FOREX AND ANALYSIS: October 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.

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.

link...

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....