Archive for June 4th, 2009

Lloyds to face shareholder anger
Lloyds Banking Group shareholders are set to vent their anger over the merger with HBOS at the bank’s annual meeting.Although investors approved the takeover, some shareholders are exploring grounds for legal action against Lloyds directors. Shareholders are also voting on a share issue. If they snub the offering, the government’s stake in Lloyds could rise from 43.4% to 65%. The results of the vote are expected next week. Sir Victor Blank, Lloyds’ chairman, is expected to field questions about the impact that HBOS has had on Lloyds TSB at the meeting in Glasgow.
Last month, Sir Victor said he would step down as chairman of Lloyds Banking Group by June 2010. Sir Victor and Lloyds’ chief executive, Eric Daniels, have faced criticism for their decision last year to buy HBOS, the troubled owner of Halifax. HBOS made 10bn of losses last year and Lloyds has put 260m worth of toxic assets, mostly from HBOS, into a government-backed insurance scheme. Pension pressureA group called Lloyds Action Now set up to find ways to recover shareholders’ losses as a result of the takeover will be launched at the meeting. “Lloyds TSB shareholders are rightly furious at the way their company has been mismanaged by the board and the failure of professional advisors to discover the true state of the HBOS accounts at a time when its exposure to mortgage debt was a matter of public knowledge,” the group said. Lloyds is also likely to face pressure over its pension scheme. The biggest union in Lloyds has demanded the bank provide a written guarantee it will keep open its final salary pension for the scheme’s existing 30,000 members, the Financial Times reported. The report comes after Barclays closed its final salary pension scheme to existing members.
Source:BBC

NEW YORK (Reuters) — General Motors Corp will give more than 2.5 billion of the 3.6 billion needed for Platinum Equity to gain control of bankrupt car parts supplier Delphi Corp, the Wall Street Journal said, citing a source.Under terms of the transaction, private equity firm Platinum is expected to invest no more than 750 million and GM (GMGMQ) would provide the balance in financing, the report said Thursday, citing the source.Terms of the GM loans could not be learned, the report added.Platinum declined to comment. GM and Delphi were not immediately available for comment.It was earlier reported that under the new organization plan for Delphi, Parnassus Holdings II LLC, a unit of Platinum Equity, would acquire and operate Delphi’s U.S. and non-U.S. businesses with emergence capital and capital commitments totaling 3.6 billion.0:00
/2:40A history of ‘hot wheels’At that time, a person familiar with the matter told Reuters that the 3.6 billion financing package would come from various sources including GM and Platinum, but declined to elaborate.As part of the reorganization plan, GM has agreed to acquire five Delphi plants and its global steering business.GM itself filed for bankruptcy protection earlier this week, the third-largest filing in U.S. history and largest ever in U.S. manufacturing.GM earlier said a bankruptcy court judge granted approval for it to access a new 33.3 billion debtor-in-possession financing facility from the U.S. Treasury and the Canadian and Ontario governments.

Source:CNN

Rio Tinto halts trading in shares
Shares in Anglo-Australian mining Rio Tinto have stopped tading, amid concern it might walk away from a 19.5bn (12bn) deal with China’s Chinalco.The halt was called before trading opened on New Zealand and Australian markets on Friday. It will remain in place “pending the release of an announcement by the company,” said Rio Tinto manager James Gerraty. On Thursday, Rio Tinto’s share price fell by 7%. The firm has not denied reports it planned a huge rights issue as an alternative way to tackle its debt problem. In February, the firm said that Chinalco, which already has a 9% stake in Rio, was increasing its investment. Global commodity prices hit record highs last summer before falling back sharply as the world economy slumped. SpeculationUnder the agreed deal, state-owned Chinalco would invest 12.3bn in joint aluminium, copper and ore mining investments with Rio, plus spend 7.2bn on convertible bonds in the firm. It would have represented China’s largest investment in a foreign company, and at the time, Rio said the fresh investment created ” a pioneering strategic partnership”. But there has been speculation about the status of the deal for several weeks. Some reports suggest that Rio may consider a joint venture with its one-time suitor BHP Billiton as another alternative to the China agreement. China increasing its investment has also been questioned by some Rio shareholders who complained that the Chinalco deal favoured the Chinese firm. There were also worries that China, which is Rio’s biggest customer, would be able to get a greater say in the price of commodities such as iron ore which are key to its growth. However some observers have maintained that the agreement was a good option for Rio – which has debts of close to 40bn.
Source:BBC

