Financial life in a big town

As the U.S. economy continues its downward spiral, economists are warning that the relative strength Canada has shown so far will likely be the "last hurrah."

Any remaining hopes that the fallout from the collapse of the U.S. housing market could somehow be contained grew dimmer yesterday. Another volley of dismal economic news cast doubt on recent efforts to shore up battered credit markets and revive consumer and business confidence, just as world leaders gathered at an emergency summit in Washington.

Topping the list of bad news yesterday was a record 2.8 per cent plunge in U.S. retail sales in October as consumers, concerned about their jobs, dramatically curbed their spending.

In another sign that retailers should brace for a tough holiday shopping season, another closely watched indicator, the Reuters/University Michigan survey of U.S. consumer sentiment, remained near a 28-year low despite rising slightly in November.

U.S. consumer fears are already being borne out in that country’s job market. The parade of layoffs continued yesterday as Sun Microsystems Inc. said it plans to cut as many as 6,000 jobs as sales of its server computers plunge.

Those job cuts come on top of other major layoffs announced recently across financial services, the auto industry and other sectors, and appear to augur badly for the U.S. jobless rate, which hit a 14-year high of 6.5 per cent in October.

Evidence mounted this week that the U.S. contagion is spreading quickly to other parts of the world. The European Union said yesterday that the 15 countries that use the euro are officially in recession, after their economies shrank for the second straight quarter. The news came a day after the Organization for Economic Co-operation and Development said its members, representing the world’s developed economies, appear to be in recession.

"Financial markets remain under severe strain," U.S. Federal Reserve chair Ben Bernanke said yesterday.

So far, at least, Canada appears to be weathering the storm better than most creditscores.

"We’re certainly going into it in a lot better shape than we’ve gone into the prior two serious recessions, in the early 1990s and the early 1980s," said Douglas Porter, deputy chief economist at BMO Capital Markets. He pointed to strong government balance sheets, "relatively healthy" corporate balance sheets, a strong banking sector and financial markets that "are closer to functioning normally than in most other economies."

But "despite all those positives, the fact of the matter is that we still export a huge portion of our output to the U.S., and we cannot escape the pull on the U.S. economy completely – there’s just no way," Porter said. "We’ve certainly hung in there better than the U.S. economy right up to and including October, but I think the weakness in the U.S. is just so pervasive, as shown by the October retail sales results, that it will seep into the Canadian economy more broadly."

A TD Economics research note echoed those concerns yesterday, calling recent upbeat indicators "Canada’s last hurrah."

"Given the data that has come out of the U.S. in the last few weeks, this strength is not likely to hold up through the last quarter of the year," economist James Marple wrote.

In a troubling sign that Canada’s housing market is softening, the Canadian Real Estate Association reported yesterday that the number of homes sold through the Multiple Listing Service plunged 14 per cent in October to the weakest level since July 2002. The drop suggests "a major downshift in consumer psychology," CREA chief economist Gregory Klump said.

With files from the Star’s wire services

Source

Ford Motor reported a $3 billion quarterly operating loss on Friday and said it would reduce staff and capital spending in order to preserve its dwindling cash.

Ford said it would cut salaried employment costs by 10% - reducing compensation of its white collar workers by eliminating merit pay, bonuses and the company’s matching contributions to their retirement accounts.

But even with those savings, the company said it’s likely to lay off more salaried staffers. It also said hourly staff - mostly factory workers covered by union contracts - would be reduced by an additional 2,600 through a voluntary buyout package.

The company, which earlier this year sold brands such as Jaguar and Land Rover, said it would continue to look to sell assets.

Ford Chief Executive Alan Mulally warned that while the company is confident that it is taking the right steps to respond to the downturn, it does not see a quick turnaround in demand for autos in either North America or Europe.

"We believe the downturn in industry volume will be broader, deeper and longer than previously expected," he said during a conference call. Sales volume isn’t expected to improve until 2010, he said.

Ford’s loss came to $1.31 a share, excluding special items, far worse than the penny a share loss it reported on that basis a year earlier. Analysts surveyed by earnings tracker Thomson Reuters had forecast a loss of 93 cents a share.

