NEW YORK (TheStreet) -- Bank of America(BAC) will pay $335 million to settle U.S. Department of Justice charges that alleged discriminatory lending practices by its Countrywide Financial unit.
The settlement will be the largest residential fair lending settlement in history and will compensate thousands of African-American and Hispanic borrowers who were victims of the alleged discriminatory practice.
The Department of Justice alleged that Countrywide discriminated against African-American and Hispanic borrowers in their mortgage lending practices between 2004 and 2008. The allegations predate Bank of America's purchased of Countrywide in 2008.
The DOJ has been probing into unfair lending practices by Countrywide and other banks, such as exclusion of borrowers in low-income or minority neighborhoods and pricing discrimination solely based on race or origin.
It alleges that Countrywide charged more than 200,000 African-American and Hispanic borrowers higher fees than non-Hispanic white borrowers in both retail and wholesale lending.
Countrywide also allegedly steered thousands of African-American and Hispanic borrowers into subprime mortgages when non-Hispanic white borrowers with similar credit profiles received prime loans. Subprime loans carry higher cost terms such as prepayment penalties and adjustable interest rates that jumped suddenly after two or three years, making payments unaffordable.
Attorney General Eric Holder stressed in his statement that the borrowers discriminated against were "qualified" for Countrywide mortgage loans according to the bank's criteria and were charged more not because of "borrower risk" but because of their race or origin.
"The department's action against Countrywide makes clear that we will not hesitate to hold financial institutions accountable, including one of the nation's largest, for lending discrimination," said Attorney General Eric Holder. "With today's settlement, the federal government will ensure that the more than 200,000 African-American and Hispanic borrowers who were discriminated against by Countrywide will be entitled to compensation."
The settlement requires Countrywide to implement policies and practices to prevent discrimination if it returns to the lending business during the next four years. Countrywide currently operates as a subsidiary of Bank of America but does not originate new loans.
"We reached this settlement to resolve issues about Countrywide's alleged historic practices that occurred before Bank of America acquired the company. Bank of America's practices are not at issue," Dan Frahm, a Bank of America Spokesperson said in an emailed statement.
" We are committed to fair and equal treatment of all our customers, and will continue to focus on doing what's right for our customers, clients and communities. We discontinued Countrywide products and practices that were not in keeping with our commitment and will continue to resolve and put behind us the remaining Countrywide issues," he said.
Shares of Bank of America were up 0.8% in the final hour of trading following the news.
--Written by Shanthi Bharatwaj in New York
(thestreet.com)
Tampilkan postingan dengan label economi. Tampilkan semua postingan
Tampilkan postingan dengan label economi. Tampilkan semua postingan
Rabu, 21 Desember 2011
How the Dow Jones industrial average and other major stock indexes fared on Wednesday
Technology stocks fell Wednesday, dragged down by a weak earnings report from business software maker Oracle Corp. Broad market indexes were flat. The Dow Jones industrial average eked out a gain of 4 points after having been down 104 points at midday. Technology stocks were the issue, with IBM the biggest decliner of the Dow’s 30 stocks. IBM fell 3.1 percent, and Oracle fell 11.7 percent.
The Dow gained 4.16 points, or 0.03 percent, to close at 12,107.74.
The S&P 500 index gained 2.42 points, or 0.19 percent, to 1,243.72.
The Nasdaq composite index fell 25.76, or 1 percent, to 2,577.97.
For the week:
The Dow is up 241.35, or 2 percent.
The S&P 500 index is up 24.06, or 2 percent.
The Nasdaq is up 22.64, or 0.9 percent.
For the year to date:
The Dow is up 530.23 points, or 4.5 percent.
The S&P is down 13.92, or 1.1 percent.
The Nasdaq is down 74.90, or 2.8 percent.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
(washingtonpost.com)
The Dow gained 4.16 points, or 0.03 percent, to close at 12,107.74.
The S&P 500 index gained 2.42 points, or 0.19 percent, to 1,243.72.
The Nasdaq composite index fell 25.76, or 1 percent, to 2,577.97.
For the week:
The Dow is up 241.35, or 2 percent.
The S&P 500 index is up 24.06, or 2 percent.
The Nasdaq is up 22.64, or 0.9 percent.
For the year to date:
The Dow is up 530.23 points, or 4.5 percent.
The S&P is down 13.92, or 1.1 percent.
The Nasdaq is down 74.90, or 2.8 percent.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
(washingtonpost.com)
Walgreen Profit Falls 4.5% on Higher Costs
Walgreen Co.'s fiscal first-quarter earnings fell 4.5% on higher costs as the drugstore chain appeared poised to begin the new year without a contract with Express Scripts Inc.
Shares were down 4.5% at $31.99 in premarket trading as earnings missed expectations. Through Tuesday's close, the stock is down 14% this year.
A conflict between Walgreen and the pharmacy-benefits manager over new contract terms erupted publicly in June, when Walgreen said it wouldn't be part of Express Scripts's network when their current deal expires after this year.
A Walgreen exit from Express Scripts's network would mean the benefit manager's clients would have to go elsewhere to fill prescriptions. However, based on current estimates and the assumption that it won't be in the Express Scripts network in 2012, Walgreen said it expects to achieve 97% to 99% of its fiscal 2011 prescription volume.
For the latest quarter, Walgreen said its decision to exit Express Scripts cost a penny per share in comparable pharmacy sales and a penny a share in related expenses.
President and Chief Executive Greg Wasson said "While we remain open to any fair and competitive offer from Express Scripts, we firmly believe that accepting their proposal was not in the best long-term interests of our shareholders." As a result, Walgreen has started to execute plans to reach cost-reduction goals for operating without Express Scripts, Mr. Wasson said.
For the quarter ended Nov. 30, Walgreen reported a profit of $554 million, or 63 cents a share, from $580 million, or 62 cents a share, a year earlier.
The latest period included inventory-related charges of $5 million, while the prior year included $42 million.
Analysts polled by Thomson Reuters most recently forecast earnings of 67 cents.
Gross margin fell to 28.1% from 28.5% on weaker pharmacy margins caused by reduced reimbursement rates. Overhead expenses were up 5% including 0.8 percentage point related to the integration of its drugstore.com acquisition.
Walgreen recently reported that total sales were up 4.7% at $18.16 billion, below analysts' expectations at the time. Same-store sales rose 2.5%, including growth of 2.4% in the pharmacy and 2.5% in the front of the store.
Write to Tess Stynes at tess.stynes@dowjones.com
Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved
(online.wsj.com)
Shares were down 4.5% at $31.99 in premarket trading as earnings missed expectations. Through Tuesday's close, the stock is down 14% this year.
A conflict between Walgreen and the pharmacy-benefits manager over new contract terms erupted publicly in June, when Walgreen said it wouldn't be part of Express Scripts's network when their current deal expires after this year.
A Walgreen exit from Express Scripts's network would mean the benefit manager's clients would have to go elsewhere to fill prescriptions. However, based on current estimates and the assumption that it won't be in the Express Scripts network in 2012, Walgreen said it expects to achieve 97% to 99% of its fiscal 2011 prescription volume.
For the latest quarter, Walgreen said its decision to exit Express Scripts cost a penny per share in comparable pharmacy sales and a penny a share in related expenses.
President and Chief Executive Greg Wasson said "While we remain open to any fair and competitive offer from Express Scripts, we firmly believe that accepting their proposal was not in the best long-term interests of our shareholders." As a result, Walgreen has started to execute plans to reach cost-reduction goals for operating without Express Scripts, Mr. Wasson said.
For the quarter ended Nov. 30, Walgreen reported a profit of $554 million, or 63 cents a share, from $580 million, or 62 cents a share, a year earlier.
The latest period included inventory-related charges of $5 million, while the prior year included $42 million.
Analysts polled by Thomson Reuters most recently forecast earnings of 67 cents.
Gross margin fell to 28.1% from 28.5% on weaker pharmacy margins caused by reduced reimbursement rates. Overhead expenses were up 5% including 0.8 percentage point related to the integration of its drugstore.com acquisition.
Walgreen recently reported that total sales were up 4.7% at $18.16 billion, below analysts' expectations at the time. Same-store sales rose 2.5%, including growth of 2.4% in the pharmacy and 2.5% in the front of the store.
Write to Tess Stynes at tess.stynes@dowjones.com
Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved
(online.wsj.com)
Asia Stocks Rise Second Day on U.S. Data, China Industry Support
(Bloomberg) -- Asian stocks rose for a second day, with a benchmark index set for the biggest gain in almost three weeks, as China pledged support for exporters and small businesses and after improved U.S. and German economic data.
Honda Motor Co., the Japanese carmaker that gets about 44 percent of its sales from North America, advanced 2.4 percent in Tokyo on speculation shipments will rise amid signs the U.S. economy is improving. Onesteel Ltd., the second-worst performer in the MSCI Asia Pacific Index this year, jumped 7.1 percent after Goldman Sachs Group Inc. named it among top Australian stock picks for next year. Mining and energy stocks gained as oil and copper prices climbed.
“The U.S. is showing it's fairly robust in terms of not being dragged down to the extent of European economies,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “The question is, given we are coming into a holiday period, how sustainable those gains are going to be over the next week or so.”
The MSCI Asia Pacific Index advanced 2.2 percent to 113.38 as of 8:02 p.m. in Tokyo, with almost nine shares rising for each that fell. The gauge dropped to a three-week low on Dec. 19 after North Korean leader Kim Jong Il died and Fitch Ratings said it may cut the credit ratings of European nations.
Trading volumes were below the 30-day average for all major markets in the region except India, according to data compiled by Bloomberg.
Japan's Nikkei 225 Stock Average increased 1.5 percent, while South Korea's Kospi Index jumped 3.1 percent. Australia's S&P/ASX 200 rose 2.1 percent. Hong Kong's Hang Seng Index gained 1.9 percent.
U.S. Rebound
The Hang Seng China Enterprises Index added 2.2 percent after Premier Wen Jiabao pledged to provide capital support for small and medium-sized companies affected by the nation's slowing economic growth. The Shanghai Composite Index slipped 1.1 percent, erasing gains of as much as 1 percent.
Futures on the Standard & Poor's 500 Index rose 0.4 percent today. The index advanced 3 percent in New York yesterday after housing starts in November rose to the most since April 2010 and payrolls increased in 29 states.
Shares of Asian exporters advanced. Honda gained 2.4 percent to 2,325 yen. Samsung Electronics Co., South Korea's biggest exporter of devices such as mobile phones and semiconductors, climbed 4.5 percent to 1.057 million won in Seoul. James Hardie Industries SE, a maker of building materials that counts the U.S. as its biggest market, added 1.8 percent to A$6.66.
Shipping Alliance
Stocks also gained as concern about Europe's debt crisis eased after Spain sold 5.64 billion euros ($7.38 billion) of bills, more than the maximum target, and German business confidence unexpectedly grew.
Shipping stocks advanced on speculation a new alliance formed by Mitsui O.S.K. Lines Ltd., Hyundai Merchant Marine Co., Neptune Orient Lines Ltd. and three other lines on the Asia- Europe trade route will help stem a decline in rates.
Mitsui O.S.K., Japan's second-biggest freight carrier by sales, increased 1.8 percent to 288 yen in Tokyo. Hyundai Merchant Marine, South Korea's No. 2, jumped 4.5 percent to 25,400 won in Seoul. Neptune Orient Lines Ltd, Southeast Asia's largest container carrier, gained 3.6 percent to S$1.15.
Worst Performers
The MSCI Asia Pacific Index slumped 19 percent this year year through yesterday. Utilities were the worst performing industry in the gauge as Japan's nuclear-power producers tumbled after the worst nuclear accident in 25 years engulfed Tokyo Electric Power Co.'s Fukushima Dai-Ichi plant. Tepco, as the utility is known, is the worst performer on the gauge, followed by OneSteel, Australia's second-biggest producer of the metal.
OneSteel, which tumbled 75 percent this year through yesterday, increased 7.1 percent to 68 Australian cents. Goldman Sachs recommended investors “buy” the stock, saying the company may benefit from a potential loosening of monetary policy in China.
The Asia-Pacific index's drop this year compared with a 1.3 percent decline by the S&P 500 and a 14 percent slide by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.4 times estimated earnings on average, compared with 12.6 times for the S&P 500 and 10.4 times for the Stoxx 600.
Commodity Stocks
Raw-material producers and energy companies advanced today after commodity prices rallied on the improving outlook for the U.S. and Europe and after Wen's pledge of support for Chinese producers. China is the world's biggest consumer of copper.
BHP Billiton Ltd., which counts China's as its No. 1 market, climbed 3 percent to A$35.13. Jiangxi Copper Co., China's biggest producer of the metal, rose 1.9 percent to HK$16.84 in Hong Kong.
Among stocks that dropped, Tepco sank 9.8 percent to 211 yen in Tokyo. The utility may be effectively nationalized, the Yomiuri newspaper reported, citing an unidentified person familiar with the plan. The company denied the report.
Honda Motor Co., the Japanese carmaker that gets about 44 percent of its sales from North America, advanced 2.4 percent in Tokyo on speculation shipments will rise amid signs the U.S. economy is improving. Onesteel Ltd., the second-worst performer in the MSCI Asia Pacific Index this year, jumped 7.1 percent after Goldman Sachs Group Inc. named it among top Australian stock picks for next year. Mining and energy stocks gained as oil and copper prices climbed.
“The U.S. is showing it's fairly robust in terms of not being dragged down to the extent of European economies,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “The question is, given we are coming into a holiday period, how sustainable those gains are going to be over the next week or so.”
The MSCI Asia Pacific Index advanced 2.2 percent to 113.38 as of 8:02 p.m. in Tokyo, with almost nine shares rising for each that fell. The gauge dropped to a three-week low on Dec. 19 after North Korean leader Kim Jong Il died and Fitch Ratings said it may cut the credit ratings of European nations.
Trading volumes were below the 30-day average for all major markets in the region except India, according to data compiled by Bloomberg.
Japan's Nikkei 225 Stock Average increased 1.5 percent, while South Korea's Kospi Index jumped 3.1 percent. Australia's S&P/ASX 200 rose 2.1 percent. Hong Kong's Hang Seng Index gained 1.9 percent.
U.S. Rebound
The Hang Seng China Enterprises Index added 2.2 percent after Premier Wen Jiabao pledged to provide capital support for small and medium-sized companies affected by the nation's slowing economic growth. The Shanghai Composite Index slipped 1.1 percent, erasing gains of as much as 1 percent.
Futures on the Standard & Poor's 500 Index rose 0.4 percent today. The index advanced 3 percent in New York yesterday after housing starts in November rose to the most since April 2010 and payrolls increased in 29 states.
Shares of Asian exporters advanced. Honda gained 2.4 percent to 2,325 yen. Samsung Electronics Co., South Korea's biggest exporter of devices such as mobile phones and semiconductors, climbed 4.5 percent to 1.057 million won in Seoul. James Hardie Industries SE, a maker of building materials that counts the U.S. as its biggest market, added 1.8 percent to A$6.66.
Shipping Alliance
Stocks also gained as concern about Europe's debt crisis eased after Spain sold 5.64 billion euros ($7.38 billion) of bills, more than the maximum target, and German business confidence unexpectedly grew.
Shipping stocks advanced on speculation a new alliance formed by Mitsui O.S.K. Lines Ltd., Hyundai Merchant Marine Co., Neptune Orient Lines Ltd. and three other lines on the Asia- Europe trade route will help stem a decline in rates.
Mitsui O.S.K., Japan's second-biggest freight carrier by sales, increased 1.8 percent to 288 yen in Tokyo. Hyundai Merchant Marine, South Korea's No. 2, jumped 4.5 percent to 25,400 won in Seoul. Neptune Orient Lines Ltd, Southeast Asia's largest container carrier, gained 3.6 percent to S$1.15.
Worst Performers
The MSCI Asia Pacific Index slumped 19 percent this year year through yesterday. Utilities were the worst performing industry in the gauge as Japan's nuclear-power producers tumbled after the worst nuclear accident in 25 years engulfed Tokyo Electric Power Co.'s Fukushima Dai-Ichi plant. Tepco, as the utility is known, is the worst performer on the gauge, followed by OneSteel, Australia's second-biggest producer of the metal.
