Archive for July 17th, 2009

NEW YORK: Pennsylvania state workers’ paychecks are a little light these days.Struggling to resolve a 17-day-old budget impasse, Pennsylvania is withholding pay for 69,000 state employees for time worked after July 1. Workers Friday received only 70% of their salary, covering days worked in June. Two weeks from now, they’ll get nothing until a state budget is approved.Pennsylvania is one of three states that have yet to pass budgets for fiscal 2010, which began July 1. The other two — Connecticut and North Carolina — are operating under temporary spending measures. Still two others, Illinois and Ohio approved their 2010 budgets this week.0:00
/3:00States’ budget bummersIn California, which passed a budget in February, Gov. Arnold Schwarzenegger and lawmakers are moving closer to resolving a 26 billion budget shortfall that has forced the state to send out nearly 150,000 IOUs to residents, contractors and small businesses.When Pennsylvania state workers open their paychecks, they’ll see the words “Budget Impasse Leave without Pay” for the time worked in July. Even after a budget is signed, employees won’t see the money for several days. And they won’t get interest on the money owed, said a governor’s spokeswoman.Some 29 financial institutions, primarily credit unions, are offering workers no-interest or low-interest loans. Several food banks are also providing emergency supplies to employees in need. They can also check with the state to see if they are temporarily eligible for food stamps or welfare.Republicans and Democrats are battling over how to close a 2 billion budget gap. The former don’t want to raise taxes, while the latter don’t want to cut too deeply into state services.Lawmakers may take up the budget issue soon if the House passes its version Friday. It would then have to pass muster with the governor.California’s furlough FridaysMeanwhile, California residents are still reeling from their state’s budget stalemate. The impasse has affected residents, businesses and the state’s credit rating.Controller John Chiang has issued 147,000 IOUs totaling 662 million since July 2 in an effort to close a nearly 3 billion cash shortfall for the month. They are going to county social service agencies, those owed state income tax refunds and state vendors. Holders won’t get the funds until the budget is passed or until Oct. 2, whichever comes first. They will receive an interest rate of 3.75%.Several dozen credit unions are accepting the IOUs, and Citibank said Friday it will do so until July 24. But Wells Fargo, Bank of America and JPMorgan Chase, stopped taking the paper after July 10. This has left some residents struggling.”My company which I started a year ago may not survive this crisis,” one small business owner wrote to CNNMoney.com. “I still have to pay my creditors for the products ordered [and] they are not inclined nor obligated to accept an IOU from me.”At the same time, many non-emergency state agencies shut down Friday for the second “furlough Friday” this month. Schwarzenegger added a third monthly furlough day on July 1 when he declared a state of emergency. These divisions will be closed the first, second and third Friday of every month, starting July 10.The governor and lawmakers have said this week that they are close to a budget deal, though education funding remained a sticking point.The impasse is growing more costly to California as its financial situation grows more precarious. Earlier this week, Moody’s downgraded the state’s credit rating to three notches above junk status, following a similar move by Fitch Rating, which put it two notches above.The state treasurer warned Thursday that such downgrades limit California’s ability to borrow money. If the Golden State’s rating does fall into junk territory, it could be a disaster, said Treasurer Bill Lockyer.”If the governor and legislature dump us on that [junk] pile, they will end indefinitely the state’s financial ability to build schools, highways, levees — all the critical public works we need to rebuild California,” he said. “If we’re denied the ability to sell bonds, financing for infrastructure projects will cease. It won’t slow. It will stop. Many thousands of California workers will lose their jobs. Thousands of businesses will lose billions of dollars in revenue.”

