(Reuters) - The Federal Reserve said on Wednesday it saw modest improvements in the U.S. economy last month, but it still saw big risks and left open the possibility of increasing its purchases of mortgage-related and government debt to keep credit flowing and spur recovery.
Despite a pickup in household and business confidence that Fed officials saw helping to steady spending when they met in late April, they viewed the evidence as too tentative to erase risks facing the recession-mired economy.
The policy-makers cut their forecasts for economic growth over the next three years and debated whether they should further ramp up planned purchases of mortgage agency and government securities, minutes of their April 28-29 meeting said.
The Fed in recent months has turned to asset purchases as a means to keep credit flowing since running out of scope to further lower benchmark interest rates after bringing them down to close to zero percent last year.
"Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery," the minutes of the Federal Open Market Committee's meeting said.
"All members concurred with waiting to see how the economy and financial conditions respond to the policy actions already in train before deciding whether to adjust the size or timing of asset purchases," they added.
In fresh quarterly forecasts, the Fed projected the U.S. economy would contract by between 1.3 percent and 2.0 percent this year, with the unemployment rate rising to between 9.2 percent and 9.6 percent.
In January, the Fed had forecast a milder contraction of between 0.5 percent and 1.3 percent, with the jobless rate rising to between 8.5 percent and 8.8 percent.
U.S. stocks fell on the gloomier economic forecast, while debt prices rallied on the prospect the Fed could boost its securities purchases.
"The tone of the minutes is a little more optimistic, and the forecasts are a little more pessimistic," said Christopher Low, chief economist for FTN Financial in New York.
The minutes showed the Fed staff last month had offered a sunnier forecast than the policy-makers, with the staff revising up their outlook for economic activity. They anticipated that growth would expand at a rate well above its potential in 2011 and that the unemployment rate would decline significantly.
"Key factors expected to drive the acceleration in economic activity were the boost to spending from fiscal stimulus, the bottoming out of the housing market, a turn in the inventory cycle from liquidation to modest accumulation, and ongoing gradual recovery of financial markets," the minutes said.
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Wednesday, 20 May 2009
Tuesday, 19 May 2009
GM bankruptcy plan eyes quick sale to government
(Reuters) - If General Motors Corp files for bankruptcy, as widely expected, its healthy assets will be quickly sold to a new company owned by the U.S. government, a source familiar with the situation said on Tuesday.
The source, who was not cleared to speak with the media and would not be identified, said the U.S. government would pay for the assets by assuming the automaker's $6 billion of secured debt and forgiving the bulk of the $15.4 billion of emergency loans that the U.S. Treasury has provided to GM.
The government is negotiating the terms on which it will assume GM's secured debt and might make an the offer to holders of the debt that is far superior to the one made to Chrysler LLC's secured lenders, the source said.
Chrysler filed for bankruptcy in April and has proposed paying its secured lenders about 28 cents on the dollar.
The new GM is likely to distribute stock in the company to GM's unions in return for concessions on wages and benefits, the source said.
The percentage of stock given to the unions, bondholders and other creditors whose debt is not repaid by new GM has not been determined, the source said.
In addition, the government would extend a credit line to the new company, the source said.
The remaining assets of GM would stay in bankruptcy protection to satisfy other outstanding claims.
The government has given GM until June 1 to restructure its operations to lower its debt burden and employee costs as sales have plummeted in recent years.
DELPHI, HENDERSON
GM will likely take on some of the operations of its bankrupt supplier Delphi Corp to make sure it gets needed auto parts throughout its reorganization, according to the source. The company is currently negotiating terms with Delphi's estate, the source said.
Delphi, a former unit of GM, has been operating in bankruptcy since 2005.
The board of the new company would be established with the tacit approval of the government. Fritz Henderson, who took the helm of GM earlier this year after the government pushed out Rick Wagoner, will head the new company, the source said.
Setting up a new company to buy the healthy assets is aimed bringing operations out of bankruptcy as quickly as possible. GM is concerned that consumers might not be willing to make a major purchase from a bankrupt company, fearing it would not honor warranties or provide service.
Chrysler is employing a similar strategy in its bankruptcy. The smaller automaker is selling its operations to a group that will be managed by Italian automaker Fiat and wants to have the strongest operations out of bankruptcy in 60 days.
Read more here
The source, who was not cleared to speak with the media and would not be identified, said the U.S. government would pay for the assets by assuming the automaker's $6 billion of secured debt and forgiving the bulk of the $15.4 billion of emergency loans that the U.S. Treasury has provided to GM.
The government is negotiating the terms on which it will assume GM's secured debt and might make an the offer to holders of the debt that is far superior to the one made to Chrysler LLC's secured lenders, the source said.
