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Economy likely suffered deeper contraction
The economy's downhill slide at the end of last year was likely much steeper than the government initially thought and it is probably doing just as poorly now — if not worse — as a relentless slew of negative forces feed on each other, pushing the country deeper into recession.
American consumers — spooked by vanishing jobs, sinking home values and shrinking investment portfolios have cut back. In turn, companies are slashing production and payrolls. Rising foreclosures are aggravating the already stricken housing market, hard-to-get credit has stymied business investment and is crimping the ability of some consumers to make big-ticket purchases.
It's creating a self-perpetuating vicious cycle that is causing the economy to deteriorate at a rapid pace. The country is suffering through the worst housing, credit and financial crises since the 1930s.
The Commerce Department is set to release a report Friday expected to show the economy contracted at a pace of 5.4 percent in the October-to-December quarter. If economists are correct, the updated reading on gross domestic product, or GDP, would show the economy sinking faster than the 3.8 percent annualized decline the government first estimated a month ago. GDP measures the value of all goods and services produced within the United States and is best barometer of the country's economic health.
"The economy kind of fell off a cliff and unleashed all of these negative downward spirals that are feeding on each other and still are," said Bill Cheney, chief economist at John Hancock Financial Services.
The new projected GDP figure — like the old one — would mark the weakest quarterly showing since an annualized drop of 6.4 percent in the first quarter of 1982, when the country was suffering through an intense recession.
Looking ahead to the current January-to-March quarter, economists believe it is also shaping up to be quite weak, with many projecting an annualized drop of 5 percent. Given the dismal state of the jobs market, some economists believe an even sharper decline in first-quarter GDP is possible.
"It doesn't appear as if the free-fall in the economy has slowed down at all," said Stuart Hoffman, chief economist at PNC Financial Services Group. "So far, there is no net."
Many predict the economy will continue to shrink in the April-to-June quarter — though not as deeply — by around a 1.7 percent pace.
To jolt life back into the economy, President Barack Obama recently signed a $787 billion recovery package of increased government spending and tax cuts. The president also unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.
A massive pullback by consumers is playing a prominent role in the economy's worsening backslide. Businesses are retrenching, too.
That's left companies with bloated inventories of unsold goods, which actually adds to GDP. Some economists think those backlogs weren't as big as the government initially thought in the fourth quarter, which factors into economists' forecasts for a lower GDP reading. Even deeper cutbacks in construction and by businesses in other areas also are expected to play a role weaker forecast.
Federal Reserve Chairman Ben Bernanke told Congress earlier this week that the economy is suffering a "severe contraction" and is likely to keep shrinking in the fix six months of this year. But he planted a seed of hope that the recession might end his year if the government managed to prop up the shaky banking system.
Even in the best-case scenario that the recession ends this year and an economic recovery happens next year, unemployment is likely to keep rising.
In part, that's because many analysts think don't think the early stages of any recovery will be vigorous and also because companies won't be inclined to ramp up hiring until they feel confident that any economic rebound will have staying power.
The nation's unemployment rate is now at 7.6 percent, the highest in more than 16 years. The Fed expects the jobless rate to rise to close to 9 percent this year, and probably remain above normal levels of around 5 percent into 2011.
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Source: Gov't on verge of deal to aid Citigroup
The government is on the verge of closing a deal to significantly boost its ownership stake in Citigroup. In return, it will demand changes be made on the troubled banking giant's board and other conditions, according to a person with knowledge of the discussions.
The increased stake in Citigroup Inc. will not require additional money from taxpayers and the bank will still have to undergo a "stress test," such as those that banking regulators started conducting this week on the nation's biggest banks, said the source, who spoke on condition of anonymity because a deal hasn't been officially announced.
An announcement is anticipated later Friday.
The government would convert some of its preferred shares in Citigroup to common shares only if the bank can get private investors to do the same, the source said. If that were to happen, the government's stake in Citigroup could jump to 40 percent, from less than 8 percent now, the source said.
The New York-based bank already has received $45 billion in U.S. bailout money made up primarily of debt-like preferred shares, and it has received federal guarantees to cover losses on some $300 billion in risky investments.
Converting the shares of preferred to common stock would help bring Citigroup closer to the mix of capital that the government will want to see when it conducts the stress tests.
The tests, which should be completed by the end of April, will help regulators decide whether the banks have sufficient capital — and the right mix of it — to withstand any additional shocks to the economy over the next two years.
The results will help regulators decide whether banks may need additional assistance so they can carry out the critical mission of boosting lending to customers, a key ingredient to the economic turnaround.
The stock-conversion option was laid out by the Obama administration earlier this week as an option for providing relief to banks. It gives the government greater flexibility in dealing with ailing banks. It also gives the government voting shares, and therefore more say in a bank's operations.
But common shares absorb losses before preferred shares do, which means taxpayers would be on the hook if banks keep writing down billions of dollars' worth of rotten assets, such as dodgy mortgages, as many analysts expect they will.
On the other hand, common stock in banks is incredibly cheap, and taxpayers would reap gains if the banks come back to health and the stock price goes up.
