Archive for July 30th, 2009

NEW YORK: The federal government may suspend its 1 billion Cash for Clunkers program after less than a week over concerns that the plan may have already burned through its funds, according to congressional sources.A White House official said the Obama administration is assessing the situation, but added that “auto dealers and consumers should have confidence that all valid … transactions that have taken place to-date will be honored.”The Department of Transportation, which runs the program, reportedly wants to sort out how much of the plan’s funds it has already committed.Cash for Clunkers officially launched less than a week ago.It is set to end on Nov. 1, or whenever its 1 billion budget has been depleted. Under the plan, vehicles purchased after July 1 will be eligible for refund vouchers worth 3,500 to 4,500 on traded-in gas guzzlers. The trade-in vehicle has to get combined city and highway fuel economy ratings of 18 miles per gallon or less.The program, created by Congress to spur sales and help the struggling auto industry, is intended to take low-mileage cars off the road and spur new car sales for U.S. automakers.”With this program, we are giving the auto industry a shot in the arm and struggling consumers can get rid of their gas-guzzlers and buy a more reliable, fuel-efficient vehicle,” Transportation Secretary Ray LaHood said in a statement Monday.As of Wednesday, nearly 30,000 Clunker transactions had been been submitted to the National Highway Traffic Safety Administration, the agency said, requesting a total of almost 96 million in disbursements.

Source:CNN

NEW YORK: If you need more proof that the mortgage crisis is far from over, look no further than the tepid reaction to the initial public offering of PennyMac Mortgage Investment Trust.PennyMac (PMT) is a real estate investment trust that wants to buy up distressed loans, modify the mortgages to keep borrowers in their homes and then sell the loans once their value goes up. The company went public Thursday morning and finished the day 4.5% lower, at 19.10 a share.It’s an ominous sign for PennyMac, which originally filed to sell 20 million shares at 20 apiece but reduced the offering’s size to 16 million shares — likely a reflection of weak demand.Why was there such a lack of interest, especially on a day when bank stocks helped fuel the overall market’s surge? Maybe it’s the name. After the failure of lender IndyMac and the government takeover of mortgage financing giant Freddie Mac, a company dubbing itself as PennyMac may not exactly conjure up images of financial success.Maybe it’s guilt by association. Many of PennyMac’s top managers, including CEO Stan Kurland, are former employees of Countrywide Financial, the troubled mortgage lender that was bought by Bank of America (BAC, Fortune 500) last year.Kurland, who left Countrywide in 2006, was the lender’s chief operating officer. Former Countrywide CEO Angelo Mozilo has since been charged with securities fraud by the SEC. There are also a litany of significant risks listed in the company’s prospectus. For one, PennyMac has a limited operating history. The company, which was only founded a year ago, has purchased some pools of distressed loans from the FDIC through a series of funds. But PennyMac has no revenue or earnings yet.PennyMac also noted in its registration filing that “many of our anticipated competitors are significantly larger than we are and have stronger balance sheets and access to greater capital and other resources than we have and may have other advantages over us.”Talkback: Do you think the Obama administration’s plans to help homeowners has made a difference? Leave your comments at the bottom of this story. But at the end of the day, PennyMac may simply be yet another victim of the painfully slow progress of the Obama administration’s attempt to fix the mortgage mess.The Treasury Department’s plan to partner with private investors to rid banks of toxic mortgages, known as the Public-Private Investment Program, or PPIP, has been scaled back drastically. Many banks appear to be unwilling to sell the loans for such a reduced price.And a foreclosure prevention program announced by the administration in February is off to a rocky start. Regulators are pushing banks to do what they can to modify 500,000 mortgages for borrowers already in, or at risk of, default by November. But many homeowners have griped about how difficult it is to get their loans modified, partly due to banks being ill-prepared to deal with a deluge of applications.0:00
/4:02Shiller on home price uptickAll that may make it tough for PennyMac to thrive.”Banks are loath to sell a lot of these loans because they would have to take a capital hit and acknowledge they made bad loans,” said Merrill Ross, senior analyst with BGB Securities, a research firm owned by money manager Aegis Financial. “So banks may still want to try and work the loans out themselves. But at the same time, banks are overwhelmed with refi requests for mortgage modifications.” Then there is the issue of competition. There are already several other real estate investment trusts around that invest in mortgages, and many more are coming out of the woodworks to try and take advantage of the depressed values in the market.”To buy loans at discount and work through them would seem to be a good way to play the upside in the housing market since not all of these loans will go bad. But there are a lot of companies out there going after the business. There are a lot of other distressed asset investors with similar ideas,” said Jason Arnold, an analyst with RBC Capital Markets. Invesco Mortgage Capital (IVR), a mortgage REIT managed by investment firm Invesco (IVZ), went public last month. Like PennyMac, it is trading below its offering price. Earlier this week, Bayview Mortgage Capital, whose parent company is backed by private equity firm Blackstone (BX), filed for an IPO. And mortgage REITS backed by investment firms AllianceBernstein (AB), Apollo Management, Colony Capital and Starwood Capital Group have also filed for IPOs since the beginning of June.Another analyst suggested that it’s not as much fear of competition as it is the glut of mortgage REITS heading to the market that’s scaring off investors.”In reality, the pool of distressed assets is huge,” said Matthew Howlett, an analyst with Fox-Pitt Kelton Cochran Caronia Waller. “But investors are viewing all of these companies going public as a cookie cutter type of thing. At some point, the market is going to be saturated.” To its credit, PennyMac attracted some notable investments prior to its IPO as well. Its two biggest backers are investment management firm BlackRock (BLK, Fortune 500) and Highfields Capital Management, a Boston-based hedge fund most well-known for shorting Enron’s stock before it collapsed due to accounting fraud.Ross said that the fact that there are so many ex-Countrywide officials at PennyMac could be a plus going forward. Since Countrywide was such a major subprime mortgage lender, it’s possible that the company will have a leg up on other competitors about how to best undo the damage done.”It’s like taking a watch apart. Anyone can take it apart, but if you have the guy who put it together that makes a difference,” she said. Talkback: Do you think the Obama administration’s plans to help homeowners has made a difference?

