(Reuters) - JPMorgan Chase & Co and Morgan Stanley are emerging as the top beneficiaries of the biggest boom in U.S. secondary offering activity, stoked by banks' rush to sell stock after government "stress tests."
May saw the biggest ever U.S. follow-on activity, based on proceeds, with $39.2 billion so far this month across all industries, based on Thomson Reuters data. The second largest was in October last year with $26.1 billion.
Banks collected $1 billion of fees from underwriting U.S. equity issues in the first two weeks of May alone, compared with $1.2 billion for the entire first four months of the year, according to the data.
"Obviously this is going to be one of the best quarters in history because of the amount of capital raises in the past 10 to 12 days," said Richard Bove, an analyst at Rochdale Securities.
JPMorgan came in as the top bookrunner to U.S. equity and equity-related offerings for the year-to-date period with $326.8 million in fees from 74 issues, the data showed, and stayed on top even as the pace of offerings sped up in the first two weeks of May.
Morgan Stanley followed with $291.7 million from 55 equity issuances, Bank of America Corp with $261.4 million from 66 issues and Goldman Sachs Group Inc with $220.5 million with 39 issues.
Proceeds from U.S. secondary share sales have totaled $67.84 billion so far this year, compared with $47.47 billion for the same period a year earlier.
"If this is the biggest month in the history of the industry in capital raises, then the profits that Morgan (Stanley), Goldman, JPMorgan, Citigroup, Bank of America and to a lesser extent Wells Fargo makes from this business is simply going to be mind-blowing," Bove said.
U.S. banks are driving the issuance, with many being forced by the U.S. government to raise equity capital following stress tests by regulators to see how they would cope with a worsening economy, including a further surge in the jobless rate and further declines in home prices.
Of the 19 U.S. banks to undergo stress tests, 10 were told to raise a combined $74.6 billion.
Treasury Secretary Timothy Geithner told the Senate Banking Committee the 19 banks have raised or set plans to raise more than $56 billion, including $34 billion of equity capital.
Earlier this month Wells Fargo & Co sold $8.6 billion of stock, while Morgan Stanley sold $4.6 billion.
Bank of America topped them all, issuing $13.5 billion through a share sale in a series of transactions, culminating in an offering that raised more than $8 billion on Tuesday.
JPMorgan benefited from acting as joint bookrunner with Wachovia Securities for Wells Fargo's offering. JPMorgan is arranging the offerings for Regions Financial Corp and BB&T Corp, among others.
Goldman and Morgan Stanley have also been major beneficiaries of the surge, having underwritten or agreed to underwrite $1 billion or larger stock offerings by financial companies such as State Street Corp, U.S. Bancorp and Bank of New York Mellon Corp and nonfinancial companies like automaker Ford Motor Co.
Read more here
Wednesday, May 20, 2009
Tuesday, May 19, 2009
U.S. Needs More Inflation to Speed Recovery, Say Mankiw, Rogoff
(Bloomberg) -- What the U.S. economy may need is a dose of good old-fashioned inflation.
So say economists including Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund. They argue that a looser rein on inflation would make it easier for debt-strapped consumers and governments to meet their obligations. It might also help the economy by encouraging Americans to spend now rather than later when prices go up.
“I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.”
Such a strategy would be risky. An outlook for higher prices could spook foreign investors and send the dollar careening lower. The challenge would be to prevent inflation from returning to the above-10-percent levels that prevailed in the 1970s and took almost a decade and a recession to cure.
“Anybody who has been a central banker wouldn’t want to see inflation expectations become unhinged,” says Marvin Goodfriend, a former official at the Federal Reserve Bank of Richmond. “The Fed would have to create a recession to get its credibility back,” adds Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh.
Preventing Deflation
For the moment, the Fed’s focus is on preventing deflation -- a potentially debilitating drop in prices and wages that makes debts harder to repay and encourages the postponement of purchases. The Labor Department reported May 15 that consumer prices were unchanged in April from the previous month and were down 0.7 percent from a year earlier.
“We are currently being very aggressive because we are trying to avoid” deflation, Fed Chairman Ben S. Bernanke told an Atlanta Fed conference on May 11.
The central bank has cut short-term interest rates effectively to zero and engaged in what Bernanke calls “credit easing” to spur lending to consumers, small businesses and homebuyers.
Bernanke, 55, said the risk of deflation was receding and that the Fed was ready to reverse course when needed to maintain stable prices and prevent an outbreak of undesired inflation. The Fed has implicitly defined price stability as annual inflation of 1.5 percent to 2 percent, as measured by a price index based on personal consumption expenditures.
Lifting Prices, Wages
Even after all the Fed has done to stimulate the economy, some economists argue that it needs to do more and deliberately aim for much faster inflation that would also lift wages.
With unemployment at a 25-year high of 8.9 percent, workers are being squeezed. Wages and salaries rose 0.3 percent in the first quarter, the least on record, according to the Labor Department, as companies including Memphis, Tennessee-based based package-delivery company FedEx Corp. and newspaper publisher Gannett Co. of McLean, Virginia slashed pay.
Given the Fed’s inability to cut rates further, Mankiw says the central bank should pledge to produce “significant” inflation. That would put the real, inflation-adjusted interest rate -- the cost of borrowing minus the rate of inflation -- deep into negative territory, even though the nominal rate would still be zero.
If Americans were convinced of the Fed’s commitment, they’d buy and borrow more now, he says.
Mankiw, currently a Harvard professor, declines to put a number on what inflation rate the Fed should shoot for, saying that the central bank has computer models that would be useful for determining that.
Gold Standard
In advocating that the Fed commit itself to generating some inflation, Mankiw, 51, likens such a step to the U.S. decision to abandon the gold standard in 1933, which freed policy makers to fight the Depression.
Faster inflation might be preferable to increased unemployment, or to further budget stimulus packages that push up the national debt, says Mankiw, who was chairman of the Council of Economic Advisors under President George W. Bush.
The White House has forecast that the budget deficit will hit $1.84 trillion this fiscal year, or 12.9 percent of gross domestic product. Rogoff doubts that politicians will be willing to reduce that shortfall by raising taxes as much as needed. Instead, he sees them pressing the Fed to accept faster inflation as a way of easing the burden of reducing the deficit.
Read more here
So say economists including Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund. They argue that a looser rein on inflation would make it easier for debt-strapped consumers and governments to meet their obligations. It might also help the economy by encouraging Americans to spend now rather than later when prices go up.
“I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.”
Such a strategy would be risky. An outlook for higher prices could spook foreign investors and send the dollar careening lower. The challenge would be to prevent inflation from returning to the above-10-percent levels that prevailed in the 1970s and took almost a decade and a recession to cure.
“Anybody who has been a central banker wouldn’t want to see inflation expectations become unhinged,” says Marvin Goodfriend, a former official at the Federal Reserve Bank of Richmond. “The Fed would have to create a recession to get its credibility back,” adds Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh.
Preventing Deflation
For the moment, the Fed’s focus is on preventing deflation -- a potentially debilitating drop in prices and wages that makes debts harder to repay and encourages the postponement of purchases. The Labor Department reported May 15 that consumer prices were unchanged in April from the previous month and were down 0.7 percent from a year earlier.
“We are currently being very aggressive because we are trying to avoid” deflation, Fed Chairman Ben S. Bernanke told an Atlanta Fed conference on May 11.
The central bank has cut short-term interest rates effectively to zero and engaged in what Bernanke calls “credit easing” to spur lending to consumers, small businesses and homebuyers.
Bernanke, 55, said the risk of deflation was receding and that the Fed was ready to reverse course when needed to maintain stable prices and prevent an outbreak of undesired inflation. The Fed has implicitly defined price stability as annual inflation of 1.5 percent to 2 percent, as measured by a price index based on personal consumption expenditures.
Lifting Prices, Wages
Even after all the Fed has done to stimulate the economy, some economists argue that it needs to do more and deliberately aim for much faster inflation that would also lift wages.
