FOREX AND ANALYSIS: 2009

Tuesday, October 20, 2009

Top banks cut small business lending by $8 billion

President Obama is trying -- again -- to help small business get the cash they desperately need.

The President will visit a small business in Maryland on Wednesday to present a series of initiatives aimed at increasing bank lending to small businesses, according to a White House official.

The programs the President will unveil include an increase in the maximum amount businesses can borrow through the Small Business Administration's primary loan program, which currently stands at $2 million. In addition, the Treasury Department will expand access for smaller banks to the Troubled Asset Relief Program (TARP), a move aimed at spurring more local lending by community banks.

The TARP program was set up to recapitalize banks so that they would bolster their lending to consumers and small businesses. In March, as the administration and the SBA took steps to stimulate small business lending, Treasury Secretary Tim Geithner ordered the top TARP recipients to begin sending the Treasury monthly reports on their small business lending activity.

"We need every bank in the country to do everything in their power to provide the credit that small businesses need to operate, expand and add jobs," Geithner said as he announced the new requirements. "Given the role many banks played in causing this crisis, you bear a special responsibility for helping America get out of it." link.....

Students Rely on Federal Loans to Pay Rising Tuition

According to reports issued Tuesday by the College Board, the volume of private student loans -- those not made or guaranteed by the government -- fell by 52% in the 2008-09 school year as recession-battered lenders tightened credit standards or abandoned what had been one of the fastest-growing sectors of the financial-aid market.

Students

Associated Press

Students in a chemistry class last month at California State University East Bay in Hayward, Calif.The New York-based college-admissions nonprofit said students and their families took out an estimated $11 billion in private student loans for the 2008-09 school year, down from $22.8 billion in 2007-08. All loan figures were given in constant, or inflation-adjusted, 2008-09 numbers.

The private loans, which generally have higher interest rates and more stringent terms than those made or guaranteed by the federal government, are often the last recourse for students who have maximized borrowing under federal programs.

As credit markets came to a near-halt last year, the government took steps to boost student lending in government programs, but the increase wasn't enough to offset the drop in private credit. According to the College Board, federal-loan volume rose 15% to about $84 billion in 2008-09, and overall lending fell to $95.9 billion in 2008-09 from $96.7 billion.

"I think what we are seeing here reflects the enormous credit tightening that occurred in the economy," said Terry Hartle, senior vice president of the American Council on Education, a college trade group.

Mark Kantrowitz, publisher of FinAid.org, a Web site that tracks financial-aid issues, said in an email that, amid the credit crunch, lenders have been unable to interest investors in buying securities backed by student loans, making it tough to raise lending capital.

Galleon staff eye exits, investors debate

Dozens of employees at Galleon Group are hunting for new jobs as investors debate how to react after the hedge fund's founder was arrested and charged with running one of the biggest insider trading schemes.

For years, Galleon prided itself on hiring only the best in the technology and healthcare industry -- top-notch analysts and portfolio managers boasting Ivy League degrees and stints at Goldman Sachs Group Inc (GS.N) and Needham & Company.

On paper, many looked similar to Galleon's founder Raj Rajaratnam. Now, they couldn't look more different.

As the 52-year-old, billionaire hedge fund manager hunkers down to keep his fund, which managed $3.4 billion at the end of September, from sinking, they are scrambling to leave the embattled firm.

"We have been flooded with calls from very nervous individuals at the firm who are trying to secure alternative employment," said one recruiter, who asked to remain anonymous due to the sensitivity of the matter.

At Galleon's New York headquarters, Rajaratnam came to work on Tuesday trying to project an air of normalcy, one day after telling investors and employees that he is innocent and vowed to fight the charges, said a woman, who works at the fund.

Recruiters around the United States who have spoken with Galleon employees, reported a nervous staff with some worrying whether their stint at the hedge fund would now frighten potential employers.

"People are afraid of being stigmatized by being associated with Raj," said another recruiter, who specializes in placing people at hedge funds and also did not want to be named.

At the same time investors ranging from college endowments like Colgate University to state pension funds like the Virginia Retirement System are debating whether to pull out or keep their money with Galleon.

Colgate, which has invested with Galleon since 2005, is actively monitoring the situation, said university spokesman Anthony Adornato. link....

Sun Microsystems to Cut 3,000 Jobs

Sun Microsystems Inc. said it plans to lay off about 3,000 employees, or about 10% of its work force, because of delays in the closing of its purchase by Oracle Corp.

The hardware and software maker has been reducing its work force over the years because of declining revenues, and additional job cuts have been widely expected to happen after Oracle buys the company.

That deal, announced in April, was originally expected to close over the summer. But a review by European regulators has been holding up the transactions.

Meanwhile, Sun's business is in limbo. Oracle Chief Executive Larry Ellison said recently that Sun was losing $100 million a month.

Sun, which disclosed plans for the reductions in a filing with the Securities and Exchange Commission, said the positions will be eliminated over the next 12 months. But a Sun spokeswoman said the cuts are already under way, and that the timing described in the filing is in part a result of local laws that require advance notice of terminations. She declined to say how many positions have already been eliminated.

Sun, based in Santa Clara, Calif., said in the filing that it expects the layoffs will result in charges ranging from $75 million to $125 million over the next several quarters.

Oracle recently unveiled products that combine its software with hardware from Sun. But the company can only provide limited insight into its plans for Sun until the deal closes.

"Much of what Sun does could have significantly better operating incomes than it does," said Safra Catz, Oracle's Co-President, last week at an event for financial analysts. "We expect there to be some very, very quick changes right out of the box." link....

Bartz Makes Headway Getting Yahoo on Track

The Sunnyvale, Calif., company's third-quarter profit surged, helped by Ms. Bartz's cost-cutting and an investment gain. Revenue fell 12% to $1.58 billion from a year ago, but executives indicated that spending on Internet ads was stabilizing, particularly from large marketers.

"There were a couple of encouraging things," Tim Morse, Yahoo's finance chief, said on a conference call. "The ad dollars are starting to flow a little bit better." Mr. Morse disclosed in an interview that Yahoo hired former General Electric Co. executive Andrew Siegel as its new head of mergers and acquisitions, tasked with continuing to evaluate which businesses the company should sell, as well as scout potential targets.

Rival Google Inc. announced last week that revenue grew 7% in its third quarter as executives announced confidently that the worst of the recession had passed.

Ms. Bartz didn't participate in Tuesday's conference call because of an unspecified illness that was described as "nothing serious" by Mr. Morse. In the quarter, Yahoo's profit more than tripled to $186.1 million, or 13 cents a share, up from $54.3 million, or four cents a share, a year ago. Those results included a $98 million gain on the sale of Yahoo's investment in Chinese Internet company Alibaba.com.

The improved profit comes as Ms. Bartz cut costs throughout the company. Virtually all categories of expenses—including sales and marketing and product development—fell in the quarter from the year-earlier period. Mr. Morse said the company reduced its bandwidth and equipment costs and hired more slowly than it had planned.

Yahoo shares rose more than 5% in after-hours trading to their highest level in more than a year. The stock finished the 4 p.m. trading session down five cents to $17.17 on the Nasdaq Stock Market.

"This is a big relief for investors," said Doug Anmuth, an analyst at Barclays Capital. He praised Ms. Bartz's internal "blocking and tackling," echoing other analysts and investors who say the CEO has proven adept at bringing some discipline to the company through moves such as building a new Yahoo home page on one technology platform and removing layers of management. link....

