Archive for June 22nd, 2009

CUPERTINO, Calif. (Reuters) — Apple Chief Executive Steve Jobs showed up for work Monday and was spotted leaving the main corporate campus in Cupertino, California, a Reuters witness said.Speculation had mounted in past days that Jobs had returned to the company he co-founded more than 30 years ago, and emerged after a nearly six-month medical leave.On Monday, he was seen leaving the main Apple building in Cupertino, California and getting into a black car alone that was then driven off by men in black suits with ear-pieces.The Wall Street Journal reported that Jobs, 54, underwent a liver transplant in Tennessee while on leave. The company has declined to comment on the report.Jobs is viewed as the key visionary driving the company’s product development and the mastermind behind iconic products such as the iPod and the iPhone.

Source:CNN

NEW YORK (CNNMONEY.COM) — The Mortgage Bankers Association on Monday slashed its estimate of the number of mortgages its members will issue in 2009. One reason: Few refinancings are being done under the Obama administration’s ballyhooed Home Affordable Refinance Program.The MBA is forecasting mortgage originations of 2.03 trillion for the year, a drop of over 700 billion from its March forecast with more than 600 billion of the drop due to fewer refinancings than originally predicted. 0:00
/2:29Stimulus blasted as wastefulOnly 13,000 HARP refinancings have been completed during the first three months after the program’s launch, according to the MBA. Policy makers originally projected that 4 to 5 million mortgage borrowers would take advantage of the program over the next year.HARP targets borrowers with loans guaranteed or owned by mortgage giants Fannie Mae and Freddie Mac, and it enables them to qualify for refinancing into a lower rate if their balances are too high relative to their home values.But the MBA is skeptical that HARP numbers will ever hit projections.”While the number of loans completed under this program is likely to increase,” said Jay Brinkmann, chief economist for the MBA in a release announcing the lowering of origination estimates, “it is difficult to craft a scenario under which origination volumes would come anywhere close to reaching the numbers originally envisioned for the program, particularly under our higher rate environment.”One reason why HARP hasn’t taken off yet is that lenders/servicers are still gearing up to handle it, according to John Courson, president of the MBA. It’s not as simple as a regular refi, he said. Plus, Fannie and Freddie have different procedures and guidelines for the loans, and servicers have had to learn both. Freddie loans, in particular, were problematic, Courson said. The company decreed that only the actual servicer of a particular loan could issue a refi. He said Fannie allowed any approved servicer to do so.Applications flood lendersCourson also noted that servicers were flooded with requests for refinancings from their regular customers because interest rates had dropped so low. A 30-year, fixed-rate loan averaged well below 5%, and as low as 4.78%, from mid-March through the end of May, according to Freddie Mac’s weekly survey.The lenders were more likely to process applications from regular clients first, before moving on to HARP borrowers, according to Courson.”If you’re a lender and the refi volume is coming in, you do the easiest ones first,” he said. “If I have a 70% [loan to value], a real clean deal, I’m going to do that one first. The others may get pushed to the side.”Courson does believe that HARP refis will eventually pick up. Ironically, the increased interest rates of recent weeks have caused normal refi requests to drop, giving lenders more incentive to go after the HARP refis, which are a source of profit that they’re not fully exploiting.”Other refi opportunities are drying up,” said Courson, “and lenders could turn to these loans.”If interest rates return to sub 5% territory, that could lure back more regular refi customers and HARP borrowers could again be given short shrift, he said. But Courson does not think rates will go that will happen.”My prediction is that the volume for this program will pick up,” he said. He demurred, however, from forecasting that HARP volume will ever reach the 4 million to 5 million originally estimated.