OneSteel, which tumbled 75 percent this year through yesterday, increased 7.1 percent to 68 Australian cents. Goldman Sachs recommended investors “buy” the stock, saying the company may benefit from a potential loosening of monetary policy in China.
The Asia-Pacific index's drop this year compared with a 1.3 percent decline by the S&P 500 and a 14 percent slide by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.4 times estimated earnings on average, compared with 12.6 times for the S&P 500 and 10.4 times for the Stoxx 600.
Commodity Stocks
Raw-material producers and energy companies advanced today after commodity prices rallied on the improving outlook for the U.S. and Europe and after Wen's pledge of support for Chinese producers. China is the world's biggest consumer of copper.
BHP Billiton Ltd., which counts China's as its No. 1 market, climbed 3 percent to A$35.13. Jiangxi Copper Co., China's biggest producer of the metal, rose 1.9 percent to HK$16.84 in Hong Kong.
Among stocks that dropped, Tepco sank 9.8 percent to 211 yen in Tokyo. The utility may be effectively nationalized, the Yomiuri newspaper reported, citing an unidentified person familiar with the plan. The company denied the report.
Selasa, 20 Desember 2011
Stocks: All eyes on Europe
NEW YORK (CNNMoney) -- U.S. stocks poised for higher open Tuesday, but investors remain cautious as they await developments in Europe.
The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were higher ahead of the opening bell. Stock futures indicate the possible direction of the markets when they open at 9:30 a.m. ET.
U.S. stocks closed sharply lower Monday, as bank shares took a beating amid fresh concerns about the debt crisis in Europe.
Bank of America (BAC, Fortune 500) fell below $5 per share on Monday, its lowest level since the worst of the financial crisis in March 2009. Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500), JPMorgan (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500) and Wells Fargo (WFC, Fortune 500) also fell sharply.
The sell off was driven by speculation that BofA and other big U.S. banks will need to raise more capital, said David Rovelli, managing director of U.S. equity trading at Canaccord Adams.
U.S. banks have been hit by concerns about their exposure to bonds issued by fragile governments in the eurozone. In addition, traders pointed to reports that tougher regulations on banks could come to pass sooner than expected.
Also on Monday, the European Central Bank warned that "contagion effects" have intensified, as borrowing costs have risen for larger euro-area governments -- a sign of the continuing difficulties facing the region.
0:00 / 1:48 Forget Europe. Watch Asia
World markets: European stocks were mixed in morning trading. Britain's FTSE 100 (UKX) shed 0.2%, while the DAX (DAX) in Germany added 0.8% and France's CAC 40 (CAC40) rose 0.9%.
Asian markets ended mixed. The Shanghai Composite (SHCOMP) lost 0.1%, while the Hang Seng (HSI) in Hong Kong ticked up 0.1% and Japan's Nikkei (N225) edged higher 0.5%.
Economy: The Census Bureau will release data on housing starts and building permits issued in the month of November Tuesday morning.
Analysts surveyed by Briefing.com expect housing starts hit 627,000, and building permits to stand at 633,000 for November -- up from 628,000 and 653,000 respectively in the month prior.
Companies: Firms including food producers General Mills (GIS, Fortune 500) and ConAgra (CAG, Fortune 500), and investment banking firm Jefferies Group (JEF), will report their quarterly results before the opening bell on Tuesday.
Analysts surveyed by Thomson Reuters expect General Mills to report earnings per share of 79 cents, up from 76 cents a year ago; while ConAgra is expected to post earnings of 43 cents a share, down from 45 cents last year.
Jefferies expected to post earnings of 14 cents a share, down from 35 cents a year ago.
Fortune 500: Worst stocks of 2011
Late Monday, AT&T (T, Fortune 500) announced that it had abandoned its $39 billion bid for T-Mobile, a deal that would have created by far the nation's largest wireless company.
Currencies and commodities: The dollar fell against the euro, the British pound and the Japanese yen.
Oil for January delivery rose 36 cents to $95.16 a barrel.
Gold futures for February delivery fell $8.90 to $1,605.60 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury was little changed, with the yield holding steady at 1.81% from late Monday.
The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were higher ahead of the opening bell. Stock futures indicate the possible direction of the markets when they open at 9:30 a.m. ET.
U.S. stocks closed sharply lower Monday, as bank shares took a beating amid fresh concerns about the debt crisis in Europe.
Bank of America (BAC, Fortune 500) fell below $5 per share on Monday, its lowest level since the worst of the financial crisis in March 2009. Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500), JPMorgan (JPM, Fortune 500), Morgan Stanley (MS, Fortune 500) and Wells Fargo (WFC, Fortune 500) also fell sharply.
The sell off was driven by speculation that BofA and other big U.S. banks will need to raise more capital, said David Rovelli, managing director of U.S. equity trading at Canaccord Adams.
U.S. banks have been hit by concerns about their exposure to bonds issued by fragile governments in the eurozone. In addition, traders pointed to reports that tougher regulations on banks could come to pass sooner than expected.
Also on Monday, the European Central Bank warned that "contagion effects" have intensified, as borrowing costs have risen for larger euro-area governments -- a sign of the continuing difficulties facing the region.
0:00 / 1:48 Forget Europe. Watch Asia
World markets: European stocks were mixed in morning trading. Britain's FTSE 100 (UKX) shed 0.2%, while the DAX (DAX) in Germany added 0.8% and France's CAC 40 (CAC40) rose 0.9%.
Asian markets ended mixed. The Shanghai Composite (SHCOMP) lost 0.1%, while the Hang Seng (HSI) in Hong Kong ticked up 0.1% and Japan's Nikkei (N225) edged higher 0.5%.
Economy: The Census Bureau will release data on housing starts and building permits issued in the month of November Tuesday morning.
Analysts surveyed by Briefing.com expect housing starts hit 627,000, and building permits to stand at 633,000 for November -- up from 628,000 and 653,000 respectively in the month prior.
Companies: Firms including food producers General Mills (GIS, Fortune 500) and ConAgra (CAG, Fortune 500), and investment banking firm Jefferies Group (JEF), will report their quarterly results before the opening bell on Tuesday.
Analysts surveyed by Thomson Reuters expect General Mills to report earnings per share of 79 cents, up from 76 cents a year ago; while ConAgra is expected to post earnings of 43 cents a share, down from 45 cents last year.
Jefferies expected to post earnings of 14 cents a share, down from 35 cents a year ago.
Fortune 500: Worst stocks of 2011
Late Monday, AT&T (T, Fortune 500) announced that it had abandoned its $39 billion bid for T-Mobile, a deal that would have created by far the nation's largest wireless company.
Currencies and commodities: The dollar fell against the euro, the British pound and the Japanese yen.
Oil for January delivery rose 36 cents to $95.16 a barrel.
Gold futures for February delivery fell $8.90 to $1,605.60 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury was little changed, with the yield holding steady at 1.81% from late Monday.
Japan Mulls Buying Chinese Govt Bonds To Improve Ties
TOKYO (Dow Jones)--Japan should consider holding Chinese government bonds to strengthen ties with its Asian neighbor, the finance minister said Tuesday, but analysts say such a step could be a move toward diversifying Japan's foreign reserves, now mainly denominated in dollars.
Finance Minister Jun Azumi made the comments just days ahead of a planned visit to China by Prime Minister Yoshihiko Noda. It was the first time Japan clearly indicated an intention to shift part of its foreign reserves into yuan-denominated Chinese debt.
"It is true that we've been having discussions that could bring huge advantages to (both Japan and China) if we make it possible for both sides to buy each other's government bonds," Azumi told a news conference.
"Our country currently has no Chinese bonds. My assessment is that our holding those products would be beneficial to building relationships between us," he said.
Japan's $1.3-trillion reserves are second in size only to China's. They are currently held mainly in U.S. Treasury bonds, with a small portion in euros.
Japanese officials said the two sides were seeking a deal on various forms of cooperation during Noda's two-day visit from this Sunday, including a plan to hold each other's sovereign debt.
The Nikkei reported Tuesday that Japan is considering investing as much as $10 billion in Chinese government debt over time.
The purchases may be part of efforts to mend ties strained by differences over wartime history and recent territorial disputes. But analysts say it may also be an attempt by Tokyo to protect the value of its foreign reserves in the face of the persistently strong yen.
"The aim of this action would be diversification of Japan's foreign reserves and helping China make its currency more internationally popular," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.
With the yen near a record-high against the dollar, Japan's has unrealized losses of tens of trillions of yen in its foreign reserve account.
But Azumi said any investments in Chinese debt wouldn't mean Japan was moving away from the dollar and the euro. Even a $10 billion investment in the yuan would be less than 1% of Japan's total reserves.
A Japanese official familiar with the matter said China will effectively determine how much of its debt can be bought by Japan, and there has been no decision yet on the amount.
The official also said it would be wrong to expect Tokyo to start investing in Chinese debt immediately after Noda's trip. Even if such purchases are made, they made not be publicized, he added.
Japan has so far not invested in Chinese debt. But Beijing stepped-up its buying of Japanese government debt in 2010, surprising Japanese officials and drawing calls by some lawmakers for China to allow Japan to buy its debt as well.
-By Takashi Nakamichi, Dow Jones Newswires; +81-3-6269-2818; takashi.nakamichi@dowjones.com
-Takashi Mochizuki contributed to this article
(online.wsj.com)
Finance Minister Jun Azumi made the comments just days ahead of a planned visit to China by Prime Minister Yoshihiko Noda. It was the first time Japan clearly indicated an intention to shift part of its foreign reserves into yuan-denominated Chinese debt.
"It is true that we've been having discussions that could bring huge advantages to (both Japan and China) if we make it possible for both sides to buy each other's government bonds," Azumi told a news conference.
"Our country currently has no Chinese bonds. My assessment is that our holding those products would be beneficial to building relationships between us," he said.
Japan's $1.3-trillion reserves are second in size only to China's. They are currently held mainly in U.S. Treasury bonds, with a small portion in euros.
Japanese officials said the two sides were seeking a deal on various forms of cooperation during Noda's two-day visit from this Sunday, including a plan to hold each other's sovereign debt.
The Nikkei reported Tuesday that Japan is considering investing as much as $10 billion in Chinese government debt over time.
The purchases may be part of efforts to mend ties strained by differences over wartime history and recent territorial disputes. But analysts say it may also be an attempt by Tokyo to protect the value of its foreign reserves in the face of the persistently strong yen.
"The aim of this action would be diversification of Japan's foreign reserves and helping China make its currency more internationally popular," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.
With the yen near a record-high against the dollar, Japan's has unrealized losses of tens of trillions of yen in its foreign reserve account.
But Azumi said any investments in Chinese debt wouldn't mean Japan was moving away from the dollar and the euro. Even a $10 billion investment in the yuan would be less than 1% of Japan's total reserves.
A Japanese official familiar with the matter said China will effectively determine how much of its debt can be bought by Japan, and there has been no decision yet on the amount.
The official also said it would be wrong to expect Tokyo to start investing in Chinese debt immediately after Noda's trip. Even if such purchases are made, they made not be publicized, he added.
Japan has so far not invested in Chinese debt. But Beijing stepped-up its buying of Japanese government debt in 2010, surprising Japanese officials and drawing calls by some lawmakers for China to allow Japan to buy its debt as well.
-By Takashi Nakamichi, Dow Jones Newswires; +81-3-6269-2818; takashi.nakamichi@dowjones.com
-Takashi Mochizuki contributed to this article
(online.wsj.com)
Deutsche Telekom $3B Fee Buys T-Mobile Time
Deutsche Telekom AG, whose proposed $39 billion sale of T-Mobile USA to AT&T Inc. (T) collapsed yesterday, has about a year before it needs to start the search for another partner amid rising costs for improving its network.
A breakup package that includes the payment of $3 billion in cash to Deutsche Telekom will only cover T-Mobile’s expenses for 12 to 24 months, said Wolfgang Specht, an analyst at WestLB AG in Dusseldorf. If T-Mobile doesn’t find a new partner after that time, it risks failing to generate enough operating cash flow to cover capital spending, he said.
“Stabilization is the first step and then it’s about finding a new partner in the medium term,” said Specht, who has an “add” recommendation on Deutsche Telekom shares. “In the long run a standalone strategy seems impossible. Everything from here on is only a second-best solution.”
AT&T and Deutsche Telekom agreed to abandon this year’s biggest transaction, which would have created the largest U.S. mobile-phone operator and dethroned market leader Verizon Wireless. Bonn-based Deutsche Telekom cited unwillingness by the U.S. Justice Department and the Federal Communications Commission to change their “non-supportive stance” even after the companies proposed changes to the size and structure of the March 20 transaction. The Justice Department sued in August to block the deal.
Roaming Agreement
Deutsche Telekom fell 1.5 percent to 8.76 euros at 9:48 a.m. in Frankfurt, valuing Europe’s largest phone company at 37.8 billion euros ($49 billion). Before today, the stock had dropped 7.3 percent since the takeover was announced.
T-Mobile is valued at about $19 billion, Berenberg Bank analyst Paul Marsch wrote in a Dec. 12 note, citing a survey the bank held with about 40 investors “a few weeks back.”
In addition to the $3 billion in cash, T-Mobile will receive a package of wireless frequencies from AT&T in 128 market areas, including Los Angeles, Dallas, Houston, Washington and San Francisco. The separation agreement also includes a roaming deal lasting at least seven years, which Deutsche Telekom said will improve T-Mobile’s coverage to 280 million potential customers from 230 million.
T-Mobile spends about $3 billion annually on capital expenditures, including network upgrades, WestLB’s Specht estimates. Upgrading to the long-term evolution technology being rolled out by its competitors, including new spectrum, may cost $8 billion to $9 billion and such a process may take three years, said Jonathan Atkin, an analyst at RBC Capital Markets.
Sprint Talks
T-Mobile USA lost 849,000 contract customers in the first nine months of the year. Its operating income before depreciation and amortization was $3.91 billion in that period, compared with $4.14 billion a year earlier.
Deutsche Telekom Chief Executive Officer Rene Obermann had planned to part with T-Mobile USA to focus on restoring growth in Europe amid a debt crisis that has reduced demand for phone services. Before Deutsche Telekom agreed on the deal with AT&T, it had also held talks with Sprint Nextel Corp. (S), people with knowledge of the matter said in March. Sprint remains a potential suitor for T-Mobile in the future, said RBC’s Atkin.
“They’ll need to make the asset as competitive as they can, not only to bring in good results for the operating business, but also in order to fetch a better price at a future date,” he said.
T-Mobile may reduce the costs of an LTE rollout by sharing next-generation wireless infrastructure with AT&T or Sprint, Atkin said. For additional frequencies, T-Mobile may look to Clearwire Corp. (CLWR) or Sprint for more spectrum, or wait for the next round of spectrum auctions in the U.S., which may come in as little as six months, he said.
Verizon Deal
T-Mobile missed a potential opportunity to purchase additional wireless frequencies this month after Verizon Wireless agreed to buy spectrum valued at $3.6 billion from cable companies Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC) and closely held Bright House Networks LLC. Phone companies need wireless frequencies to add capacity to meet increasing demand for high-speed mobile Internet devices.
Deutsche Telekom may revisit plans, shelved after the AT&T agreement, to sell its U.S. tower network. Those assets may be worth as much as $3 billion, RBC’s Atkin estimated.
“We think they will go back to the old fashioned sort of plan - run the business,” Sanford C. Bernstein analyst Robin Bienenstock wrote in a note today. “T-Mobile USA will compete for prepay customers and hope that Sprint or someone else comes under enough strain they free up more spectrum.”
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
A breakup package that includes the payment of $3 billion in cash to Deutsche Telekom will only cover T-Mobile’s expenses for 12 to 24 months, said Wolfgang Specht, an analyst at WestLB AG in Dusseldorf. If T-Mobile doesn’t find a new partner after that time, it risks failing to generate enough operating cash flow to cover capital spending, he said.
“Stabilization is the first step and then it’s about finding a new partner in the medium term,” said Specht, who has an “add” recommendation on Deutsche Telekom shares. “In the long run a standalone strategy seems impossible. Everything from here on is only a second-best solution.”