With unemployment at a 25-year high of 8.9 percent, workers are being squeezed. Wages and salaries rose 0.3 percent in the first quarter, the least on record, according to the Labor Department, as companies including Memphis, Tennessee-based based package-delivery company FedEx Corp. and newspaper publisher Gannett Co. of McLean, Virginia slashed pay.
Given the Fed’s inability to cut rates further, Mankiw says the central bank should pledge to produce “significant” inflation. That would put the real, inflation-adjusted interest rate -- the cost of borrowing minus the rate of inflation -- deep into negative territory, even though the nominal rate would still be zero.
If Americans were convinced of the Fed’s commitment, they’d buy and borrow more now, he says.
Mankiw, currently a Harvard professor, declines to put a number on what inflation rate the Fed should shoot for, saying that the central bank has computer models that would be useful for determining that.
Gold Standard
In advocating that the Fed commit itself to generating some inflation, Mankiw, 51, likens such a step to the U.S. decision to abandon the gold standard in 1933, which freed policy makers to fight the Depression.
Faster inflation might be preferable to increased unemployment, or to further budget stimulus packages that push up the national debt, says Mankiw, who was chairman of the Council of Economic Advisors under President George W. Bush.
The White House has forecast that the budget deficit will hit $1.84 trillion this fiscal year, or 12.9 percent of gross domestic product. Rogoff doubts that politicians will be willing to reduce that shortfall by raising taxes as much as needed. Instead, he sees them pressing the Fed to accept faster inflation as a way of easing the burden of reducing the deficit.
Read more here
Sunday, May 17, 2009
Cuomo Treads Where SEC Failed on ‘Pay-to-Play’ Rules
(Bloomberg) -- New York Attorney General Andrew Cuomo raised the stakes in his attack on “pay-to-play” in the public pension-fund market as Carlyle Group agreed to a $20 million settlement that limits campaign contributions to officials who oversee state money.
Carlyle, the world’s second-largest private-equity firm, also agreed yesterday not to use placement agents to solicit investment business from public retirement plans nationwide. It is the first money manager to adopt Cuomo’s new “code of reform” for the municipal-pension market, though it probably won’t be the last, said Elizabeth Nowicki, a professor at Tulane University Law School in New Orleans.
While New York state has already banned the use of placement agents, Cuomo has gone a step further. The code he seeks to have adopted industrywide prohibits money managers from doing business anywhere in the country with a public pension plan for two years after making political donations to officials who can influence the fund’s investment decisions. The U.S. Securities and Exchange Commission proposed similar restrictions in 1999, though it backed off amid opposition from the investment industry and politicians.
“The onus is going to be on the private-equity firms to really market their results,” Nowicki said. “They need to go out and get business the old-fashioned way.”
Under the SEC’s 1999 proposal, investment advisers would have been barred from managing pension money for two years after making a political contribution. The measure also would have required money managers with government clients to keep records of their contributions. SEC Chairman Mary Schapiro said April 21 that the agency is re-evaluating those rules.
No Criminal Charges
Carlyle executives will not be subject to any criminal liability under the settlement, Cuomo said yesterday at a press conference. Founded by David Rubenstein with William Conway and Daniel D’Aniello in 1987, the firm manages about $85.5 billion in assets, second in the private-equity industry to Blackstone Group LP of New York.
Cuomo said yesterday he also is investigating Riverstone Holdings LLC, a New York-based private-equity firm that has a joint venture with Carlyle. Funds managed by Carlyle alone or with Riverstone received about $730 million in investment commitments from the New York fund. Riverstone declined to comment.
“This is a revolutionary agreement,” Cuomo, 51, said. “It ends pay-to-play. It bans the selling of access. It puts the political power brokers out of business.”
The Public Pension Fund Code of Conduct is the latest such rulebook developed by Cuomo’s office, which has also created codes of conduct for the student-loan, Web-access and health- insurance industries.
Cuomo’s Style
“A pattern is emerging where Cuomo gets a major player in an industry to agree to a settlement or a code of conduct and the rest of the industry tends to follow,” said Jacob Zamansky, principal of Zamansky and Associates, a securities law firm in New York. “It appears to be a successful strategy which will continue.”
Asked how soon to expect other settlements in the pension probe, Cuomo said he had brought “a number of criminal and civil cases and we will have more over the coming weeks.”
Cuomo typically also seeks legislation to help bring about reforms. In the case of the student-loan industry, New York passed a law aimed at ending the conflicts of interest. U.S. Congress passed a law modeled on New York’s.
Task Force
Cuomo began to investigate the $122 billion New York State Common Retirement Fund about two years ago. Since then, his probe has expanded beyond New York and a multistate task force was formed. His office and the SEC say they are investigating money managers and their placement agents who used ties to public officials and kickbacks to buy and sell access to the $2 trillion in U.S. public pension systems.
Quadrangle Group LLC and Odyssey Investment Partners are among the firms whose public investment contracts are being investigated by Cuomo and the SEC.
“These problems have existed for quite some time and they didn’t get the attention because the amounts of capital committed to private equity were relatively insignificant,” said David De Weese, a partner with private-equity firm Paul Capital Partners in New York. His firm manages about $7 billion in assets and doesn’t use placement agents.
“Talking directly to investors and building those relationships is a good thing,” he said.
Read more here
Carlyle, the world’s second-largest private-equity firm, also agreed yesterday not to use placement agents to solicit investment business from public retirement plans nationwide. It is the first money manager to adopt Cuomo’s new “code of reform” for the municipal-pension market, though it probably won’t be the last, said Elizabeth Nowicki, a professor at Tulane University Law School in New Orleans.
While New York state has already banned the use of placement agents, Cuomo has gone a step further. The code he seeks to have adopted industrywide prohibits money managers from doing business anywhere in the country with a public pension plan for two years after making political donations to officials who can influence the fund’s investment decisions. The U.S. Securities and Exchange Commission proposed similar restrictions in 1999, though it backed off amid opposition from the investment industry and politicians.
“The onus is going to be on the private-equity firms to really market their results,” Nowicki said. “They need to go out and get business the old-fashioned way.”
Under the SEC’s 1999 proposal, investment advisers would have been barred from managing pension money for two years after making a political contribution. The measure also would have required money managers with government clients to keep records of their contributions. SEC Chairman Mary Schapiro said April 21 that the agency is re-evaluating those rules.
No Criminal Charges
Carlyle executives will not be subject to any criminal liability under the settlement, Cuomo said yesterday at a press conference. Founded by David Rubenstein with William Conway and Daniel D’Aniello in 1987, the firm manages about $85.5 billion in assets, second in the private-equity industry to Blackstone Group LP of New York.
Cuomo said yesterday he also is investigating Riverstone Holdings LLC, a New York-based private-equity firm that has a joint venture with Carlyle. Funds managed by Carlyle alone or with Riverstone received about $730 million in investment commitments from the New York fund. Riverstone declined to comment.
“This is a revolutionary agreement,” Cuomo, 51, said. “It ends pay-to-play. It bans the selling of access. It puts the political power brokers out of business.”
The Public Pension Fund Code of Conduct is the latest such rulebook developed by Cuomo’s office, which has also created codes of conduct for the student-loan, Web-access and health- insurance industries.
Cuomo’s Style
“A pattern is emerging where Cuomo gets a major player in an industry to agree to a settlement or a code of conduct and the rest of the industry tends to follow,” said Jacob Zamansky, principal of Zamansky and Associates, a securities law firm in New York. “It appears to be a successful strategy which will continue.”
Asked how soon to expect other settlements in the pension probe, Cuomo said he had brought “a number of criminal and civil cases and we will have more over the coming weeks.”
Cuomo typically also seeks legislation to help bring about reforms. In the case of the student-loan industry, New York passed a law aimed at ending the conflicts of interest. U.S. Congress passed a law modeled on New York’s.