Source:CNN

NEW YORK: State regulators shut down the tenth bank in Georgia this year, the Federal Deposit Insurance Corporation said Friday.The closure of First Piedmont Bank, based in Winder, Ga., marked the 54th bank to fail in the United States so far in 2009.Georgia regulators shut down First Piedmont Bank and named the FDIC the receiver. The FDIC entered into a purchase and assumption agreement with First American Bank and Trust Company, based in Athens, Ga. to take over all of the deposits of the failed bank. As of July 6, First Piedmont had total assets of 115 million and total deposits of 109 million. In addition to taking over all of the failed bank’s deposits, First American Bank and Trust Company will take over 111 million of Piedmont’s assets. The FDIC will retain the remaining assets to dispose of later. The shuttered bank’s two branches will reopen on Monday as branches of First American Bank and Trust Company, and customers will automatically be transferred over. Over the weekend, Piedmont depositors can access their money by writing checks or using ATM and debit cards. Checks drawn on the bank will continue to be processed, and loan customers should continue to make their payments.Friday’s failure will cost the FDIC fund 29 million, bringing the total cost for failed banks to 12.36 billion this year. That compares with 17.6 billion in all of 2008.The FDIC, which is funded primarily by fees paid by banks, insures individual deposits up to 250,000. The amount was increased from 100,000 late last year in response to concerns about the stability of the nation’s banks.The number of bank failures so far in 2009 has more than doubled last year’s total of 25.

Source:CNN

NEW YORK: In the last five years, Crocs have become ubiquitous, stepping onto the red carpet and the black top of every playground across the country. But that meteoric growth may be what leads the company to its downfall.Crocs, which debuted as a public company on Feb. 13, 2006, in an offering that raised 207.9 million, has seen its stock price plummet over the course of the last two years from more than 70 a share to about 3 a share. Fewer orders from third-party retailers and oversupply at its own freestanding stores have left the company with a bloated inventory, while knock-offs and discounting have also hurt its bottom line. Chief Executive John Duerden, who came on board in March to reignite the struggling brand, says the company can regain profitability — even though declining demand and increasing inventory have forced it to cut jobs and close production plants. “We’ve taken action to address those challenges, including aligning our production capacity to meet demand, reducing our overhead expenses and the size of our workforce, and paying down debt,” Duerden said in a statement Thursday.0:00
/2:22What you’re buying nowBut despite the operational changes, Crocs is also fighting an image problem. Although there are now 120 styles of Crocs, the overall appeal is waning. As with any fad, once it falls out out of favor it will be hard to regain enough cool status to sustain a 252 million company.”I love Crocs for kids,” said mother of two Anne Mclane. “My 4-year-old pretty much won’t take them off all summer. I know some adults who wear them, but they are not my taste.”Even though they remain relatively popular, the Croslite clogs may be destined to suffer the same fate as another once-hot apparel maker Eddie Bauer, which filed for Chapter 11 recently after the recession dragged down its sales. Making matters worse, Crocs’ 30 chunky shoes are designed to be comfortable and, more importantly, durable — meaning that even the most loyal fans may not need to buy replacements for their trusty Crocs anytime soon. Some analysts believe that while the company maintains a viable business model, it could take years for Crocs to become profitable again. “The company can remake its business and offer both meaningful profitability and stock gains,” Jeff Mintz, an analyst with Wedbush Morgan Securities, said in a recent report. But “the current environment makes it difficult to quickly turn around a flagging brand.”

