Archive for June 9th, 2009

LSE and 3i may rejoin FTSE 100
The London Stock Exchange (LSE) and private-equity firm 3i are expected to rejoin the benchmark FTSE 100 index.Plumbing firm Woleseley may also return to the index of the UK’s 100 largest companies by market capitalisation on Wednesday. FTSE reviews the index every quarter, with companies getting promoted based on certain criteria, such as becoming one of the 90 largest firms. The final calculations are based on Tuesday’s closing share prices. The LSE, the company which runs the London stock market, and 3i both benefited from renewed optimism that the worst of the financial crisis is over, which has pushed stocks worldwide higher.
Source:BBC

US to unveil corporate pay rules
The US government is preparing to unveil rules on executive pay for firms that have been bailed out.President Barack Obama will also appoint a “pay czar” who can reject compensation plans at companies getting “exceptional assistance”. The move comes after the US allowed 10 of its largest banks to repay 68bn (42bn) in government bail-out money. It also follows the furore over bonuses paid to collapsed insurer AIG earlier this year. AIG was heavily criticised for paying 165m in bonuses after taking government money, with many top executives vilified, after it racked up huge losses and the US government spent 180bn to save the firm. On Tuesday, banks including JP Morgan, Morgan Stanley and Goldman Sachs confirmed they had received permission to pay back the money it received from the 700bn government bail-out fund, known as Tarp. They had passed US government’s stress tests in May that assessed whether banks had the money to withstand further shocks to the economy. Citigroup and Bank of America are among the banks that did not receive permission and will fall under the purview of the new pay czar, as well as AIG. Treasury Secretary Timothy Geithner, who along with Mr Obama has criticised Wall Street’s compensation schemes, will meet to discuss bank pay along with Securities and Exchange Commission chairman Mary Schapiro and members of the Federal Reserve on Wednesday. The new rules on executive pay are expected to be announced by the end of the week.
Source:BBC

Japan’s key machinery orders fall
By Roland Buerk
BBC News, Tokyo
Japan’s core machinery orders, a closely watched indicator of the health of the economy, fell by 5.4% in April.The figures, which were just released by the Government, were worse than expected. Japan is dependent on exports for growth, and has been hit badly by the global collapse in demand in the past half-year. The latest figures underline the slump in Japan’s economy and suggest that any recovery will be slow and fragile. The fall in core machinery orders of 5.4% in April was far worse than analysts had expected. It shows companies are reluctant to invest despite signs that a brutal plunge in industrial production and exports may be bottoming out. Japan remains mired in its worst financial crisis since the end of the Second World War. The economy, the world’s second largest, contracted by a record 4% in the first quarter of the year. That is worse than the declines in other major industrialized nations. The Government is banking on massive public spending to turn the economy around. The latest package is worth around 150bn (100bn).
Source:BBC

Internet loans swing towards US
By Martin Plaut
BBC News
For the last four years an internet-based bank has been lending money from individual donors in the West to small businesses in the developing world. But now Kiva will enable loans to be made to the United States as well. Premal Shah, president of Kiva, says 10 million small businesses in the US are unable to get bank loans because of the credit crisis. So Kiva has seen 500,000 lenders provide around 80m to businesses in the developing world. Kiva is founded on a simple principle: individuals can make loans across the internet. They don’t get interest, but rather the satisfaction of seeing the money returned as the business repay the loans. So a pig farmer in Vietnam or a dressmaker in Uganda might receive 1,000 or more from a range of lenders who might live anywhere from Sydney to Los Angeles. But now Kiva is – in a sense – reversing the flow. The poor in the United States will also be able to get funding for the small business they are trying to get under way. Kiva’s president, Premal Shah, explained why – of all developed countries – his organisation chose the US. “We realise that poverty is everywhere on Earth and now more than ever access to capital is so difficult for small businesses. “So we decided to start with the United States where 85% of businesses are small businesses and something like 10 million small businesses cannot get a loan from a bank right now because of the credit crisis,” said Mr Shah. So from now on it will be possible for someone in Nairobi to fund a decorator in New York, joining the more than half a million Kiva lenders who have so far lent nearly 80m to small businesses in the developing world.
Source:BBC