Task Force
Cuomo began to investigate the $122 billion New York State Common Retirement Fund about two years ago. Since then, his probe has expanded beyond New York and a multistate task force was formed. His office and the SEC say they are investigating money managers and their placement agents who used ties to public officials and kickbacks to buy and sell access to the $2 trillion in U.S. public pension systems.
Quadrangle Group LLC and Odyssey Investment Partners are among the firms whose public investment contracts are being investigated by Cuomo and the SEC.
“These problems have existed for quite some time and they didn’t get the attention because the amounts of capital committed to private equity were relatively insignificant,” said David De Weese, a partner with private-equity firm Paul Capital Partners in New York. His firm manages about $7 billion in assets and doesn’t use placement agents.
“Talking directly to investors and building those relationships is a good thing,” he said.
Read more here
Thursday, May 14, 2009
Kohl's and Nordstrom beat forecasts, raise 2009 views
(Reuters) - Kohl's Corp (KSS.N) and Nordstrom Inc (JWN.N) beat quarterly profit estimates and raised their 2009 earnings views, defying a still precarious environment for department stores in which both well-to-do and budget shoppers are paring back.
Their results, helped by tighter expense controls and leaner inventories, presented investors with a speck of good news about a struggling industry that has endured months of dismal sales amid the recession.
But Kohl's raised forecast was still below Wall Street estimates and its shares closed the regular session down 1.7 percent and held steady in after-hours trading. Nordstrom shares, which gained over 3 percent in regular trading, added another 3 percent after hours.
Despite a 32 percent drop in quarterly net profit, upscale chain Nordstrom cited lower costs, lean inventory and credit card revenue, tempered by increasing bad debt expenses, for its brighter 2009 earnings outlook.
Profit margins improved at Kohl's, a mid-price department store, and the company cited gains in market share as sales rose a meager 0.4 percent.
That outshone Nordstrom's 9.2 percent fall in sales and sharp revenue drops at rivals, all of which have struggled to entice consumers to spend in the face of fear of job losses, home foreclosures and tight access to credit.
Analysts cautioned the retail sector remained in the doldrums.
"It tells us it's tough out there. You'd better be managing your inventory with an iron fist and owning your credit card business has significant risk, perhaps greater risk than people realize," said Stifel Nicolaus analyst Richard Jaffe, who has a "hold" rating on both companies.
Macy's Inc (M.N) posted a 9.5 percent drop in first-quarter sales on Wednesday and stuck to its forecast for sales to fall for the full year.
DISCOUNTERS OUTPERFORM?
When they do spend, consumers have sought deep discounts -- a trend likely to persist and help Kohl's, said Liz Dunn, a Thomas Weisel analyst.
"A more value-conscious consumer is likely to persist for some time, so Kohl's will continue to be well-positioned from that standpoint," Dunn said.
The world's largest retailer, Wal-Mart Stores Inc (WMT.N), whose low prices have attracted shoppers during the economic slump, posted a roughly flat quarterly profit.
Kohl's beat Wall Street estimates by a penny, according to Reuters Estimates. Net profit fell to $137 million, or 45 cents per share, from $153 million, or 49 cents per share, a year earlier.
Better controlled inventory led to less discounted merchandise in stores, the company said.
Read more here
Their results, helped by tighter expense controls and leaner inventories, presented investors with a speck of good news about a struggling industry that has endured months of dismal sales amid the recession.
But Kohl's raised forecast was still below Wall Street estimates and its shares closed the regular session down 1.7 percent and held steady in after-hours trading. Nordstrom shares, which gained over 3 percent in regular trading, added another 3 percent after hours.
Despite a 32 percent drop in quarterly net profit, upscale chain Nordstrom cited lower costs, lean inventory and credit card revenue, tempered by increasing bad debt expenses, for its brighter 2009 earnings outlook.
Profit margins improved at Kohl's, a mid-price department store, and the company cited gains in market share as sales rose a meager 0.4 percent.
That outshone Nordstrom's 9.2 percent fall in sales and sharp revenue drops at rivals, all of which have struggled to entice consumers to spend in the face of fear of job losses, home foreclosures and tight access to credit.
Analysts cautioned the retail sector remained in the doldrums.
"It tells us it's tough out there. You'd better be managing your inventory with an iron fist and owning your credit card business has significant risk, perhaps greater risk than people realize," said Stifel Nicolaus analyst Richard Jaffe, who has a "hold" rating on both companies.
Macy's Inc (M.N) posted a 9.5 percent drop in first-quarter sales on Wednesday and stuck to its forecast for sales to fall for the full year.
DISCOUNTERS OUTPERFORM?
When they do spend, consumers have sought deep discounts -- a trend likely to persist and help Kohl's, said Liz Dunn, a Thomas Weisel analyst.
"A more value-conscious consumer is likely to persist for some time, so Kohl's will continue to be well-positioned from that standpoint," Dunn said.
The world's largest retailer, Wal-Mart Stores Inc (WMT.N), whose low prices have attracted shoppers during the economic slump, posted a roughly flat quarterly profit.
Kohl's beat Wall Street estimates by a penny, according to Reuters Estimates. Net profit fell to $137 million, or 45 cents per share, from $153 million, or 49 cents per share, a year earlier.
Better controlled inventory led to less discounted merchandise in stores, the company said.
Read more here
U.S. trucker YRC to seek $1 billion in bailout funds
(Reuters) - YRC Worldwide Inc (YRCW.O) plans to apply for $1 billion in federal bailout money, the Wall Street Journal reported, citing the trucking company's chief executive William Zollars.
The company wants the funds to help cover the cost of its estimated $2 billion pension obligation over the next four years, the paper cited Zollars as saying.
About half of YRC's contributions to a multi-employer union pension fund cover the costs of retirees who never worked for the company, according to the paper.
Zollars told the paper that by applying to the U.S. Treasury for money under the Troubled Asset Relief Program, he hopes to "get the conversation started" with federal authorities about reducing the company's pension obligations.
YRC will submit an application to the Treasury as early as Friday, Zollars told the paper.
Read more here
The company wants the funds to help cover the cost of its estimated $2 billion pension obligation over the next four years, the paper cited Zollars as saying.
About half of YRC's contributions to a multi-employer union pension fund cover the costs of retirees who never worked for the company, according to the paper.
Zollars told the paper that by applying to the U.S. Treasury for money under the Troubled Asset Relief Program, he hopes to "get the conversation started" with federal authorities about reducing the company's pension obligations.
YRC will submit an application to the Treasury as early as Friday, Zollars told the paper.
Read more here
Wednesday, May 13, 2009
Fiat Said to Study Use of Designs From GM’s Opel for Chrysler
(Bloomberg) -- Fiat SpA may use designs or technology from General Motors Corp.’s Opel in future Chrysler LLC models as part of a global auto alliance, people familiar with the discussions said.
The talks involve folding GM and Fiat’s European and Latin American operations into a new company, said the people, who asked not to be identified because details aren’t public. GM wants 40 percent of the new company, while Turin, Italy-based Fiat’s preference is to give 30 percent, two people said.
Adapting Opel designs for Chrysler vehicles would form a tight link between GM and the Fiat-Chrysler venture, spreading costs among more models to save money. Global sales for GM, Fiat and Chrysler were about 12.4 million in 2008, topping the 8.97 million of Toyota Motor Corp., the world’s largest automaker.
GM needs a partner to run Germany’s Opel, maker of the compact Astra and midsize Insignia sedan, before June 1 to keep the unit from running out of cash. June 1 is also the deadline by which Detroit-based GM may file for bankruptcy in the U.S.
Bids are due next week for Opel, said John F. Smith, GM’s group vice president for product planning. Fiat has been asked to use that schedule for any offer, whether it’s just for Opel assets in Europe, including the Vauxhall brand in the U.K., or other regions, said Smith, who wouldn’t identify other bidders.
Gualberto Ranieri, a Fiat spokesman, declined to comment on talks with GM, the largest U.S. automaker.