NEW YORK: In the last 5 years, Crocs have become ubiquitous, stepping onto the red carpet and the black top of every playground across the country. But that meteoric growth may just be what leads the company to its downfall.Crocs, which debuted as a public company on Feb. 13, 2006 in an offering that raised 207.9 million, has seen its stock price plummet over the course of the last two years from over 70 a share to about 3 a share. Fewer orders from third-party retailers and oversupply at its own freestanding stores have left the company with a bloated inventory, while knock-offs and discounting have also hurt the bottom line. Chief Executive John Duerden, who came on board in March to reignite the struggling brand, says the company can regain profitability even though declining demand and increasing inventory has forced it to cut jobs and close production plants. “We’ve taken action to address those challenges, including aligning our production capacity to meet demand, reducing our overhead expenses and the size of our workforce, and paying down debt,” Duerden said in a statement Thursday.0:00
/2:22What you’re buying nowBut despite the operational changes, Crocs is also fighting an image problem. Although there are now 120 styles of Crocs, the overall appeal is waning. And with any fad, once out of favor it will be hard to regain enough cool status to sustain a 252 million company.”I love crocs for kids,” said mother of two Anne Mclane, “my 4-year-old pretty much won’t take them off all summer.” “I know some adults who wear them but they are not my taste.”Even though they remain relatively popular, the Croslite clogs may be destined to suffer the same fate as another once hot apparel maker, Eddie Bauer, which filed for Chapter 11 due to the many challenges it faced in this recession. Making matters worse, the 30 chunky shoes are designed to be comfortable and, more importantly, durable, meaning that even the most loyal fans may not need to buy replacements for their trusty Crocs anytime soon and as the brand loses its luster, new devotees may be harder to come by. Some analysts believe that while the company maintains a viable business model, it could years for Crocs to become profitable again. “The company can remake its business and offer both meaningful profitability and stock gains,” Jeff Mintz, an analyst with Wedbush Morgan Securities said in a recent report. But “the current environment makes it difficult to quickly turn around a flagging brand.”

NEW YORK (Fortune) — Looking for an inexpensive change-up for your next backyard barbeque? Try lobster. “Per pound, it’s less expensive than hot dogs right now,” grumbles lobster-boat captain Mike Dassatt, who fishes the coast near Belfast, Maine, with his wife Sheila.You won’t hear many complaints from lobster-loving tourists in Bar Harbor or Kennebunkport, but the Maine lobster fishery is coping with the steepest price decline in generations. All around the globe, the lousy economy is having a devastating impact on demand for luxury goods, and the Maine lobster may well be the Mercedes-Benz of food.Restaurant demand for lobster is down 30% to 35%, versus 10% to 15% for other seafood, reports Michael Tourkistas, CEO of Lynn, Mass., seafood distributor East Coast Seafoods. “Lobster is considered a celebration food — a feel-good food — and right now people don’t have a lot to celebrate,” says Tourkistas.If that weren’t bad enough, the implosion of the Icelandic banks, long the dominant lenders to the fishing industry, has reduced funding available to the big Canadian lobster processors, cutting demand further. These processors typically purchase and process more than half of Maine’s annual lobster catch before shipping them frozen to restaurants, cruise ships, and supermarkets all over the globe.On the other hand, the size of the lobster catch is bigger than ever, thanks to excellent oversight of the state’s lobster fishery. Maine lobstermen caught 67 million pounds of the crustaceans last year, 4 million more than in 2007 and triple the amount caught 20 years ago.0:00