NEW YORK: The IRS is on the lookout for taxpayers and tax preparers skirting eligibility rules when claiming the 8,000 tax credit. Here’s what you need to know.1. Get the storyThe IRS just prosecuted a tax preparer in Jacksonville, Florida for falsely claiming the 8,000 first time homebuyer tax credit for a client’s tax return. His clients either didn’t buy a home or they didn’t qualify for the credit. And this isn’t the only case. There are about 24 criminal investigations still pending. The agency says it has screening tools in place that can detect fraud. The penalties can be steep if you’re caught: up to three years jail time and/or up to 250,000 in fines. Even if you use a tax preparer, YOU are ultimately responsible for the accuracy of the tax return. If there is an error, you may be responsible for paying back taxes, penalties and interest.2. Protect yourself Here’s how you can protect yourself: first, use a reputable tax preparer. The sad truth is that anybody can put out a shingle and claim to be a tax preparer. To be safe, you’ll want to pick a certified public accountant or an enrolled agent (a professional licensed by the federal government). You can find out whether your CPA has had any recent disciplinary actions against him or her by going to the AICPA’s Web site, where there is also info about picking a tax professional. Don’t automatically trust a tax preparer who promises you a big refund. Finally, make sure your refund comes directly to you. 3. Know the factsThe First-Time Homebuyer Credit provides up to 8,000 for first-time homebuyers. And remember, it’s a credit — not a tax deduction. To qualify you have to be a first-time homebuyer –so you cannot have owned a primary home in the past three years. And you must close before December 1st of this year.Go to federalhousingtaxcredit.com for more info.– CNN’s Jen Haley contributed to this article.Got a financial dilemma? Go to CNNMoney.com/helpdesk to submit questions, read the Help Desk articles and check out new Help Desk videos. And tune in to CNN’s Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions.