Source:CNN

WASHINGTON: The watchdog charged with investigating fraud in the government bailout programs is feuding with the Treasury Department about who he answers to.The question revolves around whether Treasury should play any role supervising Neil Barofsky, the special inspector general overseeing the 700 billion Troubled Asset Relief Program.Since Barofsky took the job in December, he has launched at least 20 criminal investigations and six audits looking for wasted dollars. There’s no question the TARP law makes clear that Barofsky reports to the president, who has the power to appoint and dismiss him, and Congress, to whom he must give quarterly reports.But does Barofsky also report to Treasury Secretary Tim Geithner? Treasury believes the law is unclear on that point and is seeking a legal opinion to clarify it, a department official said Monday.Barofsky asserts that he would lose some of his investigative muscle if he has to report to Treasury.That “could potentially have a serious impact on the independence of our agency and our ability to carry out our mandate,” Barofsky said in a June 19 letter to Sen. Charles Grassley, R-Iowa, and Rep. Darrell Issa, R-Calif.A Treasury official asserts that the question of who oversees the TARP inspector general was first raised last December by “career, nonpolitical” staff.Barofsky sees the origin of the dispute differently.In a letter to lawmakers, Barofsky said the question came up in early April when he sought to interview a Treasury attorney about the department’s role in controversial bonus payments made to the unit of American International Group (AIG, Fortune 500) responsible for that company’s downfall.In the days before the AIG audit interview, Treasury and attorneys working with Barofsky swapped several emails over whether Geithner supervises the inspector general, according to a Barofsky memo.Most federal inspectors general ultimately report to the heads of the department they inspect, according to the Inspector General Act of 1978. 0:00
/3:14TARP cop on the caseTreasury notes that the provision that created the special IG post cites the 1978 inspector general law. Yet, it doesn’t spell out that Treasury has a role overseeing the inspector general. And it doesn’t use the word “independent.”Barofsky maintains that his office is different and reports to the president and to Congress — period.Treasury has asked the Justice Department’s Office of Legal Counsel to weigh in. It wants an opinion on whether Barofsky also reports to the Treasury in addition to the president and Congress.In his June 19 letter, Barofsky assured lawmakers that Treasury has not withheld any documents from his office and has made its staffers available for questioning.But the tiff — and the interest of some lawmakers in it — underscores the continuing political sensitivity surrounding TARP. Many lawmakers, especially Republicans, have been critical of the 700 billion program, even introducing legislation to bring TARP to an early end.Republicans have pounced on the squabble, which comes on the heels of a dustup over Obama’s dismissal of an inspector general unrelated to the Treasury Department.”At a time when the Treasury and Federal Reserve are exercising unprecedented powers intervening in our economy, the independence of the SIGTARP is one of the few checks and balances that remain,” Rep. Issa said in a statement.