Chrysler filed for bankruptcy in April and has proposed paying its secured lenders about 28 cents on the dollar.
The new GM is likely to distribute stock in the company to GM's unions in return for concessions on wages and benefits, the source said.
The percentage of stock given to the unions, bondholders and other creditors whose debt is not repaid by new GM has not been determined, the source said.
In addition, the government would extend a credit line to the new company, the source said.
The remaining assets of GM would stay in bankruptcy protection to satisfy other outstanding claims.
The government has given GM until June 1 to restructure its operations to lower its debt burden and employee costs as sales have plummeted in recent years.
DELPHI, HENDERSON
GM will likely take on some of the operations of its bankrupt supplier Delphi Corp to make sure it gets needed auto parts throughout its reorganization, according to the source. The company is currently negotiating terms with Delphi's estate, the source said.
Delphi, a former unit of GM, has been operating in bankruptcy since 2005.
The board of the new company would be established with the tacit approval of the government. Fritz Henderson, who took the helm of GM earlier this year after the government pushed out Rick Wagoner, will head the new company, the source said.
Setting up a new company to buy the healthy assets is aimed bringing operations out of bankruptcy as quickly as possible. GM is concerned that consumers might not be willing to make a major purchase from a bankrupt company, fearing it would not honor warranties or provide service.
Chrysler is employing a similar strategy in its bankruptcy. The smaller automaker is selling its operations to a group that will be managed by Italian automaker Fiat and wants to have the strongest operations out of bankruptcy in 60 days.
Read more here
Fiat expansion stirs resentment in Italy's south
(Reuters) - Staring at the locked gates of a Fiat car factory, Mimmo Vacchiano says many families in this poor corner of southern Italy face a stark choice unless its turnstiles reopen.
"If they close this plant, there's nothing else here, only unemployment or the mafia," said Vacchiano, a 48-year-old father of two. "Here, it's not like northern Italy, where you can find another job. We're living in panic."
Pomigliano d'Arco, a town of 40,000 people in the shadow of Mount Vesuvius, relies on Fiat for its lifeblood. In recent decades, industry in the nearby port of Naples has closed, tightening the grip of the ruthless Camorra crime gang on the economy of one of Europe's most depressed regions.
Residents now fear they may pay the price for cash-strapped Fiat's high-stakes strategy to survive the global recession by expanding to become the world's second largest car maker.
Unemployment in Pomigliano already runs at nearly 20 percent and Fiat's temporary closure of the plant -- in a bid to slash costs like other major car makers -- has brought the town to its knees. Fiat employs 5,000 people directly here but the plant provides jobs for 20,000 if suppliers are taken into account.
Fiat agreed last month to take 20 percent of bankrupt No. 3 U.S. auto maker Chrysler and wants to buy the international operations of struggling General Motors, including Germany's Opel. This has raised fears of job cuts in Italy, especially in Pomigliano and at Fiat's Termini Imerese plant in Sicily.
Workers in Pomigliano, among the most militant in Italy, have already clashed with police despite pledges from Fiat and the government that the plant may be downsized but not closed.
"Shutting this plant would cause a revolt," said Vacchiano, standing with angry unionists who say Fiat has refused to talk to them. "If they buy Opel, they'll be doing it with money made off our backs!"
Fiat CEO Sergio Marchionne has said he will only meet unions once he has a clearer idea of the Opel deal. But with Fiat idling the plant for weeks at a time, workers say monthly welfare payments of about 700 euros ($950) are not enough.
On the winding main street, some stores have shut down and in the square men sit idly on park benches. Rubbish litters doorways and washing dries on lines outside apartments where three generations of families live.
In his office in the dilapidated municipal building, Mayor Antonio Dellaratta says Prime Minister Silvio Berlusconi's center-right government has a duty to step in.
"This could bring the local economy to its knees. High unemployment and insecurity would bring this town to collapse," he said. "We're in favor of this Opel merger but production must stay here. We must insist on that because Fiat is Italian."
RISKY MOVE
Founded in 1899 in the industrial town of Turin, Fiat quickly grew to become the country's largest industrial group, transforming the Agnelli family that controls it into the closest thing Italy now has to royalty.
Fiat has factories from Brazil to Poland, luxury brands such as Maserati and Ferrari, and interests in insurance, technology, advertising and publishing, including La Stampa newspaper.
Read more here
"If they close this plant, there's nothing else here, only unemployment or the mafia," said Vacchiano, a 48-year-old father of two. "Here, it's not like northern Italy, where you can find another job. We're living in panic."