Source:CNN

NEW YORK: The last-minute snafu that suddenly disqualified some previously eligible vehicles from the Cash for Clunkers program has finally been cleared up.Last week, just before the program’s July 24 official start date, 78 vehicles were made ineligible when the Environmental Protection Agency upped the estimated fuel economy ratings on those vehicles. At the same time, the EPA suddenly lowered the fuel economy ratings for 86 other vehicles, making them eligible.Acknowledging the confusion caused by the EPA’s changes, the National Highway Traffic Safety Administration which manages the Clunkers program, said Thursday that trade-ins made between July 1 and July 24 of vehicles that became ineligible after the switcheroo will be allowed to keep their rebate, NHTSA spokesman Rae Tyson said.The program officially began on July 24 but retroactively recognizes deals made beginning July 1.This means that buyers of unclunked cars who jumped on the program’s unofficial July 1 start will be pleased. They’ll get to keep their rebate. Those who waited and now find that their cars are no longer eligible are out of luck.But for people who traded in cars that only became eligible after July 24 the opposite is true: Those deals made before July 24 will not get rebates. Those made after that date will qualify, Tyson said.0:00
/02:56Auto families still believeCash for Clunkers offers government rebates of up to 4,500 to drivers who trade in cars with combined city and highway fuel economy ratings of 18 MPG or less.As of Wednesday, nearly 30,000 Clunker transactions had been been submitted to NHTSA, the agency said, requesting a total of almost 96 million in disbursements. The program will end on Nov. 1, or whenever its 1 billion budget has been depleted.

Source:CNN

(breakingviews.com) — The pig of U.S. financial reform will be stuck in the legislative python a bit longer. U.S. lawmakers are about to flee steamy Washington for their month-long summer recess, leaving much of Barack Obama’s ambitious agenda hanging.That’s probably good — remaking the banking world is not a task to be rushed. And the president needs to get it more or less right the first time.The two principal committees charged with shaping reform legislation — the House Financial Services Committee and the Senate Banking Committee — have been holding a welter of hearings on various proposals for the last several months. This is understandable, given the scope and technical nature of the reforms — plus some lawmakers’ belief that they were hoodwinked by the last administration over the Troubled Asset Relief Program.Along with overhauling the bank regulatory system, Obama is tackling the 600 trillion private derivatives market and backing measures to wrest oversight of the insurance industry from the states. That’s in addition to pushing controversial healthcare reform legislation and a cap-and-trade emissions bill. And it comes on the heels of credit card reform legislation that stirred up a hornet’s nest of bank lobbyists.Even individually, each of these initiatives could draw down even a popular president’s store of political capital. Obama still has plenty of that left, and influential allies in Congress. And the financial services industry is able only to mount a token defense in public while its reputation languishes and it remains, to some extent, on government life support.Admittedly, that’s one reason for the urgency. But even so, well-rested lawmakers should be equipped to make better laws, so it’s probably a good thing that Congress is off to hit the beach. Reform of financial oversight — and major changes to the derivatives markets — don’t have to be rushed. And while Obama may be able to twist enough arms to get legislation passed, he won’t get a second chance to get it right.