AT&T and Deutsche Telekom agreed to abandon this year’s biggest transaction, which would have created the largest U.S. mobile-phone operator and dethroned market leader Verizon Wireless. Bonn-based Deutsche Telekom cited unwillingness by the U.S. Justice Department and the Federal Communications Commission to change their “non-supportive stance” even after the companies proposed changes to the size and structure of the March 20 transaction. The Justice Department sued in August to block the deal.
Roaming Agreement
Deutsche Telekom fell 1.5 percent to 8.76 euros at 9:48 a.m. in Frankfurt, valuing Europe’s largest phone company at 37.8 billion euros ($49 billion). Before today, the stock had dropped 7.3 percent since the takeover was announced.
T-Mobile is valued at about $19 billion, Berenberg Bank analyst Paul Marsch wrote in a Dec. 12 note, citing a survey the bank held with about 40 investors “a few weeks back.”
In addition to the $3 billion in cash, T-Mobile will receive a package of wireless frequencies from AT&T in 128 market areas, including Los Angeles, Dallas, Houston, Washington and San Francisco. The separation agreement also includes a roaming deal lasting at least seven years, which Deutsche Telekom said will improve T-Mobile’s coverage to 280 million potential customers from 230 million.
T-Mobile spends about $3 billion annually on capital expenditures, including network upgrades, WestLB’s Specht estimates. Upgrading to the long-term evolution technology being rolled out by its competitors, including new spectrum, may cost $8 billion to $9 billion and such a process may take three years, said Jonathan Atkin, an analyst at RBC Capital Markets.
Sprint Talks
T-Mobile USA lost 849,000 contract customers in the first nine months of the year. Its operating income before depreciation and amortization was $3.91 billion in that period, compared with $4.14 billion a year earlier.
Deutsche Telekom Chief Executive Officer Rene Obermann had planned to part with T-Mobile USA to focus on restoring growth in Europe amid a debt crisis that has reduced demand for phone services. Before Deutsche Telekom agreed on the deal with AT&T, it had also held talks with Sprint Nextel Corp. (S), people with knowledge of the matter said in March. Sprint remains a potential suitor for T-Mobile in the future, said RBC’s Atkin.
“They’ll need to make the asset as competitive as they can, not only to bring in good results for the operating business, but also in order to fetch a better price at a future date,” he said.
T-Mobile may reduce the costs of an LTE rollout by sharing next-generation wireless infrastructure with AT&T or Sprint, Atkin said. For additional frequencies, T-Mobile may look to Clearwire Corp. (CLWR) or Sprint for more spectrum, or wait for the next round of spectrum auctions in the U.S., which may come in as little as six months, he said.
Verizon Deal
T-Mobile missed a potential opportunity to purchase additional wireless frequencies this month after Verizon Wireless agreed to buy spectrum valued at $3.6 billion from cable companies Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC) and closely held Bright House Networks LLC. Phone companies need wireless frequencies to add capacity to meet increasing demand for high-speed mobile Internet devices.
Deutsche Telekom may revisit plans, shelved after the AT&T agreement, to sell its U.S. tower network. Those assets may be worth as much as $3 billion, RBC’s Atkin estimated.
“We think they will go back to the old fashioned sort of plan - run the business,” Sanford C. Bernstein analyst Robin Bienenstock wrote in a note today. “T-Mobile USA will compete for prepay customers and hope that Sprint or someone else comes under enough strain they free up more spectrum.”
To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
Senin, 19 Desember 2011
Twitter Wins $300 Million Alwaleed Investment Amid Site Revamp
Dec. 19 (Bloomberg) -- Twitter Inc., the microblogging service with more than 100 million users, won a $300 million investment from Saudi investor Prince Alwaleed bin Talal as it pushes through a redesign of its site to attract advertisers.
Alwaleed and his investment company agreed to buy a “strategic stake,” Kingdom Holding said today, without giving details. Alwaleed is the largest individual investor in Citigroup Inc. and his other investments include holdings in Apple Inc. and General Motors Co. Riyadh-based Kingdom Holding jumped as much as 8.9 percent on the local exchange.
Twitter, which lets its users send 140-character messages, is revamping the site to make it faster and simpler to navigate. The San Francisco-based company may boost ad revenue by 86 percent next year as it attracts more international advertisers, according to EMarketer Inc. Alwaleed’s investment comes as Facebook Inc., the most-popular social networking site with more than 800 million users, is said to consider raising about $10 billion from an initial public offering.
“Twitter are looking to give themselves some more running space,” said Jeff Mann, an analyst at Gartner in Amsterdam. “Their strategy has always been first get big, they’re still holding reasonably close to that. Having a big audience is more important than a short-term revenue stream.”
‘Strategic Asset’
Twitter confirmed the investment in an e-mail, declining to give additional comments.
Demand for technology IPOs reignited in November after a summer lull, setting the stage for Groupon Inc., Zynga Inc., the largest maker of games for Facebook, and Angie’s List Inc. to go public. Facebook may file for an IPO before the end of the year, a person with knowledge of the matter said last month. The sale may value the company at more than $100 billion, twice as high as it was in January, when the company announced a $1.5 billion investment from Goldman Sachs Group Inc. and other backers.
Alwaleed’s investment may value Twitter at $10 billion, said Jack Neele, a fund manager at Robeco Groep NV, which had about $194 billion under management at the end of June. DST Global, the technology fund managed by Russian billionaire Yuri Milner and an investor in Facebook, led an $800 million financing round in Twitter in August. That investment valued the short-messaging service at $8 billion, people with knowledge of the plan said at the time.
“Twitter is seen as a strategic asset within the social media space, given its large user base,” Neele said. “But the business model in its current form isn’t ready for the public market.”
Co-Founders
Twitter is seeking to speed up its ad rollout program, its main source of revenue. The microblogging service’s revamp will feature tabs at the top of the screen that let users more easily access their home pages, connect with others and discover new content. EMarketer cut its estimate for 2011 ad revenue to $139.5 million from $150 million in September because Twitter has been slow to roll out some services.
Twitter is also facing the loss of its two of its co- founders. Both Evan Williams and Biz Stone have lessened their involvement under Chief Executive Officer Dick Costolo, who took the reins in October 2010. Mike Abbott, a vice president in charge of engineering, also has stepped down.
The agreement followed “several months of negotiations,” Kingdom Holding said its statement. The company, controlled by Alwaleed, a nephew of Saudi Arabia’s King Abdullah, added 5.1 percent to 8.25 riyals at 3:39 p.m. in Riyadh. Before today, the stock had lost 4.3 percent this year.
‘Savvy Investor’
“Kingdom realizes the importance of social networks like Twitter and their future growth prospects, and decided to benefit from this trend,” said Samer Darwiche, an analyst at Gulfmena Investments in Dubai.
The prince was ranked the richest Arab businessman this year by Arabian Business magazine with assets valued at $21.3 billion. Kingdom Holding, 95 percent owned by the prince, is building the tallest tower in the world in Jeddah at a cost of 4.6 billion riyals ($1.23 billion).
Alwaleed “is a savvy investor and the hot thing in the I.T. world is social networking,” said Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities in Abu Dhabi, United Arab Emirates.
(businessweek.com)
Alwaleed and his investment company agreed to buy a “strategic stake,” Kingdom Holding said today, without giving details. Alwaleed is the largest individual investor in Citigroup Inc. and his other investments include holdings in Apple Inc. and General Motors Co. Riyadh-based Kingdom Holding jumped as much as 8.9 percent on the local exchange.
Twitter, which lets its users send 140-character messages, is revamping the site to make it faster and simpler to navigate. The San Francisco-based company may boost ad revenue by 86 percent next year as it attracts more international advertisers, according to EMarketer Inc. Alwaleed’s investment comes as Facebook Inc., the most-popular social networking site with more than 800 million users, is said to consider raising about $10 billion from an initial public offering.
“Twitter are looking to give themselves some more running space,” said Jeff Mann, an analyst at Gartner in Amsterdam. “Their strategy has always been first get big, they’re still holding reasonably close to that. Having a big audience is more important than a short-term revenue stream.”
‘Strategic Asset’
Twitter confirmed the investment in an e-mail, declining to give additional comments.
Demand for technology IPOs reignited in November after a summer lull, setting the stage for Groupon Inc., Zynga Inc., the largest maker of games for Facebook, and Angie’s List Inc. to go public. Facebook may file for an IPO before the end of the year, a person with knowledge of the matter said last month. The sale may value the company at more than $100 billion, twice as high as it was in January, when the company announced a $1.5 billion investment from Goldman Sachs Group Inc. and other backers.
Alwaleed’s investment may value Twitter at $10 billion, said Jack Neele, a fund manager at Robeco Groep NV, which had about $194 billion under management at the end of June. DST Global, the technology fund managed by Russian billionaire Yuri Milner and an investor in Facebook, led an $800 million financing round in Twitter in August. That investment valued the short-messaging service at $8 billion, people with knowledge of the plan said at the time.
“Twitter is seen as a strategic asset within the social media space, given its large user base,” Neele said. “But the business model in its current form isn’t ready for the public market.”
Co-Founders
Twitter is seeking to speed up its ad rollout program, its main source of revenue. The microblogging service’s revamp will feature tabs at the top of the screen that let users more easily access their home pages, connect with others and discover new content. EMarketer cut its estimate for 2011 ad revenue to $139.5 million from $150 million in September because Twitter has been slow to roll out some services.
Twitter is also facing the loss of its two of its co- founders. Both Evan Williams and Biz Stone have lessened their involvement under Chief Executive Officer Dick Costolo, who took the reins in October 2010. Mike Abbott, a vice president in charge of engineering, also has stepped down.
The agreement followed “several months of negotiations,” Kingdom Holding said its statement. The company, controlled by Alwaleed, a nephew of Saudi Arabia’s King Abdullah, added 5.1 percent to 8.25 riyals at 3:39 p.m. in Riyadh. Before today, the stock had lost 4.3 percent this year.
‘Savvy Investor’
“Kingdom realizes the importance of social networks like Twitter and their future growth prospects, and decided to benefit from this trend,” said Samer Darwiche, an analyst at Gulfmena Investments in Dubai.
The prince was ranked the richest Arab businessman this year by Arabian Business magazine with assets valued at $21.3 billion. Kingdom Holding, 95 percent owned by the prince, is building the tallest tower in the world in Jeddah at a cost of 4.6 billion riyals ($1.23 billion).
Alwaleed “is a savvy investor and the hot thing in the I.T. world is social networking,” said Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities in Abu Dhabi, United Arab Emirates.
(businessweek.com)
Automaker Saab files for bankruptcy in Sweden
STOCKHOLM – Saab Automobile filed for bankruptcy on Monday, giving up a desperate struggle to stay in business after previous owner General Motors (GM) blocked takeover attempts by Chinese investors.
Saab CEO Victor Muller personally handed in the bankruptcy application to a court in southwestern Sweden, ending his two-year effort to revive the carmaker that over more than six decades has become known for its rounded sedans and quirky design features.
The Vanersborg District Court was expected to approve the application later Monday.
"This is the most unwelcome Christmas gift I could have imagined," said Fredrik Almqvist, 36, who has worked at Saab's assembly line for nearly 17 years.
While experts say the company is likely to be chopped up and sold in parts, local officials in the town of Trollhattan, where Saab employs more than 3,000 people, were holding out hope that a new buyer would emerge to salvage the brand.
"Our absolute hope is that the bankruptcy administrator will aim for a solution where the company is sold in its entirety," Trollhattan Mayor Paul Akerlund said in a statement.
Muller, a Dutchman, used his luxury sports car maker Spyker Cars to buy Saab from GM in 2010, promising to restore its Swedish identity, but the company ran out of money just a year later.
Even as production stopped and salary payments were delayed, Muller fended off bankruptcy by selling the company's real estate and lining up financing deals with investors in Russia and China. He bought time by placing the company in a reorganization process under bankruptcy protection.
But the deals fell through, blocked by regulators or by GM, which still owns some technology licenses for Saab. The U.S. automaker was concerned that its technology would end up in the hands of Chinese competitors.
The final Chinese suitor, Zhejiang Youngman Lotus Automobile Co., said it pulled out after the last proposal for a solution was rejected by GM over the weekend.
"We were supporting them to the last moment, even up to 1 a.m. this morning we were discussing possible solutions by telephone, but due to GM's position, in the end Sweden's Saab filed for bankruptcy this morning," said Rachel Pang, an executive director of a subsidiary company of Youngman and daughter of Youngman's founder, Pang Qingnian.
Swedish lawyer and reconstruction expert Peter Smedman said the prospects of selling Saab during bankruptcy proceedings would depend on GM.
"The licenses that GM has are crucial for the value of the company," Smedman said. "If GM doesn't want to let anyone in because they are scared of competition in China, then there is probably not much (value) left."
Originally an aircraft maker, Saab entered into the auto market after World War II with the first production of the two-stroke-engine Saab 92. It soon became a household name in Sweden and in the 1970's it released its first turbocharged model — the landmark Saab 99.
To auto enthusiasts, Saab was known for its quirks, such as placing the ignition lock between the front seats and becoming the first car to have heated seating in 1971.
GM bought a 50% stake and management control of Saab in 1989, and gained full ownership in 2000. The aircraft and defense company with the same name remained an independent entity, building fighter jets and weapons systems.
Saab Automobile's sales peaked at 133,000 cars in 2006. After that, sales dwindled to 93,000 cars in 2008 and just 27,000 in 2009, as GM — itself in bankruptcy protection following the financial crisis — prepared to wind down the Swedish brand.
Muller stepped in after a takeover attempt by a consortium led by Swedish sports car maker Koenigsegg failed. Analysts expressed doubt over Saab's chances of survival under Spyker, which later changed its name to Swedish Automobile.
Spyker manufactured only a few dozen high-priced cars a year. Without support from other investors, Muller's plans didn't seem credible, critics said.
Concerns mounted as Saab failed to pay suppliers early this year. Production was stopped in March, restarted, then halted again as the liquidity crisis deepened.
(usatoday.com)
Saab CEO Victor Muller personally handed in the bankruptcy application to a court in southwestern Sweden, ending his two-year effort to revive the carmaker that over more than six decades has become known for its rounded sedans and quirky design features.
The Vanersborg District Court was expected to approve the application later Monday.
"This is the most unwelcome Christmas gift I could have imagined," said Fredrik Almqvist, 36, who has worked at Saab's assembly line for nearly 17 years.
While experts say the company is likely to be chopped up and sold in parts, local officials in the town of Trollhattan, where Saab employs more than 3,000 people, were holding out hope that a new buyer would emerge to salvage the brand.
"Our absolute hope is that the bankruptcy administrator will aim for a solution where the company is sold in its entirety," Trollhattan Mayor Paul Akerlund said in a statement.
Muller, a Dutchman, used his luxury sports car maker Spyker Cars to buy Saab from GM in 2010, promising to restore its Swedish identity, but the company ran out of money just a year later.
Even as production stopped and salary payments were delayed, Muller fended off bankruptcy by selling the company's real estate and lining up financing deals with investors in Russia and China. He bought time by placing the company in a reorganization process under bankruptcy protection.
But the deals fell through, blocked by regulators or by GM, which still owns some technology licenses for Saab. The U.S. automaker was concerned that its technology would end up in the hands of Chinese competitors.
The final Chinese suitor, Zhejiang Youngman Lotus Automobile Co., said it pulled out after the last proposal for a solution was rejected by GM over the weekend.
"We were supporting them to the last moment, even up to 1 a.m. this morning we were discussing possible solutions by telephone, but due to GM's position, in the end Sweden's Saab filed for bankruptcy this morning," said Rachel Pang, an executive director of a subsidiary company of Youngman and daughter of Youngman's founder, Pang Qingnian.
Swedish lawyer and reconstruction expert Peter Smedman said the prospects of selling Saab during bankruptcy proceedings would depend on GM.
"The licenses that GM has are crucial for the value of the company," Smedman said. "If GM doesn't want to let anyone in because they are scared of competition in China, then there is probably not much (value) left."
Originally an aircraft maker, Saab entered into the auto market after World War II with the first production of the two-stroke-engine Saab 92. It soon became a household name in Sweden and in the 1970's it released its first turbocharged model — the landmark Saab 99.
To auto enthusiasts, Saab was known for its quirks, such as placing the ignition lock between the front seats and becoming the first car to have heated seating in 1971.