Sharing Technology
The possibility of a GM-Fiat-Chrysler connection via Opel stems from GM’s plan to keep a technology-sharing arrangement that includes using designs from the German unit across models such as the Chevrolet Malibu and the new Buick LaCrosse.
GM is trying to cut $1.2 billion in costs and win 3.3 billion euros ($4.5 billion) in European aid to keep Opel operating independently of U.S. operations. Russelsheim, Germany-based Opel began as a manufacturer of sewing machines in 1862 and became a carmaker before GM bought it in 1929.
Fiat, which plans to take a 20 percent stake in bankrupt Chrysler, is studying whether to use Opel designs to help rejuvenate the U.S. automaker after it leaves court protection, the people said. GM assessed sharing car designs during merger talks with Auburn Hills, Michigan-based Chrysler last year, another person said.
Read more here
The talks involve folding GM and Fiat’s European and Latin American operations into a new company, said the people, who asked not to be identified because details aren’t public. GM wants 40 percent of the new company, while Turin, Italy-based Fiat’s preference is to give 30 percent, two people said.
Adapting Opel designs for Chrysler vehicles would form a tight link between GM and the Fiat-Chrysler venture, spreading costs among more models to save money. Global sales for GM, Fiat and Chrysler were about 12.4 million in 2008, topping the 8.97 million of Toyota Motor Corp., the world’s largest automaker.
GM needs a partner to run Germany’s Opel, maker of the compact Astra and midsize Insignia sedan, before June 1 to keep the unit from running out of cash. June 1 is also the deadline by which Detroit-based GM may file for bankruptcy in the U.S.
Bids are due next week for Opel, said John F. Smith, GM’s group vice president for product planning. Fiat has been asked to use that schedule for any offer, whether it’s just for Opel assets in Europe, including the Vauxhall brand in the U.K., or other regions, said Smith, who wouldn’t identify other bidders.
Gualberto Ranieri, a Fiat spokesman, declined to comment on talks with GM, the largest U.S. automaker.
Sharing Technology
The possibility of a GM-Fiat-Chrysler connection via Opel stems from GM’s plan to keep a technology-sharing arrangement that includes using designs from the German unit across models such as the Chevrolet Malibu and the new Buick LaCrosse.
GM is trying to cut $1.2 billion in costs and win 3.3 billion euros ($4.5 billion) in European aid to keep Opel operating independently of U.S. operations. Russelsheim, Germany-based Opel began as a manufacturer of sewing machines in 1862 and became a carmaker before GM bought it in 1929.
Fiat, which plans to take a 20 percent stake in bankrupt Chrysler, is studying whether to use Opel designs to help rejuvenate the U.S. automaker after it leaves court protection, the people said. GM assessed sharing car designs during merger talks with Auburn Hills, Michigan-based Chrysler last year, another person said.
Read more here
Tuesday, May 12, 2009
Second guilty plea in NY pension probe: Cuomo
(Reuters) - A second person pleaded guilty in a kickback scandal involving New York state's $122 billion pension fund, Attorney General Andrew Cuomo said on Tuesday.
Former Wetherly Capital Group associate Julio Ramirez pleaded guilty to a criminal misdemeanor charge, which Cuomo said stemmed from "corrupt arrangements" between Ramirez and Henry Morris, a top fund-raiser for New York state's former comptroller.
Ramirez and Morris were paid hundreds of thousands of dollars from multiple deals with the New York state pension fund, the Democratic attorney general said in a statement.
Cuomo, whose probe has been joined by the Securities and Exchange Commission and 36 other states, said: "This investigation has uncovered a matrix of corruption, which grows more expansive and interconnected by the day."
The probe, already linked to New Mexico and California public pensions, is scrutinizing a web of investment firms and the placement agents, lawyers, and lobbyists whom the firms hire to help them get selected to manage public pension funds.
Former hedge fund manager Barrett Wissman pleaded guilty to a felony in the kickback scheme in mid-April.
Ramirez's lawyer said in a statement that his client had "accepted responsibility for violating New York's Martin Act several years ago and is cooperating with the New York State Attorney General's office in its investigation."
The Martin Act is the state securities law, and the lawyer added his client wished to apologize to his friends and family.
On Tuesday, the SEC charged Ramirez with seeking kickbacks from Dallas-based Aldus Equity Partners and taking part in a multimillion-dollar kickback scheme with New York's pension fund.
SEC cases are often filed with the court as settled cases, but both parties must agree to any settlements, and a source familiar with the issues said Ramirez was in the process of reaching a settlement with the SEC. "It's just a timing issue on their end," said the source, who requested anonymity.
Read more here
Former Wetherly Capital Group associate Julio Ramirez pleaded guilty to a criminal misdemeanor charge, which Cuomo said stemmed from "corrupt arrangements" between Ramirez and Henry Morris, a top fund-raiser for New York state's former comptroller.
Ramirez and Morris were paid hundreds of thousands of dollars from multiple deals with the New York state pension fund, the Democratic attorney general said in a statement.
Cuomo, whose probe has been joined by the Securities and Exchange Commission and 36 other states, said: "This investigation has uncovered a matrix of corruption, which grows more expansive and interconnected by the day."
The probe, already linked to New Mexico and California public pensions, is scrutinizing a web of investment firms and the placement agents, lawyers, and lobbyists whom the firms hire to help them get selected to manage public pension funds.
Former hedge fund manager Barrett Wissman pleaded guilty to a felony in the kickback scheme in mid-April.
Ramirez's lawyer said in a statement that his client had "accepted responsibility for violating New York's Martin Act several years ago and is cooperating with the New York State Attorney General's office in its investigation."
The Martin Act is the state securities law, and the lawyer added his client wished to apologize to his friends and family.
On Tuesday, the SEC charged Ramirez with seeking kickbacks from Dallas-based Aldus Equity Partners and taking part in a multimillion-dollar kickback scheme with New York's pension fund.
SEC cases are often filed with the court as settled cases, but both parties must agree to any settlements, and a source familiar with the issues said Ramirez was in the process of reaching a settlement with the SEC. "It's just a timing issue on their end," said the source, who requested anonymity.
Read more here
Monday, May 11, 2009
Sony Hires Banks to Manage 100 Billion Yen Bond Sale
(Bloomberg) -- Sony Corp., the world’s second- largest maker of consumer electronics, hired four banks to manage the sale of 100 billion yen ($1 billion) in bonds, according to a banker involved in the deal.
Sony, which last sold debt in December, will sell the bonds in maturities of three-, five- and 10-years, according to the banker, who asked not to be identified before an official announcement. Nomura Securities Co., Nikko Citigroup Ltd., Mitsubishi UFJ Securities Co. and Mizuho Securities Co. will co- manage the sale, the banker said.
The funds will help Sony repay part of the 144.9 billion yen in bonds coming due in 2010 as the company heads for a second straight annual loss amid falling prices for televisions and cameras. Sony, rated A2 by Moody’s Investors Services, joins Microsoft Corp. among companies with invest-grade ratings announcing bond sales this week as credit markets thaw.
“The funding environment has calmed quite a bit since the last issuance,” said Nobuo Kurahashi, an analyst at Mizuho Investors Securities Co. in Tokyo.
Read more here
Sony, which last sold debt in December, will sell the bonds in maturities of three-, five- and 10-years, according to the banker, who asked not to be identified before an official announcement. Nomura Securities Co., Nikko Citigroup Ltd., Mitsubishi UFJ Securities Co. and Mizuho Securities Co. will co- manage the sale, the banker said.
The funds will help Sony repay part of the 144.9 billion yen in bonds coming due in 2010 as the company heads for a second straight annual loss amid falling prices for televisions and cameras. Sony, rated A2 by Moody’s Investors Services, joins Microsoft Corp. among companies with invest-grade ratings announcing bond sales this week as credit markets thaw.
“The funding environment has calmed quite a bit since the last issuance,” said Nobuo Kurahashi, an analyst at Mizuho Investors Securities Co. in Tokyo.