/2:39Underwater flightOf course you don’t need a Ph.D. in economics to know what happens when supply is up and demand is way down. The wholesale or “boat” price of lobsters has crashed from a peak price of about 10 a pound in the winter of 2006 — average prices in recent years have hovered around 4.50 a pound — to a mere 2.25 today. “We’re basically off the charts historically in terms of low prices for this time of year,” says John Sackton, a Lexington, Mass.-based seafood industry consultant. (While retail prices vary widely by location, stores in New England have been running specials on live lobster for as little as 5 or 6 per pound.)Add in the high price of diesel fuel and the rising price of herring that lobstermen use as bait — herring has doubled in price since 2007 — and the end result has been a kind of economic Nor’easter for the Maine lobstermen. They’re now losing money on every lobster they catch.”Put it this way — yesterday we spent 70 on fuel, 60 on bait and came home with 70 worth of lobsters,” says Sheila Dassatt, herself a fourth-generation Maine lobsterman. (“Lobster-person” has yet to catch on with Mainers, perhaps because it sounds likes a creature from a gender-neutral horror flick.)Local experts think lobster prices are headed even lower because the peak season for lobster fishing — mid-August through late October — hasn’t even begun. Once those late summer and fall lobsters start hitting the docks, the fear is the new supply will crash prices even further in what’s already a glutted market. “I have a strong feeling you’ll see prices drop another 50 cents a pound,” says Edward Hennessey Jr., president of northern Maine’s Machias Savings Bank.Some lobstermen worry that wholesalers will refuse to pay any price for their catch. To some extent, it’s already happening. Drive the roads of coastal Maine, and you’re likely to see roadside stands where lobstermen — fed up with what they consider lowball prices from wholesalers and processors — try to sell their lobsters direct to consumers.Hennessey says he hasn’t yet had to foreclose on any lobster boats on account of the economy, but he’s worried. “Who knows what will happen?” he says.What’s a lobsterman to do? To an outsider, the obvious answer would be to stop fishing and just wait for lobster prices to bounce back. When asked why she and her husband continue to fish when they know they’re losing money every time they leave the dock, Sheila Dassatt laughs.”It’s a good question,” says Dassatt, who also serves as executive director of Maine’s Downeast Lobstermen’s Association. “Most of the fishermen in Maine are self-employed and have been for generations. The average age for a fisherman is about 54 years old. This is all they know, and at this point it’s kind of like teaching old dogs new tricks — myself included.” Dassatt is 54.One concession the Dassatt’s have made is leaving their traps in the water for a day or two longer and thus making fewer trips. They’ve been catching more lobsters per trap but using half as much fuel.But all that does is buy the Dassatt’s and other lobstermen some time. What they really need is a turnaround in demand, and everyone in the industry seems to believe that starts with changing the way lobster is marketed to consumers.”Lobsters are a happy food — something you have for your anniversary or to show off to your girlfriend — and it’s been promoted that way forever,” says Albert Carver, who owns five lobster pounds on northern Maine’s Beals Island. (A lobster pound is a fenced-off cove used to store caught lobsters in their natural habitat.)”Nobody goes to the supermarket with lobster on their list,” Carver says. “Steak could be 8 a pound, and they’re still going to buy it because it’s on their list.” The way to get lobster on the shopping list, he says, is by moving lobster down market — from the lobster tank to the frozen food aisle — and making cheaper, frozen lobster as widely available as frozen shrimp or salmon. “If we’re going to win the market back,” he says, “it’s going to have to happen with price.”