Source:CNN

NEW YORK (Fortune) — One road to regulatory reform runs through Detroit and Utah — and there are signs the ride could get bumpy. The Obama administration’s financial oversight reform program would force industrial loan companies, or ILCs — banks owned by the likes of retailer Target (TGT, Fortune 500) and carmaker Toyota (TM) — to submit to Federal Reserve rules and regulations.Because Fed rules limit bank ownership, the plan could force big commercial firms to sell their banking arms. Doing so would close a regulatory loophole that has long chafed the Fed, which has no authority over nonbanks.But the fight over the ILCs is just beginning. Any changes in the law must be enacted by Congress, and Sen. Bob Bennett, R-Utah — where many of the biggest ILCs are based — has fought previous efforts to close the loophole. Bennett claims ILCs haven’t been a problem during the recent crisis and says eliminating them will make credit less available to consumers. Meanwhile, Ford Motor (F, Fortune 500) has sought federal permission to turn its Ford Motor Credit unit into an ILC in a bid to cut its borrowing costs as it competes with its government-backed Detroit rivals GM (GMGMQ) and Chrysler. Neither Ford nor the Federal Deposit Insurance Corp., which supervises ILCs, returned calls seeking comment. Critics of industrial loan companies argue that strengthening the separation of banking and commerce would be a good thing at a time when the federal deposit insurance fund is under pressure. “The taxpayer subsidies the ILCs have received are just enormous,” said Art Wilmarth Jr., a law professor at George Washington University. “The government has to stop the proliferation of these entities.” The case against ILCs, Wilmarth said, can be summed up in four letters: GMAC, a troubled finance company once owned by General Motors that now lists the government as its biggest shareholder. GMAC “is the poster child for why we shouldn’t have commercial ownership of banks,” said Wilmarth. Policymakers frown on commercial ownership of banks because it can lead to poor credit decisions and create more risks to the taxpayer-funded federal safety net.Even so, ILCs started cropping up as niche lenders in a few states more than 20 years ago. Regulatory changes a decade ago led to the formation of some giant ILCs, including ones run by Merrill Lynch (now part of Bank of America (BAC, Fortune 500)) and General Electric (GE, Fortune 500). But among the larger ILCs was a Midvale, Utah-based company called GMAC Automotive Bank, part of GMAC. Trying not to repeat the mistakes of GMACFor years, GMAC was a profitable part of General Motors. In 2006, though, GM sold a 51% stake to private equity firm Cerberus as it raised cash to restructure. Since then, the picture has darkened at both GM and GMAC. GM filed for Chapter 11 protection June 1, after receiving billions of dollars in bailout funds and spending months on the brink of bankruptcy. Meanwhile, GMAC — the biggest provider of financing to the carmaker’s dealers and customers — was struggling to raise capital to qualify for its own federal aid. At the end of December, the Fed cleared GMAC to become a bank holding company, while exempting it from Federal Reserve Board rules that govern a bank’s dealings with its affiliates. Since then, GMAC has received some 21 billion in taxpayer support, including Treasury funds and FDIC loan guarantees. The government justified the move by citing “emergency conditions.” It forced GM and Cerberus to sharply reduce their stakes in the company and said the conversion would allow GMAC, the main lender to customers of the troubled domestic automakers GM and Chrysler, to continue to extend credit to consumers. But not everyone was persuaded by that logic. Taxpayers, Wilmarth said, are now bearing the costs of what is essentially a commercial failure — the collapse of GM after years of poor strategy and product decisions.He said the poor results in recent years at GM and GMAC show the two were “propping each other up.” GMAC then compounded its auto-lending errors by making a big bet on residential housing via the purchase of lender ResCap, he said. GMAC didn’t comment.”Everything they said wouldn’t happen with the ILCs has happened at this one institution,” said Wilmarth. “Massive conflicts of interest, spreading subsidies from banks to commercial firms — all of it has come to pass.” While its Detroit rivals GM and Chrysler have taken tens of billions of dollars in federal funding, Ford has declined to take bailout money. But if Ford wants no part of the unpopular Troubled Asset Relief Program, the company has signaled it would like to join GMAC in raising low-cost funds by taking bank deposits. GMAC’s Ally Bank unit has raised more than 20 billion in deposits, in part by offering above-market certificate of deposit rates. That’s why Ford’s credit arm has been seeking industrial loan company status. Getting it would allow the company to borrow more cheaply — though an approval could complicate the lives of policymakers set on closing the ILC loophole.”I think they may have a battle on their hands here,” said Raymond Gustini, a partner at law firm Nixon Peabody in Washington. “But for now, those who want to eliminate the loophole have the moral high ground.”