Source:CNN

HONG KONG/NEW YORK (Reuters) — Bank of America Corp. plans to set up a wholly owned subsidiary in China to expand in the world’s fastest-growing major economy, people briefed on the plan said.The largest U.S. bank plans to build up its corporate and investment banking business, and offer wealth management services to tap rich Chinese consumers, according to the sources, who requested anonymity because they were not authorized to discuss the plan.Bank of America (BAC, Fortune 500) has set up a special internal workforce to complete the plans and it will likely formally apply to a Chinese banking regulator for a local incorporation license in the next few months, the people said.A Bank of America spokesman declined to comment.It is unclear how much Bank of America, which acquired investment bank and brokerage Merrill Lynch & Co on Jan. 1, will invest in its China incorporation.HSBC Holdings Plc. (HBC), among the first foreign banks to win Beijing approval to incorporate locally, invested 1.17 billion in its China incorporation as registered capital in early 2007.0:00
/1:39China: The next big wine marketThe U.S. government has injected 45 billion into the Charlotte, North Carolina-based Bank of America, which has struggled with rising credit losses and the Merrill purchase.Earlier this year, a government order that the bank add 33.9 billion of capital prompted the bank to sell one-third of its stake in China Construction Bank.”I’m sure they were not happy to do that,” said Stuart Plesser, equity analyst at Standard & Poor’s in New York.”If you’re in the investment banking business, you want to have connections in China” in part to help diversify, he said. Last year, before Bank of America acquired Merrill, just 7% of the bank’s net revenue came from foreign sources.Bank of America shares rose 2.7% to 13.89 on the New York Stock Exchange late Thursday afternoon.Next stop: ChinaIncorporating in China can allow foreign banks to operate the same range of businesses as domestic counterparts. Chinese regulators may then grant approvals to open new branches or offer new products more quickly.But under Chinese securities rules, Bank of America still needs to find a local partner for a joint venture to handle high-profit investment banking businesses such as underwriting shares and bonds for local companies in domestic markets.Rivals such as Morgan Stanley (MS, Fortune 500) and UBS AG (UBS) have taken such a step in the past few years.Bank of America’s retail expansion in China is restricted by the CCB stake, which prevents it from competing directly with that company’s retail bank.Instead, Bank of America will probably focus on providing wealth management services under the Merrill brand to rich Chinese customers, according to the people briefed on the plan.Foreign banks’ rush to expand into China has waned amid the recession. Lenders such as Belgium’s KBC Groep NV have canceled or delayed plans to incorporate locally.Earlier this week, Bank of America said it planned to shrink its 6,109-branch U.S. network modestly over the next three to five years.

Source:CNN

LOS ANGELES (Reuters) — Walt Disney Co. posted a 26% plunge in quarterly earnings as sales fell sharply at its media networks and theme parks, sending its shares nearly 3% lower.Third-quarter revenue fell 7% to 8.59 billion from a year ago and lagged the 8.84 billion expected on average by analysts, according to Reuters Estimates.Park profits declined 19% because of discounting and lower per-person spending, and television networks got hit by lower ratings and sales at ABC, an accounting change at ESPN and weakness in the advertising market, executives said.0:00
/3:12What Pixar taught DisneyChief Executive Bob Iger told analysts on a conference call that he saw signs of the economy stabilizing, though he warned that the pace and extent of any recovery remained uncertain.Net income in the fiscal third quarter, ended June 27, was 954 million, or 51 cents per share, compared with 1.3 billion, or 66 cents a share, in the year-ago third quarter.Excluding certain items, Disney (DIS, Fortune 500) had a profit of 52 cents a share versus analysts’ average expectation of 51 cents, according to Reuters Estimates.Shares in the entertainment and media conglomerate dropped 2.7% to 25.50 in after-hours trading after closing at 26.22 on the New York Stock Exchange.

REDMOND, Wash. (Reuters) — Microsoft Corp.’s chief executive tried to persuade skeptical investors Thursday that its 10-year Web search partnership with Yahoo Inc. is good for both companies.Shares of Yahoo (YHOO, Fortune 500) slumped 12% after the long-expected deal was announced on Wednesday, and fell more than 3% on Thursday. Microsoft (MSFT, Fortune 500) shares rose only slightly, puzzling CEO Steve Ballmer.”I was myself kind of surprised by the market reaction,” Ballmer told a meeting for financial analysts at Microsoft’s headquarters near Seattle. “Nobody gets it. It’s a little bit complicated.”Under the deal, aimed at creating a stronger competitor to Google Inc. (GOOG, Fortune 500), Microsoft’s Bing search engine will power queries on Yahoo’s sites. In return, Microsoft will pay Yahoo 88% of revenue from advertisements generated from these sites.0:00
/4:52Dissecting the ‘Microhoo’ dealIn theory, that means Microsoft gets more traffic to refine its search technology and build up its ad base, while Yahoo gets revenue from search ads without the expense of managing its own search engine.The deal appears to end a long saga between the companies, after Yahoo rebuffed Microsoft’s 47.5 billion takeover bid last year.”Nothing got sold yesterday and nothing got bought yesterday,” Ballmer told the meeting, in an attempt to explain the deal. “It’s a win-win deal from my perspective.”Yahoo’s share of search ad revenue is a “big number,” said Ballmer, considering the company will have to lay out no money to obtain the revenue.”On the Yahoo side — this is the one that stuns me that people haven’t figured it out — Yahoo gets 88% of the search revenue they have today. They have zero percent COGS (cost of goods sold) and they have no R&D (research and development) expense and no ongoing capex (capital expenditure),” said Ballmer. “It’s sort of unbelievable.”For Microsoft, he said the deal means it gets more Internet traffic, enabling it to refine its search technology, which should lead to more interest from ad buyers and hence better prices for its ads.”The more queries you see, the more you can tune your product. The more scale you have, the more advertisers advertise on your system, and the more relevant they make their ads for your users,” said Ballmer. “Because we have more bidders in our advertising marketplace, we will get higher bid prices, probably, and more liquidity in the marketplace. That will improve monetization.”Yahoo shares closed down 3.6% at 14.60 on Nasdaq. Microsoft shares closed up 1 cent at 23.81.