Source:CNN

NEW YORK: “Bankruptcy” isn’t a word business owners want linked to their venture, but when a franchise company goes broke, independent operators get branded by association — even if their own store remains healthy and profitable.It’s a problem more franchisees will be facing in the coming months. The recession has hit retailers hard, and within the last year, major franchisors including Mrs. Fields, Dial-a-Mattress and Bally Total Fitness have filed for bankruptcy.Typically, downturns work in favor of franchisors as jobless workers invest severance packages and savings in new ventures. But this time around, the extremely tight credit situation is preventing aspiring entrepreneurs from launching.”The number-one driver of franchisor sales is unemployement, because more people turn to franchising to do something else with their life,” says Mark Siebert, CEO of franchise consulting firm iFranchise Group in Homewood, Ill. “But given the credit situation, there’s an inability to finance franchises, particularly the high-end ones.”Business owners who operate under a franchise agreement pay royalties for the use of the franchisor’s brand in return for the benefits of the parent company’s marketing, supply chain, operating procedures and other established systems. All that can fall apart if the franchisor files for bankruptcy. As the recession drags on and franchise royalties fall, franchisors can run into trouble covering their fixed operating costs — particularly if they are unable to generate new franchisee locations.In the first quarter of 2009, there were 14,319 business bankruptcies in the U.S. — a 64% surge from 2008, and the highest of any quarter in at least the past 15 years, according to the American Bankruptcy Institute.While little data exists on bankruptcies specifically in the franchise field, the International Franchise Association (IFA) and PricewaterhouseCoopers found in a January study that the economic decline is taking its toll. They project that the number of franchise establishments in America will decline by 1.2% in 2009 — a net loss of 10,000 of the nearly 865,000 establishments that existed in 2008.It’s a common misconception that bankruptcy means closing up shop. In some cases, it can actually be the best solution to keep the doors open — even if it means the franchisees, investors or other companies assume ownership. Denny’s (DENN), Boston Market, Days Inn and 7-Eleven each filed for Chapter 11, and all are alive and growing today.”Bankruptcy of the franchisor is not necessarily bad for the franchise system or franchisees,” says Alisa Harrison, IFA’s spokeswoman. “There have been cases where the bankruptcy and restructuring actually result in a stronger network of operators, with stronger financial management at corporate headquarters and a stronger brand position.”But before a company has a shot at that type of rebirth, it has to go through the pains of bankruptcy — which can be easy, hard or very hard on the franchisees.Legal wranglesA franchisee’s experience is influenced by the franchisor’s reason for filing, the type of protection it gets (a Chapter 7 bankruptcy can discharge debt, while Chapter 11 reorganizes it), the terms of the franchise agreement, and other unique factors.In a best-case scenario, franchisees continue business as usual, perhaps implementing minor adjustments that the franchisor deems necessary to boost profits or cut overhead. But in a worst-case scenario, the franchisor can cherry-pick franchisees to terminate. Unfortunately, franchisees often have little power to counter that move.When the numbers get crunched, independent franchise operators sometimes find their outlets in a better position than stores that the company owns directly. For example, after Bennigan’s restaurants filed for Chapter 7 in July 2008, the corporate locations shuttered while nearly 140 franchisees remained open.”One problem with Bennigan’s was that they had too many company-owned stores. When the economics changed, the company-owned stores were no longer profitable and they were losing money faster than the franchisees were paying royalties,” explains iFranchise’s Siebert. “But even if they’re not that profitable, it’s hard to actually lose money on a franchisee.”That’s what General Motors and Chrysler franchisees argued earlier this year when their parent companies filed for bankruptcy. Nonetheless, hundreds got axed as the auto companies reevaluated their business models and closed down less-profitable dealerships.It’s not uncommon for franchisees to be left holding the bag while a bankruptcy is in progress. Bennigan’s franchisees, who had previously depended on corporate marketing initiatives to advertise their stores, faced the challenge of publicizing that they were open for business despite a whirlwind of press implying otherwise.Rebuilding from scratchOthers franchise owners have been stranded with much more than just bad PR. Richard Carlton and his wife Michelle opened a Cork and Olive franchise in Lakeland, Fla., in 2007. The Carltons were the wine retailer’s first franchisee-owned store, but the young chain soon grew to nine other franchisee stores and eight company stores in the state. Then things got ominous.”In the summer of 2007, we started having inventory issues. We’d ask for merchandise and it wouldn’t show up for three weeks. When we’d approach them about it, they’d blame the vendor,” Richard Carlton recalls. “It really became a problem during the busy holiday season, and at that point we started to see the writing on the wall.”Cork and Olive filed for Chapter 7 in June 2008, closing the company-owned locations. Then it filed for Chapter 11.”We didn’t hear about it until one of the employees at a company location applied for a job at one of the franchisee locations. Then all the franchisees got in contact with each other. Two days later, we all met and we were able to put some of the pieces together,” he says. “It was nerve-wracking because everything we had planned just got turned upside down.”Also at that meeting were some of Cork and Olive’s vendors, who assured the franchisees that they’d continue to work with the group. That answered the question about inventory, but a slew of challenges still lay ahead.For a time, store owners had to pay out of pocket when customers brought in previously purchased gift cards — there was no longer a corporate headquarters to reimburse individual retailers when the cards were redeemed. Their back-end database and server got shut down, forcing each store to recreate its own Web site. The franchise owners had to meet regularly to ensure that product offerings and prices were the same at each store. The list goes on, Carlton says, and one big challenge still remains: securing the rights to the brand and the name.That’s one of most common problems franchise owners face when their master brand goes bust, according to Robin Day Glenn, an attorney at Franchise Law Team in Rancho Santa Margarita, Calif.”The most important thing that a franchisee group can do, if they perceive the franchisor is in liquidation, is to attempt to acquire the rights to the mark,” she says. “If a franchisor leaves the scene and there’s no provision for continued use of the mark, the franchisees won’t lose the right to use is. But failing to formally acquire it means they can’t tell others not to use it.”While the past year has been a struggle for the Cork and Olive franchisees — two have closed and one was recently sold — Carlton says he’s happier and more profitable working independently.”Now we can put great ideas together without restrictions,” he says. “We develop our stores based on what we know works. After all, we’re the ones on the front lines.”Carlton just installed a tasting bar in his shop and found that it boosted sales. Other franchisees have since adopted the idea.And one of the sweetest outcomes of the bankruptcy? “I was paying 1,500 a month in franchise and royalty fees,” he says. “It’s really nice to not have that any more.”