Glimmers of hope or despair?
By Jamie Robertson
Business presenter, BBC World News
The day the Dow and the S&P 500 and the NASDAQ hit bottom – 9 March – the IMF Managing Director Dominique Strauss-Kahn said we were in a “global financial crisis that might now be called the great recession”. Almost three months later and the mood music is very different: the markets are enjoying a hearty bull run, bond yields are rising to “normal” levels, and there are mutterings of a V-shaped recovery. Since the beginning of the year the S&P 500 has risen 15.6%, and the Nikkei is up 10%. T The FTSE has been something of a laggard, but is still only down 1% .
The emerging markets have done even better with Russia up 79%, Taiwan up 50% and the Shenzhen index in Shanghai up 66%. Even Ukraine, where GDP could fall by between 9% and 12% this year, saw its equity market gain 51% from 1 January. Stephen Pope ,chief global market strategist at Cantor Fitzgerald, pointed out that the FTSE hit its low point on the 3 March a little before the US markets. Since then (despite its fall since 1 January) it has gained 27%. He believes could hit 5000 this year. At the end of May it “closed above its 200-day moving average, although it finished shy of the high seen in the October and November rallies. Last week was a bout of profit taking – that is all. It was not the end of the rally. The FTSE is set to make further gains,” he says. Oil price optimismPerhaps the best indicator of the renewed optimism is the oil price. The markets now seem so convinced that the world is going to need ever more barrels of oil (never mind the shiploads lying around the world in stationary tankers) that it pushed the price up almost 30% in May – the steepest rise in ten years. The beneficiaries are not the big oil companies: Shell, BP, Total and Exxon gained between just 2% and 6% over the month. But some of the smaller operators have benefited: Tullow Oil, Cairn Energy are both up some 20% in the UK in May. In Norway, Aker Solutions, and Seadrill, which provide oil facilities, both rose around 30%. But opinions are sharply divided. Justin Urquhart Stewart of Seven Investment Management is unconvinced in the general optimism. “It is a triumph of hope over reality. “One never knows when one is at the beginning of a bull market but if you look for solid underlying facts to back up the optimism they are not there. Some companies are paying increased dividends but all of them have very weak forecasts indeed,” he says. He is even more scathing of the emerging markets. Indeed the Chinese government itself, which has provided some of the few bight economic spots over the last two months, admitted that the foundations for the economic recovery are far from solid and that trade faces “unprecedented difficulties”. GM BankruptcyThe month has been dominated by the fate of Chrysler and GM, whose respective bankruptcies have been like watching the proverbial, and inevitable, car crash played out in slow motion. And when the crashes did finally come, the markets greeted them with an enthusiastic, if unbecoming, surge. If markets dislike uncertainty, by implication they enjoy certainties, and a bankruptcy certainly provides some of that. What has not been felt yet is the economic ripple effect, which will filter through the global economy in the months ahead. These range from the closing of plants to the sacking of full-time and casual workers through to the loss of vital advertising revenue for local newspapers and radio stations. There will be other unforeseen effects too, all of which will weigh down the jobless numbers for much of this year – and a real recovery. Good resultsIn the end though there are some companies that are producing good figures. Witness the difference between Virgin Atlantics results (an almost doubling of profits) and BA’s (its first full year loss since 2002). So also the Dow’s performance since the beginning of the year (down 1.8%) has been utterly outclassed by the 14-15% rise in the S&P500 and the NASDAQ. The reason for the disparity lies in the big losers on the Dow: their names read like a roll call for the credit crunch victims – Bank of America, Citigroup, Caterpillar, General Electric, and General Motors (now thrown out of the index after its bankruptcy, to be replaced by computer firm Cisco Systems). Whether the NASDAQ winners are worthy and sustainable successors is another matter altogether.
Source:BBC