Pomigliano d'Arco, a town of 40,000 people in the shadow of Mount Vesuvius, relies on Fiat for its lifeblood. In recent decades, industry in the nearby port of Naples has closed, tightening the grip of the ruthless Camorra crime gang on the economy of one of Europe's most depressed regions.
Residents now fear they may pay the price for cash-strapped Fiat's high-stakes strategy to survive the global recession by expanding to become the world's second largest car maker.
Unemployment in Pomigliano already runs at nearly 20 percent and Fiat's temporary closure of the plant -- in a bid to slash costs like other major car makers -- has brought the town to its knees. Fiat employs 5,000 people directly here but the plant provides jobs for 20,000 if suppliers are taken into account.
Fiat agreed last month to take 20 percent of bankrupt No. 3 U.S. auto maker Chrysler and wants to buy the international operations of struggling General Motors, including Germany's Opel. This has raised fears of job cuts in Italy, especially in Pomigliano and at Fiat's Termini Imerese plant in Sicily.
Workers in Pomigliano, among the most militant in Italy, have already clashed with police despite pledges from Fiat and the government that the plant may be downsized but not closed.
"Shutting this plant would cause a revolt," said Vacchiano, standing with angry unionists who say Fiat has refused to talk to them. "If they buy Opel, they'll be doing it with money made off our backs!"
Fiat CEO Sergio Marchionne has said he will only meet unions once he has a clearer idea of the Opel deal. But with Fiat idling the plant for weeks at a time, workers say monthly welfare payments of about 700 euros ($950) are not enough.
On the winding main street, some stores have shut down and in the square men sit idly on park benches. Rubbish litters doorways and washing dries on lines outside apartments where three generations of families live.
In his office in the dilapidated municipal building, Mayor Antonio Dellaratta says Prime Minister Silvio Berlusconi's center-right government has a duty to step in.
"This could bring the local economy to its knees. High unemployment and insecurity would bring this town to collapse," he said. "We're in favor of this Opel merger but production must stay here. We must insist on that because Fiat is Italian."
RISKY MOVE
Founded in 1899 in the industrial town of Turin, Fiat quickly grew to become the country's largest industrial group, transforming the Agnelli family that controls it into the closest thing Italy now has to royalty.
Fiat has factories from Brazil to Poland, luxury brands such as Maserati and Ferrari, and interests in insurance, technology, advertising and publishing, including La Stampa newspaper.
Read more here
Bank of America raises $13.47 billion in share sale
(Reuters) - Bank of America Corp raised $13.47 billion through a share sale, marking a major step toward meeting the U.S. government's requirements for capital-raising following the recent "stress testing" of the bank.
Including proceeds from the sale of part of its stake in China Construction Bank Corp for $7.3 billion, the bank is now more than half-way toward plugging a $33.9 billion capital shortfall identified by the government.
The bank has issued 1.25 billion shares at an average price of $10.77 each since last Friday, it said in a statement late on Tuesday. Earlier in the day, a source familiar with the transaction said the bank had sold 800 million shares at $10 each on Tuesday alone.
The average price of $10.77 is 4.3 percent below Tuesday's closing price of $11.25. Bank of America shares rose two cents in after-hours trade to $11.27.
The offering by Bank of America comes on the heels of smaller share issuances by other banks ordered to raise capital. This includes offerings of $8.6 billion by Wells Fargo & Co and $4 billion by Morgan Stanley.
As part of Bank of America's stock sale, which brought in gross proceeds of about $13.47 billion, the bank sold 800 million shares at $10 each on Tuesday alone, a person familiar with the transaction earlier told Reuters.
The person was not authorized to speak because terms of the sale are not public.
Read more here
Including proceeds from the sale of part of its stake in China Construction Bank Corp for $7.3 billion, the bank is now more than half-way toward plugging a $33.9 billion capital shortfall identified by the government.
The bank has issued 1.25 billion shares at an average price of $10.77 each since last Friday, it said in a statement late on Tuesday. Earlier in the day, a source familiar with the transaction said the bank had sold 800 million shares at $10 each on Tuesday alone.
The average price of $10.77 is 4.3 percent below Tuesday's closing price of $11.25. Bank of America shares rose two cents in after-hours trade to $11.27.
The offering by Bank of America comes on the heels of smaller share issuances by other banks ordered to raise capital. This includes offerings of $8.6 billion by Wells Fargo & Co and $4 billion by Morgan Stanley.
As part of Bank of America's stock sale, which brought in gross proceeds of about $13.47 billion, the bank sold 800 million shares at $10 each on Tuesday alone, a person familiar with the transaction earlier told Reuters.
The person was not authorized to speak because terms of the sale are not public.