Source:CNN

DALLAS (CNN) — A federal judge has dismissed the Securities and Exchange Commission’s insider trading case against Dallas Mavericks owner Mark Cuban, CNN has confirmed.0:00
/1:17Madoff gets the maxJudge Stanley Fitzwater, in dismissing the charges against the outspoken billionaire, allowed the commission 30 days to file an amended complaint.The charges, filed in 2008, stemmed from Cuban’s sale of all 600,000 shares he owned of Internet search company Mamma.com shortly before the company announced a private offering.According to the SEC, Cuban avoided losses in excess of 750,000 by selling the stock before the public offering, which caused the company’s stock price to fall.

Source:CNN

NEW YORK: It’s funny how Wall Street works these days. News that should be considered bad is thought to be good because it’s “less bad.” But some companies that actually report good news get punished because it’s not good enough.It reminds me of a funny quote from Rosie Perez’ character in “White Men Can’t Jump” — aka the last good movie starring Wesley Snipes. “Sometimes when you win, you really lose, and sometimes when you lose, you really win, and sometimes when you win or lose, you actually tie, and sometimes when you tie, you actually win or lose.” Consider the case of Google (GOOG, Fortune 500). The Internet search giant reported results for the second quarter Thursday afternoon that, to any sane investor, look good. Sales rose 3% from a year ago and were roughly in line with estimates. Profits were up nearly 20% from the same period last year.Yet, the stock fell 3% Friday morning and many stories about Google’s results focused on the fact that sales growth is no longer as robust as it used to be. Well, duh! Google often gets mislabeled as a technology company. In reality, it’s a media company that just so happens to use technology to efficiently sell advertising. And guess what? We’re in a recession! The advertising business kind of stinks. Most media companies would kill for 3% year-over-year sales growth. CBS, Walt Disney, News Corp. and my parent company Time Warner are all expected to post year-over-year sales declines for this quarter — and over the full year for that matter. Investors need to focus more on the absolute and less on the Wall Street parlor game of earnings relative to expectations. Talkback: Are you buying any stocks now? What companies do you think are good investments? Leave your comments at the bottom of this story. Bank stocks are going up because they are reporting earnings declines that aren’t as big as feared. That’s all well and good. But wouldn’t you rather own a company that’s reporting profits that are rising?”There are still plenty of companies in this environment that are growing earnings at a pretty good clip,” said Joe Milano, manager of the T. Rowe Price New America Growth fund. “We’re looking for long-term growth in the absolute sense — regardless of what’s going on in the economy. There’s always stuff to buy, even in a recession.” 0:00
/3:14Strong earnings? So what.Google is one example of a stock that Milano owns in the fund because it has been able to keep growing during the recession. He also likes tech superstars Amazon.com (AMZN, Fortune 500) and Apple (AAPL, Fortune 500) for the same reason. But he said there are many others that are holding up well in a variety of sectors.In healthcare, he owns pharmacy benefits-management firm Medco Health Services (MHS, Fortune 500) and dental-products supplier Henry Schein (HSIC, Fortune 500). There are even some retailers that he likes, including Wal-Mart (WMT, Fortune 500), Bed Bath & Beyond (BBBY, Fortune 500) and Advance Auto Parts (AAP, Fortune 500). What all of these stocks have in common is that they are each expected to report earnings growth in the current fiscal year.That’s what investors should be trying to find now. Actual growth. “We’ve looked at companies that are turnaround stories but there are still a lot of questions about their quality,” said Kent Mergler, chairman of Northstar Capital Management, an investment firm with about 250 million in assets based in Palm Beach Gardens, Fla., that focuses on growth stocks. Mergler’s firm owns several of the companies that Milano has in his fund, such as Google, Apple and Wal-Mart. Merger said he also likes construction company Fluor (FLR, Fortune 500), software giant Oracle (ORCL, Fortune 500) and Hudson City Bancorp (HCBK), a regional bank with a reputation for being ultraconservative. And like the other stocks, all of them have remained profitable during the downturn and their earnings are expected to increase again this year.”We have continued to invest in fundamentally strong companies. We aren’t buying companies that are running losses and just offering promises of profitable futures,” Mergler said. That is key. Now that the broader market has already enjoyed a nearly 40% pop from the March lows, investors have to pay attention to quality and value reliability over potential. As I pointed out in a column last month, one disturbing part of the recent rally is that many of the stocks leading the way were troubled firms that were skyrocketing merely because investors realized they wouldn’t all go out of business. Sure, you could argue that a lot of financials, retailers, industrials and other struggling firms were oversold back in March and deserved some bounce. But to justify more gains, companies have to prove to investors that they are capable of putting up decent profits.”From mid-March through the end of May, most stocks that had rallied were sick companies with disastrous balance sheets,” said Bill D’Alonzo, chief executive officer of Friess Associates, a Greenville, Del.-based investment firm that runs the Brandywine family of mutual funds. “Now, earnings are starting to matter again. People are realizing that it was a rubbish rally,” D’Alonzo added.Talkback: Are you buying any stocks now? What companies do you think are good investments?