GM bought a 50% stake and management control of Saab in 1989, and gained full ownership in 2000. The aircraft and defense company with the same name remained an independent entity, building fighter jets and weapons systems.
Saab Automobile's sales peaked at 133,000 cars in 2006. After that, sales dwindled to 93,000 cars in 2008 and just 27,000 in 2009, as GM — itself in bankruptcy protection following the financial crisis — prepared to wind down the Swedish brand.
Muller stepped in after a takeover attempt by a consortium led by Swedish sports car maker Koenigsegg failed. Analysts expressed doubt over Saab's chances of survival under Spyker, which later changed its name to Swedish Automobile.
Spyker manufactured only a few dozen high-priced cars a year. Without support from other investors, Muller's plans didn't seem credible, critics said.
Concerns mounted as Saab failed to pay suppliers early this year. Production was stopped in March, restarted, then halted again as the liquidity crisis deepened.
(usatoday.com)
Minggu, 18 Desember 2011
ECB's Draghi puts hopes on EFSF bailout fund, rules
FRANKFURT - Politicians have to move fast to make the European bailout fund operational, as any delay ends up jacking up the cost, European Central Bank President Mario Draghi was quoted as saying Sunday.
Draghi also told The Financial Times in an interview that the ECB could not start printing money, adding that any country leaving the euro would be worse off and would still have to go through the same reforms.
He said there was no long-term trade-off between growth and austerity.
To have a return of confidence in the euro zone, suffering from a sovereign debt crisis which has engulfed several countries, there is a need "to have a firewall in place which is fully equipped and operational. And that was meant to be provided by the EFSF," Draghi said.
"If one can show its usefulness in its present size, the argument for its enlargement would be much stronger," he said.
Draghi, who in November became the third ECB president in its 12-year history, said the longer it took to put together a firewall to stop market contagion, the more expensive it got.
"The delay in making the EFSF operational has increased the resources necessary to stabilizing markets," he said.
"A process that is fast, credible and robust needs less resources," Draghi said, adding that the ECB aims to provide the EFSF assistance from January.
The ECB has been tasked with aiding the EFSF in its market interventions once it is ready to start spending its funds.
Draghi declined to give a clear answer when asked whether the ECB would keep buying government bonds through its SMP bond-buying program once the EFSF entered the picture.
"We have not discussed a precise scenario for the SMP. As I often said, the SMP is neither eternal nor infinite," he said. So far, the ECB has spent more than 200 billion euros to buy sovereign bonds of countries mired in the debt crisis.
Draghi also said it was not the role of the ECB to install targets for government bond spreads, adding that those depended on rules governments put in place.
"Sovereign spreads have mostly to do with the sovereigns and with the nature of the compact between them. It is in this area that progress is ongoing. Monetary policy cannot do everything."
NO MONEY PRINTING PRESSES
Draghi warned against putting expectations for the ECB to solve the debt crisis by becoming a lender of last resort to governments.
Asked if the ECB could engage in full-blown quantitative easing -- printing money -- to buy government bonds and ease their funding strains, he said that would be counterproductive.
"The important thing is to restore the trust of the people - citizens as well as investors - in our continent. We won't achieve that by destroying the credibility of the ECB."
Draghi tried to offer solace to indebted countries by saying that consolidation would not hurt growth in the long run. He said countries can reduce the short-term impact by reforming their economies, adding that consolidation can make funding cheaper as markets grow more confident.
But he said an effort must be made across the board and that improving governance in the common currency area is an important part of that package.
"Austerity by one single country and nothing else is not enough to regain confidence of the markets."
Neither was leaving the euro zone an answer to the problems, Draghi said, dismissing talk of Greece being better off were it to leave the euro.
"This wouldn't help. Leaving the euro area, devaluing your currency, you create a big inflation, and at the end of that road, the country would have to undertake the same reforms that were due to begin with, but in a much weaker position."
Draghi also told the newspaper that tight funding conditions in the interbank market were becoming a growth risk.
"These challenging funding conditions are now producing a credit tightening and have certainly increased the downside risks for the euro area economy," he said.
He pinned hopes on the ECB's recently announced 3-year liquidity operation to help improve banks' situation, and added it was up to the banks how they would spend the funds they are going to bid for -- with buying government bonds one option.
"Coming back to what banks are going to do with this money: we don't know exactly. The important thing was to relax the funding pressures. Banks will decide in total independence what they want to do," the ECB head told the newspaper.
"One of the things that they may do is to buy sovereign bonds. But it is just one."
(Reuters.com)
Draghi also told The Financial Times in an interview that the ECB could not start printing money, adding that any country leaving the euro would be worse off and would still have to go through the same reforms.
He said there was no long-term trade-off between growth and austerity.
To have a return of confidence in the euro zone, suffering from a sovereign debt crisis which has engulfed several countries, there is a need "to have a firewall in place which is fully equipped and operational. And that was meant to be provided by the EFSF," Draghi said.
"If one can show its usefulness in its present size, the argument for its enlargement would be much stronger," he said.
Draghi, who in November became the third ECB president in its 12-year history, said the longer it took to put together a firewall to stop market contagion, the more expensive it got.
"The delay in making the EFSF operational has increased the resources necessary to stabilizing markets," he said.
"A process that is fast, credible and robust needs less resources," Draghi said, adding that the ECB aims to provide the EFSF assistance from January.
The ECB has been tasked with aiding the EFSF in its market interventions once it is ready to start spending its funds.
Draghi declined to give a clear answer when asked whether the ECB would keep buying government bonds through its SMP bond-buying program once the EFSF entered the picture.
"We have not discussed a precise scenario for the SMP. As I often said, the SMP is neither eternal nor infinite," he said. So far, the ECB has spent more than 200 billion euros to buy sovereign bonds of countries mired in the debt crisis.
Draghi also said it was not the role of the ECB to install targets for government bond spreads, adding that those depended on rules governments put in place.
"Sovereign spreads have mostly to do with the sovereigns and with the nature of the compact between them. It is in this area that progress is ongoing. Monetary policy cannot do everything."
NO MONEY PRINTING PRESSES
Draghi warned against putting expectations for the ECB to solve the debt crisis by becoming a lender of last resort to governments.
Asked if the ECB could engage in full-blown quantitative easing -- printing money -- to buy government bonds and ease their funding strains, he said that would be counterproductive.
"The important thing is to restore the trust of the people - citizens as well as investors - in our continent. We won't achieve that by destroying the credibility of the ECB."
Draghi tried to offer solace to indebted countries by saying that consolidation would not hurt growth in the long run. He said countries can reduce the short-term impact by reforming their economies, adding that consolidation can make funding cheaper as markets grow more confident.
But he said an effort must be made across the board and that improving governance in the common currency area is an important part of that package.
"Austerity by one single country and nothing else is not enough to regain confidence of the markets."
Neither was leaving the euro zone an answer to the problems, Draghi said, dismissing talk of Greece being better off were it to leave the euro.
"This wouldn't help. Leaving the euro area, devaluing your currency, you create a big inflation, and at the end of that road, the country would have to undertake the same reforms that were due to begin with, but in a much weaker position."
Draghi also told the newspaper that tight funding conditions in the interbank market were becoming a growth risk.
"These challenging funding conditions are now producing a credit tightening and have certainly increased the downside risks for the euro area economy," he said.
He pinned hopes on the ECB's recently announced 3-year liquidity operation to help improve banks' situation, and added it was up to the banks how they would spend the funds they are going to bid for -- with buying government bonds one option.
"Coming back to what banks are going to do with this money: we don't know exactly. The important thing was to relax the funding pressures. Banks will decide in total independence what they want to do," the ECB head told the newspaper.
"One of the things that they may do is to buy sovereign bonds. But it is just one."
(Reuters.com)
Private Investment Rounds Weaken I.P.O.’s
Facebook’s initial public offering will grab plenty of headlines in 2012. But as Zynga’s tepid debut last week shows, multiple private investment rounds and the ability to trade shares before going public mean slim pickings when public market investors finally get their chance to own Silicon Valley’s emerging heavyweights. That is one reason the average I.P.O. this year has wound up trading about 10 percent below its offer price.
Companies like Zynga and Facebook are increasingly availing themselves of so-called D round deals. These are very late-stage investments where companies, in addition to possibly selling some new stock to finance growth, allow existing shareholders to cash out. At the same time, emerging private exchanges like SecondMarket allow qualified investors to buy stock from insiders in private firms without conducting an I.P.O.
Consider Zynga. The online game company raised money in multiple rounds at rising valuations, allowing insiders, including its chief executive, Mark Pincus, to sell along the way. While it was valued about $4 billion in early 2010, its worth on gray markets had more than tripled by early 2011. More recent signs of slowing growth meant the company fetched just a $9 billion market value when it finally went public. And when Zynga shares made their debut on Friday, they closed below their offering price.
What is odd is that private market values have historically come at discounts to public prices, generally a reflection of less liquidity and disclosure. Yet for select companies, like Facebook or Zynga, this no longer seems to apply. Investors clamor for a few hot companies — about 80 percent of trading on gray markets is concentrated among five companies — and are willing to pay up, even with little financial information available.
For the companies and entrepreneurs involved, a private market in which they fetch robust prices for their stock may be great. But it is not clear how this trend benefits capital markets more broadly, particularly if it means that by the time companies go public their most rapid growth is behind them and their valuations are already full.
Doubts on Utility Deal
Imagine if Wal-Mart wanted to buy Target and PepsiCo tried to block the deal. That is sort of what is happening, albeit on a far smaller scale, in a corner of the American electricity market. NRG Energy, one of the largest independent power producers, has filed a petition with regulators that could derail plans by $6.1 billion Northeast Utilities to buy $4.7 billion Nstar and create the dominant utility in New England.
NRG last week requested that Connecticut’s Public Utilities Regulatory Authority re-examine its right to intervene in the merger process. Earlier in the year, the state’s regulators decided it did not have jurisdiction to do so, leaving final approval to Massachusetts regulators.
That was before Hurricane Irene in August and a snowstorm before Halloween left millions of Connecticut residents, who pay the highest electricity rates in the continental United States, without power for weeks. Subsequent independent investigations revealed multiple failures on the part of Northeast Utilities’ Connecticut Light & Power unit. NRG’s filing liberally cites these findings in urging Connecticut regulators to act.
NRG’s arguments are politically savvy, in that many state legislators from each party are united in their displeasure with Northeast Utilities. The power group’s petition appears to give Gov. Dannel Malloy an opportunity belatedly to reassert his administration’s role in ensuring the interests of Connecticut residents are safeguarded as part of any merger.
Now, NRG’s interests are not necessarily aligned with those of electricity users. Going back to the Wal-Mart-buys-Target analogy, NRG appears worried — as Pepsi or other suppliers would be in that example — that an even larger customer’s market dominance would give it huge purchasing power. In Northeast Utilities-Nstar’s case, the combined company’s new heft could also enable it to generate more of its own power to compete with NRG’s facilities in New England.
If the state does decide it made a mistake in waiving its rights to intervene, there is a higher likelihood the merger will be derailed. Given the experience of Northeast Utilities’ captive customers this year, they might prefer that the company does not get even bigger, even if NRG’s motives for blocking the deal are entirely different from theirs.
(nytimes.com)
Companies like Zynga and Facebook are increasingly availing themselves of so-called D round deals. These are very late-stage investments where companies, in addition to possibly selling some new stock to finance growth, allow existing shareholders to cash out. At the same time, emerging private exchanges like SecondMarket allow qualified investors to buy stock from insiders in private firms without conducting an I.P.O.
Consider Zynga. The online game company raised money in multiple rounds at rising valuations, allowing insiders, including its chief executive, Mark Pincus, to sell along the way. While it was valued about $4 billion in early 2010, its worth on gray markets had more than tripled by early 2011. More recent signs of slowing growth meant the company fetched just a $9 billion market value when it finally went public. And when Zynga shares made their debut on Friday, they closed below their offering price.
What is odd is that private market values have historically come at discounts to public prices, generally a reflection of less liquidity and disclosure. Yet for select companies, like Facebook or Zynga, this no longer seems to apply. Investors clamor for a few hot companies — about 80 percent of trading on gray markets is concentrated among five companies — and are willing to pay up, even with little financial information available.
For the companies and entrepreneurs involved, a private market in which they fetch robust prices for their stock may be great. But it is not clear how this trend benefits capital markets more broadly, particularly if it means that by the time companies go public their most rapid growth is behind them and their valuations are already full.
Doubts on Utility Deal
Imagine if Wal-Mart wanted to buy Target and PepsiCo tried to block the deal. That is sort of what is happening, albeit on a far smaller scale, in a corner of the American electricity market. NRG Energy, one of the largest independent power producers, has filed a petition with regulators that could derail plans by $6.1 billion Northeast Utilities to buy $4.7 billion Nstar and create the dominant utility in New England.
NRG last week requested that Connecticut’s Public Utilities Regulatory Authority re-examine its right to intervene in the merger process. Earlier in the year, the state’s regulators decided it did not have jurisdiction to do so, leaving final approval to Massachusetts regulators.
That was before Hurricane Irene in August and a snowstorm before Halloween left millions of Connecticut residents, who pay the highest electricity rates in the continental United States, without power for weeks. Subsequent independent investigations revealed multiple failures on the part of Northeast Utilities’ Connecticut Light & Power unit. NRG’s filing liberally cites these findings in urging Connecticut regulators to act.
NRG’s arguments are politically savvy, in that many state legislators from each party are united in their displeasure with Northeast Utilities. The power group’s petition appears to give Gov. Dannel Malloy an opportunity belatedly to reassert his administration’s role in ensuring the interests of Connecticut residents are safeguarded as part of any merger.
Now, NRG’s interests are not necessarily aligned with those of electricity users. Going back to the Wal-Mart-buys-Target analogy, NRG appears worried — as Pepsi or other suppliers would be in that example — that an even larger customer’s market dominance would give it huge purchasing power. In Northeast Utilities-Nstar’s case, the combined company’s new heft could also enable it to generate more of its own power to compete with NRG’s facilities in New England.
If the state does decide it made a mistake in waiving its rights to intervene, there is a higher likelihood the merger will be derailed. Given the experience of Northeast Utilities’ captive customers this year, they might prefer that the company does not get even bigger, even if NRG’s motives for blocking the deal are entirely different from theirs.
(nytimes.com)
Asian Stocks Fall as Euro Drops on Europe
Asian stocks (MXAP) fell, the dollar rose and the won headed for the biggest drop in two months after North Korean leader Kim Jong Il died and as European finance ministers prepare to discuss the region’s debt crisis.
The MSCI Asia Pacific Index slid 2 percent at 1:29 p.m. in Tokyo, South Korea’s Kospi index slumped 3 percent, and the Shanghai Composite Index dropped 2.6 percent after data showed Chinese home prices declined last month. Standard & Poor’s 500 Index futures lost 0.5 percent. The dollar climbed 0.4 percent to $1.2993 against the 17-nation euro and rallied 1.6 percent against the South Korean won. Oil declined for a fourth day in New York and copper snapped a two-day gain.
Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness, the official Korean Central News Agency said. Euro-area finance ministers are seeking to meet a self-imposed deadline for drawing additional aid to the debt crisis through the International Monetary Fund and put together new budget rules. France is set to sell as much as 7 billion euros ($9.1 billion) of bills after Fitch Ratings last week reduced its outlook for the nation’s credit grade to negative from stable.
“What investors don’t like most is uncertainty,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion. “Amid very limited information over his death, it’s very tricky to guess what will happen in the communist nation as well as the impact on regional security.”
Billabong, Developers
About eight shares declined for every one that gained on MSCI’s Asia Pacific Index, which dropped 4.4 percent in the past two weeks. Australia’s S&P/ASX 200 Index sank 2.3 percent, Japan’s Nikkei 225 Stock Average retreated 1.1 percent and Hong Kong’s Hang Seng Index slipped 2.5 percent.
Billabong International Ltd. (BBG) tumbled 44 percent after the Australian surfwear maker said first-half profit may fall as much as 26 percent. Agile Property Holdings Ltd. (3383) dropped 4.9 percent in Hong Kong, pacing losses among developers after China’s new home prices dropped in November from the previous month in 49 of 70 cities.
Speco Co. (013810), a South Korean defense equipment maker, rallied 15 percent in Seoul. The won weakened to 1,176.88 per dollar, set for its largest daily decline since Oct. 3. A government statement called on North Koreans to “loyally follow” his son, Kim Jong Un.
