Financial life in a big town

General Motors of Canada jumped into the "cash for clunkers" game today by offering consumers up to $3,000 to scrap their old vehicles and buy new company models.

GM, the country's biggest auto retailer, announced consumers with vehicles 15 years or older can receive a rebate of $500 to $3,000 towards the purchase of a new company car or truck.

The rebate is in addition to the federal government's "Retire Your Ride" program which offers consumers $300 or other incentives such as transit passes to scrap older higher-polluting, less fuel efficient autos.

GM is the fourth automaker in Canada to offer a scrappage program in recent weeks in conjunction with the federal program free credit report without a credit card. Hyundai Auto Canada introduced the first program and Ford and Chrysler followed with better offers. The $3,000 top amount from GM's matches the industry's other best offer from Ford.

Earlier this decade, GM introduced a scrappage program called "Car Heaven" with the Clean Air Foundation that encouraged motorists to pull older vehicles off the road in efforts to improve the environment.

It expired two years ago after "retiring" more than 58,000 vehicles, according to GM.

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WASHINGTON–Federal Reserve Chairman Ben Bernanke said Tuesday that the worst recession since the 1930s is probably over.

Bernanke said the economy likely is growing now, but it won’t be sufficient to prevent the unemployment rate, now at a 26-year high of 9.7 per cent, from rising.

"The recession is very likely over at this point," Bernanke said in responding to questions at the Brookings Institution.

The Fed boss also said he is confident that Congress will enact a revamp of the nation’s financial rule book to prevent a future crisis from happening.

"I feel quite confident that a comprehensive reform will be forthcoming," Bernanke said. It has been "too big a calamity” over the past year, with the near meltdown of the U.S. financial system, for Congress not to take action, he added.

President Barack Obama on Monday urged Congress to enact legislation this year.

Bernanke’s speech to at Brookings was identical to the one he delivered last month at a Fed conference in Wyoming. Analysts predict the economy is growing in the current quarter, which ends Sept. 30, at an annual rate of 3 to 4 per cent. It contracted at a 1 per cent pace in the second quarter.

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Eli Lilly and Co said on Monday it plans to cut 5,500 jobs, or 13.5 percent of its workforce, as it girds for generic competition by 2011 on its Zyprexa schizophrenia drug and Gemzar cancer treatment.

The Indianapolis-based drugmaker, whose revenue outlook has also been dimmed by competition for its Byetta diabetes drug and safety concerns for its recently approved Effient blood clot preventer, said it aims to cut annual costs by $1 billion by the end of 2011.

The company aims to streamline its structure and shrink its workforce to 35,000, from its current strength of 40,500, by the end of 2011. But the new headcount does not include any sales force additions in fast-growing emerging markets and Japan. Lilly, which reached its peak employee count of 46,000 in mid-2004, has cut jobs in recent years, but not with the ferocity of some rival drugmakers.

Lilly’s biggest challenges are the U.S. patent expirations on Gemzar, Zyprexa and anti-depressant Cymbalta, set for late 2010, late 2011 and 2014, respectively. Cheaper generics are expected to wrest away the majority of their U.S. sales.

That is a huge concern, given the fact that the trio are among Lilly’s biggest products, with combined global annual revenue of more than $9 billion — or about 43 percent of Lilly’s total current annual sales.

“We will soon enter the most challenging period in our company’s history,” Chief Executive John Lechleiter said. “This calls for strong measures to speed our output of new medicines, better meet the changing needs of our customers and reduce our costs.”

Lilly, which reaffirmed its 2009 profit forecast of $4.20 to $4.30 per share, previously said it expects double-digit compound annual earnings-per-share growth from 2007 to 2011.

In an interview, Lechleiter said the cost-cutting and restructuring measures announced on Monday “will undoubtedly help us pull ahead” largely by speeding up drug launches.

Chris Armbruster, an analyst with Al Frank Asset Management, said the cost cuts may improve earnings growth over the next three to five years. Over that time, he expects Lilly to post low-single-digit profit gains on generally flat sales.

“If they’re able to control the cost side, we think there’s plenty that could go right for Lilly over the next couple of years that could lead to a meaningfully higher stock price,” said Armbruster.