Source:CNN

Court opens way for Chrysler sale
The US Supreme Court has rejected a plea to block the sale of assets of the bankrupt carmaker Chrysler to the Italian firm Fiat.On Monday, the court granted a request to delay the sale while three Indiana state pension and construction funds pursue an appeal against it. But it has now ruled that a full appeal against the plan is not justified. The Obama administration, which strongly backed the sale, had called on the court to reject the request. Fiat can legally walk away from the deal if it is not completed by 15 June. Chrysler entered bankruptcy protection in April, following a massive slump in sales brought on by the financial crisis. ‘Grave consequences’The US government had strongly supported its sale to the Fiat-led consortium, which would allow it to emerge from bankruptcy. Fiat would control 20% of Chrysler, while 68% would be owned by a union trust, and the two governments would share 12%. However, the pension funds, which hold about 42m (26.3m) of Chrysler’s 6.9bn in secured loans, are opposed to the sale. They say it inverts usual bankruptcy practice and unlawfully rewards unsecured creditors, such as the union, ahead of secured lenders. Earlier, the Obama administration said that blocking the deal would have “grave consequences”. Solicitor General Elena Kagan said that blocking the sale could force Chrysler into liquidation. Chrysler had filed for bankruptcy protection on 30 April and had aimed to complete the sale and alliance with Fiat within 60 days. The Chrysler case could also set a precedent for General Motors, which entered bankruptcy protection on 1 June.
Source:BBC

NEW YORK: The U.S. Supreme Court on Tuesday cleared the way for the sale of Chrysler to a consortium led by Italian automaker Fiat.On Monday, the Court had delayed the sale, pending review of the merits of a case brought by the Indiana state pension funds, which argued that they and other lenders deserved better treatment by the bankruptcy court. Chrysler’s asset sale was approved by a bankruptcy judge on June 1, just hours before the bankruptcy filing of General Motors (GMGMQ).The bankruptcy judge overseeing the Chrysler case had given approval for the company’s most valuable assets, such as plants, dealerships and contracts, to become part of a new company in which Fiat would hold a significant stake. Indiana Treasurer Richard Mourdock had appealed the ruling of a federal bankruptcy court. Mourdock made his appeal on behalf of three pension funds — for Indiana teachers and state police, as well as a “Major Moves” construction fund. The funds hold about 42 million, or less than 1%, of Chrysler’s 6.9 billion debt. “We are gratified that not a single court that reviewed this matter, including the U.S. Supreme, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. Government,” the White House said in a statement issued after the Supreme Court ruling. “We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker.”If the deal goes through, Chrysler would sell its best assets — including its best-performing factories and dealerships — to a newly formed entity called the Chrysler Group. The Chrysler Group would be controlled primarily by a United Auto Workers union trust, which will own a majority stake of 55%. Fiat will own 20% initially. Minority stakes would go to governments: 8% for the United States and 2% for Canada. Fiat’s stake will increase to 35% if it reaches certain goals. Chrysler would leave behind the assets that it doesn’t want, including eight factories and franchise agreements with 789 dealerships, placing thousands of jobs in jeopardy. To keep the company afloat, Chrysler received 4 billion from the Treasury Department in December and 4 billion more this year. But after many of the company’s creditors rejected a debt-for-equity swap to help the company restructure, the Obama administration forced the automaker to seek Chapter 11 bankruptcy protection.