Stocks slide, but Dow holds 10,000

Stocks dipped Tuesday as a stronger dollar and some disappointment about DuPont and Coca-Cola's results gave investors a reason to retreat from the recent rally.

A weaker-than-expected housing market report added to the downward pressure.

The Dow Jones industrial average (INDU) lost 50 points, or 0.5%, according to early tallies, after ending the previous session at the highest finish since Oct. 3, 2008.

The S&P 500 (SPX) index lost 7 points, or 0.6%, after ending Monday's session at the highest point since Oct. 2, 2008. The Nasdaq composite (COMP) fell 13 points, or 0.6%, after ending the previous session at the highest point since Sept. 26, 2008.

After the close, Yahoo (YHOO, Fortune 500) reported higher quarterly earnings that beat forecasts on weaker revenue that also beat forecasts.

Also after the close, Sun Microsystems (SUN, Fortune 500) said it was cutting 3,000 jobs related to its purchase by Oracle (ORCL, Fortune 500).

Tuesday brought quarterly results from five Dow components: DuPont, Pfizer, Coca-Cola, Caterpillar and United Technologies. Apple and Texas Instruments were among the names who reported after the closing bell Monday.

Stocks gained Monday, with the Dow reclaiming 10,000 in response to a weak dollar, higher commodity prices and some earnings optimism. But the path higher over the last week has been choppy as investors have sifted through a mix of profit reports. That choppiness put pressure on stocks Tuesday. link....

Tuesday, August 25, 2009

Oil Drops on Falling Equities, Concern China to Tighten Lending

Crude oil dropped from a 10-month high as concerns that China may tighten lending and more U.S. loans may default raised doubts about the strength of the world’s recovery from recession.

Oil fell in tandem with equities on signs Chinese banks may curb new loans and after SunTrust Banks Inc. said that U.S. lenders face more credit losses and commercial real estate may falter through 2010.

“Equity and oil markets have been very closely correlated in the last six months,” said Ben Westmore, an energy and minerals economist at National Australia Bank Ltd. in Melbourne. “There are concerns on some U.S. banks. Probably it would affect investment flows into the oil market.”

Crude oil for October delivery dropped as much as 96 cents, or 1.3 percent, to $73.41 a barrel on the New York Mercantile Exchange. It was at $73.91 at 2:51 p.m. in Singapore. Yesterday, the contract rose 48 cents to settle at $74.37, the highest since Oct. 15. Futures have gained 66 percent in 2009.

“Banks are still showing signs of weakness, the economy is staying afloat from federal spending, and there is high unemployment,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “I would still shoot for a price range this week between $68 and $75.”

China Construction Bank Corp., the nation’s second-largest bank, said excess cash in the banking system has led to asset bubbles, underscoring concern that the nation’s lenders will rein in credit. Chinese banks handed out $1.1 trillion in new loans in the first half of this year, the most on record.

Stocks Decline

Oil futures in New York and the U.S. Standard & Poor’s 500 Index had a correlation of 0.7 over the last six months. A correlation of 1 means the two moved in lockstep. Oil and the Shanghai Composite Index had a correlation of 0.996 over the last month.

Most Asian stocks declined, with the MSCI Asia Pacific losing 0.3 percent to 113.09 as of 2:39 p.m. in Tokyo. The index rallied 2.5 percent yesterday, the steepest advance since May 19. link.....

Japan stocks fall on yen, pre-election caution

TOKYO -- Japanese stocks cooled off Tuesday, as exporters fell on a stronger yen and investors sold to take profits ahead of this weekend's parliamentary elections.

The benchmark Nikkei 225 stock average fell 83.69 points, or 0.8 percent, to 10,497.36 after soaring 3.4 percent on Monday. The broader Topix index declined 0.5 percent to 965.11.Analysts and recent polls predict that Japan's ruling party will lose its long-running grip on power in lower house elections Sunday. Japan's finance minister - and a senior party member - echoed the political realities facing the Liberal Democrats.

"A huge wave of the (opposition Democratic Party of Japan) is sweeping over Tokyo," Kaoru Yosano said Tuesday. "It looks like they could control the parliament under a one-party dictatorship."

Sentiment also waned on sharp declines in China, where the country's main index sank 2.6 percent as players turned cautious after recent gains and looked for more signs of economic recovery.The dollar slipped into the upper 93-yen territory at one point Tuesday, sending exporters including electronics makers lower. Exporters frown at a climbing yen because it makes their products more expensive in overseas markets and reduces the value of overseas profits when repatriated to Japan. link....

PRECIOUS-Gold inches up as dollar steadies vs euro

Gold prices edged higher on Tuesday
after falling the previous day on the strength of the dollar,
with investors keeping a close eye on currency markets for
bullion's near-term direction.

The dollar has been the main driver for gold in recent weeks:
a firmer dollar typically hurts the precious metal, as it makes
dollar-priced gold more expensive for non-dollar holders and
dampens interest in bullion as an alternative asset.

A weaker greenback supports gold if investors are selling the
U.S. currency to buy other assets including gold. If dollar
selling is due to U.S.-related concerns, gold can also benefit
from its status as a hedge against risk.

"The dollar's still the main driver behind gold's movement,"
said Adrian Koh, an analyst at Phillip Futures in Singapore.

"Gold's very much still in a sideways consolidation pattern
between $920-$980," he said, adding that he expected the market
to remain in that range until a clearer picture of the U.S.
economy emerged.

Spot gold XAU= rose 0.3 percent to $944.60 an ounce as of
0531 GMT, compared with New York's notional close of $941.40. It
hit a one-week high of $957.65 on Friday and has since hovered
below that level.

In the currency market, the yen was broadly firmer as
investors took a pause from a recent rush to stocks and
higher-yielding currencies, with focus shifting to U.S. data.
[USD/]

The dollar was nearly flat against the euro EUR= after
inching up against the single currency on Monday.

U.S. gold futures for December delivery GCZ9 were up 0.3
percent at $946.10 an ounce, compared with $943.70 an ounce on
the COMEX division of the New York Mercantile Exchange.

Traders are looking to consumer confidence, durable goods
orders and housing data due this week to gauge the state of the
U.S. economy.

Koh said traders were looking for housing data for further
signs that the housing market may have stabilised.

Reflecting a lack of market direction, no new investment was
made in the world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust GLD, which said its holdings were steady at
1,066.41 tonnes as of Aug. 24. [GOL/SPDR] link....

McCann Sues Bank of America Seeking to Void Non-Compete Clause

Former Merrill Lynch & Co. brokerage head Robert McCann sued Bank of America Corp. to force the company to release him from exit terms that keep him from taking another job.

Bank of America fired him without cause after rejecting his resignation, making the Charlotte, North Carolina-based company unable to enforce a non-compete clause, McCann said in a suit filed yesterday in New York State Supreme Court.

McCann, 51, announced plans to leave Bank of America in January, less than a week after the company completed its $18.5 billion acquisition of Merrill Lynch. He said in the suit that he left for “good reason” after his role was “severely diminished” and he didn’t get a bonus following the sale. After initially saying McCann’s resignation would be effective in July, the bank fired him in February, according to the suit.

UBS AG, Switzerland’s largest bank, was close to hiring McCann as head of its wealth management unit in the Americas, the Financial Times said this month. The newspaper also reported McCann’s suit yesterday.

Bank of America spokesman Scott Silvestri declined to comment on the suit. UBS spokesman Mark Arena didn’t return a call for comment.