France, Spain
The euro weakened before regional finance ministers hold a conference call at 3:30 p.m. Brussels time to discuss 200 billion euros of additional funding through the IMF. France is selling bills today after Fitch said on Dec. 16 that the country is more exposed to the region’s debt crisis than other top-rated euro-zone countries because of its budget deficit and government debt burden. Spain will auction government securities tomorrow maturing in three and six months.
“There’s not going to be any upside until this situation is fixed,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Given that France might get downgraded, or we could see further sovereign defaults in the coming months, ultimately it’s going to put more pressure on the banks in the European region and also more pressure on the global environment.”
The Australian dollar dropped 0.8 percent to 99.08 U.S. cents. The Reserve Bank of Australia releases minutes tomorrow of its Dec. 6 meeting when it cut interest rates for a second- straight month.
Oil, Copper
Crude for January delivery lost 0.8 percent to $92.77 a barrel on the New York Mercantile Exchange, extending a three- day, 6.6 percent decline. Three-month copper dropped 1.9 percent to $7,208.50 a metric ton in London and nickel slipped 2.3 percent to $18,130 a ton. Gold slid 0.7 percent to $1,587 an ounce, extending last week’s 6.6 percent slump.
The cost of insuring corporate bonds in Australia and Japan against non-payment increased, according to credit-default swap traders. The Markit iTraxx Australia index rose two basis points to 195 basis points, according to Westpac Banking Corp, while the Markit iTraxx Japan index climbed 2.5 basis points to 192, Deutsche Bank AG prices show.
S&P 500 futures expiring in March signal the U.S. stocks gauge may snap gains from Dec. 16, when it advanced 0.3 percent. Treasury 10-year yields slid one basis point to 1.84 percent.
U.S. online spending for the holiday season has jumped 15 percent to $30.9 billion from the year-earlier period, ComScore Inc. said. Consumer purchases probably rose 0.3 percent in November after increasing 0.1 percent in October, according to the median forecast of 62 economists surveyed by Bloomberg before Commerce Department figures Dec. 23.
(bloomberg.com)
The MSCI Asia Pacific Index slid 2 percent at 1:29 p.m. in Tokyo, South Korea’s Kospi index slumped 3 percent, and the Shanghai Composite Index dropped 2.6 percent after data showed Chinese home prices declined last month. Standard & Poor’s 500 Index futures lost 0.5 percent. The dollar climbed 0.4 percent to $1.2993 against the 17-nation euro and rallied 1.6 percent against the South Korean won. Oil declined for a fourth day in New York and copper snapped a two-day gain.
Kim, 70, died on Dec. 17 of exhaustion brought on by a sudden illness, the official Korean Central News Agency said. Euro-area finance ministers are seeking to meet a self-imposed deadline for drawing additional aid to the debt crisis through the International Monetary Fund and put together new budget rules. France is set to sell as much as 7 billion euros ($9.1 billion) of bills after Fitch Ratings last week reduced its outlook for the nation’s credit grade to negative from stable.
“What investors don’t like most is uncertainty,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion. “Amid very limited information over his death, it’s very tricky to guess what will happen in the communist nation as well as the impact on regional security.”
Billabong, Developers
About eight shares declined for every one that gained on MSCI’s Asia Pacific Index, which dropped 4.4 percent in the past two weeks. Australia’s S&P/ASX 200 Index sank 2.3 percent, Japan’s Nikkei 225 Stock Average retreated 1.1 percent and Hong Kong’s Hang Seng Index slipped 2.5 percent.
Billabong International Ltd. (BBG) tumbled 44 percent after the Australian surfwear maker said first-half profit may fall as much as 26 percent. Agile Property Holdings Ltd. (3383) dropped 4.9 percent in Hong Kong, pacing losses among developers after China’s new home prices dropped in November from the previous month in 49 of 70 cities.
Speco Co. (013810), a South Korean defense equipment maker, rallied 15 percent in Seoul. The won weakened to 1,176.88 per dollar, set for its largest daily decline since Oct. 3. A government statement called on North Koreans to “loyally follow” his son, Kim Jong Un.
France, Spain
The euro weakened before regional finance ministers hold a conference call at 3:30 p.m. Brussels time to discuss 200 billion euros of additional funding through the IMF. France is selling bills today after Fitch said on Dec. 16 that the country is more exposed to the region’s debt crisis than other top-rated euro-zone countries because of its budget deficit and government debt burden. Spain will auction government securities tomorrow maturing in three and six months.
“There’s not going to be any upside until this situation is fixed,” Nick Maroutsos, who oversees the equivalent of about $3 billion as co-founder of Sydney-based Kapstream Capital, said in a Bloomberg Television interview. “Given that France might get downgraded, or we could see further sovereign defaults in the coming months, ultimately it’s going to put more pressure on the banks in the European region and also more pressure on the global environment.”
The Australian dollar dropped 0.8 percent to 99.08 U.S. cents. The Reserve Bank of Australia releases minutes tomorrow of its Dec. 6 meeting when it cut interest rates for a second- straight month.
Oil, Copper
Crude for January delivery lost 0.8 percent to $92.77 a barrel on the New York Mercantile Exchange, extending a three- day, 6.6 percent decline. Three-month copper dropped 1.9 percent to $7,208.50 a metric ton in London and nickel slipped 2.3 percent to $18,130 a ton. Gold slid 0.7 percent to $1,587 an ounce, extending last week’s 6.6 percent slump.
The cost of insuring corporate bonds in Australia and Japan against non-payment increased, according to credit-default swap traders. The Markit iTraxx Australia index rose two basis points to 195 basis points, according to Westpac Banking Corp, while the Markit iTraxx Japan index climbed 2.5 basis points to 192, Deutsche Bank AG prices show.
S&P 500 futures expiring in March signal the U.S. stocks gauge may snap gains from Dec. 16, when it advanced 0.3 percent. Treasury 10-year yields slid one basis point to 1.84 percent.
U.S. online spending for the holiday season has jumped 15 percent to $30.9 billion from the year-earlier period, ComScore Inc. said. Consumer purchases probably rose 0.3 percent in November after increasing 0.1 percent in October, according to the median forecast of 62 economists surveyed by Bloomberg before Commerce Department figures Dec. 23.
(bloomberg.com)
Payroll tax-cut extension adds $17 a month to typical mortgage
WASHINGTON — Who is paying for the two-month extension of the payroll tax cut working its way through Congress? The cost is being dropped in the laps of most people who buy homes or refinance beginning next year.
The typical person who buys a $200,000 home or refinances that amount starting on Jan. 1 would have to pay roughly $17 more a month for their mortgage, thanks to a fee increase included in the payroll tax cut bill that the Senate passed Saturday. The White House said the fee increases would be phased in gradually.
The legislation provides a two-month extension of a payroll tax cut and long-term unemployment benefits that would otherwise expire on Jan. 1. It would also delay for two months a cut in Medicare reimbursements for doctors that is scheduled to take effect on New Year’s Day. The House is expected to act on the bill early next week. Two more months of the Social Security tax cut amounts to a savings of about $165 for a worker making $50,000 a year.
To cover its $33 billion price tag, the measure increases the fee that the government-backed mortgage giants, Fannie Mae and Freddie Mac, charge to insure home mortgages. That fee, which Senate aides said currently averages around 0.3 percentage point, would rise by 0.1 percentage point under the bill. The increase will also apply to people whose mortgages are backed by the Federal Housing Administration, which typically serves lower-income and first-time buyers.
The higher fee would not apply to people who currently have mortgages unless they refinance beginning next year.
Because of the weak housing market and the huge numbers of foreclosures in the last few years, private insurers have not competed strongly for business with Fannie Mae and Freddie Mac, which have the backing of the federal government. As a result, about 9 in 10 new home mortgages are backed by Fannie Mae, Freddie Mac and the FHA.
President Barack Obama and many congressional Democrats and Republicans want to curb Fannie Mae’s and Freddie Mac’s dominance in the mortgage market. Obama earlier this year proposed raising the mortgage guarantee fees they charge as one way to do that.
(suntimes.com)
The typical person who buys a $200,000 home or refinances that amount starting on Jan. 1 would have to pay roughly $17 more a month for their mortgage, thanks to a fee increase included in the payroll tax cut bill that the Senate passed Saturday. The White House said the fee increases would be phased in gradually.
The legislation provides a two-month extension of a payroll tax cut and long-term unemployment benefits that would otherwise expire on Jan. 1. It would also delay for two months a cut in Medicare reimbursements for doctors that is scheduled to take effect on New Year’s Day. The House is expected to act on the bill early next week. Two more months of the Social Security tax cut amounts to a savings of about $165 for a worker making $50,000 a year.
To cover its $33 billion price tag, the measure increases the fee that the government-backed mortgage giants, Fannie Mae and Freddie Mac, charge to insure home mortgages. That fee, which Senate aides said currently averages around 0.3 percentage point, would rise by 0.1 percentage point under the bill. The increase will also apply to people whose mortgages are backed by the Federal Housing Administration, which typically serves lower-income and first-time buyers.
The higher fee would not apply to people who currently have mortgages unless they refinance beginning next year.
Because of the weak housing market and the huge numbers of foreclosures in the last few years, private insurers have not competed strongly for business with Fannie Mae and Freddie Mac, which have the backing of the federal government. As a result, about 9 in 10 new home mortgages are backed by Fannie Mae, Freddie Mac and the FHA.
President Barack Obama and many congressional Democrats and Republicans want to curb Fannie Mae’s and Freddie Mac’s dominance in the mortgage market. Obama earlier this year proposed raising the mortgage guarantee fees they charge as one way to do that.
(suntimes.com)
Sabtu, 17 Desember 2011
US charges ex-Fannie, Freddie CEOs with fraud
WASHINGTON (AP) - Two former CEOs at mortgage giants Fannie Mae and Freddie Mac on Friday became the highest-profile individuals to be charged in connection with the 2008 financial crisis.
In a lawsuit filed in New York, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron.
The executives were accused of understating the level of high-risk subprime mortgages that Fannie and Freddie held just before the housing bubble burst.
"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, SEC's enforcement director.
Khuzami noted that huge losses on their subprime loans eventually pushed the two companies to the brink of failure and forced the government to take them over.
The charges brought Friday follow widespread criticism of federal authorities for not holding top executives accountable for the recklessness that triggered the 2008 crisis.
Before the SEC announced the charges, it reached an agreement not to charge Fannie and Freddie. The companies, which the government took over in 2008, also agreed to cooperate with the SEC in the cases against the former executives.
The Justice Department began investigating the two firms three years ago. In August, Freddie said Justice informed the company that its probe had ended.
Many legal experts say they don't expect the six executives to face criminal charges.
"If the U.S. attorney's office was going to be bringing charges, they would have brought it simultaneously with the civil case," said Christopher Morvillo, a former federal prosecutor now in private practice in Manhattan.
Robert Mintz, a white-collar defense lawyer, says he doubts any top Wall Street executives will face criminal charges for actions that hastened the financial crisis, given how much time has passed.
Mudd, 53, and Syron, 68, led the mortgage giants in 2007, when home prices began to collapse. The four other top executives also worked for the companies during that time.
In a statement from his attorney, Mudd said the government reviewed and approved all the company's financial disclosures.
"Every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public," Mudd said. "The SEC is wrong, and I look forward to a court where fairness and reason - not politics - is the standard for justice."
Syron's lawyers said the term "subprime had no uniform definition in the market" at that time.
"There was no shortage of meaningful disclosures, all of which permitted the reader to assess the degree of risk in Freddie Mac's" portfolio, the lawyers said in a statement. "The SEC's theory and approach are fatally flawed."
According to the lawsuit, Fannie and Freddie misrepresented their exposure to subprime loans in reports, speeches and congressional testimony.
Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio. That same year, Mudd told two congressional panels that Fannie's subprime loans represented didn't exceed 2.5 percent of its business.
The SEC says Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit, or 11 percent of its holdings.
Freddie told investors in late 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books. And Syron, in a 2007 speech, said Freddie had "basically no subprime exposure," according to the suit.
The SEC says its holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.
Syron also authorized especially risky mortgages for borrowers without proof of income or assets as early as 2004, the suit alleges, "despite contrary advice" from Freddie's credit-risk experts. He rejected their advice, "in part due to his desire to improve Freddie Mac's market share."
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world. The two own or guarantee about half of U.S. mortgages, or nearly 31 million loans.
During the financial crisis, the two firms verged on collapse. The Bush administration seized control of them in September 2008.
So far, the companies have cost taxpayers more than $150 billion - the largest bailout of the financial crisis. They could cost up to $259 billion, according to their government regulator, the Federal Housing Finance Administration.
Mudd was paid more than $10 million in salary and bonuses in 2007, according to company statements. He was fired from Fannie after the government took over. He's now the chief executive of the New York hedge fund Fortress Investment Group.
Syron made more than $18 million in 2007, according to company statements. His compensation increased $4 million from 2006 because of bonuses he received - part of them for encouraging risky subprime lending, according to company filings. It's not clear what portion of the bonuses was for his efforts to promote subprime lending.
Syron resigned from Freddie in 2008. He's now an adjunct professor and trustee at Boston College.
The other executives charged were Fannie's Enrico Dallavecchia, 50, a former chief risk officer, and Thomas Lund, 53, a former executive vice president; and Freddie's Patricia Cook, 58, a former executive vice president and chief business officer, and Donald Bisenius, 53, a former senior vice president.
Lund's lawyer, Michael Levy, said in a statement that Lund "did not mislead anyone." Lawyers for the other defendants declined to comment Friday.
Based on the outcomes of similar cases, the lawsuit might not yield much in penalties against the former executives.
In July, Citigroup paid just $75 million to settle similar civil charges with the SEC. Its chief financial officer and head of investor relations were accused of failing to disclose more than $50 billion worth of potential losses from subprime mortgages. The two executives charged paid $100,000 and $80,000 in civil penalties.
Fines against executives charged in SEC civil cases can reach up to $150,000 per violation. SEC Chairman Mary Schapiro has asked Congress to raise the limit to $1 million.
The SEC has brought other cases related to the financial crisis since it began a broad investigation into the actions of Wall Street banks and other financial firms about three years ago.
Goldman Sachs & Co., for example, agreed last year to pay $550 million to settle charges of misleading buyers of a complex mortgage investment. JPMorgan Chase & Co. resolved similar charges in June and paid $153.6 million.
Citigroup Inc. agreed to pay $285 million to settle similar charges, though that settlement was recently struck down by a federal judge in New York City.
Most cases, however, didn't involve charges against prominent top executives.
An exception was Angelo Mozilo, the co-founder and CEO of failed mortgage lender Countrywide Financial Corp. He agreed to a $67.5 million settlement with the SEC in October 2010 to avoid trial on civil fraud and insider trading charges that he profited from doling out risky mortgages while misleading investors about the risks.
Associated Press writers Marcy Gordon in Washington and Larry Neumeister in New York contributed to this report.
(wbay.com)
In a lawsuit filed in New York, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron.
The executives were accused of understating the level of high-risk subprime mortgages that Fannie and Freddie held just before the housing bubble burst.
"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, SEC's enforcement director.
Khuzami noted that huge losses on their subprime loans eventually pushed the two companies to the brink of failure and forced the government to take them over.
The charges brought Friday follow widespread criticism of federal authorities for not holding top executives accountable for the recklessness that triggered the 2008 crisis.
Before the SEC announced the charges, it reached an agreement not to charge Fannie and Freddie. The companies, which the government took over in 2008, also agreed to cooperate with the SEC in the cases against the former executives.
The Justice Department began investigating the two firms three years ago. In August, Freddie said Justice informed the company that its probe had ended.
Many legal experts say they don't expect the six executives to face criminal charges.
"If the U.S. attorney's office was going to be bringing charges, they would have brought it simultaneously with the civil case," said Christopher Morvillo, a former federal prosecutor now in private practice in Manhattan.
Robert Mintz, a white-collar defense lawyer, says he doubts any top Wall Street executives will face criminal charges for actions that hastened the financial crisis, given how much time has passed.
Mudd, 53, and Syron, 68, led the mortgage giants in 2007, when home prices began to collapse. The four other top executives also worked for the companies during that time.