JP Morgan analyst Chris Schott was less enthusiastic. He said Lilly’s planned cost cuts represent about 7 percent of the company’s cost base and are coming sooner than expected. Even so, Schott stuck to his anemic long-term profit view for Lilly of an average 5 percent annual decline between 2009 and 2015.

Lilly’s streamlining program is similar to one recently implemented by Pfizer Inc, which is battening down the hatches for the patent expiration — also in 2011 — on its Lipitor cholesterol fighter.

Lilly said it will create a new organizational structure by January 1, 2010, with five global business units: oncology, diabetes, emerging markets, established markets and animal health.

The company has a long-standing focus on diabetes and cancer, and both are hot areas because of the aging population and the hefty price tags of those drugs.

Although they will not have their own business units, Lechleiter said neuroscience, cardiovascular, bone and autoimmune drugs remain important, and Lilly may seize opportunities to license or buy drugs in those and other areas. 

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At 16, and with $640 billion in assets, the U.S. exchange-traded fund industry isn’t exactly wet behind the ears.

ETFs still lag far behind U.S. mutual funds’ more than $10 trillion in assets. But ETFs are gaining on their more established rivals, due in part to a selling point that’s been a big draw in volatile markets. ETFs can be traded like stocks throughout daily trading sessions, unlike mutual fund shares that change hands at end-of-the-day prices.

Clearly, investors are getting the ETF bug. Nearly $184 billion flowed into U.S. ETFs during the 12 months ended July 31, while stock and bond mutual funds saw $81 billion go out, according to the Investment Company Institute.

With more than 700 ETFs in the U.S., the offerings have become so diverse that you can gain exposure to everything from oil industry equipment suppliers to the movements of foreign currencies like Sweden’s krona. Most ETFs track a market index and focus on stocks, but actively managed ETFs and bond ETFs have also entered the fray.

Michael Latham is at the center of it all as U.S. head of Barclays’ iShares business, which commands about half the U.S. ETF market.

IShares’ leadership in a growing industry is a key reason why New York-based asset manager BlackRock Inc. is acquiring Barclays Global Investors, the investment arm of London-based Barclays. BlackRock announced plans three months ago to snap up BGI in a $13.5 billion deal expected to close by year end.

In a recent interview, Latham, 43, discussed growth prospects and challenges for San Francisco-based iShares and the ETF industry. Here are excerpts:

Do you expect any big changes after BlackRock becomes iShares’ new owner?

We really don’t expect any major change at all instant credit report. We are going to continue to focus on educating financial advisers and investors about how ETFs work.

Many newer ETFs are narrow, tracking the performance of a single industry, overseas market or commodity. Do you see the niche trend continuing?

Some folks are getting into the market and realizing it’s not as simple as maybe they thought, and then are exiting.

We’re not looking for an investment fad. We’re looking to provide the building blocks of different asset classes for long-term investing.

In June we launched an ETF that focuses on Peru, the iShares MSCI All Peru Capped Index. It already has $70 million in assets. But we don’t evaluate product development based on assets gathered in the first year.

Any other new growth areas you see?

We’ll also be doing more bond ETFs because we think the fixed-income market is underserved. And we’ll be looking at more strategy-based products — it might be asset-allocation products, or more complex products.

What about actively managed ETFs?

We’re looking at it. But I think there is a lot of complexity around what you define as an active product. If you start with a true active stock selection, I find it hard to see how that works in a fully transparent ETF.

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DEARBORN, Mich.–Ford Motor Co. said yesterday its board of directors has adopted a plan designed to deter shareholders who hold more than a 5 per cent stake from increasing their ownership, to protect its tax assets.

Were shareholders allowed to hold a bigger stake, the automaker would lose access to certain tax shelters and face increased federal income-tax liability. At the end of 2008, Ford had tax credits, net operating and capital losses offsetting $19 billion in future taxable income.

Ford said the U.S. tax code would limit its use of such tax attributes as credits and capital losses if shareholders with a 5 per cent or greater stake in the company were to collectively increase their holdings by more than 50 per cent over a rolling three-year period.

The tax preservation plan would be triggered by a shareholder acquiring a stake in the company of more than 4.9 per cent. It would also be triggered if an existing holder acquired more than one half of 1 per cent of common shares.

Under the terms of the plan, Ford’s board of directors declared Wednesday a dividend right to purchase one share of common stock for every outstanding share at a discount, should an ownership change occur. Exercising the right would dilute the 5 per cent shareholder and protect Ford’s tax attributes.