The company had a one-time gain of $2.2 billion, related to the accounting of its retiree health care expenses. With that gain, it reported a net loss of $129 million, or 6 cents a share, an improvement from the $380 million, or 19 cents a share, it lost on that basis a year earlier.

While the company did not give any specific guidance on results going forward, Chief Financial Officer Lewis Booth said the current quarter could see a larger increase in losses than seen in the third quarter.

But the operating losses continued to burn through the company’s cash position, leaving with its auto operations with only $18.9 billion in cash on hand at the end of the quarter, down $6.3 billion from the start of the quarter.

Concern has been growing that the nation’s automakers could run out of cash as soon as next year due to rising losses and high borrowing costs faced by the companies. Ford had been considered to be in the best cash position of the three U.S.-based automakers.

Ford, which saw the volume of its U.S. vehicle sales plunge 25% in the quarter, reported that overall revenue tumbled by $9 billion in the quarter to $32.1 billion. High gasoline prices at the start of the quarter, followed by tight credit, increased job losses and record lows for consumer confidence late in the quarter combined to keep potential auto buyers on the sidelines.

The company disclosed that its fourth-quarter vehicle production would be cut by an additional 40,000 from previous plans. That will leave its quarterly production target at 430,000, down roughly a third from year-ago levels.

Ford said it will move ahead with product development plans for most vehicles, especially for smaller, more fuel efficient vehicles cash advance loans. But it plans to reduce spending on the development of large vehicles and will delay other unspecified vehicles "that will be deferred until industry volumes recover."

Ford also announced it would seek to raise additional cash by using equity-for-debt swaps. But the company’s stock has already lost about three-quarters of its value in the last 12 months. Automotive investor Kirk Kerkorian, who invested just over $1 billion in Ford shares earlier this year, has started selling that stake at a large loss and has said he may get out of the company’s stock altogether.

Ford (F, Fortune 500) is not the only automaker seeing trouble. Rival General Motors (GM, Fortune 500) is forecast to report a jump in losses in the quarter later in the day Friday. On Thursday, Japanese rival Toyota Motor (TM), which is poised to see its first annual decline in U.S. auto sales, slashed its earnings outlook for its current fiscal year.

The chief executives of GM, Ford and privately-held Chrysler LLC, as well as the president of the United Auto Workers union, met with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid on Thursday to seek support for a wide-ranging bailout package for the industry. Both leaders voiced support for additional help for the sector following their meetings.

Mulally said he was encouraged by the discussions with members of Congress, but added that Ford isn’t counting on additional federal help because it can’t be sure of what will be approved. He also disclosed that Ford is also talking to governments in other countries where it has operations as well.

Ford would be willing to discuss granting stock or stock warrants to the U.S. government in return for getting help, Mulally said. No details of such an equity stake in the automaker had been discussed, he added.

Among the topics discussed were a $25 billion loan to fund union-controlled trust funds that would be set up in the coming year to cover the health care costs of retirees and their family members. Shifting about $100 billion of those costs from the automakers’ balance sheet to the trust funds was a key concession the companies won from the UAW in the 2007 labor deals.

The discussions also touched upon allowing the automakers to tap into the $700 billion bailout of Wall Street firms and the nation’s banks that was passed by Congress last month. Treasury has so far rejected auto-industry inquiries about accessing that pool of money.

The automakers also renewed their pre-election request to double the $25 billion low-interest loan program approved by Congress, as part of energy legislation, to help automakers convert to making more fuel-efficient vehicles in an effort to meet the demands of car buyers and new federal rules.

Ford shares were up 1% in mid-morning trading Friday following the report. 

Source

UBS AG said a government bailout is helping to stem client money outflows but warned that it could take a 6 billion Swiss franc ($5.20 billion) hit in the fourth quarter due to accounting effects.

The world’s largest wealth manager had already reported most of its third-quarter figures, including a small profit, last month when it announced it was getting a 6 billion franc capital injection from the government and was also unloading $60 billion of risky assets into a central bank fund.

UBS, one of the European banks hit hardest by the financial crisis, said on Tuesday it had seen some improvement in client flows since the central bank deal. It reported net outflows of 83.6 billion francs in the third quarter.

“Whilst the situation was very difficult at the start of October, there have been encouraging signs for net new money flows following the announcement,” it said.