Source:CNN

(breakingviews.com) — The U.S. government’s response to the credit crisis has been, on the whole, successful in warding off financial Armageddon. But as the banking system stabilizes, the Federal Reserve’s emergency loan and market-support programs could start to inadvertently subsidize unwise risk-taking. To avoid having taxpayers once again on the hook for Wall Street excesses, the government needs a clear strategy for winding the schemes down.Some — like the short-term loan auctions, collateral-for-Treasury swaps, financing for commercial paper purchases and foreign currency lines — are already on the wane. In all, the amount extended under these liquidity facilities has shrunk by over a third from its high late last year. Fed chairman Ben Bernanke says these programs now account for less than 1 trillion of balance sheet capacity.That’s because private sources of short-term capital have bounced back. Today, a bank can borrow dollars on an uncollateralized basis for a month in the interbank market for about 30 basis points, which is more attractive than a Fed loan requiring full collateral, even if it is 5 bps cheaper. In fact, banks only bid for a third of the one-month loans offered in the central bank’s June 15 auction.That’s not to say the programs need to be eliminated altogether. Some could remain on the books for revival in future crises, if need be. But any that are retained should be made more expensive. For example, the minimum interest rates on Fed loans should be set above market rates so only distressed institutions turn to them. In that sense they would be like the Fed’s pre-crisis discount lending rate, which was a full point above its overnight target. That would provide a safety net, but not a subsidy.Likewise, collateral requirements for some of the liquidity facilities, loosened during the crisis to allow firms to swap mortgage-backed, corporate and other sometimes worrying assets for Treasury securities, should be tightened to eliminate any credit-quality arbitrage opportunities. The Fed took an important step in this direction two months ago when it reduced the value of some of the 1 trillion-plus of collateral it holds, resulting in a 10% decline in the total amount that could be borrowed against it.For the short-term liquidity facilities, which are no longer urgently needed, the government should act sooner rather than later. The country’s massive borrowing requirements — an eye-popping 104 billion of notes is on offer this week alone — may push short-term interest rates up, making the Fed facilities attractive once again. If that happens, it may be harder for the government to snatch away the punch bowl.Any such resurgence could strain the Fed’s balance sheet, which doubled in size to over 2 trillion last year. Although liquidity facility borrowing since then has fallen over 500 billion, it has been offset by the Fed’s purchase of assets like Treasury bonds and mortgage-backed securities, and its growing support of the securitization markets.The Fed’s asset-backed security funding program is gaining steam and may eventually total as much as 1 trillion. It appears to have a good chance of reviving at least parts of the moribund securitization market. But again, the pricing and collateral requirements of the loans backing the ABS should be calibrated carefully to allow only those deals that would be viable under normal market conditions to cross the finish line.Bernanke says the Fed is working on a plan for withdrawing the programs, and keeping vigilant so banks can’t use all the liquidity sloshing around the system to take unwarranted risks. Taxpayers hoping to avoid further losses had better hope he has exceptional timing.

Source:CNN

NEW YORK: The job market may be a tad less chilly in the months ahead as a majority of employers now think the economy is inching towards a recovery, according to a survey released Monday.The survey, by consulting firm Watson Wyatt, found that 62% of employers are planning to reverse hiring freezes over the next 12 months. It also showed that 69% of companies in the survey plan to eliminate salary freezes. The results reflect a growing sense of optimism about the U.S. economy, which has shown some signs of stabilization after being mired in one of the longest recessions on record. 0:00
/2:501.7 million green jobsDespite the improved outlook, however, the survey also revealed that employers may keep some cost-cutting measures in place, suggesting the impact of the economic crisis may linger for years to come. “While more employers now feel the worst of the current downturn may be behind them, most are not expecting to go back to ‘business as usual’,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt, in a written statement. In other words, don’t expect a major hiring spree anytime soon. Even as employers scale back hiring freezes, more than half of the companies in the survey indicated that they expect staff sizes to be below “pre-economic crisis levels” over the next few years. In addition to having fewer workers on staff, nearly 80% of bosses expect their employees to work past their retirement age, according to the survey. While postponing retirement may become more common, help may return in paying for it. The survey showed that nearly half of employers that had reduced 401(k) and 403(b) matching funds said they plan to reinstate them over the next 12 months.However, the benefits of matching retirement savings may be offset by a rise in health care costs. The survey showed 73% of companies expect an increase in the percentage of health care costs paid by employees. “The challenge for companies will be to determine which cost-cutting changes can be reversed and which will become ingrained into the permanent business environment,” Sejen said. The survey was conducted in early June 2009 and included responses from 179 employers. Have you exhausted your unemployment benefits? We want to hear about your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.