Ford said the move was not a "poison pill" to protect the company from a takeover.

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Motorola Inc shares rose 6.5 percent on Friday on hopes the company could turn around its loss-making handset business with the new cellphone it developed with Google Inc.

The market’s initial response to the announcement was modest and the shares closed up just 1.5 percent on Thursday, but many analysts took a closer look at the phone –called Cliq in the United States– later in the afternoon and issued upbeat reports.

Analysts were particularly positive about the phone’s features like easy access to social networking sites like Facebook and Twitter. RBC analyst Mark Sue raised his price target on the shares to $10 from $8.

“Our initial take is favorable, and it seems that Motorola is carving out a niche in the crowded smartphone market by focusing on socially minded demographics as opposed to enterprise users or pro-sumers,” Sue said.

The Cliq goes on sale in the United States through Deutsche Telekom AG’s T-Mobile USA in the fourth quarter, and it will be branded Dext in the rest of the world. France Telecom’s Orange plans to sell it in Britain and France; Telefonica in Spain; and America Movil in Latin America free credit reports.

Motorola is launching another phone using Google’s Android software later in the year, and Wall Street sees the series as its last big hope to regain the market share lost to rivals like Apple Inc’s iPhone, as well as those sold by Nokia and Samsung.

While many analysts’ first impression of the phone on Thursday had been that it was no iPhone killer, many said it could still help revive the business.

“We believe Motorola needs to sell about 2 million smartphones a quarter to return to profitability in handsets, and the Cliq is a good first step to achieving this level,” said Morgan Keegan analyst Tavis McCourt.

Motorola shares were up 52 cents to $8.49 in late morning trading. They briefly touched a high of $8.62.

(Reporting by Ritsuko Ando; Editing by Dave Zimmerman, Phil Berlowitz)

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Procter & Gamble Co said it expects sales to improve in the coming quarter as new products and other investments pay dividends, sending its shares up 4.3 percent.

The maker of Tide laundry detergent, Crest toothpaste and a host of other well known household brands has faced major pressure from cheaper store brands and also felt the pinch as retailers cut back on goods they keep in stock.

At the same time, P&G’s upscale products, such as perfume, have suffered as consumers shy away from small luxuries amid the recession.

But in a presentation at an analyst conference, P&G Chief Financial Officer Jon Moeller said the company expects organic sales to rise 1 percent to 4 percent in the second quarter, which starts in October, after being flat to down 3 percent in the first quarter. Organic sales excludes the impact of currency fluctuations, acquisitions and divestitures.

“We clearly see that we are approaching an inflection point in P&G’s organic sales trends,” Moeller said.

P&G’s sales comparisons get easier in the second quarter because year-earlier results were weaker, he noted.

“I think the Street is going to be pretty happy that they are talking more optimistically about the second quarter,” Edward Jones analyst Jack Russo said.

P&G’s stock “kind of looks like the ugly duckling compared with the rest of the market,” he said.

Through Wednesday, P&G shares were down 13 percent this year, compared with an 8.8 percent increase for the Dow Jones industrial average .DJI, of which P&G is a component.

P&G said it still expects earnings per share from continuing operations of 95 cents to $1.00 for the fiscal first quarter. Analysts’ average forecast is 97 cents, according to Reuters Estimates.

For the full year, P&G forecast earnings of $3.99 to $4.12 a share, including a one-time boost of 44 cents from the sale of its pharmaceuticals business to Warner Chilcott Plc. The forecast also includes 10 cents to 12 cents of dilution related to the transaction, the company said.

P&G CEO Bob McDonald also addressed the analyst conference, his first major appearance since he took over from A.G. Lafley on July 1. Lafley remains chairman.

McDonald said P&G wants to expand the number of consumers that use P&G products to 5 billion by fiscal 2015 from about 4 billion in the current fiscal year.

The company is looking to do this by offering more items at lower prices, especially in parts of the developing world like India, where McDonald said the company is focused on switching consumers from cloth diapers to a version of Pampers.

The company also wants global per capita spending on P&G products of $14 by fiscal year 2015, up from $12 this year. 

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Bank of America Corp has hired two senior commodity executives as directors to run parts of its power and natural gas group in Houston, according to an internal memo seen by Reuters.