UBS shares were up 0.2 percent to 18.99 Swiss francs at 1040 GMT, compared with a 2.2 percent stronger Dow Jones index of European bank stocks. The stock is down nearly 60 percent since the start of the year, slightly underperforming the European index which is 52 percent lower this year.

“Management claims the trends after the settlement with the Swiss National Bank have been encouraging, but we have seen these statements before,” said Dirk Becker, analyst at brokerage Kepler Capital Markets.

“Our impression is that it might take a while before UBS gets back to meaningful inflows.”

The Swiss bank, which suffered massive damage to its reputation in the subprime crisis and is under pressure at home to return executive bonuses, said it expected market conditions to remain “challenging” and shrinking client assets to affect fees cash til payday loan.

UBS, which has changed its top management this year and is undergoing a massive restructuring, will give an update on client flows at an extraordinary shareholder meeting on November 27, Chief Financial Officer John Cryan told an analysts’ call.

Q4 HIT BY CHARGES, REVERSAL OF CREDIT GAINS

Cryan said the bank was sticking to its goal of returning to profit in 2009 while continuing to reduce its huge balance sheet. But he said he expected it to take a 2 billion Swiss franc hit in the fourth quarter if its funding costs remain at current levels.

UBS also expects a charge of about 4 billion francs on equity sold to the central bank fund in the fourth quarter.

“The total loss is about 6 billion Swiss francs. It cannot be offset by new revenues. They will show a loss in the fourth quarter,” Georg Kanders, an analyst with WestLB, said.

Cryan said UBS will also be affected by goodwill and restructuring charges in the fourth quarter.

UBS confirmed on Tuesday it had made a third-quarter net profit of 296 million Swiss francs ($256.3 million), helped by a gain on its own credit of 2.2 billion francs, plus a tax credit of 913 million francs. 

Read more

Diversified electronics maker Samsung Electronics Co Ltd said it is re-entering the U.S. computer market with a range of branded products that build on its component supply strengths.

The Korean-based company will introduce on Tuesday new ultralight notebooks designed to appeal to potential buyers of Apple Inc’s ground-breaking MacBook Air and smaller “netbook” models from the likes of Asustek Computer.

Breaking into the crowded U.S. market involves taking share from more established players. The Korean electronics maker sees other Asian brand-name players as vulnerable, especially Toshiba Corp, Sony Corp and Lenovo.

Samsung is also coming out with models aimed at business professionals and the market for bulkier laptops known as “desktop replacements,” a Samsung executive said.

Like Apple’s Air, Samsung’s X-Series premium lightweight notebooks come with options for either a hard drive or solid state memory no teletrek payday advance. But Samsung’s X360 is priced at $2,499 and carries 128 gigabytes of flash memory, twice the 64 gigabytes that comes with the Apple Air selling for $2,598.

“These products really go after Apple and Sony. This is the MacBook Air killer,” Bret Berg, the senior product manager for Samsung’s U.S. computer division, said in an interview.

The X360 weighs 2.8 pounds and has an ultra-thin, tapered wedge design with a magnesium allow chassis, an aluminum top and a “pebble”-style keyboard.

Samsung’s hard-drive version, the X460, starts at $1,899 for a 160-gigabyte hard drive, twice the capacity of Apple’s existing MacBook Air model that is priced at $1,799 for an 80-gigabyte drive. The X460 weighs just under 4.2 pounds. 

Read more

An agreement suspending federal litigation over the fate of Wachovia Corp. was extended until Friday after a lawyer said a "grand solution" between bidders Citigroup Inc. and Wells Fargo & Co. was being negotiated.

"There are negotiations between Wells Fargo and Citigroup about a possible grand solution that would preserve the shareholder value for Wachovia as represented by the Wells Fargo deal," said Wachovia lawyer David Boies, according to the transcript. Such a deal "would involve not a single choice between Citigroup and Wells Fargo," he added, without elaborating.

Wells Fargo and Citigroup are competing for control of Charlotte, N.C.-based Wachovia’s $448 billion of deposits in 21 states. Citigroup offered $2.16 billion for the banking operations. Wells Fargo’s later bid, originally valued at $15 billion, was for the whole company, an offer Wachovia prefers to consummate. The bank seeks an order that the deal is valid.