McCann said in his lawsuit that Bank of America was required to buy his Merrill Lynch shares for more than $18 million after firing him and hasn’t done so.

He was named in 2003 to head the brokerage unit that Bank of America Chief Executive Officer Ken Lewis last year called Merrill Lynch’s “crown jewel.” Dan Sontag replaced McCann in January, and Sallie Krawcheck, who previously led Citigroup Inc.’s Smith Barney brokerage, took over for Sontag this month.

S Korea Shares End Down On Pft-Taking On Weak US, China Mkts

South Korean shares closed lower Tuesday as overnight weak finish on Wall Street and sharp declines in China stocks led investors to take profits.

The Korea Composite Stock Price Index, or Kospi, lost 10.84 points, or 0.7%, to 1601.38.

"It was natural to see investors locking in profits after (local) blue chips and the main index rose sharply in the short period" since late last week, said Oh Hyun-seok, an analyst at Samsung Securities.

Most blue-chip bank, technology and auto stocks retreated after showing a strong performance again in the previous day.

"But the sentiment was not that bad despite the sharp declines in China markets. Bullish sentiment seems to have taken control of the market. There seem to be more people waiting to enter the market on dips than people waiting to take profits," added Oh.

Foreigners and local retail investors were net buyers of shares worth KRW194.4 billion and KRW244.1 billion, respectively. But domestic institutions offloaded a net KRW400.8 billion worth of stocks on still-high demand for fund redemption, said analysts.

Market analysts also expect U.S. financial markets to react positively to news that U.S. President Barack Obama will reappoint Ben Bernanke for a second four-year term as Chairman of the Federal Reserve.

Bernanke's reappointment will remove the risk of any change in the current policy stance and potential miscommunication with a new chairman, said Bae Sung-young, an analyst at Hyundai Securities.

The Kospi is expected to remain on an uptrend although its rising pace may slow down after recent steep gains in the broader index and blue chips, added Bae.

The local stock market will also likely to continue to be swayed by China markets, said Oh.

Investors will watch closely for cues from housing and consumer-related data due to be released this week.

Among banks, KB Financial Group retreated 2.9% to KRW54,400, and Woori Finance Holdings dropped 0.3% to KRW14,500.

Samsung Electronics fell 1% to KRW775,000, and Hyundai Motor dropped 0.9% to KRW106,500 - both after hitting historic peaks Monday.

LG Display rose 2.6% to KRW36,250 partly on news that it has signed a non-binding memorandum of understanding with the Guangzhou government in China to set up an advanced panel manufacturing plant that could cost more than US$3 billion, said analysts. link....

LG Display Plans to Build LCD Factory in China

LG Display Co. plans to build the biggest and most advanced liquid-crystal display factory in China as the South Korean company seeks to meet surging demand for flat-screen televisions in the country.

The world’s second-biggest LCD maker signed a preliminary agreement on Aug. 21 with the city of Guangzhou, China, LG Display said in a regulatory filing today. The deal is subject to approval by the South Korean government and Seoul-based LG Display’s board, it said, without providing financial details.

The factory, estimated by Maeil Business Newspaper to cost as much as 5 trillion won ($4 billion), would be three generations ahead of China’s most advanced LCD plant. The investment faces the challenge of winning South Korea’s approval because the government has the option of blocking the transfer of technologies deemed as strategic.

“If the plan is realized, it will be an important landmark for the industry in China and may prompt other LCD makers to follow suit,” said Shi Hong, an electronics analyst at Industrial Securities in Shanghai. “For LG, there are commercial advantages in setting up LCD production facilities in China as many of its customers are based there.”

LG Display, based in Seoul, rose 2.6 percent to close at 36,250 won as Korea’s benchmark Kospi stock index dropped 0.7 percent. The stock has gained 73 percent this year, leading a rally by shares of the four largest LCD producers, as demand in China helped drive up panel prices.

Samsung Interested

Samsung Electronics Co., the world’s largest LCD maker, has some interest in building a factory in China, Chang Won Kie, president of the Suwon, South Korea-based company’s LCD business said today. Sharp Corp., Japan’s largest maker of LCD TVs, said in June it’s in talks with a partner in China to start producing LCDs in the country. link.....

FOREX-Euro slides, dollar, yen gain as stocks struggle

The euro fell on Tuesday while the yen and the dollar rose as a retreat in European shares from a 10-month high the previous day curbed demand for currencies considered to be high-risk.

European shares fell 0.5 percent .FTEU3, pulling away from their highest level since October hit on Monday, and Chinese shares shed 2.6 percent, prompting traders to sell the euro and sterling.

"Today is a risk-off day as equities are coming off and the dollar is trading a bit stronger," said Carl Hammer, currency strategist at SEB in Stockholm.

But he said the broad trend for elevated risk demand remained intact.

By 0749 GMT, the euro EUR= traded 0.2 percent lower at $1.4269, having slipped to the day's low of $1.4254 according to Reuters data, in early European trade.

Traders said Asian names were seen selling the euro against the dollar.

Investors awaited speeches from Swiss National Bank officials later in the day to see if they would reiterate their position to combat excessive strength in the Swiss franc. Swiss authorities have been intervening in the currency market since March.

The dollar index .DXY was little changed but the U.S. currency fell as low as 93.80 yen in early trade, as the yen was the main beneficiary of the pullback in risk demand.

In early European trade, the pair traded at 94.12 yen, down 0.4 percent on the day.

The dollar showed little reaction to news that U.S. President Barack Obama would reappoint Federal Reserve Chairman Ben Bernanke for a second term on Tuesday. [ID:nN24151253]

"I don't think there will be any major impact, but it should be positive for markets such as the stock and bond markets in the sense that an element of uncertainty has been removed," said Takahide Nagasaki, chief FX strategist at Daiwa Securities SMBC in Tokyo. link.....

Uncertainty over GM sale of Opel

Flags

The race to control Opel has been between two firms

US carmaker General Motors could be set to reverse its decision to sell its struggling European car firm Opel, according to media reports.

Last week, the German government said it would lend Opel 4.5bn euros ($6.4bn; £3.9bn) if its favoured suitor, Magna, was chosen to take it over.

The bid from the Canadian car parts maker is backed by Russia's Sherbank.

But reports in the UK and US say GM is trying to raise rescue funds for Opel from the US and European governments.

At the weekend, GM postponed making a decision on who should buy the Opel division, which includes Vauxhall in the UK.

As well as Magna, Belgian financial group RHJ has also been a suitor of Opel.

'Decisions'

Magna has publicly promised to cut fewer jobs in Germany, where 25,000 people are currently employed in the division.

GM, once the world's largest carmaker, struck an outline deal with Magna in May, days ahead of seeking bankruptcy protection.

In July, GM emerged from Chapter 11 bankruptcy with a number of new US government-appointed board members.

The carmaker has not commented on the fate of Opel, but the German government has called on the US government, which owns more than 60% of GM, to try to speed up the Opel sale process.

On Monday, the White House said that President Barack Obama's "view is that decisions made about the day-to-day operations at General Motors should be made by the folks at General Motors".

Clunkers: Dealers get ready for the 'hangover'

After the mad rush of car sales sparked by Cash for Clunkers, dealers will now find they have plenty of downtime to count their money.

The popular program, which ended Monday, will leave many showrooms without cars to sell or customers looking to buy them.