Source:CNN

Airlines seek safe berth in storm
By Sharanjit Leyl
Business reporter, BBC News, Kuala Lumpur
The global economic downturn, the spread of H1N1 and volatile oil prices make for an unpleasant mix that has hit the airline industry more than most.These themes were clearly occupying the minds of many of the world’s airline chiefs, more than 200 of whom gathered at the International Air Transport Association’s annual meeting in Kuala Lumpur, Malaysia, this week. The atmosphere at the meeting was subdued, with many worried brows. Massive losses in the industry made even previously friendly chief executives, such as newly-installed Iata chairman Tony Tyler of Cathay Pacific, reluctant to speak to the journalists. Iata is projecting a 9bn annual loss for the commercial airline industry this year and as the global airline body, it should know. It counts 230 airlines as members. Giovanni Bisignani, Iata’s director general, reckons the industry is in survival mode. “I am a realist and I don’t see facts to support optimism,” he says. “Whether this crisis is long or short, the world is changing. Travel budgets have been slashed and consumers will need to reduce their debt. It will not be business as usual in the post-crisis world. “Governments, partners and airlines must use this crisis as an opportunity to build a stronger industry. That means resizing and reshaping.” Holding patternThe resizing is already taking place. From Singapore Airlines to Qantas, planes have been grounded and carriers are reducing capacity.
The ones in the Asia Pacific stand to lose the most – 3.3bn according to Iata’s projections – so scaling back is imperative. However, the elusive chief executive of the region’s largest airline, Singapore Airlines, was keeping a brave face. Chew Choon Seng often eschews one-on-one interviews, but he was happy to talk to us on the sidelines of the meeting’s first cocktail reception about prospects for the future. “Oil prices are still quite high in historical terms. The recession has affected our business globally. “And on top of it, the H1N1 flu epidemic has dampened demand more in Asia, than perhaps in America or Europe,” he says. “We do not know when the global economy will turn around, but it will in due course, and when it comes around, demand will be there, there will be a revival and the challenge for all of us in the industry is to position ourselves in the interim until we get there.” Class conflictAirlines are cutting back in other ways. First-class travel may be on its way out if Alan Joyce, the newly installed chief executive of Qantas Airways is to be believed. The Irishman took the helm of the Australian airline last November, when his predecessor, Geoff Dixon, retired. Since he took over, more than 1,000 jobs have been axed, 10 planes have been grounded and the airline has delayed the deliveries of 12 Boeing 737s and four Airbus A380s by up to a year. “What we’ve done is said, how do we cope with the current environment where we’ve seen 20 to 30 percent drop in premium traffic? On some routes, we’ve seen the first-class cabins particularly empty,” says Mr Joyce. “So the easiest thing to do in the short term is what we call a cosmetic configuration, which is not selling those seats as first class but selling them as business class, so effectively we have more seats on sale on the aircraft. We have introduced that on a number of routes.” These worries over the global slowdown, though, did not dictate the entire agenda. Iata also outlined plans for the industry to become carbon neutral by 2020. At the meeting, airline bosses committed to a global cap on emissions by 2020. After that date, aviation’s emissions will not grow even as demand increases, according to Mr Bisignani. Airlines currently account for 2% of global emissions and that figure continues to grow. The environment is only the last in a long list of concerns that continue to dog the industry, which may, more than most, encounter turbulence while riding out the storm.
Source:BBC