WASHINGTON/NEW YORK (Reuters) — Verizon Wireless is dialing back on its exclusivity agreements with handset makers after pressure from U.S. lawmakers and smaller carriers.The biggest U.S. mobile service said on Friday it will limit exclusivity periods with cellphone makers to six months and then allow the country’s smallest wireless service providers to sell the devices.The move comes after reports that the U.S. Department of Justice was taking a preliminary look into whether U.S. operators had violated antitrust laws by obtaining exclusive deals to sell specific phones.Exclusivity deals are common among the biggest U.S. carriers but have recently faced strong opposition from small, rural carriers, which say they lack the clout to make deals to carry the most popular advanced phones.The iPhone has drawn such deals into the spotlight because AT&T Inc. (T, Fortune 500), the second biggest U.S. wireless service, has had exclusive U.S. rights with Apple Inc. (AAPL, Fortune 500) since 2007.In an apparent effort to preempt any regulatory changes, Verizon Wireless, a venture of Verizon Communications (VZ, Fortune 500) handoff Group (VOD), sent a letter to major lawmakers on July 17 offering to limit exclusivity.Verizon said the offer would apply to carriers with 500,000 or fewer subscribers. However, Verizon spokesman Jeffrey Nelson said it applies to all “small” operators with more subscribers without giving a definition. Cellular South, a vocal activist against phone exclusivity deals would be able to avail of the offer even though it has roughly 800,000 customers, he said.However, the offer will not extend to larger companies such as U.S. Cellular Corp., which has about 6 million customers and has been a vocal opponent of the practice, Nelson said. U.S. Cellular did not immediately comment.0:00
/1:58Money saving cell phones”Effective immediately for small wireless carriers … any new exclusivity arrangement we enter with handset makers will last no longer than six months — for all manufacturers and all devices,” Verizon Wireless CEO Lowell Mc Adam said in the letter.He said 24 small wireless carriers had asked Verizon to eliminate its long-term exclusive handset agreements with LPG and Sam sung in February. The company was now expanding that idea to all handsets.The letter was sent to Senate Commerce Committee Chairman John Rockefeller, a West Virginia Democrat, and committee members John Kerry of Massachusetts and Republican Kay Bailey Hutchinson of Texas. The letter was also sent to Representatives Rick Boucher, Henry Wax man, Joe Barton and Cliff Stearns.A spokeswoman for the Justice Department was not immediately available for comment. The DJ’s preliminary examination is believed to be focused on deals like AT&T’s with Apple and Sprint’s (S, Fortune 500) with Palm’s Pre cellphone. Another is Verizon’s deal with LPG for its Voyager phone.AT&T spokesman Mark Siege declined to comment on how it might respond to Verizon’s move, but defended exclusive deals.”Without question exclusive handset deals have given America’s wireless customers big benefits, including more choices, lower prices, and a level of innovation that is the best in the world,” he said in an emailed statement.Sprint was not immediately available for comment nor was a spokesperson for the U.S. telecom regulator, the Federal Communications Commission.Boucher, chairman of the House Energy and Commerce Subcommittee on Communications, who met with Mc Adam on Friday, praised Verizon’s actions.”Verizon has taken an important and forward-looking step. I think it does ensure that smaller carriers get rapid access to the latest devices,” Boucher told Reuters.Smaller telecommunications firms and consumer advocacy groups have also complained that bigger companies use their size to squeeze out smaller rivals by refusing roaming deals, or block applications like the Sky Web-based phone service.