"We're definitely going to have a hangover," said Edward Tonkin, vice president of the Ron Tonkin Family of dealerships in Portland, Oregon and vice chairman of the National Automobile Dealers Association.

As of Monday morning, dealers had submitted 625,000 Clunkers applications to the government seeking a total of $2.58 billion, according to the Department of Transportation.

The Department of Transportation said Monday that it would give dealers extra time to file their rebate applications after its Web site for handling the submissions was overwhelmed.

The department said the deadline for dealers would be extended beyond 12 noon Tuesday to make up for time that was lost while the system was down.

After the heady rush of Clunkers sales, the return to normal -- especially in a market where "normal" means deeply depressed -- may be difficult to deal with.

"I think you're going to be able to shoot a cannon through here and not hurt anybody," Tonkin said.

In the short run, dealers will see sales drop precipitously, said Jeremy Anwyl, CEO of the auto Web site Edmunds.com. link....

Obama to nominate Ben Bernanke for second Federal Reserve term

Barack Obama with Chairman of the Federal Reserve Ben Bernanke

Bernanke has brought the US economy 'back from the brink', Obama will say. Photograph: Larry Downing/Reuters

US Federal Reserve chairman Ben Bernanke will be nominated for a second term by Barack Obama later today.

The move was welcomed by analysts who said it would provide stability at a critical time for the economy, ending any lingering concerns about who will lead America's central bank.

Obama will interrupt his holiday in Martha's Vineyard, Massachusetts, to make the announcement with Bernanke at his side at 9am local time (2pm BST).

"Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and outside-the-box thinking that has helped put the brakes on our economic freefall," the US president will say. "Taken together, all of these steps have brought our economy back from the brink. They are steps that are working."

Bernanke's appointment to a new four-year term must be confirmed by the Senate, which is controlled by Obama's Democrats. An expert on the Great Depression, he has lowered US interest rates to near zero and pumped hundreds of billions of dollars into the economy to lift it out of its deepest downturn since the 1930s. The recession now appears close to an end, but economic recovery is fragile, with unemployment and home foreclosures still rising.

"It's very smart; it will be encouraging for the market," said Jim Awad of Zephyr Management in New York. "He's viewed very positively – he saved us from depression and the economy is recovering. The White House has been shrewd in reappointing him to retain confidence in the recovery of the economy and financial markets."

Monday, August 24, 2009

Sun Country sets time limit for holding flyers on board

Days after 154 of its passengers were stuck on a New York tarmac for about six hours, Sun Country Airlines said Sunday that it is changing its policy on extended delays and establishing a deadline for when people and planes will be returned to the terminal.

Sun Country CEO Stan Gadek said he believes his company is the first to establish such a deadline — in this case, a maximum of four hours.

“To the best of my knowledge, I think we are” the first to set such a deadline, Gadek said Sunday. “I don’t know if other airlines will follow ... but I think it’s high time that airlines stand up and commit. It’s a common-sense thing. The flight delay on Friday was unacceptable. We do not want a repeat of what happened on Friday.”

Gadek also said four hours is a maximum, and that the airline could return passengers to the gate sooner than that it appears that the delay — such as the one that occurred at New York’s John F. Kennedy International Airport on Friday — will last longer than four hours.

“It will be done case by case,” said Gadek, who also said he supports passengers’ rights legislation now before Congress.
Gadek’s announcement drew the immediate support of Sen. Amy Klobuchar, D-Minn., who has been pushing airlines to establish a three-hour deadline for tarmac delays.

“I would rather have three hours instead of four, but I appreciate that he is taking responsibility for what happened on the flight Friday,” Klobuchar said Sunday night.

Gadek said he pushed for the four-hour limit because there are so many three-hour delays at JFK and New York airports that to go under that could mean even longer flight times because of the constant boarding and unboarding. link.....

Goldman 'trading huddles' offer tips to top clients

Goldman Sachs Group Inc (GS.N) holds a weekly meeting of its research analysts where they offer trading ideas that are given to top clients, the Wall Street Journal reported on its website on Sunday.

But the paper cited Steven Strongin, Goldman's stock research chief, as saying these meetings did not give anyone an unfair advantage and the tips did not contradict research notes that carry predictions over a longer term.

Goldman's analysts talk about short-term developments around specific stocks during the meeting, called a "trading huddle," which is also attended by some of the firm's own traders, the Journal reported.

The practice started some two years ago, and since then the Wall Street firm has given ideas on hundreds of stocks, the Journal reported, citing internal Goldman documents.

Goldman could not be reached immediately for comment on Sunday night.

The company told the Journal that its own traders were not allowed to use the information until it had been given to clients.

The Journal also cited Goldman spokesman Edward Canaday as saying that a comment that could lead to changes such as those in earnings estimate, ratings or price target must be sent out to all clients. But Canaday told the Journal that it was rare for comments to reach such levels. link......

Senator seeks broad SEC market review

A Democrat senator is expected on Monday to ask the Securities and Exchange Commission to review the stock market's structures, Dow Jones Newswires reported, reviving a debate over the market impact of computer-based trading.

Ted Kaufman, a long-time advisor to Vice President Joe Biden, said regulatory moves in the past decade have had the unintended consequence of making the stock market too fragmented, according to a letter to be sent to SEC Chairman Mary Schapiro that was reviewed by the news agency.

There are now potential conflicts of interest on Wall Street trading desks trying to serve both retail clients and high-frequency trading firms, the Delaware senator said.

In response, the regulator should undertake a 'zero-based review' of the market, the letter was quoted as saying. Zero-based reviews examine all parts of a structure.

Kaufman and the SEC could not immediately be reached for comment by Reuters outside regular U.S. business hours. link.....

European Opposition Mounts Against Google’s Selling Digitized Books

The Bodleian Library at Oxford University, above, is working with Google to digitize its books.

BERLIN — Opposition is mounting in Europe to a proposed class-action settlement giving Google the right to commercialize digital copies of millions of books.

The settlement would permit Americans to buy online access to millions of books by European authors whose works were scanned by Google at American libraries.

While some big European publishers, like the Oxford University Press and Bertelsmann (which owns Random House) and Georg von Holtzbrinck (the owner of Macmillan), support the agreement, there is widespread opposition among French publishers. The German government, supported by national collection societies in Germany, Austria, Switzerland and Spain, plans to argue against it and encourage writers to pull out of the agreement.

A United States District Court has set a Sept. 4 deadline for submissions on the settlement and plans to hold a hearing Oct. 7.

Akash Sachdeva, an intellectual property lawyer with the law firm Allen & Overy in London, said that last-minute objections from Europe were unlikely to stop the settlement from going forward.

“I would imagine the court is going to say that because you have a significant amount of big players around the world who have opted into this, then it is worth proceeding with,” he said.

Google, which has been digitizing books since 2004 to make them available online, says the proposed settlement will benefit publishers, authors and consumers, making a vast reservoir of work available for easy access.

Around the world, 25,000 publishers, libraries and individuals are working with Google to digitize their archives and catalogues, including Oxford’s prestigious Bodleian Library and the Bavarian State Library. Even the French National Library, an outspoken opponent of the project, said last week that it was talking to Google about a deal to help digitize its archives.

“We believe that we are helping the industry tremendously by creating a way for authors and publishers to be found,” said Santiago de la Mora, Google’s head of printing partnerships in London. “Search is critical. If you are not found, the rest cannot follow.” link....