Migrants return to Bangladesh
By Farhana Haider
BBC World Service Analysis Programme
Thousands of Bangladeshi migrant workers are returning home as a result of the global recession.There are more than six million Bangladeshis working abroad and the remittances that they send home are the country’s largest source of foreign exchange. Their income is over 9bn, which is 10% of the country’s gross domestic product (GDP). The vast majority of Bangladeshi migrant workers reside in the Gulf States, Malaysia, Singapore, the US and the UK. Slave labourMulti-million dollar construction projects in the Gulf countries have been a major driver of economic growth in Bangladesh. However, the building boom has slowed and workers are being laid off or, in many cases not being paid.
Nur Mohammmad is a migrant worker who spoke to BBC World Service’s Analysis programme about his experience working abroad. “I went to Dubai and was never paid my full salary, I was a construction worker. “I was there for six months and during that time I was only paid for food,” he said. After a period three months he was laid off along with 30 other men, and then deported. “Before I left Bangladesh, I paid a broker 3000 to find work and get a work permit,” said Mr Mohammad. “I am supporting my four brothers and a sister, as well as a wife and child and both my parents. “I mortgaged my land to pay the broker and until I pay him, I cannot get my land back,” he added. Taking advantageNur is typical of many of the unskilled rural workers who make their way abroad. Asif Munir is the National Programme Officer for the International Organisation for Migration (IOM) in Dhaka. He feels that most migrant workers are completely at the mercy of middlemen and brokers. “Some of them do not always know how to read and write and they often don’t know the language.
“They quite often don’t know what kind of job they are going to do until they go abroad and what types of terms and conditions they are going to have. Theses workers are already in a vicious cycle, when they are paying the brokers in the first place, they are in debt before they leave the country. “When they go abroad they work, they save some money and try to repay that loan through their families. “”f they are not able to complete their contract, they are not able to pay out that debt and there is a concern that they will be in even more debt when they come back. “When they get back home, there is no guarantee that they will get a job either,” he added. Kathleen Newland, from the Washington-based Migration Policy Institute, says the exploitation of migrant workers is inexcusable. “There shouldn’t be any opportunity for an employer or recruiter to change the terms of the contract once the worker arrives. “A labourer who goes from any country to the Middle East, should go with a secure contract whose terms are fair and transparent,” she said. Import, export
Bangladesh is a very poor country, always prone to natural disasters
Every year about two million people come onto the job market in Bangladesh, of which half go to work abroad. With the global downturn in full swing, the World Bank estimates that the country will now have to find jobs for many more people at home. The problem for Bangladesh is that it is very densely populated, and there are not enough jobs and not enough land. “The immediate prospects don’t look good, but there are some emerging industries,” said Zahid Hussain, World Bank Senior Economist in Dhaka. “Pharmaceuticals for example is a dynamic sector and the shipbuilding industry. “These are all now being affected by the global recession, so I would expect that if these industries don’t absorb this additional labour force, then most of them would have to find employment in the informal sector. “In a poor economy like Bangladesh, you can’t afford to remain unemployed, so what you do is move from high productivity occupations to low productivity occupations,” he said. Kathleen Newland feels the Bangladesh government needs to make sure those migrant workers have more skills to make them more employable.
“In planning ahead, the government should be trying to diversify their immigrant labour force, so that they are not all working in one highly cyclical sector. Bangladesh has been trying to do that, they have been trying to get more people into the healthcare market and training nurses to work abroad. “That kind of diversification by sector as well as geographical diversification is very important to cushion the blow of falling so heavily,” she added. DiversificationSending Bangladeshi labour to new countries is something the government is looking into explained Zahid Hussain from the World Bank. “They have signed a memorandum of understanding with Libya to export about one million workers in 2009. “They are looking for markets other than Eastern Europe. “We export low-skilled workers, so the assumption is that the demand for those kind of skills, like security guards or nurses and construction workers might continue if the economies there are managing decent growth, despite the recession,” he added. However as a country which depends so heavily on remittances, Bangladesh needs to prepare itself for the return of tens of thousands of those workers, with all the loss of income and social upheaval that this will cause.
Source:BBC

Chavez to seize chemical projects
Venezuela is preparing to nationalise petrochemical projects as part of President Hugo Chavez’s campaign to limit the private sector.The national assembly is reading a law that would force the country’s chemical companies to become minority partners in joint ventures with the state. It would extend the list of companies in Venezuela’s huge oil sector that are under government control. The law is likely to be passed when it goes for its second reading next week. It is the latest in a series of nationalisations by President Chavez – on Wednesday he announced that he was taking control of 70 gas compression units. He has also taken control of oil services companies and iron works this year as well as buying the country’s third largest lender, Banco de Venezuela, for 1.05bn (651m) from Spain’s Banco Santander. In February he won a referendum that allowed him to keep running for new terms in office. Venezuela already has a large petrochemical company called Pequiven.
Source:BBC