NEW YORK: Struggling small business owners can begin applying next week for an interest-free debt-relief loan through a new Small Business Administration program — if, that is, they can find a bank to process their application. The new “America’s Recovery Capital” (ARC) loan program, authorized by February’s stimulus bill and slated to launch on June 15 after four months of planning, aims to make small, government-backed loans available to viable companies laid low by the recession. (For full details on ARC eligibility and loan terms, click here.) But the loans will be made and managed by SBA lenders, and so far, few have jumped on board. Before the details of the program were released on Monday, lenders were hesitant to commit, concerned that there wasn’t enough economic incentive for them. Now, with key details about how the program will work finally available from the SBA, many haven’t retreated from their initial wariness. “While we have received a few requests from our customers, we are still leaning against it,” says John Handmaker, president of Quadrant Financial, a small business lender based in Louisville. “The guidance from the SBA indicated rates and terms, which have provided some clarity, but we’re not 100% certain about what we need to be careful of. We don’t feel we have a solid grasp of the standard operating procedures and rules, and we’re not going to jump in until we really understand it.”One deterrent for the banking community is the interest rate for the loans. While the loans are interest-free for borrowers, the SBA will pay lenders an interest rate of prime plus 2%. For the month of June, that’s 5.25% — a lower interest rate than the SBA sets for its other loan programs.”The SBA provided for a variable but fair rate,” says SBA spokeswoman Hayley Matz. “It’s important to remember that these loans carry virtually no risk to the lender — they are 100% guaranteed by SBA in terms of principal, and the SBA is paying the interest.”Talk back: What do you think of ARC loans?As the lenders debate the merits and potential pitfalls of making ARC loans, small business owners that need the money are wondering where to turn. Mack Sullivan, for example, is poised on a starting block, ready to run through lenders’ doors with his application on June 15.Sullivan’s tourism literature company, Due South Publishing, based in St. Simons Island, Ga., was profitable for the five years leading up to 2008. Then, the companies that advertised in Due South’s publications began cutting back dramatically.”The credit-card debt we have has accumulated primarily for just cash-flow management. As revenues have come down, we used it as a cash advance credit line, to pay for a publication we just printed, or expenses and payroll,” Sullivan’s says. At the same time, the interest rates on his four cards have doubled in recent months. The highest is now at 25.9%.With an ARC loan, Sullivan hopes to pay off the debt on those cards, which costs him about 2,000 a month. That move, he says, will put the company on more stable footing and position it to launch new products when the economy rebounds.When Sullivan contacted Bank of America (BAC, Fortune 500), his past lender, a representative told him the bank hasn’t yet decided if it will participate. “If they do it, I want to be first in line,” Sullivan says. “But I started contacting other SBA lenders in the meantime, and I talked to the senior vice president of another bank who said she doesn’t think her bank will do it.”Sullivan’s says his next step will be to start calling every lender on the SBA’s preferred lender list until he gets a hit. If he gets as far as CountryBank USA in Cando, N.D., he may be in luck. While CountryBank hasn’t yet made a final decision, CEO Terry Jorde says her bank will probably participate in issuing ARC loans. Jorde believes the weak financial incentives and uncertainty surrounding the program are outweighed by the needs of the community. “The interest rate is irrelevant. We’re only dealing with 35,000,” she says, referring to the maximum allowable ARC loan size. “The more important point is helping businesses survive. Those businesses may have 150,000 loans from us in the future. It’s that long-term goal that’s making us want to help them survive in the short run.”Quadrant Financial’s Handmaker disagrees, saying that while his bank sees value in the program, closing a 35,000 SBA loan can be just as hard and administratively burdensome as closing a much larger loan. He plans to use other tactics, such as loan-payment deferrals and moratoriums, to help customers while also making money for the bank.”Many of the clients we’ve talked to don’t want to incur additional debt,” he says. “If we can achieve same ultimate result, to help with cash flow at end of the day, then we can protect loans we’ve got without stepping into a program we don’t fully understand.”

Source:CNN

NEW YORK (CNN) — A federal bankruptcy judge Tuesday approved automaker Chrysler LLC’s plan to terminate 789 dealer franchises, calling it an “appropriate and necessary” step by the company.Effective immediately, the dealers are no longer authorized Chrysler, Dodge and Jeep dealers, Judge Arthur Gonzalez said in his order issued Tuesday afternoon. The decision to cut the dealerships “constitutes an exercise of sound business judgment” by Chrysler, which filed for bankruptcy protection in April, Gonzalez wrote.The dealerships Chrysler wants to close represent about 25% of its showrooms, but only 14% of its total sales, the automaker disclosed in court papers.The ruling comes as Chrysler awaits a key decision on its fate from the U.S. Supreme Court, has put a hold on the company’s sale to Italian automaker Fiat.0:00
/1:13Chrysler’s last roadblockThe Obama administration has pumped more than 7.2 billion into Chrysler to keep it afloat while it engineers a deal to keep the tottering automaker from being forced into liquidation. Government lawyers warned the Supreme Court on Tuesday that Fiat could abandon the deal unless it is sealed by June 15.”While Chrysler remains in bankruptcy with no confirmed alternative to liquidation, its situation deteriorates,” the government argued.Fiat officials, after the Supreme Court’s ruling Monday, told wire services the company would not walk away from the deal if Chrysler could no longer meet the June 15 deadline. They did not set a new deadline.Supreme Court Justice Ruth Bader Ginsburg granted the stay to opponents of the sale who say they stand to suffer major investment losses if the transaction with Fiat is approved. Attorneys for the Indiana state pension funds that are seeking to block the company’s emergence from bankruptcy argue that there is no need to rush the sale of Chrysler assets to Fiat.

Source:CNN