Source:CNN

NEW YORK: The Securities and Exchange Commission on Monday charged a brokerage firm and several individuals with raising money from investors to feed Bernard Madoff’s Ponzi scheme.The SEC brought a civil enforcement action against Cohmad Securities Corp., its chairman Maurice Cohn, chief operating officer Marcia Cohn and registered representative Robert Jaffe with securities fraud. The SEC filed the case in U.S. District Court in Manhattan.0:00
/4:18Inside Bernie’s house of cardsThe Cohns and Jaffe are accused of courting investors for Madoff’s massive scheme, which used fresh investments from unsuspecting investors to make payments to more mature investors and creating the false appearance of legitimate returns. Separately, the SEC charged California-based investment adviser Stanley Chais with securities fraud. Chais is accused of operating feeder funds that poured money into Madoff’s Ponzi scheme.The defendants helped Madoff “cultivate an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors,” while providing “a constant in-flow of funds to sustain his fraud,” said Robert Khuzami, director of the SEC’s enforcement division, in a prepared statement.Both SEC complaints seek injunctions, financial penalties and court orders requiring the defendants to turn over ill-gotten gains. Over two decades, the Cohns and Jaffe raised billions of dollars from hundreds of investors for Madoff and were paid 100 million for their troubles, according to the SEC. The SEC accuses the defendants of being fully aware that Madoff was operating a Ponzi scheme.Defense lawyers for Jaffe called the SEC complaints “baseless.”"The complaint filed today, which we learned about only from the press, smacks of impulsiveness and efforts at self-justification,” Jaffee’s lawyers at the firm Arkin Kaplan Rice said in a statement. “It is unfair, baseless in the law, and is inaccurate in its understanding of the facts and of Mr. Jaffe.”Lawyers for the other defendants were not immediately available for comment.The SEC described Chais as an investment adviser for 40 years who “has held himself out as an investing wizard, purporting to execute a complex trading strategy on behalf of hundreds of investors, despite in actuality being an unsophisticated investor who did nothing more than turn all of the investors’ assets over to Bernard Madoff.”Between 1995 and 2008, Chais charged 269 million in fees, and withdrew 546 million from Madoff accounts, said the SEC. The government agency said Chais was “a close friend of Madoff since at least the 1960s.”Madoff has been locked up in the Metropolitan Correctional Center since March 12, when he pleaded guilty to masterminding the most massive Ponzi scheme of all time. He orchestrated the scheme through his firm, Bernard L. Madoff, which he founded in 1960.Madoff’s maximum sentence is 150 years in a federal prison, based on his guilty plea to 11 criminal counts, including fraud, money laundering, perjury, false filing with the Securities and Exchange Commission and other crimes. Madoff is set to be sentenced on June 29.Thus far, investigators have identified 1,341 investors in Madoff’s firm with losses exceeding 13 billion.

Source:CNN

CHICAGO (Reuters) — UAL Corp.’s United Airlines Monday said it would reduce the number of its flight attendants by 600 because of economic weakness and lower attrition rates.The cuts are in addition to the 1,550 flight attendant jobs eliminated last year as the third largest U.S. airline downsized. Those reductions were achieved through voluntary furloughs, and the company said it would again offer workers voluntary exit packages.UAL (UAUA, Fortune 500) currently has 13,500 flight attendants. The workers are represented by the Association of Flight Attendants union.High fuel costs and sagging demand has clobbered the airline industry as the recession erodes travel budgets. The carriers responded last year by trimming the number of seats for sale.0:00
/1:29Unfriendly skies for airlinesUAL said at the end of the first quarter it had reduced its mainline capacity by 9% to 10% year over year. The downsizing involved cutting 7,000 jobs or 13% of its workforce.Rivals Delta Air Lines (DAL, Fortune 500) and American Airlines parent AMR Corp. (AMR, Fortune 500) announced further capacity reduction targets for 2009 earlier this month. Analysts expect more airlines to follow.UAL shares were down 5.72% at 3.63 on Nasdaq in afternoon trade.