Fraud charge for Countrywide boss
Angelo Mozilo, former boss of Countrywide Financial, has been charged with civil fraud and insider trading by the Securities and Exchange Commission.He is the highest profile executive to face charges relating to the US sub-prime mortgage crisis in 2007. Bank of America eventually rescued the biggest US mortgage lender, buying it for 2.5bn (1.5bn) in July 2008. Mr Mozilo has denied doing anything wrong. Two other former executives have also been charged with civil fraud. Former chief operating officer David Sambol and former chief financial officer Eric Sieracki “misled the market by falsely assuring investors that Countrywide was a prime quality mortgage lender that had acoided the excesses of its competitors”, the SEC alleged. It added that Mr Mozilo had deliberately misled investors about the credit risks that the company was taking. ‘Flying blind’The SEC also said that he had made nearly 140m in profit from selling his Countrywide shares “based on non-public information”. The sub-prime crisis, which was caused by mortgages being given to people who could not really afford them. The loans were then repackaged by banks and sold on to investors, made to look like low-risk investments. The SEC published extracts from e-mails sent by Mr Mozilo. “The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales,” he wrote on 26 September 2006.
Source:BBC

NEW YORK: The Securities and Exchange Commission on Thursday filed securities fraud charges against former Countrywide Chief Executive Angelo Mozilo, former COO and President David Sambol and former CFO Eric Sieracki.The following are excerpts of emails from Mozilo that were released by the SEC:March 28, 2006 — to Sambol and others:Directed them to implement a series of corrective measures to “avoid the errors of both judgment and protocol that have led to the issues that we face today caused by the buybacks mandated by HSBC.” …… The 100% loan-to-value subprime product is “the most dangerous product in existence and there can be nothing more toxic and therefore requires that no deviation from guidelines be permitted irrespective of the circumstances.”April 13, 2006 — to Sambol, Sieracki, and others to address issues relating to the 100 percent subprime second business in light of the losses associated with the HSBC buyback:Loans had been originated … “through our channels with disregard for process [and] compliance with guidelines.”He “personally observed a serious lack of compliance within our origination system as it relates to documentation and generally a deterioration in the quality of loans originated versus the pricing of those loan [sic].”"[i]n my conversations with Sambol he calls the 100% sub prime seconds as the ‘milk’ of the business. Frankly, I consider that product line to be the poison of ours.”April 17, 2006 — to Sambol concerning Countrywide’s subprime 80/20 loans:In all my years in the business I have never seen a more toxic prduct [sic]. It’s not only subordinated to the first, but the first is subprime. In addition, the FICOs are below 600, below 500 and some below 400[.] With real estate values coming down…the product will become increasingly worse. There has [sic] to be major changes in this program, including substantial increases in the minimum FICO. … Whether you consider the business milk or not, I am prepared to go without milk irrespective of the consequences to our production.Sept. 26, 2006 — following up a meeting with Sambol the previous day about the Pay-Option ARM loan portfolio:We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. The only history we can look to is that of World Savings however their portfolio was fundamentally different than ours in that their focus was equity and our focus is fico. In my judgement [sic], as a long time lender, I would always trade off fico for equity. The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales…. pay options are currently mispriced in the secondary market, and that spread could disappear quickly if there is an foreseen [sic] headline event such as another lender getting into deep trouble with this product or because of negative investor occurance [sic].”timing is right” … to … “sell all newly originated pay options and begin rolling off the bank balance sheet, in an orderly manner, pay options currently in their port[folio].”