Read more here
Sunday, May 10, 2009
Muni Bond Insurance Buffett Called Dangerous Delivers Comeback
(Bloomberg) -- Municipal bond insurance is showing signs of renewal this year as new providers respond to demand from low-rated borrowers whose costs have increased three times as fast as for issuers with top credit grades.
Leading guarantee firms, including Ambac Financial Group Inc. and MBIA Inc. forfeited top credit ratings last year after losses related to subprime mortgage-backed securities. The amount of insured new issues plunged 64 percent in 2008 as the biggest bond-insurance firms wrote down at least $21.3 billion, according to data compiled by Bloomberg.
An early contender to replace them, Warren Buffett’s Berkshire Hathaway Assurance Corp., was downgraded to Aa1 by Moody’s Investors Service in April. The billionaire investor in February called tax-exempt bond guarantees “a dangerous business.” His firm insured $3.3 billion in issues last year, ranking third in the industry.
Buffett’s warning isn’t stopping Macquarie Group Ltd., Australia’s biggest securities firm, from backing a new guarantor: Municipal and Infrastructure Assurance Corp. plans to sell its first policy by July, said Richard E. Kolman, the New York-based startup’s executive vice chairman.
“It is surprising to find that municipal bond insurance is anything but moribund in the early going in 2009,” wrote Philip J. Fischer, a Merrill Lynch & Co. municipal strategist in New York, in an April 6 report.
Carrie Gray, a spokeswoman for Merrill Lynch, declined to make Fischer available for comment.
Diversity Sought
Municipal and Infrastructure Assurance will join new subsidiaries of Ambac and MBIA, along with industry leader Assured Guaranty Corp., in trying to revive so-called credit enhancements. In all, insurers covered $72 billion, or 18 percent, of new tax-exempt bonds last year. That was down from $201 billion, or 47 percent, in 2007.
The amount of insured issues may rebound to about 35 percent over the next two years, said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. Most of that work may go to a nonprofit firm that issuers hope to create, he said.
“I’d like some more diversity in names” to avoid having the same company backing too many issues, said John F. Flahive, who manages $22 billion in municipal debt at BNY Mellon Wealth Management in Boston.
Almost 70 percent of the firm’s tax-exempt bond holdings are insured, he said.
‘Historically Wide’
The coverage guarantees payments on bonds that defaulted about one-fifth as frequently as AAA corporate debt from 1970 to 2006, according to a Moody’s study in 2007. The policies equalize investors’ risk of lending to issuers of varying quality. In exchange for an upfront premium, borrowers use the firms’ credit ratings instead of their own.
Issuers rated BBB, Standard & Poor’s Corp.’s next-to-lowest investment grade, currently pay 4.75 percent to borrow for 10 years, according to Bloomberg data. The rate for insured general obligation bonds is 3.4 percent -- a difference of $135,000 on each $1 million of debt over the life of the loan.
The gap between yields on BBB- and AAA-rated issuers is about 152 basis points, Bloomberg data show. While down from a record 357 basis points in March, it remains “historically wide,” said Kolman, 54, who spent 25 years in municipal bonds at New York-based Goldman Sachs Group Inc., before retiring in 2007. A basis point is 0.01 percentage point.
Between January 2000 and January 2007, the mean spread was 52.9 basis points.
Premiums Higher
In 2006, when at least seven companies competed, premiums were as low as 15 basis points, according to a December report by the National League of Cities and the National Association of Counties. That meant issuers borrowing $1 million for 10 years paid as little as $2,212.50.
With competition dwindling, insuring A-rated general obligation bonds may now cost from 30 basis points to 75 basis points Kolman said -- or as much as $11,062.50 on $1 million for 10 years.
In 2005, their peak year, firms including Armonk, New York- based MBIA and Ambac of New York covered $233 billion, or 57 percent, of new tax-exempt issues, according to data from Thomson Reuters.
Starting in the mid-1990s, the top companies expanded into guaranteeing mortgage- and asset-backed securities. That business soured in 2007 as subprime mortgages began defaulting at record rates. As guarantors reported losses, their shares plunged.
Read more here
Leading guarantee firms, including Ambac Financial Group Inc. and MBIA Inc. forfeited top credit ratings last year after losses related to subprime mortgage-backed securities. The amount of insured new issues plunged 64 percent in 2008 as the biggest bond-insurance firms wrote down at least $21.3 billion, according to data compiled by Bloomberg.
An early contender to replace them, Warren Buffett’s Berkshire Hathaway Assurance Corp., was downgraded to Aa1 by Moody’s Investors Service in April. The billionaire investor in February called tax-exempt bond guarantees “a dangerous business.” His firm insured $3.3 billion in issues last year, ranking third in the industry.
Buffett’s warning isn’t stopping Macquarie Group Ltd., Australia’s biggest securities firm, from backing a new guarantor: Municipal and Infrastructure Assurance Corp. plans to sell its first policy by July, said Richard E. Kolman, the New York-based startup’s executive vice chairman.
“It is surprising to find that municipal bond insurance is anything but moribund in the early going in 2009,” wrote Philip J. Fischer, a Merrill Lynch & Co. municipal strategist in New York, in an April 6 report.
Carrie Gray, a spokeswoman for Merrill Lynch, declined to make Fischer available for comment.
Diversity Sought
Municipal and Infrastructure Assurance will join new subsidiaries of Ambac and MBIA, along with industry leader Assured Guaranty Corp., in trying to revive so-called credit enhancements. In all, insurers covered $72 billion, or 18 percent, of new tax-exempt bonds last year. That was down from $201 billion, or 47 percent, in 2007.
The amount of insured issues may rebound to about 35 percent over the next two years, said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia. Most of that work may go to a nonprofit firm that issuers hope to create, he said.
“I’d like some more diversity in names” to avoid having the same company backing too many issues, said John F. Flahive, who manages $22 billion in municipal debt at BNY Mellon Wealth Management in Boston.
Almost 70 percent of the firm’s tax-exempt bond holdings are insured, he said.
‘Historically Wide’
The coverage guarantees payments on bonds that defaulted about one-fifth as frequently as AAA corporate debt from 1970 to 2006, according to a Moody’s study in 2007. The policies equalize investors’ risk of lending to issuers of varying quality. In exchange for an upfront premium, borrowers use the firms’ credit ratings instead of their own.
Issuers rated BBB, Standard & Poor’s Corp.’s next-to-lowest investment grade, currently pay 4.75 percent to borrow for 10 years, according to Bloomberg data. The rate for insured general obligation bonds is 3.4 percent -- a difference of $135,000 on each $1 million of debt over the life of the loan.
The gap between yields on BBB- and AAA-rated issuers is about 152 basis points, Bloomberg data show. While down from a record 357 basis points in March, it remains “historically wide,” said Kolman, 54, who spent 25 years in municipal bonds at New York-based Goldman Sachs Group Inc., before retiring in 2007. A basis point is 0.01 percentage point.
Between January 2000 and January 2007, the mean spread was 52.9 basis points.
Premiums Higher
In 2006, when at least seven companies competed, premiums were as low as 15 basis points, according to a December report by the National League of Cities and the National Association of Counties. That meant issuers borrowing $1 million for 10 years paid as little as $2,212.50.
With competition dwindling, insuring A-rated general obligation bonds may now cost from 30 basis points to 75 basis points Kolman said -- or as much as $11,062.50 on $1 million for 10 years.
In 2005, their peak year, firms including Armonk, New York- based MBIA and Ambac of New York covered $233 billion, or 57 percent, of new tax-exempt issues, according to data from Thomson Reuters.
Starting in the mid-1990s, the top companies expanded into guaranteeing mortgage- and asset-backed securities. That business soured in 2007 as subprime mortgages began defaulting at record rates. As guarantors reported losses, their shares plunged.
Read more here
Thursday, May 7, 2009
U.S. banks race to fill $74.6 billion stress test hole
(Reuters) - U.S. regulators told top banks on Thursday to raise $74.6 billion to build a capital cushion officials hope will restore faith in financial firms and set a course out of the deepest recession in decades.
