federal Reserve Bank of New York, and thus administering the government bailout of the insurance giant, seemingly allowed his staff to tell AIG to gloss over or not disclose key pieces of information in SEC filings, about the level of support the firm was getting from the Fed. A Treasury spokeswoman told the paper Geither was recused from working on issues related to AIG by the date of the filing, but Geithner’s role in crafting the bailout is simply too instrumental to simply dismiss. Representatives of the Fed claim the changes were innocuous and did not cover up material information about the company, which, because it is publicly traded, it’s required to disclose. AIG wouldn’t comment, but Republican Congressman Darrell Issa, who requested the documents, promised to ask for inquiries into the matter, and to try to bring Geithner before the House oversight committee of which he’s ranking member.

Jim Chanos has made a more than healthy living by betting on the downside of companies he believes have peaked, like Enron. The Times says his latest bet is not on a company, but a country he feels has nowhere to go but down: China. The paper details the ways—from cooked books to over-speculation, that Chanos feels China is due for a fall. “Dubai times 1,000” is how he described the country’s real estate sector. It’d be easy to dismiss such contrarian claims if Chanos weren’t almost always right about his bets. Yet his stance puts him at odds with Warren Buffett, Wilbur Ross, and dozens of other financiers who think China has nowhere to go but up. Chanos, as the article describes him, seems to relish the role of possibly shorting those bulls all the way down.

The FDIC is considering a slap-your-forehead simple approach to regulating pay practices at banks, the Washington Post reports. Because banks pay fees into the federal fund that insures depositors against bank failures, the FDIC is considering offering discounts to companies that adopt common sense pay practices, like clawback provisions in cases where pay doesn’t match up with results. The idea is to reward executives for putting the health of the institution ahead of their own personal bank accounts. The idea remains in early stages, but seems to be a good fit for the FDIC, which already offers rebates and penalties to banks for a variety of other practices.

Google (GOOG) wants to become an electricity marketer, but, really, it’s not what it sounds like. Essentially, the company wants to be able to buy wholesale electricity from power plants, preferably green ones, rather than go through middlemen on the market. Several large corporations already do this, but Google’s power centers suck down the juice like almost no other type of facility. Despite being extremely energy efficient, their sheer scale probably puts them beyond even typical data center power consumption, which is already quite high. The Wall Street Journal’s story also reports that Yahoo (YHOO), Microsoft (MSFT), and Intel have thought about getting into the energy market. The paper notes that though we probably won’t see “Google Watt” just yet—because the regulatory filing to is really just clearing ground for Google to service itself—Google does have a history of surprising the public with new ventures, even when it’s specifically disclaimed interest, as with the recent Google Nexus One phone.

Bank of America (BAC) says the Journal, will likely hand out bonuses on 2007 levels, to try to stem defections, mostly by Merrill Lynch employees. Now that the bank has repayed its TARP funds, the sky’s the limit, or at least, whatever the board will approve is the limit.

Commercial real estate in New York, “hasn’t hit bottom,” one broker told the Times today. That’s even with massive amounts of office space available in Manhattan, and dozens of buildings in trouble. That’s likely to spur lower rents, higher vacancies, huge bargaining power for those seeking space, and foreign investment or purchase of landmark buildings in the city. The twist will be that that stable buildings with easy titles will be the targets, whereas marginal properties with complicated ownership structures are likely to founder, even trailing any economic recovery.

Finally, Anil Kumar, an associate of Galleon CEO Raj Rajaratnam, has pled guilty to feeding him information in exchange for $1.75 million in cash, which Rajaratnam used to earn about $19 million for his hedge funds. The plea includes Kumar’s cooperation in the widening case against Galleon.

Archives

Frustrated Wall Street Donors Turn Away From Democrats

Bank of America and Ken Lewis Are Getting Sued Left and Right

NSA Working With Google To Understand Chinese Hacker Intrusion

On Capitol Hill, Volcker Rule Faces Criticism

Presented By:

Banks Ready To Battle Over Volcker Rule

Amazon Surrenders in Weekend E-Book Battle

Ben Bernanke Wins A Second Term

Big Banks Cutting Loans to Employees With "Hardship"

Gas Pedal Problem Forces Toyota To Halt Sales

TARP Cop Says He's Building a Case for a Trial

Metrics Firm Detects 50 Apple Tablets Testing iPhone Apps

Is Geithner on the Outs in Obama's White House?

An Obama Reboot? President Proposes Volcker's Glass-Steagall Redux.

AIG Deal Looks Good for Uncle Sam

Presented By:

Big Banks Hire Big Gun To Fight TARP Tax

The New CEO of Morgan Stanley Is “Definitely Not a Slimeball.”

Hershey Heats Up Chocolate War

Financial Crisis Enabled Bankers To Pay Themselves a Record $145 Billion

Blankfein Argues Crisis Was Act of God; Angelides Warns It Was Act of Man

Google May Totally Withdraw From China

World's Most Profitable Bank Paid CEO $200,000 Last Year

Goldman Gets Ready for the Inevitable Bonus Backlash

Rupert Murdoch's Son-in-Law is Ashamed of Fox News, Roger Ailes

Depressing New Employment Data

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Speculation About Geithner's Role in AIG Bailout Heats Up