OIL FUTURES: Crude Up On Econ Growth Optimism, Asian Equities

Crude oil futures in Asia continued to consolidate on Friday's gains alongside regional stock markets on renewed optimism about the global economic recovery.

Light, sweet crude futures for October delivery traded at $74.17 a barrel at 0623 GMT, up 28 cents in the Globex electronic session. October Brent crude on London's ICE Futures exchange rose 37 cents to $74.56 a barrel.

A threat by Nigeria's main militant group to resume attacks on oil installations is also lending support to crude, but given high global oil stockpiles, the issue may not be as big as in recent years, analysts said.

Nymex crude settled at a 10-month high Friday after bettter-than-expected U.S. housing sales data fueled expectations of a faster economic recovery in the world's largest energy consumer.

"That sentiment is still resonating and people are reviving up their outlook for economic growth," said Ben Westmore, commodities economist at National Australia Bank.

Crude is likely to trade around these levels until U.S. inventories data Wednesday, with strong resistance at $75 a barrel, analysts said.

"The crude market's proximity to a shelf of summer highs that have been established around the $75.00-$75.25 area is worthy of attention, since a close above this level could easily ignite another flurry of fund buying interest," wrote Jim Ritterbusch, president of trading advisory firm Ritterbusch & Associates.

The next U.S. inventory data is of particular importance to traders because of the "unusual" drop that fueled a rally last week, said Yusuke Seta at Newedge Japan. "But there's still a glut in the market. Crude oil (stocks) might show a build of about a million barrels this week," Seta said.

Despite weak fundamentals, oil will continue to be buoyed by stock markets, Seta said, adding that "as long as stock indices don't crash, oil prices will be supported."

Nymex reformulated gasoline blendstock for September, the benchmark gasoline contract, rose 219 points to 201.75 cents a gallon, while September heating oil traded at 191.77 cents, 128 points higher.

ICE gasoil for September changed hands at $608.25 a metric ton, up $6.50 from Friday's settlement. link.....

Sinopec says to spend $17.6 bln in 2 yrs to lift output

China's Sinopec Corp (0386.HK), the world's No.2 oil refiner, said on Monday that it plans total capital expenditure of 120 billion yuan ($17.57 billion) over the next two years to boost refining and production.

Vice-President Lei Dianwu made the remarks at a results news conference in Hong Kong.

Sinopec, second to Exxon Mobil (XOM.N) in terms of capacity, posted a record quarterly profit on Sunday that widely exceeded expectations on the back of higher fuel prices and falling crude oil prices, underscoring the turnaround in fortunes for China's once-struggling refiners. [ID:nHKG84686].

Beijing's fuel price reform grants refiners a guaranteed profit margin only if crude stays below $80 per barrel.

Shares of Sinopec rose nearly 5 percent in the morning session, but gains were pared to close at HK$6.97, up 0.72 percent. link....

Japan’s Nikkei Jumps Most Since May on U.S. Homes, Commodities

Japanese stocks rose, lifting the Nikkei 225 Stock Average to its biggest jump in more than three months, after sales of existing homes in the U.S. surged the most on record, the yen weakened and commodities gained.

Canon Inc., the world’s biggest digital-camera maker, added 6.3 percent. Honda Motor Co., which gets more than half its sales in North America, climbed 3.2 percent. Mitsubishi Corp., a trading company that gets more than a third of its sales from commodities, advanced 3.9 percent.

“The housing report confirmed the U.S. is clearly on a path to recovery,” said Yoshinori Nagano, a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $91 billion. “The fundamentals of the global economy and corporate earnings are improving, supporting the resilience of the market.”

The Nikkei 225 Stock Average climbed 342.85, or 3.4 percent, to 10,581.05 in Tokyo, the steepest climb since May 7. The broader Topix index added 22.93, or 2.4 percent, to 970.27, with all of its 33 industry groups advancing.

Asian stocks jump on Bernanke comments, home sales

HONG KONG — Asian stock markets jumped Monday as upbeat comments from the Federal Reserve's chairman and signs the U.S. housing industry was healing strengthened confidence in a global recovery.

Tokyo shares led the way with a 3 percent gain as the region, taking cues after Wall Street closed Friday at its highest levels since November, staged a broad-based rebound from last week's heavy selling. Oil prices rose above $74 a barrel and the dollar climbed against the yen.

Investors poured into stocks after Fed Chairman Ben Bernanke said the prospects for a near-term recovery in the world's largest economy appeared to be good. Also boosting confidence was a better-than-expected rise in U.S. home sales last month that helped relieve some of the fears about American consumers that have held stock markets down lately.

There was evidence of economic renewal in Asia as well. Thailand's economy emerged from recession in the second quarter thanks to increased government spending and manufacturing resuming growth after steep declines.

"The numbers coming through continue to show economies are in better shape," said Song Seng Wun, economist at CIMB-GK research in Singapore. "But we could see more up and down in the markets as investors keep looking over their shoulder and asking themselves how much optimism is justified."

Japan's Nikkei 225 stock average gained 342.85 points, or 3.4 percent, to 10,581.05.

In China, the main Shanghai index was up for a third straight day, gaining 0.8 percent to 2,983.22, after its sharp falls last week helped trigger selling around the world. Hong Kong's Hang Seng added 1.6 percent to 20,536.64. link.....

Yen Falls as Recovering Global Economy Boosts Demand for Yield

The yen weakened for a third day against the euro as improving economic data and central bank comments that the global recession is abating spurred investors to buy higher-yielding assets.

The Japanese currency declined the most versus the South Korean won and Australian dollar as stocks extended a rally after Federal Reserve Chairman Ben S. Bernanke said last week chances for near-term growth “appear good.” The euro rose against 12 of the 16 most-traded currencies before a report that economists said will show European industrial orders fell at a slower pace.

“We’ll see a continuation of the risk rally and that’s consistent with yen weakness,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London, the biggest foreign exchange trader. “The economic data has been sufficiently strong to persuade even the more bearish in the market.”

The yen weakened to 135.72 per euro as of 8:43 a.m. in London from 135.21 in New York on Aug. 21. It earlier declined to 136.09 per euro, the weakest level since Aug. 14. The Japanese currency also dropped to 94.89 per dollar from 94.38. The dollar appreciated to $1.4301 per euro from $1.4326.

The MSCI World Index of shares rose 0.7 percent, its fifth straight gain, as every stock market in Europe opened higher, sending the region’s Dow Jones STOXX Index up 0.6 percent. The Standard & Poor’s 500 Index gained 2.2 percent last week, touching a 10-month high, as a report showed sales of existing U.S. homes climbed.

Saturday, August 22, 2009

Toyota Boosts North American Capacity for Four-Cylinder Engines

ERLANGER, Kentucky — Toyota on Friday said it will add capacity at its engine plant in Huntsville, Alabama, to boost North American production of four-cylinder engines, a further sign of increasing demand by consumers for more fuel-efficient powertrains.

The plan is for Toyota Motor Manufacturing Alabama to produce 216,000 four-cylinder engines per year for the Toyota Camry and RAV4. The automaker said production on the four-cylinder engines will begin by summer 2011. The move will boost employment by 240 people, with new investment totaling $147 million, Toyota said.

Inside Line says: The recession must be petering out if Toyota is slowly adding jobs and investment to these parts.