Source:CNN

NEW YORK: The seeds of a housing recovery have already been planted, according to a report released Monday. In fact, many of them were sown starting around 1979. According to an annual state of the nation’s housing from Harvard University’s Joint Center for Housing Studies, once the U.S. emerges from recession, strong demographic trends will restore health to the housing market. The key is echo boomers, the 75 million Americans born between 1979 and 1995.”There will be 5 million more echo boomers than there were boomers when they first started swelling housing markets,” said Eric Belsky, executive director of the Joint Center.As a result, household growth during the next 10 years should range between 12.5 million and 14.8 million, according to the report. All those new households mean demand for many new housing units.”This is a powerful, powerful underpinning of future demand,” said Belsky.HeadwindsThere are strong factors working against a quick recovery, however, and Belsky said it’s not clear whether recent increases in housing starts and existing home sales imply a rebound.”The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery,” he said. “For now, markets remain under considerable stress.”And the weak economy with massive job losses is putting additional downward pressure on markets. In many of the hottest areas, distressed properties – foreclosures and short-sales-sales – form the bulk of the business. That’s good in that it clears up some inventories of vacant homes, but the steep discounts pull down home prices around the neighborhood.That erodes equity for all homeowners and makes it more difficult for them to sell or access a home equity line of credit that could help them over financial rough spots. The home equity loan market, for example, is a mere shadow of what it was during the boom.Low demandAs a result, the number of households spending more than half their income on housing is very high. It reached 18 million in 2007 and, given the loss of income and jobs during the current recession, that number may have risen.Demand for homes is very limited right now. The weak economy has slowed it in several ways. Immigration has fallen, young people are less likely to move into their own places and more families are doubling up with relatives. New household formation dipped to about 1 million last year, down from 1.4 million a year during the boom, according to the report.Should the job losses turn around, housing markets could stabilize quickly. Inventories have already corrected to a significant amount, according to the report; the market has achieved a much better balance between supply and demand now.”The inventory correction has been dramatic,” said Belsky, “but it’s not seen because demand is so low.”There is, however, a lot of pent-up demand that could power markets back up. One problem, ironically, is affordability, despite prices having dipped more than 32% from their peak, according to the S&P/Case-Shiller Home Price index. Most lenders are only offering plain-vanilla loans with strict underwriting standards, so prices must fall even further for the properties to be affordable to many potential owners.During the boom, many buyers were able to get exotic adjustable rate loans that were very inexpensive for the first few years, allowing families to get footholds into homeownership.Interest-only, hybrid and option ARMs enabled many homebuyers to temporarily afford to buy more expensive homes. Those loans have vanished and lenders are much more careful about making sure buyers earn enough to keep up their mortgage payment, a brake on the overall market.The recovery, when and if it comes, does not figure to remind anyone of the boom years. Markets will not heat up quickly, according to Gary Garczynski, a homebuilder and past president of the National Association of Homebuilders, who commented on the report. “We will not see a V-shaped recovery,” said Garczynski. “It will be an L-shaped one and it will go on a long number of years.”

Source:CNN

NEW YORK: Oil prices fell sharply Monday as optimism about the economy waned.Light, sweet crude for July delivery was down 2.75, or nearly 4%, to 66.80 a barrel in New York. Oil for August delivery, which replaces July as the active contract Monday, was down 1.93 to 68.09 a barrel. The retreat comes after oil prices surged from a low of 33.87 a barrel late last year to a high of 72.68 a barrel earlier this month. Crude prices had been driven higher by bets the global economy was stabilizing and the world’s demand for energy was poised to rebound. However, recent U.S. government data have shown that demand for oil and gasoline remains weak, said Andrew Lebow, an energy trader at MF Global in New York. “The rally was based on improving economic conditions in the second half of the year,” he said. “But current demand numbers were disappointing.”Highlighting the dour outlook for the global economy: The World Bank said Monday that global trade will plummet by nearly 10% this year, and output will fall by 2.9%.0:00
/4:36T.Boone Pickens: 300 oilAt the same time, the market is responding to geopolitical concerns, including political unrest in Iran and militant attacks on oil pipelines in Nigeria.Hundreds of demonstrators angry over recent presidential election results gathered in a public square Monday in Iran’s capital city, despite a stern warning by the Republic’s Revolutionary Guard.At least 19 people were killed in clashes in Tehran on Saturday as Iranians took to the streets to protest the results of the June 12 presidential election, hospital sources told CNN.In Nigeria, militants attacked an oil and gas pipeline operated by Agip on Friday, widening a campaign which has so far targeted Chevron and Shell and halting a further 33,000 barrels per day of oil production, Reuters reported. Nigeria is Africa’s largest oil exporter. “We’re entering a multi-day correction with some geopolitical worry in the background,” Lebow said. Gasoline: Meanwhile, retail gas prices eased Monday, halting a 54 day surge.Nationwide, the average price for a gallon of regular unleaded gasoline edged down to 2.69, shaving just three-tenths of a cent from the previous day’s average of 2.693, according to motorist group AAA.

Source:CNN