Read more here
Sunday, 17 May 2009
UBS ups wages to stem loss of investment bankers
(Reuters) - UBS, has hiked the salaries of some investment bankers to guard against staff poaching by competitors, Switzerland's largest bank said on Sunday.
"There have been off-cycle salary increases at UBS Investment Bank to retain employees in critical positions," UBS spokesman Andreas Kern said, adding it was usual to adjust compensation to the market environment.
Earlier on Sunday Swiss paper Sonntag reported that hundreds of UBS managing directors at the investment bank, with salaries of around 270,000 Swiss francs ($243,200) on average, were receiving 50 percent higher wages to compensate for the loss of usual bonuses.
UBS, the world's largest wealth manager in terms of assets, declined to comment on the details of the article.
The bank is losing key staff in important areas to competitors and had to react, chairman Kaspar Villiger was reported as saying on Saturday.
Facing public anger over what many regarded as excessive bonuses, UBS undertook a radical overhaul of its executive pay system last year after its bet on risky U.S. assets backfired.
Read more here
"There have been off-cycle salary increases at UBS Investment Bank to retain employees in critical positions," UBS spokesman Andreas Kern said, adding it was usual to adjust compensation to the market environment.
Earlier on Sunday Swiss paper Sonntag reported that hundreds of UBS managing directors at the investment bank, with salaries of around 270,000 Swiss francs ($243,200) on average, were receiving 50 percent higher wages to compensate for the loss of usual bonuses.
UBS, the world's largest wealth manager in terms of assets, declined to comment on the details of the article.
The bank is losing key staff in important areas to competitors and had to react, chairman Kaspar Villiger was reported as saying on Saturday.
Facing public anger over what many regarded as excessive bonuses, UBS undertook a radical overhaul of its executive pay system last year after its bet on risky U.S. assets backfired.
Read more here
New York, London Exchanges See Rebound in Listings
(Bloomberg) -- Corporate listings are set to rebound as financial markets stabilize and companies seek funding, the heads of the New York and London exchanges said.
“There’s a pretty big pipeline and a lot of pent-up demand,” NYSE Euronext Chief Executive Officer Duncan Niederauer said in an interview today. The supply of companies looking to list looks “very good” and will restart as financial markets stabilize, London Stock Exchange Group Plc CEO Clara Furse said. Neither CEO gave details.
The MSCI World Index has risen 34 percent from the year’s low in March, reflecting increased confidence that government stimulus plans and lower global interest rates will revive the global economy. Bourses are hoping for an end to the drought in initial public offerings, with zero venture capital-backed U.S. startups coming to market in the two quarters ending March 31, the longest halt in least 38 years.
Both Niederauer and Furse spoke in interviews during the Lujiazui Forum in Shanghai, the commercial capital of China, a potential source of new listings amid signs that the world’s third-biggest economy is being revived by the government’s 4 trillion yuan ($586 billion) stimulus package.
NYSE Euronext last year asked Chinese regulators to consider relaxing rules barring companies from listing shares on both the Shanghai Stock Exchange and overseas markets. The company is seeking to meet demand from issuers who want multiple stock listings and investors interested in overseas companies.
China Listing
The bourse has the support of Chinese regulators to list in Shanghai though there is “no timetable yet,” Niederauer said. NYSE Euronext was formed in 2007, bringing together bourses including the New York Stock Exchange, London International Financial Futures & Options Exchange and markets in Paris, Brussels and Amsterdam.
Confidence in the global economy jumped to the highest level in 19 months as central bankers pointed to signs of a revival and stress tests on U.S. lenders reassured investors, the Bloomberg Professional Global Confidence Index for May, a survey of users on six continents, showed.
Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet are among officials who have signaled the recession may be easing. While job losses are projected to keep climbing, factories are producing more as inventories run down.
Read more here
“There’s a pretty big pipeline and a lot of pent-up demand,” NYSE Euronext Chief Executive Officer Duncan Niederauer said in an interview today. The supply of companies looking to list looks “very good” and will restart as financial markets stabilize, London Stock Exchange Group Plc CEO Clara Furse said. Neither CEO gave details.
The MSCI World Index has risen 34 percent from the year’s low in March, reflecting increased confidence that government stimulus plans and lower global interest rates will revive the global economy. Bourses are hoping for an end to the drought in initial public offerings, with zero venture capital-backed U.S. startups coming to market in the two quarters ending March 31, the longest halt in least 38 years.
Both Niederauer and Furse spoke in interviews during the Lujiazui Forum in Shanghai, the commercial capital of China, a potential source of new listings amid signs that the world’s third-biggest economy is being revived by the government’s 4 trillion yuan ($586 billion) stimulus package.