In a statement from his attorney, Mudd said the government reviewed and approved all the company's financial disclosures.
"Every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public," Mudd said. "The SEC is wrong, and I look forward to a court where fairness and reason - not politics - is the standard for justice."
Syron's lawyers said the term "subprime had no uniform definition in the market" at that time.
"There was no shortage of meaningful disclosures, all of which permitted the reader to assess the degree of risk in Freddie Mac's" portfolio, the lawyers said in a statement. "The SEC's theory and approach are fatally flawed."
According to the lawsuit, Fannie and Freddie misrepresented their exposure to subprime loans in reports, speeches and congressional testimony.
Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio. That same year, Mudd told two congressional panels that Fannie's subprime loans represented didn't exceed 2.5 percent of its business.
The SEC says Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit, or 11 percent of its holdings.
Freddie told investors in late 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books. And Syron, in a 2007 speech, said Freddie had "basically no subprime exposure," according to the suit.
The SEC says its holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.
Syron also authorized especially risky mortgages for borrowers without proof of income or assets as early as 2004, the suit alleges, "despite contrary advice" from Freddie's credit-risk experts. He rejected their advice, "in part due to his desire to improve Freddie Mac's market share."
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world. The two own or guarantee about half of U.S. mortgages, or nearly 31 million loans.
During the financial crisis, the two firms verged on collapse. The Bush administration seized control of them in September 2008.
So far, the companies have cost taxpayers more than $150 billion - the largest bailout of the financial crisis. They could cost up to $259 billion, according to their government regulator, the Federal Housing Finance Administration.
Mudd was paid more than $10 million in salary and bonuses in 2007, according to company statements. He was fired from Fannie after the government took over. He's now the chief executive of the New York hedge fund Fortress Investment Group.
Syron made more than $18 million in 2007, according to company statements. His compensation increased $4 million from 2006 because of bonuses he received - part of them for encouraging risky subprime lending, according to company filings. It's not clear what portion of the bonuses was for his efforts to promote subprime lending.
Syron resigned from Freddie in 2008. He's now an adjunct professor and trustee at Boston College.
The other executives charged were Fannie's Enrico Dallavecchia, 50, a former chief risk officer, and Thomas Lund, 53, a former executive vice president; and Freddie's Patricia Cook, 58, a former executive vice president and chief business officer, and Donald Bisenius, 53, a former senior vice president.
Lund's lawyer, Michael Levy, said in a statement that Lund "did not mislead anyone." Lawyers for the other defendants declined to comment Friday.
Based on the outcomes of similar cases, the lawsuit might not yield much in penalties against the former executives.
In July, Citigroup paid just $75 million to settle similar civil charges with the SEC. Its chief financial officer and head of investor relations were accused of failing to disclose more than $50 billion worth of potential losses from subprime mortgages. The two executives charged paid $100,000 and $80,000 in civil penalties.
Fines against executives charged in SEC civil cases can reach up to $150,000 per violation. SEC Chairman Mary Schapiro has asked Congress to raise the limit to $1 million.
The SEC has brought other cases related to the financial crisis since it began a broad investigation into the actions of Wall Street banks and other financial firms about three years ago.
Goldman Sachs & Co., for example, agreed last year to pay $550 million to settle charges of misleading buyers of a complex mortgage investment. JPMorgan Chase & Co. resolved similar charges in June and paid $153.6 million.
Citigroup Inc. agreed to pay $285 million to settle similar charges, though that settlement was recently struck down by a federal judge in New York City.
Most cases, however, didn't involve charges against prominent top executives.
An exception was Angelo Mozilo, the co-founder and CEO of failed mortgage lender Countrywide Financial Corp. He agreed to a $67.5 million settlement with the SEC in October 2010 to avoid trial on civil fraud and insider trading charges that he profited from doling out risky mortgages while misleading investors about the risks.
Associated Press writers Marcy Gordon in Washington and Larry Neumeister in New York contributed to this report.
(wbay.com)
Arrests as Occupy Protest Turns to Church
From his spot at the center of Duarte Square in Lower Manhattan, Matt Sky watched on Saturday as hundreds of protesters streamed into the public areas of the triangle-shaped space at the center of an ideological tug of war between onetime allies turned adversaries: Occupy Wall Street and Trinity Church.
That began a long day of demonstrations and marches that extended to Midtown and resulted in at least 50 arrests.
By noon, protesters had streamed into the square from all directions under cold, cloudy skies to reinforce the vibrancy of a movement swept last month from another space, Zuccotti Park, and signal a resolve against ecclesiastical leaders resisting their wish to set up an encampment on property owned by the venerable Episcopal church.
“Everything about this movement is momentum,” said Mr. Sky, 27, an Internet consultant from the East Village. “We need to show people that we are still relevant.”
Since the earliest moments after they were displaced on Nov. 15, many protesters drifted north to the park at Canal Street and Avenue of the Americas. Trinity embraced them, giving them hot chocolate and blankets. But when the Occupy movement expressed an interest in setting up an organizing camp in Trinity’s private space, beside the public park, the church said no.
The Occupy Wall Street forces then aimed their skills on the church. In familiar fashion, police officers converged on the area, standing around the perimeter.
A flier distributed by protesters summed up their mood: “While the event may include a reoccupation, the event itself is a broader celebration and expansion of Occupy Wall Street,” it said. It also advised people to bring backpacks, warm clothes and sleeping bags.
About 3 p.m., several hundred people began to slowly march along the blocks around the park. They went about five blocks north, then circled back. They were carrying homemade wooden ladders, draped with yellow banners. At Grand Street, the protesters made a move: They threw a ladder fashioned into a portable staircase against a chain-link fence separating the sidewalk from the church’s property.
Many people went over the fence that way. Others lifted the fence from the bottom, allowing protesters to squeeze into the space. The protesters were joined by a few clerics, including one man dressed in a long, purple vestment.
Within minutes, police officers began taking people into custody. About 4:15 p.m., the man in the purple vestment was led into a police van. His identity, and possible role in the church, was not immediately clear.
On the sidewalk, other officers pushed into a line of protesters, ordering them to disperse.
But hundreds of demonstrators marched up Seventh Avenue on Saturday evening, in the street and on the sidewalk — and against traffic.
Police vehicles — cars, scooters, vans — followed, and there were more arrests.
“Is there a problem?” said one protester, who was on a bicycle, as a police officer grabbed him on West 29th Street, near Seventh Avenue.
“The problem is you’re under arrest,” an officer replied.
Earlier in the day, the Rev. Stephen Chinlund, 77, an Episcopal priest who retired seven years ago, held a placard reading: “Trinity Hero of 9/11. Be a Hero Again.”
The mission of the church was to help those in need, he said.
The church’s rector, the Rev. Dr. James H. Cooper, expressed sadness over the protesters’ actions on Saturday.
“O.W.S. protestors call out for social and economic justice; Trinity has been supporting these goals for more than 300 years,” Dr. Cooper said in a statement. “We do not, however, believe that erecting a tent city at Duarte Square enhances their mission or ours.”
(nytimes.com)
That began a long day of demonstrations and marches that extended to Midtown and resulted in at least 50 arrests.
By noon, protesters had streamed into the square from all directions under cold, cloudy skies to reinforce the vibrancy of a movement swept last month from another space, Zuccotti Park, and signal a resolve against ecclesiastical leaders resisting their wish to set up an encampment on property owned by the venerable Episcopal church.
“Everything about this movement is momentum,” said Mr. Sky, 27, an Internet consultant from the East Village. “We need to show people that we are still relevant.”
Since the earliest moments after they were displaced on Nov. 15, many protesters drifted north to the park at Canal Street and Avenue of the Americas. Trinity embraced them, giving them hot chocolate and blankets. But when the Occupy movement expressed an interest in setting up an organizing camp in Trinity’s private space, beside the public park, the church said no.
The Occupy Wall Street forces then aimed their skills on the church. In familiar fashion, police officers converged on the area, standing around the perimeter.
A flier distributed by protesters summed up their mood: “While the event may include a reoccupation, the event itself is a broader celebration and expansion of Occupy Wall Street,” it said. It also advised people to bring backpacks, warm clothes and sleeping bags.
About 3 p.m., several hundred people began to slowly march along the blocks around the park. They went about five blocks north, then circled back. They were carrying homemade wooden ladders, draped with yellow banners. At Grand Street, the protesters made a move: They threw a ladder fashioned into a portable staircase against a chain-link fence separating the sidewalk from the church’s property.
Many people went over the fence that way. Others lifted the fence from the bottom, allowing protesters to squeeze into the space. The protesters were joined by a few clerics, including one man dressed in a long, purple vestment.
Within minutes, police officers began taking people into custody. About 4:15 p.m., the man in the purple vestment was led into a police van. His identity, and possible role in the church, was not immediately clear.
On the sidewalk, other officers pushed into a line of protesters, ordering them to disperse.
But hundreds of demonstrators marched up Seventh Avenue on Saturday evening, in the street and on the sidewalk — and against traffic.
Police vehicles — cars, scooters, vans — followed, and there were more arrests.
“Is there a problem?” said one protester, who was on a bicycle, as a police officer grabbed him on West 29th Street, near Seventh Avenue.
“The problem is you’re under arrest,” an officer replied.
Earlier in the day, the Rev. Stephen Chinlund, 77, an Episcopal priest who retired seven years ago, held a placard reading: “Trinity Hero of 9/11. Be a Hero Again.”
The mission of the church was to help those in need, he said.
The church’s rector, the Rev. Dr. James H. Cooper, expressed sadness over the protesters’ actions on Saturday.
“O.W.S. protestors call out for social and economic justice; Trinity has been supporting these goals for more than 300 years,” Dr. Cooper said in a statement. “We do not, however, believe that erecting a tent city at Duarte Square enhances their mission or ours.”
(nytimes.com)
Will BlackBerry survive 2012?
Troubled BlackBerry-maker Research In Motion has announced further delays to its new phones - now analysts and commentators are making their complaints ever more loudly.
It seems that every month BlackBerry-maker Research in Motion has more bad news to announce. In November it paid a $365million charge for unsold PlayBook tablets; yesterday it announced that crucial new phones would now be delayed to the latter half of 2012, rather than being out by March.
Co-CEOs Jim Balsillie and Mike Lazaridis charitably cut their pay to just a $1 each, but analysts and critics argued they’re still overpaid. One writer on the respected blog PaidContent blog said the pair should have been “fired months, if not years ago”.
At the heart of BlackBerry’s problems lie its troubled transition to a new operating system: in order to compete with the iPhone and with Google’s Android phones, the Canadian company has had to rebuild its software from the ground up. So far, the only product using a new version is the underwhelming PlayBook.
Yesterday, announcing RIM’s results, Lazridis delivered the bad news almost casually. The new OS will power a new generation of phone, but in order to compete RIM had earlier changed its mind on which chips to use. Now he said RIM could not get enough of them and that delays were unavoidable.
Lazaridis compounded the disappointment for investors by cutting the firm’s prediction of sales to between 11 and 12 million smartphones in the current Christmas quarter, down from 14.8 million over the same time last year. Others companies’ sales are rising at his expense.
Last month, analyst Ian Fogg said that “if you look at RIM’s track record they have a history of missing launch dates; that doesn’t bode well.” He warned ominously that “If they fail to ship quality products we’ll see a slow decline,” and it would appear that Fogg’s predictions are already coming true.
With rather dry understatement, however, Lazaridis said in a statement that "It may take some time to realise the benefits of the platform transition that we are undertaking, but we continue to believe that RIM has the right set of strengths and capabilities to maintain a leading role in the mobile communications industry”. When he claimed that people tell him “every day” that BlackBerry is the best communications device around, commentators immediately said he was listening to the wrong people.
RIM's share of the smartphone market in the US fell to 9.2 per cent in the third quarter from 24 per cent in the same period last year, according to research group Canalys. Increasing numbers of analysts across the board now find one conclusion inescapable: RIM doesn’t just need customers – it needs a buyer.
(telegraph.co.uk)
It seems that every month BlackBerry-maker Research in Motion has more bad news to announce. In November it paid a $365million charge for unsold PlayBook tablets; yesterday it announced that crucial new phones would now be delayed to the latter half of 2012, rather than being out by March.
Co-CEOs Jim Balsillie and Mike Lazaridis charitably cut their pay to just a $1 each, but analysts and critics argued they’re still overpaid. One writer on the respected blog PaidContent blog said the pair should have been “fired months, if not years ago”.
At the heart of BlackBerry’s problems lie its troubled transition to a new operating system: in order to compete with the iPhone and with Google’s Android phones, the Canadian company has had to rebuild its software from the ground up. So far, the only product using a new version is the underwhelming PlayBook.
Yesterday, announcing RIM’s results, Lazridis delivered the bad news almost casually. The new OS will power a new generation of phone, but in order to compete RIM had earlier changed its mind on which chips to use. Now he said RIM could not get enough of them and that delays were unavoidable.
Lazaridis compounded the disappointment for investors by cutting the firm’s prediction of sales to between 11 and 12 million smartphones in the current Christmas quarter, down from 14.8 million over the same time last year. Others companies’ sales are rising at his expense.
Last month, analyst Ian Fogg said that “if you look at RIM’s track record they have a history of missing launch dates; that doesn’t bode well.” He warned ominously that “If they fail to ship quality products we’ll see a slow decline,” and it would appear that Fogg’s predictions are already coming true.
With rather dry understatement, however, Lazaridis said in a statement that "It may take some time to realise the benefits of the platform transition that we are undertaking, but we continue to believe that RIM has the right set of strengths and capabilities to maintain a leading role in the mobile communications industry”. When he claimed that people tell him “every day” that BlackBerry is the best communications device around, commentators immediately said he was listening to the wrong people.
RIM's share of the smartphone market in the US fell to 9.2 per cent in the third quarter from 24 per cent in the same period last year, according to research group Canalys. Increasing numbers of analysts across the board now find one conclusion inescapable: RIM doesn’t just need customers – it needs a buyer.
(telegraph.co.uk)
Jumat, 16 Desember 2011
SEC Tackles 'Rudy' in Fraud Case
WASHINGTON—The inspirational 1993 movie "Rudy" celebrates Daniel Ruettiger as a plucky underdog who overcomes long odds and his diminutive stature to earn a walk-on role on Notre Dame's legendary college-football team.
Daniel 'Rudy' Ruettiger, pictured in 2005, whose experience as a Notre Dame football walk-on inspired the movie, settled SEC allegations that he took part in a pump-and-dump stock scheme.
But in a settlement announced on Friday, the Securities and Exchange Commission casts Mr. Ruettiger in a far less heroic light—as a key participant in a so-called pump-and-dump stock scheme that generated more than $11 million in allegedly illicit profits for a now-defunct beverage company, Rudy Nutrition.
"Investors were lured into the scheme by Mr. Ruettiger's well-known, feel-good story but found themselves in a situation that did not have a happy ending," said Scott Friestad, associate director of the SEC's division of enforcement.
The company made and sold a sports drink called "Rudy" with the tagline "Dream Big! Never Quit!" But the SEC charged that Mr. Ruettiger and 12 others made false and misleading statements about their company in news releases, SEC filings and promotional materials during 2008 in a scheme to lure investors, inflate the stock price and then sell their shares at a profit.
For instance, a letter to potential investors falsely claimed that in "a major southwest test, Rudy outsold Gatorade 2 to 1!" the SEC said in its complaint.
"The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special," Mr. Friestad said.
The pitch worked. In less than a month, the stock went from trading 720 shares a day to more than three million shares, and within two weeks its price climbed from 25 cents to $1.05 a share.
Mr. Ruettiger, who lives in Las Vegas, agreed to pay $382,866 to settle the SEC's charges without admitting or denying them—giving up his profits of $185,750 and paying a fine of $185,750 and interest. Ten other individuals also agreed to pay penalties to settle the SEC charges.
A scene from the 1993 film 'Rudy.'
Mr. Ruettiger and a college friend founded the original company, called Rudy Beverage Inc., in South Bend, Ind. In Oct. 2007, the company moved to Las Vegas, where it struggled financially with a small number of customers, few assets and no profits, the complaint said.