Source:CNN

NEW YORK: The last thing the battered U.S. labor market needs are the current problems at GM and Chrysler.There have been some signs that the job market might be slowly improving. The number of people filing for new jobless benefits has declined for three straight weeks, and both payroll processing firm ADP and outplacement firm Challenger Gray & Christmas reported a reduction in job losses in May.The government will release the official labor figures for May on Friday and economists surveyed by Briefing.com forecast that employers cut another 520,000 jobs. While that would be the sixth straight month that losses topped 500,000 jobs, it’s much lower than the 741,000 jobs lost in January. And even though the unemployment rate is expected to hit a 26-year high of 9.2%, many economists are hopeful that January’s job losses were the peak. 0:00
/3:27Car woes boost job lossesBut the bankruptcies at General Motors (GMGMQ) and Chrysler LLC could put a job recovery in neutral.”It’s another headwind that the labor market doesn’t need right now,” said David Wyss, chief economist for Standard & Poor’s.The Center for Automotive Research estimates that even if the GM and Chrysler bankruptcy processes go as smoothly as possible, there will be 63,000 permanent job losses this year related to the bankruptcies, followed by another 179,000 next year. And if GM and Chrysler have trouble emerging from the bankruptcy process, 1.3 million more jobs could be lost this year and an additional 446,000 in 2010, according to the study.Debra Maranger Menk, one of the authors of the study, said that while things are going well at Chrysler, it is too soon to assume the bankruptcy process will go as planned at GM. Problems at GM create most of the job losses envisioned in her group’s worst case scenario, which includes a prolonged stay in bankruptcy for the company, followed by widespread bankruptcies of GM suppliers and dealerships.”We were extremely worried that we might have the worst case scenario before the filings; now we’re just very worried,” Menk said. “I don’t think we’re taking an easy breath yet.”The estimates from the Center for Automotive Research also include only permanent job losses, not the temporary job cuts caused by Chrysler and GM essentially shutting down most of their assembly lines last month, and cutbacks at suppliers due to those temporary shutdowns.The study also doesn’t include cutbacks at suppliers resulting from those temporary shutdowns, or the slashing of production at rivals such as Ford Motor (F, Fortune 500) and Toyota Motor (TM) due to slumping sales. Millions of jobs still tied to DetroitThe auto industry doesn’t employ as many people as it did during the Big Three’s heyday. But even after years of plant closings and downsizing, the industry is still a major source of U.S. jobs. There are 677,000 people working in auto plants and auto parts plants in the United States, according to the government’s April reading. Another 1.1 million work in auto dealerships.While the 1.7 million working directly for the industry is down 23% in just the last two years, it’s still more than employed by many “healthier” industries, such as software development, computers and semiconductor manufacturing or legal services.In addition, many other industries also depend heavily on the auto business. Tech companies manufacture semiconductors used in car engines, for example. Truckers move parts and finished cars while carpeting companies make interiors for vehicles.Many of those those indirect suppliers will probably not get paid due to the bankruptcy filings, which in turn could result in cutbacks in employment beyond auto plants, according to experts.One of the biggest concerns is that the job losses in the auto industry could be more permanent than some of the other cyclical job losses in industries such as construction or even banking and finance. Efforts by GM and Chrysler to drastically cut their capacity and decisions by Toyota and other automakers to pull back on their U.S. expansion plans point to a smaller industry here in the future, even when sales return.”Once the dust settles, the industry is going to look a lot different,” said Gary Janas, vice president of job placement firm Adecco Group North America. “Even when the jobs come back, they’re not going to come back to what they were.”

Source:CNN

NEW YORK: Home mortgage rates jumped in the most recent week, with the average 30-year fixed rate rising to 5.65%, according to a report released Thursday.The 30-year fixed rose from 5.45% last week, according to a weekly national survey from Bankrate.com.”Mortgage rates posted another strong move higher this week, as the focus among bond investors has shifted to concerns about budget deficits and inflation,” the report said.Mortgage rates move in tandem with Treasury yields. In particular, the 30-year fixed mortgage rate tracks the benchmark 10-year Treasury yield.”The Federal Reserve, with more than 1 trillion remaining in their stated mortgage- and government-bond buyback program, could accelerate or possibly increase those purchases in an effort to bring rates lower,” the report said.A separate Wednesday report showed U.S. mortgage applications fell last week, reflecting a plunge in demand for home refinancing loans. A report last week showed the largest quarter-over-quarter increase in troubled mortgages since record-keeping began in 1972.0:00
/2:48Rebuilding housing?Even as mortgage rates continue to rise, they still remain much lower than last year, when the average 30-year fixed mortgage rate was 6.52%, according to Bankrate.com.To translate the difference in mortgage rate into dollars for a homeowner, consider a 200,000 loan. At 6.52%, the monthly payment would come out to 1,266.77, or 112 higher than the 1,154.47 monthly payment at 5.65%.Other rates: The average 15-year fixed rate mortgage jumped to 5.06% from 4.86% the week prior.The average jumbo 30-year fixed rate ticked up to 6.68 % from 6.6%. Loans are considered “jumbo” when they are too large to be purchased or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). They have higher rates than smaller “conforming” loans, which do have guarantees.Adjustable-rate mortgages were mixed, the report said, with the average 1-year ARM slipping to 5.01% and the 5-year ARM jumping to 5.2%.

Source:CNN