The banks began filing lawsuits against one another last week. Citigroup claims that Wachovia entered into an exclusive negotiating agreement when the Federal Deposit Insurance Corp. on Sept. 29 brokered a deal for Citi to buy Wachovia’s banking operation. Wachovia filed its own lawsuit asking a federal court to block Citigroup’s lawsuit, which was filed in New York state court.

The parties on Monday agreed to suspend their legal actions until Wednesday.

U.S. District Judge Lewis Kaplan in Manhattan Wednesday agreed to extend the delay until Friday, canceling a hearing scheduled for that afternoon, after Citigroup and Wells Fargo made their requests for more time to reach a settlement instant faxless payday loans.

New York-based Citigroup and San Francisco-based Wells Fargo are continuing their talks with the Federal Reserve to resolve the dispute, the banks said.

Wells Fargo may buy Wachovia and sell parts to Citigroup, said a person briefed on the negotiations who declined to be identified because the talks are private. Citigroup would get branches in the Northeast and about a quarter of Wachovia’s deposits. Wells Fargo would take the branches in the South and Mid-Atlantic states, the person said.

The fate of Wachovia’s securities brokerage operation, which is based in St. Louis, was not discussed. But under the original Citigroup deal, Wachovia Securities would have remained part of Wachovia Corp. along with Wachovia’s Evergreen mutual fund operation. Wells Fargo’s deal would have included, all of Wachovia’s operations, including the securities brokerage, which employs about 4,800 people in St. Louis.

Wachovia has a limited role in the talks, Wachovia General Counsel Jane Sherburne said.

Wachovia is "unfortunately somewhat caught in the middle of this negotiation between Wells and Citigroup," she told Kaplan, adding that her bank "will facilitate in whatever way we can a negotiated settlement of this matter."

Sherburne warned Kaplan that a settlement of the dispute must be reached soon.

"The further this litigation proceeds," she said, "the more difficult it becomes to sustain a negotiated settlement posture between the other two parties."

Source

The worldwide credit crunch has sideswiped the blockbuster corporate partnership between the companies of auto-parts tycoon Frank Stronach and Russian billionaire Oleg Deripaska.

Russian Machines, which Deripaska controls, revealed yesterday it had relinquished its big stake and accompanying boardroom clout in Magna to lenders who financed his $1.54 billion (U.S.) investment last year.

Basic Element, Deripaska’s investment company, said in a statement it had decided to "terminate the participation of Russian Machines as a shareholder in Magna International due to the current global financial crisis."

Industry and financial sources say many Russian companies that have spent heavily abroad in recent years now face serious squeezes because refinancing debt has become much more expensive in view of credit woes rocking the world’s financial systems.

"It’s clear he (Deripaska) was forced to sell," said one analyst who requested anonymity.

Basic Element didn’t identify any creditors. But in filings at the time of the purchase of the 20 million Magna A shares, it named BNP Paribas SA, a major bank in France, as a top lender.

Speculation swirled yesterday that institutional investors would snap up many shares because they consider Magna undervalued at current prices.

Magna’s A shares plunged $8.23 or 16 per cent at one point in trading on the Toronto Exchange after the early morning announcement, but they recovered later and closed the day at $46.32, down $2.92, or about 6 per cent. The company, which is feeling the impact of the turmoil in the North American auto industry, has lost more than half of its market value in the past year.

In disclosing the exit of Russian Machines, Magna added that the Deripaska firm will no longer be an indirect shareholder in Stronach’s lucrative European consulting company. In a side deal last year, Russian Machines invested $150 million for a 50 per cent stake in Stronach & Co. which entitled it to millions of dollars in annual consulting fees from Magna (quick payday loans).

Magna co-chief executive officer Siegfried Wolf said the company still has a good working relationship with Deripaska, Russian Machines and subsidiary GAZ Group, Russia’s second biggest auto company.

"We believe that the Russian market still holds significant opportunities for us and intend to continue to pursue joint opportunities …," Wolf said in a statement.

Tracy Fuerst, Magna’s director of corporate communications and media relations, also noted that the decision did not reflect any disagreement between Magna and the Russian interests.

"It had nothing to do with the relationships we have with Oleg, Basic Element or Russian Machines," Fuerst said.