In late 2007, Mr. Ruettiger and the company's president hired an experienced penny-stock promoter to orchestrate a public distribution of company stock. With the help of a disbarred California attorney, they orchestrated a so-called reverse merger with a dormant public company and turned Rudy Beverage into the publicly traded Rudy Nutrition by Feb. 2008, the complaint said.
In addition to false and misleading promotions, the SEC said the scheme's participants manipulated the trading of the company's stock using brokerage accounts in the name of offshore entities to make investor interest appear stronger than it actually was. The SEC says the group used the accounts of a series of Panamanian entities to manipulate the stock.
The agency is still pursuing litigation against stock promoters Pawel Dynkowski of Poland and Chad Smanjak of South Africa, who allegedly made about $4.2 million off the scheme that they deposited into Panamanian accounts the SEC couldn't trace. The two promoters couldn't immediately be reached for comment and the SEC said there are no known attorneys for them. Agency officials believe they aren't in the U.S.
(wsj.com)
Daniel 'Rudy' Ruettiger, pictured in 2005, whose experience as a Notre Dame football walk-on inspired the movie, settled SEC allegations that he took part in a pump-and-dump stock scheme.
But in a settlement announced on Friday, the Securities and Exchange Commission casts Mr. Ruettiger in a far less heroic light—as a key participant in a so-called pump-and-dump stock scheme that generated more than $11 million in allegedly illicit profits for a now-defunct beverage company, Rudy Nutrition.
"Investors were lured into the scheme by Mr. Ruettiger's well-known, feel-good story but found themselves in a situation that did not have a happy ending," said Scott Friestad, associate director of the SEC's division of enforcement.
The company made and sold a sports drink called "Rudy" with the tagline "Dream Big! Never Quit!" But the SEC charged that Mr. Ruettiger and 12 others made false and misleading statements about their company in news releases, SEC filings and promotional materials during 2008 in a scheme to lure investors, inflate the stock price and then sell their shares at a profit.
For instance, a letter to potential investors falsely claimed that in "a major southwest test, Rudy outsold Gatorade 2 to 1!" the SEC said in its complaint.
"The tall tales in this elaborate scheme included phony taste tests and other false information that was used to convince investors they were investing in something special," Mr. Friestad said.
The pitch worked. In less than a month, the stock went from trading 720 shares a day to more than three million shares, and within two weeks its price climbed from 25 cents to $1.05 a share.
Mr. Ruettiger, who lives in Las Vegas, agreed to pay $382,866 to settle the SEC's charges without admitting or denying them—giving up his profits of $185,750 and paying a fine of $185,750 and interest. Ten other individuals also agreed to pay penalties to settle the SEC charges.
A scene from the 1993 film 'Rudy.'
Mr. Ruettiger and a college friend founded the original company, called Rudy Beverage Inc., in South Bend, Ind. In Oct. 2007, the company moved to Las Vegas, where it struggled financially with a small number of customers, few assets and no profits, the complaint said.
In late 2007, Mr. Ruettiger and the company's president hired an experienced penny-stock promoter to orchestrate a public distribution of company stock. With the help of a disbarred California attorney, they orchestrated a so-called reverse merger with a dormant public company and turned Rudy Beverage into the publicly traded Rudy Nutrition by Feb. 2008, the complaint said.
In addition to false and misleading promotions, the SEC said the scheme's participants manipulated the trading of the company's stock using brokerage accounts in the name of offshore entities to make investor interest appear stronger than it actually was. The SEC says the group used the accounts of a series of Panamanian entities to manipulate the stock.
The agency is still pursuing litigation against stock promoters Pawel Dynkowski of Poland and Chad Smanjak of South Africa, who allegedly made about $4.2 million off the scheme that they deposited into Panamanian accounts the SEC couldn't trace. The two promoters couldn't immediately be reached for comment and the SEC said there are no known attorneys for them. Agency officials believe they aren't in the U.S.
(wsj.com)
Zynga goes public - investors eye CEO, growth potential with doubts
Online games developer Zynga Inc scored badly as it went public on Friday, dashing hopes for the year's hottest tech IPO, as investors frowned on its over-reliance on Facebook, dimming growth prospects, and outsized control by CEO Mark Pincus.
Zynga's stock fell 5 percent below its $10 initial public offering price to close at $9.50 on Nasdaq on Friday, dealing losses to IPO buyers used to racking up gains on a stock's first day of trading.
Investors had eagerly awaited the IPO as a way to get a slice of Facebook's growth before the leading social networking website goes public, possibly in 2012. Zynga makes money on Facebook by selling virtual items such as jewelry and poker chips in its games such as "FarmVille" and "CityVille."
At least one analyst said on Friday that some investors may have been turned off by Chief Executive Mark Pincus' large voting stake and control over the company. He has a special class of shares that grants him 37 percent voting power even though his equity stake is much lower, and public shareholders will have less than 2 percent of votes.
"We believe that having a CEO/owner-controlled board is particularly dangerous for investors in young companies," said Cowen and Co analyst Doug Creutz.
Creutz, who has a neutral rating on the stock, added that history is full of examples of CEOs who have built young companies but cannot manage them when they mature.
Asked about his voting shares, Pincus told Reuters he decided to retain such huge control over Zynga because he believed from the start that he was the best person to lead the company.
"Investors who want to see the company deliver long-term value are going to be better served by the fact that I can continue to ensure the company keeps its focus on the long term and we don't let short-term swings and opportunities reduce that," he said in an interview.
Based on Friday's closing share price, the value of Pincus' holdings fell to $1.05 billion from $1.1 billion at the IPO price.
Friday's flop stunned investors who had expected a strong showing because the company is profitable, unlike other recent high profile Internet IPOs such as Groupon and Pandora .
"I was stunned when I saw this. This is a disaster for them. The way you're supposed to price deals is to give investors a 15 percent IPO discount to compensate them for the risk of backing a relatively new company," said Dan Niles, chief investment officer of AlphaOne Capital Partners, who did not buy shares.
"It makes me wonder about the underlying health of the market. IPOs like this can change the whole tenor of the market," he added.
Investors said Zynga's stock performance could hurt other private companies in the pipeline such as Yelp and even Facebook. Some investors regard Zynga's IPO as a proxy for Facebook, because 95 percent of its $828 million in revenue in the past nine months comes from Mark Zuckerberg's social network.
"Now we have an exciting IPO and people don't want it and that's a big concern for when Facebook comes out," said Jeff Sica, president and chief investment officer of SICA Wealth Management.
The cooling off in the IPO markets could hurt Facebook's estimated $100 billion valuation, BGC analyst Colin Gillis said.
Zynga's reliance on the platform was supposed to attract investors looking to bet on Facebook's growth. With Facebook's IPO expected to be at least several months away, Zynga is one of the few indirect ways to bet on the website's future.
Facebook takes a 30 percent cut of the revenue Zynga derives from the social network, which features more than 222 million monthly active Zynga users.
Zynga CEO Pincus said he was looking beyond the share price drop and said the company went public at the right time.
"We're going to focus on the products and business results we deliver in the next four to eight quarters and hope the stock market values and appreciates that as they see us deliver it," he said.
In San Francisco, hundreds of employees got to work early to watch Pincus ring the bell to open Nasdaq trading and wore T-shirts saying "I love play" featuring the ZNGA trading symbol printed on the sleeves. Cinnamon buns and hot cocoa were served before the ceremony.
CONCERNS WEIGH
The company, which competes with Electronic Arts, sold 100 million shares of Class A common stock at $10 per share in the IPO, roughly 11 percent of its shares on a diluted basis, at the top end of the $8.50 to $10 indicative range.
The IPO values Zynga at $8.9 billion. In November, the company had been valued at roughly $14 billion, according to an internal estimate in a regulatory filing.
But that lowered valuation may still have been too rich for some, said Sterne Agee analyst Arvind Bhatia.
Zynga's near $9 billion valuation is less than videogame maker Activision Blizzard Inc's $13.6 billion and higher than Electronic Arts Inc's $6.7 billion. In the last four quarters, Activision and Electronic Arts generated more revenue than Zynga.
Analysts and investors have also expressed concern over how it profits from less than 3 percent of its players who buy items in its free games.
Plus, its reliance on Facebook appears unhealthy to investors who want to see Zynga diversify its revenue sources. Pincus on Friday said the company's 13 million daily users of its mobile games is a good start, and doesn't trail its daily users on Facebook as much as people assume. Zynga had 50.5 million daily users on Facebook on Friday, according to AppData, a website which tracks Facebook applications.
Yet Zynga's growth rate of bookings - the money it makes up front when users buy items, is slowing - which most analysts said is a red flag and could hurt Zynga's future revenue.
Zynga is the second online games company selling virtual items to slip in its trading debut this week. On Wednesday, Nexon Co shares fell following its $1.2 billion IPO, which was Japan's biggest offering this year.
At $1 billion in proceeds, Zynga's IPO is still the largest from a U.S. Internet company since Google Inc raised $1.9 billion in 2004.
(csmonitor.com)
Zynga's stock fell 5 percent below its $10 initial public offering price to close at $9.50 on Nasdaq on Friday, dealing losses to IPO buyers used to racking up gains on a stock's first day of trading.
Investors had eagerly awaited the IPO as a way to get a slice of Facebook's growth before the leading social networking website goes public, possibly in 2012. Zynga makes money on Facebook by selling virtual items such as jewelry and poker chips in its games such as "FarmVille" and "CityVille."
At least one analyst said on Friday that some investors may have been turned off by Chief Executive Mark Pincus' large voting stake and control over the company. He has a special class of shares that grants him 37 percent voting power even though his equity stake is much lower, and public shareholders will have less than 2 percent of votes.
"We believe that having a CEO/owner-controlled board is particularly dangerous for investors in young companies," said Cowen and Co analyst Doug Creutz.
Creutz, who has a neutral rating on the stock, added that history is full of examples of CEOs who have built young companies but cannot manage them when they mature.
Asked about his voting shares, Pincus told Reuters he decided to retain such huge control over Zynga because he believed from the start that he was the best person to lead the company.
"Investors who want to see the company deliver long-term value are going to be better served by the fact that I can continue to ensure the company keeps its focus on the long term and we don't let short-term swings and opportunities reduce that," he said in an interview.
Based on Friday's closing share price, the value of Pincus' holdings fell to $1.05 billion from $1.1 billion at the IPO price.
Friday's flop stunned investors who had expected a strong showing because the company is profitable, unlike other recent high profile Internet IPOs such as Groupon and Pandora .
"I was stunned when I saw this. This is a disaster for them. The way you're supposed to price deals is to give investors a 15 percent IPO discount to compensate them for the risk of backing a relatively new company," said Dan Niles, chief investment officer of AlphaOne Capital Partners, who did not buy shares.
"It makes me wonder about the underlying health of the market. IPOs like this can change the whole tenor of the market," he added.
Investors said Zynga's stock performance could hurt other private companies in the pipeline such as Yelp and even Facebook. Some investors regard Zynga's IPO as a proxy for Facebook, because 95 percent of its $828 million in revenue in the past nine months comes from Mark Zuckerberg's social network.
"Now we have an exciting IPO and people don't want it and that's a big concern for when Facebook comes out," said Jeff Sica, president and chief investment officer of SICA Wealth Management.
The cooling off in the IPO markets could hurt Facebook's estimated $100 billion valuation, BGC analyst Colin Gillis said.
Zynga's reliance on the platform was supposed to attract investors looking to bet on Facebook's growth. With Facebook's IPO expected to be at least several months away, Zynga is one of the few indirect ways to bet on the website's future.
Facebook takes a 30 percent cut of the revenue Zynga derives from the social network, which features more than 222 million monthly active Zynga users.
Zynga CEO Pincus said he was looking beyond the share price drop and said the company went public at the right time.
"We're going to focus on the products and business results we deliver in the next four to eight quarters and hope the stock market values and appreciates that as they see us deliver it," he said.
In San Francisco, hundreds of employees got to work early to watch Pincus ring the bell to open Nasdaq trading and wore T-shirts saying "I love play" featuring the ZNGA trading symbol printed on the sleeves. Cinnamon buns and hot cocoa were served before the ceremony.
CONCERNS WEIGH
The company, which competes with Electronic Arts, sold 100 million shares of Class A common stock at $10 per share in the IPO, roughly 11 percent of its shares on a diluted basis, at the top end of the $8.50 to $10 indicative range.
The IPO values Zynga at $8.9 billion. In November, the company had been valued at roughly $14 billion, according to an internal estimate in a regulatory filing.
But that lowered valuation may still have been too rich for some, said Sterne Agee analyst Arvind Bhatia.
Zynga's near $9 billion valuation is less than videogame maker Activision Blizzard Inc's $13.6 billion and higher than Electronic Arts Inc's $6.7 billion. In the last four quarters, Activision and Electronic Arts generated more revenue than Zynga.
Analysts and investors have also expressed concern over how it profits from less than 3 percent of its players who buy items in its free games.
Plus, its reliance on Facebook appears unhealthy to investors who want to see Zynga diversify its revenue sources. Pincus on Friday said the company's 13 million daily users of its mobile games is a good start, and doesn't trail its daily users on Facebook as much as people assume. Zynga had 50.5 million daily users on Facebook on Friday, according to AppData, a website which tracks Facebook applications.
Yet Zynga's growth rate of bookings - the money it makes up front when users buy items, is slowing - which most analysts said is a red flag and could hurt Zynga's future revenue.
Zynga is the second online games company selling virtual items to slip in its trading debut this week. On Wednesday, Nexon Co shares fell following its $1.2 billion IPO, which was Japan's biggest offering this year.
At $1 billion in proceeds, Zynga's IPO is still the largest from a U.S. Internet company since Google Inc raised $1.9 billion in 2004.
(csmonitor.com)
Kamis, 15 Desember 2011
Congress Getting Failing Marks on Economy in Year of Gridlock
Congress is ending what may be its least productive year on record after government shutdown threats, the collapse of debt-reduction talks and little action to fix the worst U.S. economy since the Great Depression.
Just 62 bills were signed into law through November this year, meaning that 2011 may fall short of the 88 laws enacted in 1995, the lowest number since the Congressional Record began keeping an annual tally in 1947. In 1995, as in this year, a new House Republican majority fought a Democratic president’s agenda.
This year’s partisan battles have brought the U.S. to the brink of a government shutdown four times, caused a two-week furlough of Federal Aviation Administration workers and led Standard & Poor’s to lower the nation’s credit rating after it said lawmakers didn’t do enough to reduce the federal deficit.
“It’s been one of the worst Congresses in modern history,” said Representative Jim Cooper, a Tennessee Democrat. “We have failed to meet our minimum standards of competency and endangered America’s credit rating. We have failed to pass key legislation on time. And there is very little hope for improved behavior.”
Voter approval ratings for Congress are at record lows. Republicans, ranked lower than Democrats, insist both parties are to blame.
“People have a right to be frustrated and disappointed, so next year may be a good year for challengers,” said Senator Jon Kyl of Arizona, the No. 2 Senate Republican leader.
Risks to Economy
The inaction by Congress poses risks to the economy, said Ed Yardeni, president of Yardeni Research Inc. in New York. While the unemployment rate hovered around 9 percent most of the year, he said Congress did little to stimulate job growth. Lawmakers also were unwilling to make deep budget cuts or raise taxes to rein in the deficit.
“Usually gridlock is seen as a good thing from the stock market’s perspective, but clearly the out-of-control federal deficit needs to be addressed and there is no political will to do it,” Yardeni said.
S&P, in its ratings downgrade, said the government is becoming “less stable, less effective and less predictable.” Even so, the government’s borrowing costs fell to record lows as Treasuries rallied.
The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to below 1.72 percent on Sept. 22. The yield on the 10-year note was 1.91 percent at 4:59 p.m. New York time yesterday.
Voters Critical
The public is less sanguine. Seventy-six percent of registered voters in a Nov. 28-Dec. 1 Gallup Poll said most members of Congress don’t deserve to be re-elected, the highest percentage in the 19 years Gallup has asked that question.
A Dec. 7-11 Pew Research Center poll found 40 percent of adults blame Republican leaders for a “do-nothing” Congress, while 23 percent blame Democrats.
“It’s more likely that Republicans will be hit harder than Democrats,” said David Rohde, a political scientist at Duke University in Durham, North Carolina.
In a year dominated by budget clashes, Congress passed a few significant measures.