Toyota Camry

Toyota RAV4

Toyota is looking to produce 216,000 four-cylinder engines a year for the Camry sedan (pictured) and RAV4 (below). (Photo by Kurt Niebuhr)

Geithner: 2008 bailout not aimed at Goldman -WSJ

U.S. Treasury Secretary Timothy Geithner on Friday denied that emergency government action taken last year to shore up the U.S banking system was tailored to the interests of Goldman Sachs (GS.N) or any other firm.

"We have been forced to do just extraordinary things and, frankly, offensive things to help save the economy," Geithner said in an interview with The Wall Street Journal and Digg, an online site where users share and rate articles.

"I am completely confident that none of those decisions ... had anything to do with the specific interest of any individual firm, much less Goldman Sachs," he said.

The U.S. Congress, acting on the urgent advice of then Treasury Secretary Henry Paulson, a former Goldman Sachs chief executive, last year put up $700 billion to prevent the banking system from collapsing amid a global credit crisis

The Treasury, under Paulson, and the Federal Reserve also crafted a massive bailout of insurer American International Group (AIG.N), that enabled it to pay counterparties, including Goldman, billions of dollars that might otherwise have been lost.

Geithner, who was president of the Federal Reserve Bank of New York during the crisis and therefore close to all of decisions that were taken, said government had a duty to act in the face of such a grave threat in order to prevent an even worse outcome.

"The basic imperative...in a crisis like this (is) to protect people who are innocent of the mistakes that brought us to this place," he said in the interview. link....

Bank of America Adds a Director

Bank of America, which has lost 10 directors through resignations or retirement since April, elected a former Morgan Stanley executive, Robert Scully, to its board, which now has 14 members. Mr. Sully, 59, part of Morgan Stanley’s office of the chairman until he retired in January, oversaw asset management, merchant banking and the Discover credit card business, the bank said. link.....

West Will Languish; Asia Will Lead

AFTER THE RECENT JUDDER IN THE ASIAN MARKETS, WHO BETTER to ask about the region's prospects than Christopher Wood? The Hong Kong-based strategist for CLSA Asia-Pacific Markets, a unit of Crédit Agricole, pens the widely followed newsletter Greed & Fear.

He was early to spot the problems in the U.S. mortgage market and their global financial implications, writing about them back in 2005.

Even earlier, he espied the troubles brewing in Thailand, before the 1997 Asian crisis.

[qa]

Darrin Vanselow for Barron's

"When I say you want to be overweight Asia and emerging markets, I'm talking predominantly about investing in domestic themes such as financial services, real estate and infrastructure." --Christopher Wood

Midway through last week, the MSCI AC Asia ex-Japan index had risen by 79% in U.S. dollar terms since the October 27 bottom, while the Standard & Poor's 500 is up just 17% over the same period. Wood acknowledges a modest correction may be in order, but believes prospects are good for a long-term bull market in Asia. To learn why, keep reading.

Barron's: You sure got this crisis right. Where are we now?

Wood: This financial crisis in the Western world will lead to a long period of anemic growth. The data that is making people more optimistic on the U.S. right now is tending to be production-oriented data like the ISM [a survey of manufacturers] or car sales. But there is very little sign to me that U.S. consumer demand is recovering or that real releveraging is taking place.

In fact, all the evidence both in the U.S. and Euroland is that the consumer is going into long-term retrenchment. Even when the banks in America and Europe become healthier in coming quarters and years, I believe demand for credit will be much less than it was in the last five, ten years. So, we are going into a long-term period of deleveraging. We'll continue to see deflation backdrops in the Western world. The best case is a long period of subpar, anemic growth. link.....

American revamps bag fee policy

American Airlines Inc. is raising baggage fees for certain international fliers.

A new policy of checking in one bag for free and paying $50 to check in a second piece of luggage impacts certain travelers who are flying to particular locations in Europe, India and the United States.

Fort Worth, Texas-based AMR Corp. (NYSE: AMR) said the new policy impacts certain types of economy-class tickets purchased on or after Sept. 14. The changes will affect passengers on transatlantic flights from or through India, Belgium, France, Germany, Ireland, Spain and Switzerland.

American Airlines Inc., a subsidiary of AMR Corp., said certain members of the American AAdvantage program and oneWorld Alliance Emerald, Sapphire or Ruby members will not have to pay for a second bag.

Active U.S. military also are exempt, as well a passengers booked in first and business class cabins. link....

Stocks Still Follow Crude, But For How Long?

As crude oil on Friday hit a high for the year above $74 a barrel, energy shares rallied, fueling the broader U.S. stock market toward weekly gains. But if oil's price gains continue, what has been viewed as a bullish signal could easily turn bearish for U.S. equity investors.

Positive U.S. and European economic data, along with weakness in the dollar, helped in supporting oil's surge, with the front-month futures contract lately up $1.13 at $74.04 a barrel, after earlier hitting $74.72 -- its highest level so far this year. .

Crude futures have had "trouble staying above $73" and hence had been trading in a range of $65 to $73 a barrel, said Kevin Kruszenski, director of equity trading, KeyBanc Capital Markets Inc.

"So today it's a focus, since we're at a very important level," he said.

While crude's climb on Friday had it rallying to its highest point yet for the year, a barrel of oil remains roughly half of where it stood at its height last summer, when crude-oil futures on July 11 hit an intraday high of $146.65, with the Dow industrials shed 129 points that day.

"A year or so ago, higher (oil) prices were bad for the stock market, now the inverse is true. It's seen as a sign of economic recovery," Kruszenski noted.

Rising energy costs would be seen in a less favorable light should the price of crude climb back over $100 a barrel, Kruszenski said. That said, it's unlikely that that would happen anytime soon, he added.

"It's too early in the economic recovery. I don't think there is enough business or consumer activity," said Kruszenski.

Other analysts had differing views on the tipping point at which rising crude prices would fall out of favor with equities investors.

In the view of Mike Zarembski, senior commodities analyst at OptionsXpress, crude at $80 to $85 a barrel would take the steam out of an economic rally.

On Wall Street, energy shares fronted the broad market's advance to close out the week, with shares including Nabors Industries Ltd. (NBR) and Cameron International Corp. (CAM) both up nearly 5%.

The Dow Jones Industrial Average (DJI) added 146.31 points, or 1.5%, to 9, 496.36, while the S&P 500 Index (SPX) climbed 16.86 points, or 1.7%, to 1, 024.23. The Nasdaq Composite Index (RIXF) also rose, up 27.29 points, or 1.4%, to 2,016.3.

Survey: Fla. home loan delinquency highest in nation

Nearly 23 percent of residential loans in Florida were delinquent or in foreclosure in the second quarter, according to a survey by the Mortgage Bankers Association.

Florida has the highest rate in the nation, followed by Nevada, Arizona and Michigan.

“Florida continues to establish itself as the worst state in the union for mortgage performance, closely followed only by Nevada,” MBA chief economist Jay Brinkmann said in a news release.

At the end of the second quarter, nearly 12 percent of Florida residential loans were in the process of foreclosure, up from 10.6 percent in the previous quarter. An additional 10.8 percent were delinquent by at least 30 days, up slightly from 10.7 percent in the first quarter.

They survey noted that delinquency rates for subprime loans were declining, while the problems in prime loans were increasing. Federal Housing Administration-backed loans also suffered from higher delinquency rates.

“It is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves,” Brinkmann said. “In addition, in some areas where a number of borrowers have mortgages that are larger than the current value of their homes, any life events such a divorce or loss of a job are likely to translate into foreclosures until prices in those areas recover, not just flatten.”