Source:CNN

NEW YORK (Reuters) — CIT Group Inc. is in talks with JPMorgan Chase & Co. and Goldman Sachs Group Inc. about short-term financing as it looks for ways to avoid bankruptcy, a source close to the company said on Friday, sending the lender’s shares and bonds up.CIT (CIT, Fortune 500) — a 101-year-old lender that services nearly one million small and mid-sized businesses — is in search of 2 billion to 3 billion of financing, according to the source, who declined to be identified because the talks were private.The company is also in talks with bondholders about a debt for equity swap, the source said. However, another source familiar with the negotiations who also declined to be identified told Reuters that many bondholders were pursuing a “debt for new debt” exchange, and that a debt for equity exchange was not a real consideration.The first source added one potential scenario is also a sale of some assets to raise capital.Bankruptcy, however, is still possible over the next few days, and CIT is maintaining an ongoing dialogue with regulators about the situation, the first source said. The lender had wanted regulators’ permission to transfer assets to its bank unit, but that did not happen, the source said.”They haven’t thrown the towel, and they still are trying to work very hard to get some sort of funding, but at the end of the day I still think that there is a very high risk of a bankruptcy event,” said Sameer Gokhale, an analyst at KBW.Shares were up 48 cents, or 117%, to 89 cents, after losing 75% of their market value on Thursday as government talks for financing collapsed and investors feared the company would have to file for bankruptcy.The price of CIT’s floating-rate notes due in August rose to 66.5 cents on the dollar in busy trading, from about 61 cents late on Thursday, according to MarketAxess.Asset sales?The New York Post reported Friday that JPMorgan Chase & Co. (JPM, Fortune 500) could acquire CIT’s factoring unit, which finances more than 50 billion of wholesale inventory, at a time of the year when the collapse of the lender could disrupt retailers holidays plans.CIT declined to comment and JPMorgan was not available for comment.But Gokhale cooled expectations of an asset sale.”It has some valuable franchises, but if they sell the assets in a distressed situation, they don’t even get the par value for the assets. They will have to take losses and those losses will further weaken the balance sheet, so that doesn’t seem to be a viable strategy,” he said.0:00
/3:14Strong earnings? So what.The company sought new help even after gaining the status of bank holding company in December so it could draw 2.33 billion of taxpayer money from the Treasury’s Troubled Asset Relief Program.But the Obama administration declined help, saying it had set high standards for granting aid to companies and leaving private investors as the one alternative to avoid collapse.The impact of CIT’s demise would likely pale by comparison with the collapse of investment bank Lehman Brothers Inc. last September, analysts said.Still, the ripples of a collapse could be widespread and worsen the effects of the economic downturn for some firms.CIT has about 40 billion of long-term debt, according to independent research firm CreditSights. About 1.1 billion of debt will come due in August, followed by about 2.5 billion by year end.

Source:CNN