Source:CNN

NEW YORK: Stocks surged Thursday, hitting their highest levels in nearly 9 months, as investors eyed the latest batch of better-than-expected profits and forecasts and a report that suggested the labor market is starting to stabilize.The Dow Jones industrial average (INDU) rose 83 points, or 0.9%, ending at its best level since Nov. 4. It was also the highest close for the blue-chip index in 2009.The S&P 500 (SPX) index added 11 points, or 1.2%, ending at its highest point since Nov. 4. The Nasdaq composite (COMP) gained 16 points, or 0.8%, to reach its highest close since Oct. 1.The major gauges had managed bigger gains earlier in the session, but lost a little momentum by the close.Stocks drifted for the first three sessions of this week, as the recent euphoria that lifted markets faded out. The major gauges all gained between 11% and 12% in the previous two weeks as investors welcomed a spate of better-than-expected quarterly results. But after this week’s early volatility, stocks charged ahead Thursday.”The market is finally getting its arms around the fact that we are close to being out of this recession,” said Burt White, chief investment officer at LPL Financial. White pointed to three supporting factors: the drop in the continuing claims portion of the weekly jobless report, the cumulative effect of better profit reports, and lessening fears about a slowdown in Asia and the global economy.Friday brings the biggest economic report of the week, the first reading on second-quarter gross domestic product growth. GDP is expected to have shrank at a 1.5% annualized rate, according to forecasts. GDP shrank at a 5.5% annualized rate in the first quarter. “It’s important than GDP is roughly in line,” said Ron Kiddoo, chief investment officer at Cozad Asset Management. “If we get a bad number, you’re going to see a selloff.”The Chicago PMI, a regional reading on manufacturing, is due shortly after the start of trading and is expected to have risen to 43 in July from 39.9 in June. Also on tap: quarterly results from Dow component Chevron (CVX, Fortune 500). The oil services firm is expected to report earnings of 90 cents per share, versus 2.90 a year earlier.Labor market: The number of Americans filing unemployment claims for a week or more, a measure known as continuing claims, slipped by more than expected. According to a Labor Department report, continuing claims dipped to 6.2 million last week, from a revised 6.25 million the previous week, for their lowest level since mid-April and short of forecasts for 6.3 million. The continuing claims report overshadowed the regular weekly jobless claims report, which showed a bigger-than-expected rise to 584,000. However, that rise was largely related to seasonal issues related to auto plant shutdowns.Quarterly results: Two Dow components reported results Thursday morning. Oil behemoth Exxon Mobil (XOM, Fortune 500) reported a steep drop in second-quarter income due to weaker demand and falling oil and gas prices. Weaker quarterly earnings missed estimates on weaker revenue that topped estimates. Shares fell 1%.Dow component Travelers (TRV, Fortune 500) also reported weaker profit that missed forecasts. But the financial company also boosted its full-year earnings forecast. Shares fell 2%.Among other companies reporting results, telecom Motorola (MOT, Fortune 500) posted higher quarterly earnings that topped forecasts on weaker revenue that missed. The company shipped 14.8 million phones in the quarter, nearly half what it shipped a year ago, but more than what analysts expected. Shares gained 9.4%.Other movers: Stocks gains were broad-based Thursday, with 25 of 30 Dow components rising, led by IBM (IBM, Fortune 500), Chevron (CVX, Fortune 500), Johnson & Johnson (JNJ, Fortune 500), Caterpillar (CAT, Fortune 500), Coca-Cola (KO, Fortune 500) and United Technologies (UTX, Fortune 500).Shares of Dow component General Electric (GE, Fortune 500) gained nearly 7%. Goldman Sachs upgraded it to “buy” from “neutral” after legislators appeared to back down on the question of whether GE should separate itself from its troubled finance unit GE Capital.A variety of financial shares gained, including Dow components Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and American Express (AXP, Fortune 500).Other financial gainers included Morgan Stanley (MS, Fortune 500), Goldman Sachs (GS, Fortune 500) and Wells Fargo (WFC, Fortune 500). Regional banks KeyCorp (KEY, Fortune 500), Regions Financial (RF, Fortune 500) and Fifth Third Bancorp (FITB, Fortune 500) advanced as well.Market breadth was positive. On the New York Stock Exchange, winners beat losers three to one on volume of 1.36 billion shares. On the Nasdaq, advancers topped decliners two to one on volume of 2.57 billion shares.0:00
/4:32Recession spoils Obama’s plansBonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.60% from 3.66% late Wednesday. Treasury prices and yields move in opposite directions.Other markets: In global trading, European and Asian markets both gained on improved profit reports.U.S. light crude oil for September delivery rose 3.57 to settle at 66.72 a barrel on the New York Mercantile Exchange. In currency trading, the dollar gained versus the euro and fell against the Japanese yen.COMEX gold for December delivery rose 7.60 to settle at 937.30 an ounce.