Within minutes of release of the bank "stress test" results, which showed smaller capital needs than once feared, several of the 10 firms needing capital immediately issued statements detailing how they planned to raise it.
Bank of America Inc, which accounted for almost half of the total capital shortfall with $33.9 billion to be raised, said it planned to sell assets, issue $17 billion in common stock, and take other steps to fill the hole.
"We're going to be watching carefully to make sure they give us credible plans for raising capital and becoming privately owned again," Federal Reserve Chairman Ben Bernanke said at a news briefing, referring to the entire group and not just Bank of America.
The examinations, which involved more than 150 regulatory officials poring over the books of the 19 largest firms, effectively drew a line between healthy and weak, and quantified exactly how much those institutions struggling under the weight of souring loans must raise.
U.S. stock index futures edged higher after the test results calmed fears that the government would have to play an even bigger role on Wall Street. Many of the banks themselves are loath to take more government aid for fear of the scrutiny it may bring and tough conditions on executive compensation.
Several of the banks found to be adequately capitalized said they wanted to repay taxpayer money as soon as possible to get out from under the government yoke.
Read more here
Within minutes of release of the bank "stress test" results, which showed smaller capital needs than once feared, several of the 10 firms needing capital immediately issued statements detailing how they planned to raise it.
Bank of America Inc, which accounted for almost half of the total capital shortfall with $33.9 billion to be raised, said it planned to sell assets, issue $17 billion in common stock, and take other steps to fill the hole.
"We're going to be watching carefully to make sure they give us credible plans for raising capital and becoming privately owned again," Federal Reserve Chairman Ben Bernanke said at a news briefing, referring to the entire group and not just Bank of America.
The examinations, which involved more than 150 regulatory officials poring over the books of the 19 largest firms, effectively drew a line between healthy and weak, and quantified exactly how much those institutions struggling under the weight of souring loans must raise.
U.S. stock index futures edged higher after the test results calmed fears that the government would have to play an even bigger role on Wall Street. Many of the banks themselves are loath to take more government aid for fear of the scrutiny it may bring and tough conditions on executive compensation.
Several of the banks found to be adequately capitalized said they wanted to repay taxpayer money as soon as possible to get out from under the government yoke.
Read more here
Wednesday, May 6, 2009
U.S. Stress Test Capital Requirement Results Summary
(Bloomberg) -- Following is a summary of the capital requirements of 12 banks resulting from U.S. regulators’ stress tests, according to people familiar with the matter. The Federal Reserve is scheduled to release the results of the tests on the 19 largest U.S. banks tomorrow:
==============================================================================
Company Capital Requirement
==============================================================================
Total $66.5 to $67.5 Billion in additional capital
------------------------------------------------------------------------------
Bank of America Judged to need roughly $34.0 Billion in additional capital
Wells Fargo Judged to need roughly $15.0 Billion in additional capital
GMAC Judged to need roughly $11.5 Billion in additional capital
Citigroup Judged to need roughly $5.0 Billion in additional capital
Morgan Stanley Judged to need roughly $1 to $2 Bil. in additional capital
Goldman Judged not to need to raise additional capital
MetLife Judged not to need to raise additional capital
==============================================================================
Company Capital Requirement
==============================================================================
JPMorgan Chase Judged not to need to raise additional capital
Bank of NY Mellon Judged not to need to raise additional capital
American Express Judged not to need to raise additional capital
Capital One Judged not to need to raise additional capital
BB&T Judged not to need to raise additional capital
------------------------------------------------------------------------------
==============================================================================
Company Government Capital Injections by Firm
==============================================================================
Bank of America Targeted Investment Program $20 Billion on 01/16/09
Capital Purchase Program $10 Billion on 01/09/09*
Capital Purchase Program $15 Billion on 10/28/08
------------------------------------------------------------------------------
Wells Fargo Capital Purchase Program $25 Billion on 10/28/08
------------------------------------------------------------------------------
GMAC Automotive Industry Financing Program $5 Billion 12/29/08
GMAC has also received other financial assistance
------------------------------------------------------------------------------
==============================================================================
Company Government Capital Injections by Firm
==============================================================================
Citigroup Targeted Investment Program $20 Billion on 12/31/08
Asset Guarantee Program $5 Billion on 01/16/09
Capital Purchase Program $25 Billion on 10/28/08
------------------------------------------------------------------------------
Morgan Stanley Capital Purchase Program $10 Billion on 10/28/08
------------------------------------------------------------------------------
Goldman Sachs Capital Purchase Program $10 Billion on 10/28/08
------------------------------------------------------------------------------
MetLife None
------------------------------------------------------------------------------
JPMorgan Chase Capital Purchase Program $25 Billion on 10/28/08
------------------------------------------------------------------------------
Bank of NY Mellon Capital Purchase Program $3 Billion on 10/28/08
==============================================================================
Note: Dollar figures in billions
*This transaction was included in previous Transaction Report with
Merrill Lynch listed as the qualifying institution and a 10/28/2008
transaction date. The purchase of Merrill Lynch by Bank of America
was completed on Jan. 1, 2009 and this transaction under the CPP was
funded on Jan. 9, 2009.
==============================================================================
Company Capital Requirement
==============================================================================
Total $66.5 to $67.5 Billion in additional capital
------------------------------------------------------------------------------
Bank of America Judged to need roughly $34.0 Billion in additional capital
Wells Fargo Judged to need roughly $15.0 Billion in additional capital
GMAC Judged to need roughly $11.5 Billion in additional capital
Citigroup Judged to need roughly $5.0 Billion in additional capital
Morgan Stanley Judged to need roughly $1 to $2 Bil. in additional capital
Goldman Judged not to need to raise additional capital
MetLife Judged not to need to raise additional capital
==============================================================================
Company Capital Requirement
==============================================================================
JPMorgan Chase Judged not to need to raise additional capital
Bank of NY Mellon Judged not to need to raise additional capital
American Express Judged not to need to raise additional capital
Capital One Judged not to need to raise additional capital
BB&T Judged not to need to raise additional capital
------------------------------------------------------------------------------
==============================================================================
Company Government Capital Injections by Firm
==============================================================================
Bank of America Targeted Investment Program $20 Billion on 01/16/09
Capital Purchase Program $10 Billion on 01/09/09*
Capital Purchase Program $15 Billion on 10/28/08
------------------------------------------------------------------------------
Wells Fargo Capital Purchase Program $25 Billion on 10/28/08
------------------------------------------------------------------------------
GMAC Automotive Industry Financing Program $5 Billion 12/29/08
GMAC has also received other financial assistance
------------------------------------------------------------------------------
==============================================================================
Company Government Capital Injections by Firm
==============================================================================
Citigroup Targeted Investment Program $20 Billion on 12/31/08
Asset Guarantee Program $5 Billion on 01/16/09
Capital Purchase Program $25 Billion on 10/28/08
------------------------------------------------------------------------------
Morgan Stanley Capital Purchase Program $10 Billion on 10/28/08
------------------------------------------------------------------------------
Goldman Sachs Capital Purchase Program $10 Billion on 10/28/08
------------------------------------------------------------------------------
MetLife None
------------------------------------------------------------------------------
JPMorgan Chase Capital Purchase Program $25 Billion on 10/28/08
------------------------------------------------------------------------------
Bank of NY Mellon Capital Purchase Program $3 Billion on 10/28/08
==============================================================================
Note: Dollar figures in billions
*This transaction was included in previous Transaction Report with
Merrill Lynch listed as the qualifying institution and a 10/28/2008
transaction date. The purchase of Merrill Lynch by Bank of America
was completed on Jan. 1, 2009 and this transaction under the CPP was
funded on Jan. 9, 2009.