The additions are the latest step by the largest U.S. bank, which acquired Merrill Lynch on January 1, to expand its commodities business globally.

Narsimha Misra will head west power trading, while Eric Race will head NYMEX gas option trading, according to the memo that a bank spokeswoman confirmed.

Misra, who has spent 17 years in the industry, was previously a director in the North American power group at RBS Sempra Energy Trading and before that at Credit Suisse. He will join Bank of America later this month, according to the memo.

Race, who started at Bank of America on Tuesday, was previously co-head of natural gas trading at Bunge Ltd, and before that he worked at Lehman Brothers, the memo said free credit reports.

Many large commercial and investment banks are boosting their commodities staff to take advantage of the upswing in prices this year and greater investor risk appetite.

Charlotte, North Carolina-based Bank of America has said it may increase its metals and energy business 25 percent over the next two to three years.

The bank is focusing a large part of its commodities expansion in Asia, where earlier this month it hired five senior executives.

(Reporting by Elinor Comlay; Editing by Richard Chang)

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Hedge fund returns rose for the sixth straight month in August but underperformed the broader stock market, where hopes of a quick economic recovery fueled strong gains last month, according to data released on Tuesday.

The average hedge fund rose 1.85 percent last month while the Standard & Poor’s 500 index gained 3.36 percent, the Hennessee Group reported.

“Hedge funds continued to lag the surging equity markets as we would expect given their short portfolios and hedges,” Lee Hennessee, one of the consulting group’s managing principals, said in a statement.

August’s stronger returns — following on the heels of a 3.11 percent increase in July — signal that the $1.4 trillion hedge fund industry is recovering ground less than one year after suffering its worst-ever losses.

Still, investors remain skittish about leaving their money with hedge funds according to recent data showing that clients pulled nearly three times as much money away from funds in July than in June.

Hedge fund managers are not required to report their returns and so investors and industry analysts keep a close eye on reports from the Hennessee Group and others that track performance to keep tabs on how the industry is performing.

Performance and flows tracker Hedge Fund Research is expected to report its findings in a few hours.

Since January, the average hedge fund has gained 17 quick payday loans.30 percent, the Hennessee Group reported. During the same time the S&P 500 gained 12.99 percent.

Managers who bet on emerging markets and financial stocks plus media and telecommunications offerings last month scored the largest gains and helped boost the overall index.

So-called short sellers who bet exclusively that stock prices will fall lost 1.23 percent in August, leaving them as the industry’s biggest losers this year, with a year-to-date loss of 11.47 percent.

Despite strong returns this year, investors have continued to pull money out of the hedge funds after having removed a record $152 billion in the last quarter of 2008.

In July, the most recent month for which data is available, clients redeemed $20 billion from hedge funds, significantly more than the $6.9 billion they pulled out in June, according to data from TrimTabs Investment Research.

“That is a huge number,” research analyst Vincent Deluard said, explaining that investors may finally be getting back the money they asked for late last year when fund managers prohibited many clients from exiting.

(Reporting by Svea Herbst-Bayliss, editing by Gerald E. McCormick and Matthew Lewis)

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Switzerland-based medical device maker Synthes Inc has won a key ruling in an ongoing U.S. patent case against U.S. competitor Medtronic, the Swiss company said on Monday.

The case, which began in 2007, concerned a patent covering Synthes’ ProDisc-L artificial disc replacement device.

The U.S. District Court in Memphis acknowledged Medtronic had infringed the patent, and awarded the Swiss maker of nails, screws and plates to fix broken bones $21 million in damages, interest and costs, Synthes said in a statement.

“We are pleased that the court has upheld the jury’s verdict,” said Michel Orsinger, president and chief executive of Synthes.

“Synthes has made substantial investments toward the ProDisc artificial disc replacement devices, and the rulings by the Court confirm our intellectual property rights in that technology,” he added.

Synthes is the global market leader in trauma treatment and ProDisc is seen by many analysts as a future growth driver.

Synthes had filed suit against Medtronic in 2007 as it believed the U.S. group’s Maverick products infringed its artificial disc patent.

A jury ruled in November 2008 that Medtronic had violated Synthes’ patent and a U.S. court denied on August 19 Medtronic’s motion for a new trial.

Medtronic is appealing these rulings to the U.S. Court of appeals, Synthes said in the statement. (Writing by Lisa Jucca; editing by Simon Jessop)

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