NEW YORK: Exxon Mobil reported a 66% decline in second-quarter earnings Thursday as demand for energy remained weak and prices for oil and gas tumbled from last year’s highs.The world’s largest publicly traded oil company said it earned 3.95 billion in the second quarter, down from 11.68 billion a year earlier. On a per-share basis, Exxon said it earned 81 cents, down from 2.22 in the second quarter of 2008. Excluding certain items, including 140 million for interest related to the Valdez punitive damages award, Exxon said it earned 4.09 billion, or 84 cents per share, in the quarter. The results were well below forecasts. Analysts were expecting earnings of 1.02 per share, according to Thomson Reuters.Revenue plunged to 74.46 billion in the quarter from 138 billion a year ago. But revenue was higher than the 71.3 billion that analysts had forecast.”Global economic conditions continue to impact the energy industry both in the volatility of commodity prices and reduced demand for products,” Exxon Mobil chairman Rex Tillerson said in a statement. Challenging times: The larger-than-expected decline highlights the challenges facing energy producers as the economic downturn curbs the world’s appetite for fuel and stockpiles of crude oil continue to grow.Oil prices averaged around 60 a barrel in the second quarter, compared with roughly 124 a barrel in the same period in 2008. At the same time, weak demand for oil-based products has caused crude supplies to swell, which has squeezed profit margins for many refiners. “Exxon Mobil’s results so far this year reflect solid financial performance during a period of challenging market conditions,” said David Rosenthal, Exxon’s vice president of investor relations, in a conference call with analysts. He added that the company’s “integrated business model” and “long-term orientation” will help deliver “superior results” going forward. Earnings at the company’s refining unit plunged to 512 million from 1.22 billion, while profit from oil-and-gas production division fell 62% to 3.82 million. “Demand has been falling and refining capacity has been growing, that’s not a good combination,” said Pavel Molchanov, an energy analyst at Raymond James. “When demand is down and supply is up, that’s a recipe for lower profits.”The Irving, Texas-based company said capital and exploration spending fell 6% to 6.6 billion in the quarter. The decline in spending was “mainly due to the strengthening of the U.S. dollar,” the company said. Production fell 3% in the second quarter.Exxon (XOM, Fortune 500) shares were down 0.3% to 71.33 in morning trading after falling more than 2% earlier.