Tuesday, May 5, 2009
Coca-Cola, Oracle, Intel Use Caymans to Avoid Taxes
(Bloomberg) -- Seagate Technology, the world’s largest maker of hard disk drives, is headquartered in Scotts Valley, California. Yet the documents it files with the Securities and Exchange Commission list its address on South Church Street in George Town, the capital of the Cayman Islands.
Seagate is just one of the companies that may be affected by President Barack Obama’s proposal yesterday to raise about $190 billion over the next decade by outlawing techniques used by U.S. companies in offshore locations to avoid paying taxes. While the U.S. corporate tax rate is 35 percent, Seagate paid an effective tax rate of 5 percent in the year ended June 2008, according to data compiled by Bloomberg.
The Caymans have no corporate income tax for companies incorporated there. The Caribbean island has helped scores of U.S. companies, including Coca-Cola Co. and Oracle Corp., to legally avoid billions in tax payments to the U.S. government, says U.S. Senator Byron Dorgan.
“Our Main Street businesses are working hard during this economic downturn to pay their fair share of taxes,” says Dorgan, 66, a North Dakota Democrat. “Some of the country’s largest corporations are using these loopholes to avoid paying their fair share of taxes. It is my hope that the Congress will quickly take action to pull the plug on tax breaks that subsidize runaway plants that move U.S. jobs overseas.”
Largest Companies
One quarter of the 100 largest contractors with the U.S. federal government, including Altria Group Inc. and Tyco International Ltd have had subsidiaries in the Caymans, according to a study by the Government Accountability Office. At least 10 of the 30 companies listed in the Dow Jones Industrial Average have had units with addresses in the Caymans.
As of November 2007, 378 U.S. publicly traded companies had at least one significant subsidiary in the Cayman Islands, a GAO study found. Altria, Tyco, Coke and Oracle still have subsidiaries in the Caymans, according to their most recent SEC filings. Seagate lists its headquarters in Grand Cayman.
One of the Dow 30 companies using offshore sites to reduce its U.S. taxes is Santa Clara, California-based Intel Corp., the world’s largest chipmaker.
Intel’s then vice president of tax, licensing and customs, Robert Perlman told the U.S. Senate Finance Committee in March 1999 that Intel would have been better off incorporating in the Cayman Islands when it was founded in 1968.
“Our tax code competitively disadvantages multinationals simply because the parent is a U.S. corporation,” Perlman testified.
‘The Details’
Intel spokesman Chuck Mulloy said yesterday his company is reviewing the president’s speech on offshore tax havens. “We’re studying the Obama proposal,” Mulloy said. “Particularly with taxes, the devil’s in the details.”
Intel pays U.S. taxes on interest earned by its Cayman Island subsidiaries, Mulloy said.
Seagate spokesman Brian Ziel said yesterday that his company incorporated in the Caymans to reduce its taxes. “The competitive benefits relate both to taxes saved on certain income earned outside of the United States and the ability to efficiently deploy assets around the globe to remain competitive,” he said.
Eighty-five percent of Seagate’s employees work outside the U.S. and more than 70 percent of the company’s revenue comes from sales overseas, Ziel said.
“Officially, our administrative headquarters is in the Caymans,” Ziel said. “That’s how it’s listed in our annual report.”
Read more here
Seagate is just one of the companies that may be affected by President Barack Obama’s proposal yesterday to raise about $190 billion over the next decade by outlawing techniques used by U.S. companies in offshore locations to avoid paying taxes. While the U.S. corporate tax rate is 35 percent, Seagate paid an effective tax rate of 5 percent in the year ended June 2008, according to data compiled by Bloomberg.
The Caymans have no corporate income tax for companies incorporated there. The Caribbean island has helped scores of U.S. companies, including Coca-Cola Co. and Oracle Corp., to legally avoid billions in tax payments to the U.S. government, says U.S. Senator Byron Dorgan.
“Our Main Street businesses are working hard during this economic downturn to pay their fair share of taxes,” says Dorgan, 66, a North Dakota Democrat. “Some of the country’s largest corporations are using these loopholes to avoid paying their fair share of taxes. It is my hope that the Congress will quickly take action to pull the plug on tax breaks that subsidize runaway plants that move U.S. jobs overseas.”
Largest Companies
One quarter of the 100 largest contractors with the U.S. federal government, including Altria Group Inc. and Tyco International Ltd have had subsidiaries in the Caymans, according to a study by the Government Accountability Office. At least 10 of the 30 companies listed in the Dow Jones Industrial Average have had units with addresses in the Caymans.
As of November 2007, 378 U.S. publicly traded companies had at least one significant subsidiary in the Cayman Islands, a GAO study found. Altria, Tyco, Coke and Oracle still have subsidiaries in the Caymans, according to their most recent SEC filings. Seagate lists its headquarters in Grand Cayman.
One of the Dow 30 companies using offshore sites to reduce its U.S. taxes is Santa Clara, California-based Intel Corp., the world’s largest chipmaker.
Intel’s then vice president of tax, licensing and customs, Robert Perlman told the U.S. Senate Finance Committee in March 1999 that Intel would have been better off incorporating in the Cayman Islands when it was founded in 1968.
“Our tax code competitively disadvantages multinationals simply because the parent is a U.S. corporation,” Perlman testified.
‘The Details’
Intel spokesman Chuck Mulloy said yesterday his company is reviewing the president’s speech on offshore tax havens. “We’re studying the Obama proposal,” Mulloy said. “Particularly with taxes, the devil’s in the details.”
Intel pays U.S. taxes on interest earned by its Cayman Island subsidiaries, Mulloy said.
Seagate spokesman Brian Ziel said yesterday that his company incorporated in the Caymans to reduce its taxes. “The competitive benefits relate both to taxes saved on certain income earned outside of the United States and the ability to efficiently deploy assets around the globe to remain competitive,” he said.
Eighty-five percent of Seagate’s employees work outside the U.S. and more than 70 percent of the company’s revenue comes from sales overseas, Ziel said.
“Officially, our administrative headquarters is in the Caymans,” Ziel said. “That’s how it’s listed in our annual report.”
Read more here
Monday, May 4, 2009
Chrysler to lose $4.7B this year
(CNNMoney.com) -- Chrysler LLC expects to lose $4.7 billion this year and to continue to lose money for the next two years, according to a filing from one of the company's top financial advisers.
Robert Manzo, a financial adviser hired by Chrysler for help with the company's bankruptcy process, estimated in the filing that the company will have cash expenditures far greater than losses for the next few years. Chrysler is estimated to go through about $15.7 billion this year as part of its restructuring.
The company filed for bankruptcy Thursday as part of a deal with the federal government, unions, some lenders and Italian automaker Fiat to keep the company from being shut down.
Chrysler is a privately held company that has not publicly released its financial results since it was purchased by private equity firm Cerberus Capital Management in 2007, and analysts therefore do not publish loss estimates for the company.
Analysts surveyed by Thomson Reuters forecast that larger rival General Motors (GM, Fortune 500), which is also facing the threat of a bankruptcy filing at the end of this month, will post a net loss of $18.4 billion this year, while Ford Motor (F, Fortune 500), which is also significantly larger than Chrysler, is expected to lose $6.2 billion this year.
The filing also disclosed that Chrysler lost $16.8 billion in 2008. That's about the same as what GM lost in 2008, excluding special items, although not as bad as the $30.9 billion net loss at GM. But it was worse than the $14.6 billion lost by Ford last year.
Manzo's filing forecasts that Chrysler will lose about $900 million in 2010 and another $300 million in 2011, before finally reporting a $100 million profit in 2011.
The forecasts are far worse than the estimates Chrysler gave in a Feb. 17 filing with Treasury in which it requested additional government help. In that filing it estimated that a stand-alone Chrysler LLC would lose $1.1 billion this year, make a $600 million profit in 2010 before losing $600 million in both 2011 and 2012.
Read more here
Robert Manzo, a financial adviser hired by Chrysler for help with the company's bankruptcy process, estimated in the filing that the company will have cash expenditures far greater than losses for the next few years. Chrysler is estimated to go through about $15.7 billion this year as part of its restructuring.