NYSE Euronext last year asked Chinese regulators to consider relaxing rules barring companies from listing shares on both the Shanghai Stock Exchange and overseas markets. The company is seeking to meet demand from issuers who want multiple stock listings and investors interested in overseas companies.
China Listing
The bourse has the support of Chinese regulators to list in Shanghai though there is “no timetable yet,” Niederauer said. NYSE Euronext was formed in 2007, bringing together bourses including the New York Stock Exchange, London International Financial Futures & Options Exchange and markets in Paris, Brussels and Amsterdam.
Confidence in the global economy jumped to the highest level in 19 months as central bankers pointed to signs of a revival and stress tests on U.S. lenders reassured investors, the Bloomberg Professional Global Confidence Index for May, a survey of users on six continents, showed.
Federal Reserve Chairman Ben S. Bernanke and European Central Bank President Jean-Claude Trichet are among officials who have signaled the recession may be easing. While job losses are projected to keep climbing, factories are producing more as inventories run down.
Read more here
Thursday, 14 May 2009
Google eases trademark restrictions on some U.S. ads
(Reuters) - Google Inc (GOOG.O) is lifting restrictions on the use of trademarked terms in its US online advertising system, a move that could increase friction between the Internet giant and brand owners.
The new policy will allow businesses to place trademarked terms directly in the copy of text advertisements that run in the US starting next month, the company announced in a blog post on Thursday.
The move, which Google said will improve the quality of its advertisements, comes as advertisers have begun bidding less money for the individual search terms that their ads appear alongside and as Google's revenue growth slows in the dismal economic climate.
Until now, Google has forbidden companies from placing trademarked terms in their advertising copy unless they owned the trademark or had explicit permission from the trademark owners.
That policy was the equivalent of a supermarket promotion in a Sunday newspaper that only listed generic products like "discount cola" instead of the actual products for sale, Google said in its blog post on Thursday.
The new policy will allow resellers and informational Web sites to use trademarked terms in their copy in certain situations without seeking permission from the trademark owners.
The move represents the second recent loosening of Google's policies on trademark use. Earlier this month, Google said it would allow companies in 190 countries outside the US to bid on trademarked keywords that act as the triggers for their own advertisements.
Google is also facing new legal challenges from trademark owners.
On Monday, Firepond, a Texas software company, filed a trademark infringement suit against Google seeking class action status for all Texas trademark owners.
Brand owners have historically had serious concerns about Google's policy with regards to trademarks, said Eric Goldman, Associate Professor of Law at Santa Clara University School of Law.
Google's latest policy change is "kind of like pouring gasoline on the fire," he said.
The change may help consumers better understand sponsored search results, by allowing the advertiser to reference trademarks in their marketing pitches, Goldman said. But he predicted that the change could spark more legal challenges.
Google Senior Trademark Counsel Terri Chen acknowledged some people might be unhappy with the change, but she said she believed the ads would be well-received overall.
Read more here
The new policy will allow businesses to place trademarked terms directly in the copy of text advertisements that run in the US starting next month, the company announced in a blog post on Thursday.
The move, which Google said will improve the quality of its advertisements, comes as advertisers have begun bidding less money for the individual search terms that their ads appear alongside and as Google's revenue growth slows in the dismal economic climate.
Until now, Google has forbidden companies from placing trademarked terms in their advertising copy unless they owned the trademark or had explicit permission from the trademark owners.
That policy was the equivalent of a supermarket promotion in a Sunday newspaper that only listed generic products like "discount cola" instead of the actual products for sale, Google said in its blog post on Thursday.
The new policy will allow resellers and informational Web sites to use trademarked terms in their copy in certain situations without seeking permission from the trademark owners.
The move represents the second recent loosening of Google's policies on trademark use. Earlier this month, Google said it would allow companies in 190 countries outside the US to bid on trademarked keywords that act as the triggers for their own advertisements.
Google is also facing new legal challenges from trademark owners.
On Monday, Firepond, a Texas software company, filed a trademark infringement suit against Google seeking class action status for all Texas trademark owners.
Brand owners have historically had serious concerns about Google's policy with regards to trademarks, said Eric Goldman, Associate Professor of Law at Santa Clara University School of Law.
Google's latest policy change is "kind of like pouring gasoline on the fire," he said.
The change may help consumers better understand sponsored search results, by allowing the advertiser to reference trademarks in their marketing pitches, Goldman said. But he predicted that the change could spark more legal challenges.
Google Senior Trademark Counsel Terri Chen acknowledged some people might be unhappy with the change, but she said she believed the ads would be well-received overall.
Read more here
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