Nationwide, 8.9 percent of residential loans were delinquent and an additional 4.3 percent were in the process of foreclosure at the end of the second quarter. link....

Chrysler's Press may exit this year

About a half-dozen dealers contacted by the Free Press said no one from Chrysler had told them when or if Press was leaving. One person familiar with Chrysler's new structure said Press' new role was meant to be temporary.

Fiat and Chrysler CEO Sergio Marchionne has implemented a flatter organization since Chrysler's June 10 bankruptcy exit. Where Chrysler operated before the bankruptcy with a chairman and two vice chairmen, Marchionne has implemented a structure based on four presidents for the company's Chrysler, Jeep, Dodge and Mopar replacement parts brands.

Fiat owns 20% of Chrysler. The UAW's retiree health care trust owns 67.7%, while the U.S. and Canadian governments own 12.3%.

Cerberus Capital Management, controlling investors in pre-bankruptcy Chrysler, lured Press away from Toyota Motor Corp., where he spent 37 years, eventually becoming Toyota's highest-ranking American.

In Auburn Hills, Press embraced the challenge of reviving Chrysler, which was caught with too many trucks and SUVs just as gas prices soared and consumers moved toward smaller vehicles. Press tried to reduce Chrysler's dependence on sales to rental companies and increase the percentage of sales to consumers, but it was an uphill struggle as the U.S. economy imploded.

Eventually Chrysler asked Congress and the Bush administration for financial assistance, which led to the government-backed bankruptcy sale. Press' main role in that process was to terminate 789, or 25%, of its U.S. dealerships. While the company said the move was necessary to strengthen the surviving 2,400 dealers, it infuriated some dealers.

More recently, Chrysler has contacted some of the dealers it terminated and asked whetherthey would like to compete for one of 140 new locations in what the company said are more attractive markets. link....

GM delays decision on Opel future

Flags

The race to control Opel is between two firms

The board of US carmaker General Motors has postponed making a decision on who should buy its Opel division, which includes Vauxhall in the UK.

The Detroit-based firm said directors had met on Friday to discuss the options but "no decision was taken".

An assessment on whether to start exclusive talks to buy German-based Opel had been expected at the weekend.

The race to control Opel is between the Canadian component manufacturer Magna and Belgian financial group RHJ.

The BBC understands that a number of stumbling blocks have emerged to delay the final decision.

The German government - which has openly preferred the bid from Magna and has offered it bridging finance of 4.5bn euros ($6.4bn, £3.9bn) - is thought to have added further conditions to that support.

Magna has publicly promised to cut fewer jobs in Germany, where 25,000 people are currently employed in the division.

Buy-back option

Germany's economy minister said he regretted the failure to make a decision.

Karl-Theodor zu Guttenberg was also quoted as telling the online edition of the Hamburger Abendblatt newspaper that "there is still room for an agreement".

UK Business Secretary Lord Mandelson has been critical of German Chancellor Angela Merkel for politicising the bidding contest ahead of federal elections in the country, at the end of September.

Earlier this week Lord Mandelson said GM needed to look for an "industrial outcome based on the long term viability" of Opel.

Lord Mandelson has also said he would stand by the UK carmaking industry - in particular Vauxhall, which employs more than 5,000 people directly in its plants in Ellesmere Port, Cheshire, and Luton, Bedfordshire.

U.S. Indicts Two in Switzerland on Tax Charges

The Justice Department indicted a Swiss private banking executive and a Swiss lawyer on Thursday, accusing them of selling tax evasion services to wealthy clients. The move opens a new front in Washington’s challenge to Switzerland’s tradition of bank secrecy.
The indictment, filed in United States District Court in Fort Lauderdale, Fla., charged Hansruedi Schumacher, a director at NZB Neue Zürcher Bank of Zurich, and Matthias W. Rickenbach, a Swiss lawyer, with one count each of conspiring to defraud the United States. It was filed a day after the giant Swiss bank UBS said that it had agreed to disclose 4,450 American client names and account details, and it indicated that American authorities were starting to pursue smaller players who might have helped Americans hide money. Smaller Swiss banks have expressed confidence that they could continue to work with American clients and find new ways to protect their privacy.

“These conspiracy charges show that Justice is widening the net beyond UBS to include other banks, and that it is also going beyond individual account holders to the professionals who assist them,” said Lee Sheppard, a tax lawyer in New York and a writer for Tax Analysts, a trade publication.

Mr. Schumacher is a former top private banker for UBS who left around 2002 to establish and oversee NZB’s private banking operations. He worked at NZB until at least last month, the indictment said. Mr. Rickenbach is a partner of the Rickenbach & Partner law firm, with offices in Zurich and Geneva.

A Justice Department statement said that the two men “helped their clients obtain offshore credit cards and created sham loan documents.” It said they “falsified bank documents to generate the appearance that assets of their U.S. clients belonged to Swiss citizens, and they falsified documents to disguise their United States clients’ repatriation of offshore funds as inheritances from foreign citizens.” link...

GETTING PERSONAL:Birkenfeld Gets First Jail Term In UBS Case

Former UBS AG (UBS) banker Bradley Birkenfeld appears to be headed to jail. For a long time.

A Florida judge has sentenced Birkenfeld to 40 months incarceration, the Department of Justice said Friday, in the first sentencing of the UBS tax case.

While the terms struck some as harsh, given that Birkenfeld helped the government peer into the hidden world of offshore accounts, others say it is fitting justice.

Forty months "doesn't seem that bad to me," says George Clarke, a member of the white-collar and internal investigations and tax practice at law firm Miller & Chevalier. After all, Clarke adds, Birkenfeld "helped taxpayers evade a substantial amount of tax."

It wasn't immediately clear whether the former banker will be able to appeal in the case.

Because Birkenfeld was a key collaborator with the government, there were expectations in some quarters that he would get off more lightly.

Considering that the former banker "blew open the entire UBS operation for the IRS, his sentence seems harsh," says Kenneth Rubinstein, a senior partner at law firm Rubinstein & Rubinstein in New York.

Cases like UBS' can generally be made only through the help of informants or whistleblowers, "and one can only wonder if future potential cooperators will think twice," because of the Birkenfeld sentence, says Scott D. Michel, an attorney at Caplin & Drysdale in Washington, D.C.

The sentence, adds Michel, "is extraordinary" in its harshness.

Birkenfeld worked as a private banker in Geneva for UBS. While there, he helped a U.S. billionaire real estate developer evade $7.2 million in taxes by helping conceal $200 million of assets in Switzerland and Liechtenstein.

Birkenfeld routinely traveled to the U.S. to help other wealthy Americans conceal assets offshore, enabling them to evade taxes on income generated by money in their accounts. He admitted that he and others advised U.S. clients to put cash and valuables in Swiss safety deposit boxes, and buy jewels, artwork and other luxury items while overseas with Swiss account money.

Others are likely to go to jail in the UBS case.

An IRS voluntary disclosure program offering leniency has drawn hordes of people with accounts who know that, if they don't report them and the IRS targets them, they could go to jail.

The guidelines on prison time for tax evasion are harsh: Six months to a year for those who cheat the government out of just $5,000, for example. It is usually worse when an offshore account is involved: Punishment in such cases is often bumped up two notches on federal sentencing guidelines.

The government will more likely go after the big game, those who cheated it out of the large sums that suggest a concerted effort at evasion.

According to baseline sentencing guidelines, someone who evaded between $200,000 and $400,000 could get a prison term of between 27 and 33 months as a first-time offender, and use of an offshore account could lengthen that time.