The company filed for bankruptcy Thursday as part of a deal with the federal government, unions, some lenders and Italian automaker Fiat to keep the company from being shut down.
Chrysler is a privately held company that has not publicly released its financial results since it was purchased by private equity firm Cerberus Capital Management in 2007, and analysts therefore do not publish loss estimates for the company.
Analysts surveyed by Thomson Reuters forecast that larger rival General Motors (GM, Fortune 500), which is also facing the threat of a bankruptcy filing at the end of this month, will post a net loss of $18.4 billion this year, while Ford Motor (F, Fortune 500), which is also significantly larger than Chrysler, is expected to lose $6.2 billion this year.
The filing also disclosed that Chrysler lost $16.8 billion in 2008. That's about the same as what GM lost in 2008, excluding special items, although not as bad as the $30.9 billion net loss at GM. But it was worse than the $14.6 billion lost by Ford last year.
Manzo's filing forecasts that Chrysler will lose about $900 million in 2010 and another $300 million in 2011, before finally reporting a $100 million profit in 2011.
The forecasts are far worse than the estimates Chrysler gave in a Feb. 17 filing with Treasury in which it requested additional government help. In that filing it estimated that a stand-alone Chrysler LLC would lose $1.1 billion this year, make a $600 million profit in 2010 before losing $600 million in both 2011 and 2012.
Read more here
Sunday, May 3, 2009
Chrysler Lenders Tested Obama, Lost Game of Chicken
(Bloomberg) -- President Barack Obama thanked everyone from unions to executives for working to keep Chrysler LLC alive while blaming “a small group of speculators” for forcing the automaker into bankruptcy.
“A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” Obama said yesterday in Washington before Chrysler filed for bankruptcy protection.
Now, the government and Chrysler plan to use bankruptcy to compel the dissidents, all secured creditors, to go along with a plan to create a more viable carmaker in partnership with Italy’s Fiat SpA. In lashing out at the holdouts, Obama is attempting to rally the public behind his efforts to rescue the automaker, said Stuart Rothenberg, a Washington-based political analyst.
“In the real world, you have good guys and bad guys, and at the moment, auto executives, hedge-fund managers and bankers are all in the bad-guy category,” said Rothenberg. “He wants to be the guy who’s solving the problems and wants to make it clear who’s causing the problems.”
An anonymous group of 20 Chrysler lenders calling itself the “Committee of Chrysler Non-Tarp Lenders” said in a statement yesterday that they’d been treated worse than junior creditors during negotiations in violation of “long-recognized legal and business principles.” They said they were owed $1 billion.
Their loans are trading at about 15 cents on the dollar, Chrysler has said. TARP is the U.S. Troubled Asset Relief Program for banks.
OppenheimerFunds, Stairway
The dissidents included OppenheimerFunds Inc., Perella Weinberg Capital Management LP and Stairway Capital Advisors, a person representing the group said, asking not to be identified. Also in their camp is Group G Capital Partners LLC, said another person who declined to be named.
After the president’s comments yesterday, Perella said it had agreed to the buyout offer.
Obama’s team had first offered secured lenders $2 billion for their $6.9 billion in loans, and then raised the offer to $2.25 billion. In a game of chicken, the holdouts asked for $2.5 billion, and Obama’s patience ran out.
“They were hoping that everybody else would make sacrifices and they would have to make none,” Obama said. “Some demanded twice the return that other lenders were getting.”
With Chrysler now in bankruptcy, the government will pay secured lenders $2 billion, according to a court filing.
Banks including JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. lent Chrysler $6.9 billion, reselling some of their secured loans at discounts to investors. Chrysler took a $4 billion bailout loan from the U.S. Treasury and was racing to reduce debt to meet a government deadline for more aid, after workers agreed to give up $10 billion in future pension benefits.
Deadline Ignored
While lenders representing 70 percent of the Chrysler loans agreed to Obama’s offer of $2.25 billion in cash, the dissidents ignored a deadline of 6 p.m. on April 29, according to one of the investors who declined to be named.
Many dissidents paid from 50 cents to 70 cents on the dollar for their Chrysler loans, so they’re sitting on losses, according to people familiar with the matter.
Ronald E. Kolka, Chrysler’s chief financial officer, said in a court filing that the first-lien debt is trading at about 15 cents on the dollar in the secondary market.
Chrysler, with about 54,000 employees, listed assets and debt of more than $1 billion in documents filed in U.S. Bankruptcy Court in New York. As of Dec. 31, Chrysler companies had assets of about $39.3 billion and liabilities of $55.2 billion, according to court filings.
Dan Arbess, a partner at New York-based Perella, didn’t return calls seeking comment. John Rijo, principal of Uniondale, New York-based Stairway, and Group G Capital Chairman Geoffrey Gwin declined to comment.
Read more here
“A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” Obama said yesterday in Washington before Chrysler filed for bankruptcy protection.
Now, the government and Chrysler plan to use bankruptcy to compel the dissidents, all secured creditors, to go along with a plan to create a more viable carmaker in partnership with Italy’s Fiat SpA. In lashing out at the holdouts, Obama is attempting to rally the public behind his efforts to rescue the automaker, said Stuart Rothenberg, a Washington-based political analyst.
“In the real world, you have good guys and bad guys, and at the moment, auto executives, hedge-fund managers and bankers are all in the bad-guy category,” said Rothenberg. “He wants to be the guy who’s solving the problems and wants to make it clear who’s causing the problems.”
An anonymous group of 20 Chrysler lenders calling itself the “Committee of Chrysler Non-Tarp Lenders” said in a statement yesterday that they’d been treated worse than junior creditors during negotiations in violation of “long-recognized legal and business principles.” They said they were owed $1 billion.
Their loans are trading at about 15 cents on the dollar, Chrysler has said. TARP is the U.S. Troubled Asset Relief Program for banks.
OppenheimerFunds, Stairway
The dissidents included OppenheimerFunds Inc., Perella Weinberg Capital Management LP and Stairway Capital Advisors, a person representing the group said, asking not to be identified. Also in their camp is Group G Capital Partners LLC, said another person who declined to be named.
After the president’s comments yesterday, Perella said it had agreed to the buyout offer.
Obama’s team had first offered secured lenders $2 billion for their $6.9 billion in loans, and then raised the offer to $2.25 billion. In a game of chicken, the holdouts asked for $2.5 billion, and Obama’s patience ran out.
“They were hoping that everybody else would make sacrifices and they would have to make none,” Obama said. “Some demanded twice the return that other lenders were getting.”
With Chrysler now in bankruptcy, the government will pay secured lenders $2 billion, according to a court filing.
Banks including JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. lent Chrysler $6.9 billion, reselling some of their secured loans at discounts to investors. Chrysler took a $4 billion bailout loan from the U.S. Treasury and was racing to reduce debt to meet a government deadline for more aid, after workers agreed to give up $10 billion in future pension benefits.
Deadline Ignored
While lenders representing 70 percent of the Chrysler loans agreed to Obama’s offer of $2.25 billion in cash, the dissidents ignored a deadline of 6 p.m. on April 29, according to one of the investors who declined to be named.
Many dissidents paid from 50 cents to 70 cents on the dollar for their Chrysler loans, so they’re sitting on losses, according to people familiar with the matter.
Ronald E. Kolka, Chrysler’s chief financial officer, said in a court filing that the first-lien debt is trading at about 15 cents on the dollar in the secondary market.
Chrysler, with about 54,000 employees, listed assets and debt of more than $1 billion in documents filed in U.S. Bankruptcy Court in New York. As of Dec. 31, Chrysler companies had assets of about $39.3 billion and liabilities of $55.2 billion, according to court filings.
Dan Arbess, a partner at New York-based Perella, didn’t return calls seeking comment. John Rijo, principal of Uniondale, New York-based Stairway, and Group G Capital Chairman Geoffrey Gwin declined to comment.
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