Congress approved free-trade agreements with South Korea, Colombia and Panama. The South Korea deal was the biggest since 1993’s North American Free-Trade Agreement.
Patent Overhaul
Congress overhauled the patent system, long sought by companies such as International Business Machines Corp. and Microsoft Corp, and extended the USA Patriot Act until 2015, providing law enforcement continued power to track suspected terrorists.
Such output pales compared with 2010, when Congress approved a health-care overhaul, the biggest rewrite of Wall Street rules since the Great Depression, a nuclear arms reduction treaty with Russia and ended a ban against openly gay men and women serving in the military.
This year’s trade and patent bills, while important, are sideshows in the broader economic context, said Ross Baker, a professor of political science at Rutgers University in New Brunswick, New Jersey.
“Those are not insignificant things, but none of them get to the meat of the economic crisis,” Baker said.
Most of President Barack Obama’s $447 billion job-creation agenda was opposed by Republicans and some Democrats who rejected his proposed new spending and tax increases on the wealthy to help pay for it.
Tax Credits
Congress approved tax credits for companies that hire unemployed veterans and canceled a requirement that federal, state and local governments begin withholding 3 percent of payments to contractors in 2013. This week, lawmakers are working to extend a payroll-tax cut for workers through 2012.
House Majority Leader Eric Cantor, a Virginia Republican, said a “fundamental divide” with Obama and a Democrat- controlled Senate stymied House Republicans, who sought to repeal the president’s health-care overhaul and create a Medicare voucher system.
House Speaker John Boehner of Ohio heralded a shift toward cutting the size of government after Republicans forced $38.5 billion in budget cuts this year and Congress agreed in August to reduce deficits by $2.4 trillion over a decade.
Social Security ‘Conversation’
“For the first time in my 21 years here there has been a serious conversation about dealing with the entitlement programs” such as Social Security and Medicare, Boehner said at a Dec. 14 breakfast sponsored by Politico.com, a political news web site. “We are talking about real change,” he said, adding that he wasn’t surprised the public has a low opinion of Congress.
Others say the effect on deficits is murky.
The nonpartisan Congressional Budget Office said the $38.5 billion in spending cuts in this year’s budget, agreed in April to avert a government shutdown, cuts the deficit by just $352 million this year, with most savings coming later. Some money cut from programs wouldn’t have been spent anyway, so it wouldn’t do as much to curb a $1.3 trillion deficit, the CBO said.
The debt-reduction measure adopted in August relies on automatic spending cuts for about half of its $2.4 trillion in savings over a decade. A congressional supercommittee’s inability to agree on at least $1.2 trillion in cuts kicks the debate over specifics into next year. To achieve the rest of the deficit reduction, lawmakers must stick with annual caps on spending for a decade.
Based on experience, Congress won’t stick with the deficit- reduction deal for more than a few years, said Stan Collender, managing director of Qorvis Communications in Washington and a former House and Senate budget committee aide.
“Budget deals are always modified, seemingly in seconds after they’re enacted,” he said.
(businessweew.com)
Just 62 bills were signed into law through November this year, meaning that 2011 may fall short of the 88 laws enacted in 1995, the lowest number since the Congressional Record began keeping an annual tally in 1947. In 1995, as in this year, a new House Republican majority fought a Democratic president’s agenda.
This year’s partisan battles have brought the U.S. to the brink of a government shutdown four times, caused a two-week furlough of Federal Aviation Administration workers and led Standard & Poor’s to lower the nation’s credit rating after it said lawmakers didn’t do enough to reduce the federal deficit.
“It’s been one of the worst Congresses in modern history,” said Representative Jim Cooper, a Tennessee Democrat. “We have failed to meet our minimum standards of competency and endangered America’s credit rating. We have failed to pass key legislation on time. And there is very little hope for improved behavior.”
Voter approval ratings for Congress are at record lows. Republicans, ranked lower than Democrats, insist both parties are to blame.
“People have a right to be frustrated and disappointed, so next year may be a good year for challengers,” said Senator Jon Kyl of Arizona, the No. 2 Senate Republican leader.
Risks to Economy
The inaction by Congress poses risks to the economy, said Ed Yardeni, president of Yardeni Research Inc. in New York. While the unemployment rate hovered around 9 percent most of the year, he said Congress did little to stimulate job growth. Lawmakers also were unwilling to make deep budget cuts or raise taxes to rein in the deficit.
“Usually gridlock is seen as a good thing from the stock market’s perspective, but clearly the out-of-control federal deficit needs to be addressed and there is no political will to do it,” Yardeni said.
S&P, in its ratings downgrade, said the government is becoming “less stable, less effective and less predictable.” Even so, the government’s borrowing costs fell to record lows as Treasuries rallied.
The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to below 1.72 percent on Sept. 22. The yield on the 10-year note was 1.91 percent at 4:59 p.m. New York time yesterday.
Voters Critical
The public is less sanguine. Seventy-six percent of registered voters in a Nov. 28-Dec. 1 Gallup Poll said most members of Congress don’t deserve to be re-elected, the highest percentage in the 19 years Gallup has asked that question.
A Dec. 7-11 Pew Research Center poll found 40 percent of adults blame Republican leaders for a “do-nothing” Congress, while 23 percent blame Democrats.
“It’s more likely that Republicans will be hit harder than Democrats,” said David Rohde, a political scientist at Duke University in Durham, North Carolina.
In a year dominated by budget clashes, Congress passed a few significant measures.
Congress approved free-trade agreements with South Korea, Colombia and Panama. The South Korea deal was the biggest since 1993’s North American Free-Trade Agreement.
Patent Overhaul
Congress overhauled the patent system, long sought by companies such as International Business Machines Corp. and Microsoft Corp, and extended the USA Patriot Act until 2015, providing law enforcement continued power to track suspected terrorists.
Such output pales compared with 2010, when Congress approved a health-care overhaul, the biggest rewrite of Wall Street rules since the Great Depression, a nuclear arms reduction treaty with Russia and ended a ban against openly gay men and women serving in the military.
This year’s trade and patent bills, while important, are sideshows in the broader economic context, said Ross Baker, a professor of political science at Rutgers University in New Brunswick, New Jersey.
“Those are not insignificant things, but none of them get to the meat of the economic crisis,” Baker said.
Most of President Barack Obama’s $447 billion job-creation agenda was opposed by Republicans and some Democrats who rejected his proposed new spending and tax increases on the wealthy to help pay for it.
Tax Credits
Congress approved tax credits for companies that hire unemployed veterans and canceled a requirement that federal, state and local governments begin withholding 3 percent of payments to contractors in 2013. This week, lawmakers are working to extend a payroll-tax cut for workers through 2012.
House Majority Leader Eric Cantor, a Virginia Republican, said a “fundamental divide” with Obama and a Democrat- controlled Senate stymied House Republicans, who sought to repeal the president’s health-care overhaul and create a Medicare voucher system.
House Speaker John Boehner of Ohio heralded a shift toward cutting the size of government after Republicans forced $38.5 billion in budget cuts this year and Congress agreed in August to reduce deficits by $2.4 trillion over a decade.
Social Security ‘Conversation’
“For the first time in my 21 years here there has been a serious conversation about dealing with the entitlement programs” such as Social Security and Medicare, Boehner said at a Dec. 14 breakfast sponsored by Politico.com, a political news web site. “We are talking about real change,” he said, adding that he wasn’t surprised the public has a low opinion of Congress.
Others say the effect on deficits is murky.
The nonpartisan Congressional Budget Office said the $38.5 billion in spending cuts in this year’s budget, agreed in April to avert a government shutdown, cuts the deficit by just $352 million this year, with most savings coming later. Some money cut from programs wouldn’t have been spent anyway, so it wouldn’t do as much to curb a $1.3 trillion deficit, the CBO said.
The debt-reduction measure adopted in August relies on automatic spending cuts for about half of its $2.4 trillion in savings over a decade. A congressional supercommittee’s inability to agree on at least $1.2 trillion in cuts kicks the debate over specifics into next year. To achieve the rest of the deficit reduction, lawmakers must stick with annual caps on spending for a decade.
Based on experience, Congress won’t stick with the deficit- reduction deal for more than a few years, said Stan Collender, managing director of Qorvis Communications in Washington and a former House and Senate budget committee aide.
“Budget deals are always modified, seemingly in seconds after they’re enacted,” he said.
(businessweew.com)
Selasa, 13 Desember 2011
Fed Takes No Action, Citing Signs of Moderate Growth
WASHINGTON — The Federal Reserve said Tuesday that it was closing the books on 2011, maintaining its existing efforts to increase growth but adding no reinforcement amid evidence that the American economy was chugging back toward health.
The central bank will enter next year as it entered this one, in a stance of hopeful exhaustion, optimistic the economy is gaining strength, worried about setbacks and doubtful it can do much more to hasten recovery.
Equity investors, who have been the major beneficiaries of the Fed’s efforts to help growth, immediately responded with disappointment over the absence of any clear hint of new windfalls. Major market indexes recorded quick drops, reversing early gains. The benchmark Standard &Poor’s 500-stock index fell 0.87 percent on the day.
But the Fed left open the possibility that it would take additional steps next year, including an expected effort at improving public understanding of its goals and methods to increase the impact of its policies and disarm its critics.
The Fed’s policy-making committee said its optimism about the economy was tempered by the persistence of unemployment, the blighted housing market, the deceleration of global growth and the risk of a European crash.
“The committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually,” it said in a statement. “Strains in global financial markets continue to pose significant downside risks to the economic outlook.”
The decision was supported by nine of 10 members of the Federal Open Market Committee. Charles Evans, president of the Federal Reserve Bank of Chicago, once again dissented, arguing that the Fed should act immediately to help growth, fulfilling its responsibility to help the millions of Americans who cannot find jobs.
Notwithstanding the nervous twitching of stock markets, the committee’s decision to do nothing was widely anticipated. One analyst joked that the most exciting thing about the statement was the timing of its release about three minutes ahead of schedule. Another titled his note to clients, “Dull Dull Dull.”
“You could almost call it a yawner,” said Eric Stein, a fixed-income portfolio manager at Eaton Vance, a Boston investment firm. “But I think we’ll see something bigger come January. The center of the committee, despite the fact that U.S. growth is looking stronger, they’re always going to err on the side of doing more.”
The dynamics of the internal debate also will shift next year. Four of the seats on the policy-making committee are held on a rotating basis by the presidents of the Fed’s regional banks. Three of the current four have argued that the Fed already has done too much to stimulate growth, creating the largest bloc of dissenting votes on the committee since the early 1990s. Only one of their replacements is regarded as similarly likely to break ranks with the Fed’s chairman, Ben S. Bernanke.
“It certainly suggests that as we go into the new construct, you will have a more accommodative committee, a bit more proactive,” said Steven Ricchiuto, chief economist at the broker-dealer Mizuho Securities USA.
Mr. Stein and other observers said they were eager to read the fuller description of this meeting that the Fed will publish on Jan. 3 because the committee had planned to discuss on Tuesday possible changes in the information that it provides to the public, including a forecast of its likely decisions about short-term interest rates.
The January meeting affords a convenient opportunity to announce such a change. Mr. Bernanke is scheduled hold a news conference after the meeting, on Jan. 25, and the Fed will release its regular forecast of other economic data.
Fed officials say such a forecast could bolster growth modestly, reducing borrowing costs for businesses and consumers, by convincing investors the central bank will keep interest rates near zero for longer than expected.
The impact would be limited because such a forecast most likely would cover three years, running through 2014, and asset prices based on investor expectations on interest rates already reflect an assumption that the Fed will keep rates near zero through the end of 2013.
Articulating its goals and methods also could help the Fed to justify any new efforts to aid growth. But such efforts, viewed as inevitable by many Fed watchers earlier this year, become less likely as the economy improves.
The statement reflected the Fed’s increased optimism, describing “some improvement” in labor markets instead of “continuing weakness.” And the Fed now appears to view the struggles of foreign economies as the greatest risk.
At the same time, officials have given no indication that they are ready to resume the discussions, suspended earlier this year, about when and how the central bank should begin to retreat from its existing efforts to stimulate growth.
The Fed said that it would continue an effort to cut borrowing costs for businesses and consumers by investing in long-term Treasury securities, using proceeds from the sale of its existing holdings of short-term Treasuries.
The December meeting convened on the third anniversary of the Fed’s decision to hold short-term interest rates near zero, a policy it has said that it plans to continue through at least the middle of 2013 and possibly longer.
(nytimes.com)
The central bank will enter next year as it entered this one, in a stance of hopeful exhaustion, optimistic the economy is gaining strength, worried about setbacks and doubtful it can do much more to hasten recovery.
Equity investors, who have been the major beneficiaries of the Fed’s efforts to help growth, immediately responded with disappointment over the absence of any clear hint of new windfalls. Major market indexes recorded quick drops, reversing early gains. The benchmark Standard &Poor’s 500-stock index fell 0.87 percent on the day.
But the Fed left open the possibility that it would take additional steps next year, including an expected effort at improving public understanding of its goals and methods to increase the impact of its policies and disarm its critics.
The Fed’s policy-making committee said its optimism about the economy was tempered by the persistence of unemployment, the blighted housing market, the deceleration of global growth and the risk of a European crash.
“The committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually,” it said in a statement. “Strains in global financial markets continue to pose significant downside risks to the economic outlook.”
The decision was supported by nine of 10 members of the Federal Open Market Committee. Charles Evans, president of the Federal Reserve Bank of Chicago, once again dissented, arguing that the Fed should act immediately to help growth, fulfilling its responsibility to help the millions of Americans who cannot find jobs.
Notwithstanding the nervous twitching of stock markets, the committee’s decision to do nothing was widely anticipated. One analyst joked that the most exciting thing about the statement was the timing of its release about three minutes ahead of schedule. Another titled his note to clients, “Dull Dull Dull.”
“You could almost call it a yawner,” said Eric Stein, a fixed-income portfolio manager at Eaton Vance, a Boston investment firm. “But I think we’ll see something bigger come January. The center of the committee, despite the fact that U.S. growth is looking stronger, they’re always going to err on the side of doing more.”
The dynamics of the internal debate also will shift next year. Four of the seats on the policy-making committee are held on a rotating basis by the presidents of the Fed’s regional banks. Three of the current four have argued that the Fed already has done too much to stimulate growth, creating the largest bloc of dissenting votes on the committee since the early 1990s. Only one of their replacements is regarded as similarly likely to break ranks with the Fed’s chairman, Ben S. Bernanke.
“It certainly suggests that as we go into the new construct, you will have a more accommodative committee, a bit more proactive,” said Steven Ricchiuto, chief economist at the broker-dealer Mizuho Securities USA.
Mr. Stein and other observers said they were eager to read the fuller description of this meeting that the Fed will publish on Jan. 3 because the committee had planned to discuss on Tuesday possible changes in the information that it provides to the public, including a forecast of its likely decisions about short-term interest rates.
The January meeting affords a convenient opportunity to announce such a change. Mr. Bernanke is scheduled hold a news conference after the meeting, on Jan. 25, and the Fed will release its regular forecast of other economic data.
Fed officials say such a forecast could bolster growth modestly, reducing borrowing costs for businesses and consumers, by convincing investors the central bank will keep interest rates near zero for longer than expected.
The impact would be limited because such a forecast most likely would cover three years, running through 2014, and asset prices based on investor expectations on interest rates already reflect an assumption that the Fed will keep rates near zero through the end of 2013.
Articulating its goals and methods also could help the Fed to justify any new efforts to aid growth. But such efforts, viewed as inevitable by many Fed watchers earlier this year, become less likely as the economy improves.
The statement reflected the Fed’s increased optimism, describing “some improvement” in labor markets instead of “continuing weakness.” And the Fed now appears to view the struggles of foreign economies as the greatest risk.
At the same time, officials have given no indication that they are ready to resume the discussions, suspended earlier this year, about when and how the central bank should begin to retreat from its existing efforts to stimulate growth.
The Fed said that it would continue an effort to cut borrowing costs for businesses and consumers by investing in long-term Treasury securities, using proceeds from the sale of its existing holdings of short-term Treasuries.
The December meeting convened on the third anniversary of the Fed’s decision to hold short-term interest rates near zero, a policy it has said that it plans to continue through at least the middle of 2013 and possibly longer.
(nytimes.com)
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