Though federal sentencing guidelines aren't mandatory in these cases, most judges will follow them. Exceptions can be made if the government urges leniency for someone who has cooperated in investigating others, or the case presents other special circumstances. link.....

U.S. Helps Spanish Company to Buy Texas Bank

Guaranty Bank, a deeply troubled Texas lender, was sold on Friday to Banco Bilbao Vizcaya Argentaria of Spain in one of the largest government-assisted deals offered to a foreign firm.

Cody Duty/American-Statesman

The federal government agreed to absorb most of the losses on $11 billion of Guaranty Bank assets in the sale agreement

Federal regulators seized Guaranty Bank and simultaneously brokered the sale of its branches as well as most of the deposits and assets to BBVA Compass, the Spanish bank’s American subsidiary. The government, however, agreed to absorb most of the losses on $9.7 billion, or more than 80 percent, of the Guaranty assets included in the deal.

The failure is the fourth-largest since the financial crisis began, and the Federal Deposit Insurance Corporation projects that it will cost its deposit insurance fund about $3 billion.

Regulators also arranged for the sales of three smaller banks in Alabama and Georgia on Friday, bringing the total number of bank failures so far this year to 81. That compares with only 25 bank failures in all of 2008.

News that BBVA had submitted the winning bid leaked out earlier this week, but regulators waited until late Friday to orchestrate the takeover. That may be another sign that confidence in the financial system is being restored, since in contrast to past leaks, regulators did not immediately seize the bank over fears of rumors stoking a bank run.

Stockholders in Guaranty Bank will be wiped out, but the deal ensures that its depositors will not suffer losses. Although BBVA did not take control of the failed bank’s $344 million of brokered deposits, the F.D.I.C. said that it would reimburse brokers directly for those funds.

The government also agreed to shoulder the bulk of the losses on all of Guaranty’s loans — a deal sweetener that the government has rarely extended to overseas buyers.

BBVA agreed to buy $12 billion of the $13 billion assets left at Guaranty Bank, which it will ultimately sell to private investors. The F.D.I.C. agreed to take on the remaining $1 billion of assets, as well as cover losses on the $9.7 billion pool of risky loans that BBVA bought. The agreement calls for the government to take on about 80 percent of the first $2.3 billion of losses, and 95 percent of the losses above that threshold.

Loss-sharing agreements have become a standard part of the F.D.I.C.’s toolkit for resolving troubled banks, but rarely have they covered such a big portion of a failed bank’s assets.

And seldom are they offered to foreign buyers. Indeed, it appears the last time that an overseas bank received federal assistance in a failed bank deal was when the Bank of Ireland scooped up four New Hampshire banks in September 1991. link....

Affordability Leads to Home Sales Spike in South

The last time the South saw such a marked increase in resales was September 2005. Affordable prices made home buying attractive, as did low mortgage rates. Also, first-time buyers rushed to grab a tax credit that expires in November.

And, while foreclosures are expected to be an obstacle into next year, they are making up a smaller percentage of sales in several markets.

In the South, the median sales price of resold homes fell 7 percent to $164,500 -- not exactly a reason to party. But prices have been steadily climbing since January, when the median was $143,300.

Nationally, July sales of existing homes also rose 5.6 percent compared to the same month last year. Median sales prices fell 15 percent to $178,400.

Continuing a months-long trend, home sales once again rose on an annual basis in Washington D.C. and the Florida metro areas of Miami, Orlando and Tampa, according to The Associated Press-Re/Max Housing Report released Friday.

But in July, other markets joined in, with cities such as Little Rock, Ark., and San Antonio, Texas, posting sales increases. In all, eight of the 19 metro areas covered by the AP-Re/Max report showed year-over-year sales gains.

Meanwhile, prices were flat or up in seven Southern cities, with Little Rock leading the way with a 3 percent jump to $144,000, according to the AP-Re/Max report. Miami, by contrast, had a 44 percent decrease to $150,100.

The report analyzed sales transactions in the metropolitan statistical areas recorded by all real estate agents, regardless of company affiliation.

Lawrence Yun, chief economist for the Realtors group, described the Orlando market as recovering. In that central Florida city, ''demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint,'' Yun said.

Sales in Orlando rose an eye-popping 64 percent compared with July 2008, with prices dipping 36 percent to $130,000, the AP-Re/Max report showed.

''Assuming that interest rates stay low and that builders don't flood the market with product as things improve, then we're on the road to recovery,'' said Steve Moreira, chief executive of Magic Property and Investments. link.....

Unemployment Dips in D.C., Va.

Unemployment fell in the District and Virginia in July as students found jobs or left the workforce, while it increased slightly in Maryland due to a surge in job seekers, new government data show.

In the District, unemployment edged down from a seasonally adjusted rate of 10.9 percent to 10.6 percent, the Labor Department reported.

More than 13,000 jobs were added to District payrolls last month, a larger number than for most states. City officials said the increase was largely due to the summer youth employment program. The District still leads the region in unemployment with a rate that remains significantly higher than it was a year ago, when it stood at 7 percent.

A growing number of economic forecasters are saying the worst recession of the post-World War II era is close to ending or has already ended. And the manufacturing sector has lately begun to show signs of stabilizing. But the labor market is likely to be weak well after the recession ends. The national unemployment rate edged down in July to 9.4 percent, from 9.5 percent, due in part to people leaving the workforce and not being counted as unemployed. The Labor Department data released Friday showed unemployment rose in 26 states. Jobs remain scarce, with six unemployed people for every opening and a record one out of every three unemployed people being out of work for 27 weeks or longer.

Across the nation, Michigan still has the highest unemployment rate at 15 percent. The Labor Department will release unemployment data for the Washington metropolitan region as a whole on Sept. 1. link.....

Car Buyers Make ‘Mad Dash’ to Dealers as Clunkers Program Ends

Bernie Saric has watched the U.S. government’s “cash for clunkers” program burn through more than $2 billion in car-purchase assistance. As the program enters its last weekend, she said she decided to grab her share.

Saric, who works for an auto-parts maker, plans to trade in her 1996 Ford Explorer this morning for a 2010 Ford Edge, two days before the program expires Aug. 24.

“I definitely felt the pressure to make a decision and say, ‘If I felt good about a car I test-drive, I have to go for it,’ ” said Saric, of Howell, Michigan, who declined to give her age. “It’s like a mad dash to get a deal done now.”

The clunkers plan, which offers auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles, has recorded more than 489,000 dealer transactions valued at $2.04 billion in rebates, according to Transportation Department data released yesterday.

Last-minute shoppers looking to capitalize on the trade-in program may have few cars or dealerships to choose from. AutoNation Inc. and Group 1 Automotive Inc., two of the country’s largest car dealership groups, said yesterday they will opt out of “cash for clunkers.” Some independent dealers have done so, too, citing cumbersome bureaucracy.

Bryan Mason, 40, of San Francisco, founder of an Internet start-up company, said he had planned to buy a new car to replace his red 2000 Jeep Cherokee with 133,000 miles during the next couple of weeks.

Filling Out Paperwork

“When I heard the program was ending on the news last night, I was here this morning when the doors opened,” Mason said yesterday, while filling out paperwork to buy a 2009 Honda Fit from a dealership in Oakland, California. He said it was the only place that had the car in the color he wanted.

“I’ve had my eye on it,” he said. “I am here today because I wanted to make sure all my paperwork is processed in time.” link....

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