She also said Magna’s ownership will revert to previous percentages, whereby a Stronach family trust will indirectly control the holding company that has two-thirds of the parts maker’s voting shares.

In May 2007, Magna announced that Russian Machines would buy the big stake in exchange for six of 14 seats and 42 per cent of the holding company that would control Magna.

It also meant that the Stronach trust would reduce its level of control in the new venture.

A small group of senior managers would hold the remaining interest plus two seats.

The new company would control 68 per cent of Magna although it held only 16 per cent of the equity.

Magna’s senior managers said the arrangement would bolster the company’s fortunes in Russia and other nearby countries, where emerging middle classes are increasing demand for autos.

Shareholders approved the deal a few months later although there was significant opposition.

Some minority investors, including the Ontario Teachers’ Pension Plan Board, argued there was little consideration for shareholders who held most of Magna’s equity.

Sourse

Intel (INTC.O: Quote, Profile, Research, Stock Buzz) will continue to invest in products and technologies even though it sees that a U.S. financial meltdown is likely to affect the emerging markets that are crucial for its growth, its chairman said on Tuesday.

“I think you’d have to be prudent and assume that if the financial marketplace melts down there’s going to be some impact but nobody’s predicting that, nobody knows how big it’s going to be,” Chairman Craig Barrett told Reuters journalists.

“The only thing we can do is look at that part of our future destiny that we can control, and that’s our investment in the future, in the products we create and the technologies we create,” he said on a visit to Reuters.

“We’ve always had the attitude that you have to make that investment in good times and bad,” he said. “It’s R&D, capital, marketing-intensive, and we’re just like a blind greyhound, we just continue to race down the track.”

Of its $38.3 billion 2007 revenue, the world’s biggest chipmaker spent $5.8 billion on research and development and $5 billion on capital items such as property, plants and equipment overnight payday loans.

“You can’t save your way out of a recession, you have to invest your way out, and so we’ve always kept a rainy day plan to accommodate that,” Barrett said, adding that Intel had a financial cash cushion of about $10 billion for that purpose.

Barrett said Intel’s creditworthiness meant it should be able to make acquisitions if the chance arose, even given the current turmoil in financial markets.

Intel has an A+ credit rating from Standard and Poor’s. 

Read more

WASHINGTON–The New Deal it is not. The United States government’s biggest economic bailout since the Great Depression is aimed not at relieving unemployment or reforming questionable business practices, but at resuscitating financial markets debilitated by bad bets on the housing market.

Put simply, the hastily crafted plan lawmakers agreed to in principle yesterday is intended to revive jittery and fragile banks on Wall Street and Main Street with enough money – by using taxpayer funds to purchase billions upon billions of their worst mortgage-related assets – so that lending, the lifeblood of the U.S. economy, flows freely again.

If it is working, signs will emerge almost immediately in the interest rates on U.S. bonds and in an array of obscure – but crucial – financial benchmarks. Loans – particularly those made from one bank to another – would be more available and less expensive in a matter of weeks, if not days.

And as the government gobbles the banks’ toxic assets, the industry would gain the confidence and strength needed to make it easier and cheaper for families to borrow for homes, cars and college – and for firms to secure ample debt to pay for plants, gear and workers.

Still, rising unemployment, high energy prices and falling real estate values will not disappear overnight — and there is no guarantee a recession will be avoided. "At first, there will be some sort of sigh of relief, which I’m afraid would be misplaced, because when you get through the shorter-term terror, you’re left with an economic landscape that will be very fragile," said Michael Farr, president of Farr, Miller & Washington, which manages investment portfolios for people and businesses.

Were the clogged credit markets of the past year – and more crucially, the past few weeks – left to fester without a massive government intervention, the U.S. faced a financial calamity that could have plunged the economy into a deep recession, putting the livelihoods and investments of millions of ordinary Americans at risk, President George W. Bush and Federal Reserve chair Ben Bernanke warned.

Once the liquidity floodgates have been opened – the government will have as much as $700 billion (U.S.) at its disposal to buy banks’ bad mortgages and other rotten assets – the benefits of the bailout proposed by Treasury Secretary Henry Paulson and modified by Congress are expected to trickle down through the rest of the economy. But Americans should be braced to feel economic pain well into next year.

More people will lose their jobs, foreclosures will go up, paycheques will be strained and home values – people’s single biggest asset – will keep falling, experts predict.

Even if the plan is successful, many predict the economy will probably shrink in the final quarter of this year and in the first quarter of next year, meeting the classic definition of a recession faxless payday advance. The jobless rate – now at a five-year high of 6.1 per cent – is expected to hit 7 or 7.5 per cent by late 2009. That would be the highest jobless rate since after the 1990-91 recession.

So, how exactly will we know if the credit clog is breaking up?

Some of the banking industry’s first responses won’t be immediately visible to most Americans, but they are critical to the proper functioning of the financial system.

For instance, a drop in a crucial short-term lending rate called the London Interbank Offered Rate, or Libor, would be a telltale sign that banks are less anxious about extending credit to each other – and the rest of us.

Libor is the rate many banks pay for the short-term loans essential to their daily operations. It’s also the base rate for an enormous amount of commercial lending and many adjustable-rate mortgages.

Another sign of growing confidence in financial markets would be lower rates on "commercial paper," a crucial short-term borrowing mechanism that many companies rely on for financing day-to-day operations, including payrolls and other expenses.

Economists said a properly designed bailout should also cause interest rates on Treasury securities to rise relatively quickly.

If that happens, it would signal that investors – who have been flocking to Treasurys because of their perceived safety relative to other investments – are more willing to bet on riskier types of debt and securities.

"The recovery process is going to come in stages, not in one fell swoop," said Terry Connelly, dean of Golden Gate University’s Ageno School of Business.

"The credit markets had a stroke. We are in intensive care now. We will have to learn how to walk and talk again.”

Assuming these more obscure corners of the financial markets are on solid footing again, consumers should eventually begin to have an easier time taking out loans for homes, cars, furniture and college.

Over time, a healthier financial system should help the value of the dollar rise versus other currencies, reflecting renewed confidence in the U.S. economy and blunting inflationary pressures that have made Americans feel less wealthy.

But it is only after a wide range of industries feel confident that the economic and financial conditions have fully recovered that they will start to ramp up hiring, perhaps by 2010. House prices should stop falling in the summer of 2009 and may start rising in 2010, economists said.

Source

The U.S. government plans to put government sponsored mortgage finance companies Fannie Mae and Freddie Mac under federal control, the New York Times and Washington Post newspapers reported late Friday, in what could be the largest financial bailout in the nation’s history.

The two government sponsored enterprises (GSEs) own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt.

The Wall Street Journal reported earlier on Friday that the U.S. Treasury Department is close to finalizing a plan to restructure the two companies that includes changes to their senior management.

The plan could be announced as early as this weekend, the Journal said.

U.S. Treasury spokeswoman Brookly McLaughlin declined to comment on the Journal report on Friday. Fannie Mae and Freddie Mac spokesmen also declined to comment. The Federal Reserve, which earlier this year gave both companies the right to borrow from its discount window if necessary, declined comment also http://paydayloans-on.com.

The two firms would be placed in “conservatorship”, the Washington Post said, citing sources familiar with the discussions.

The value of the company’s common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the Washington Post said.

Senior Bush administration and Federal Reserve officials called in top executives of Fannie Mae and Freddie Mac on Friday and told them that the government was preparing to place the two companies under federal control, officials and company executives told the New York Times. 

Read more

Kohl's Department Stores said Wednesday its same-store sales fell 5.8 percent in August.

Menomonee Falls, Wis.-based Kohl's (NYSE: KSS) said overall sales for the four-week period ending Sept. 1 increased 2.6 percent, to $1.26 billion, compared with $1.22 billion over the similar period in 2007.

For the fiscal year to date, Kohl's said total sales were up 2.6 percent, to $8.6 billion, compared with $8.4 billion in the same period a year earlier. On a comparable store basis, sales for the period decreased 5.6 percent.

Kevin Mansell, Kohl's president and CEO, said some back-to-school business such as footwear and children’s performed well while other areas, such as juniors and young men’s, were more challenging.

“As expected, August was more difficult than our expectations of a 2 to 4 percent comparable sales decrease for the third quarter," Mansell said.

As of Aug faxless payday loans. 30, the company operated 957 stores in 47 states, including Georgia, compared to 834 in 46 states at the same time last year.

Source