Citigroup has not been the only financial institution to be clobbered by the collapse of the housing market, which sent home prices tanking, home foreclosure soaring and financial companies racking up multibillion dollar losses in soured mortgage investments.
Last year, Bear Stearns Cos. collapsed, Lehman Brothers Holdings Inc. went bankrupt, and American International Group Inc., Fannie Mae and Freddie Mac got bailed out and taken over by the government. As an insurer of the toxic assets plaguing the credit markets, AIG has hemorrhaged far more money than Citigroup.
The first two months of 2009 have seen Citi shares slide another 64 percent, giving the bank a market cap below $14 billion, a far cry from the more than $100 billion market cap it held a year ago.
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Mortgage relief bill set for House vote
Debt-strapped homeowners facing foreclosure could resort to bankruptcy to force reductions in their monthly mortgage payments under a measure awaiting a House vote.
The bill set for a vote Thursday would let bankruptcy judges reduce the principal and interest rates on home loans. But the measure has been watered down since Democrats first proposed it, due in large part to mortgage industry lobbying to limit the cost for banks.
The plan is part of a broader housing package that also would raise the Federal Deposit Insurance Corporation's borrowing authority and take other steps to prevent foreclosures.
President Barack Obama called for the bankruptcy measure last week as part of his housing rescue plan. Democrats and consumer advocates regard it as crucial to slowing the rapid rate of foreclosures.
The mortgage industry contends the measure will impose steep and unpredictable costs on its companies, which will be forced to raise fees and interest rates for borrowers. The industry spent millions last year on a successful lobbying effort to kill the bill, which almost all Republicans oppose. Opponents call it the "cram-down."
This year, with Obama in the White House and Democrats enjoying a broader majority, a rift has emerged in the industry. One major player, Citigroup Inc., has bowed to the new political reality and moved to grab a seat at the negotiating table.
It cut a deal last month with Democrats to back the plan in return for some key concessions. The measure now in the House only applies to existing loans made before enactment and is limited to homeowners who have tried working with their lenders to adjust their loans before seeking relief in bankruptcy.
Other banks say they oppose the plan, but have changed their strategy. As they push to squash the legislation, they are stepping up their bid to gut key provisions. Among their goals: restrict the measure to a shorter time-period, certain kinds or sizes of home loans, certain borrowers, or situations where the mortgage holder — known as the loan servicer — agrees to the changes.
"I don't see a scenario where we can ever support this, but we're trying to make it the least-worst way to do the wrong thing," said Scott Talbott, a lobbyist for the Financial Services Roundtable, a trade group representing large banks. The group spent $7.8 million last year lobbying on this and other issues.
The change in tactics has paid off for the banks, now actively bargaining with top Democrats on the details of the legislation.
House Democrats agreed late Wednesday to strengthen the requirement that borrowers prove they tried other ways of modifying their mortgages before resorting to bankruptcy. They also restricted the measure to people who could not otherwise afford to make their home loan payments.
A Senate version of the measure by Sen. Dick Durbin of Illinois, the No. 2 Democrat, is expected to see a vote within weeks.
"We continue to be opposed to the bill and that hasn't changed, but we do live in the real world, and we do understand that this is very likely to happen, and we owe it to our members to recognize that reality and to limit the damage as much as possible," said Francis Creighton, a lobbyist for the Mortgage Bankers Association, which spent $4.2 million on lobbying last year. "We're encouraged by the fact that the bill is moving to limit the damage of cram-down rather than make it worse."
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Report: Toyota to cut annual output to 6.3 million
Toyota Motor Corp. aims to make 6.3 million vehicles in the fiscal year starting in April, a 27 percent drop from its peak output last fiscal year, Kyodo news agency reported Thursday.
Toyota said the news report is not based on official information released by the company. Amid a deepening global economic downturn, the automaker has not yet unveiled output goals for the upcoming business year, said spokeswoman Ririko Takeuchi.
On Wednesday, the world's biggest automaker said its worldwide production in January slid 39.1 percent from a year earlier to 487,984 vehicles.
In the fiscal year through March 2008, Toyota made about 8.6 million vehicles worldwide.
Toyota is forecasting its first annual net loss since 1950 as plunging demand for cars, especially in the U.S., and the strong yen pummel earnings.
The company has tapped a member of the founding family, Akio Toyoda, to take over as president in hopes that the 52-year-old can engineer a turnaround.
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US launches 'stress test' for major banks
The United States unveiled "stress tests" to determine if major banks could withstand an even deeper recession, as part of President Barack Obama's expanded rescue program for the US economy.
The announcement held out hope that Obama's plan, criticised in many quarters as short on specifics so far, would get the teeth needed to provide a genuine fix for the ailing US financial sector.
The tests would be used to determine if banks with assets of more than 100 billion dollars needed new capital injections and other government help under the rescue plan, which has dominated the president's first weeks in office.
With Obama set to send his first budget proposal to the US Congress later on Thursday, the announcement of the tests appeared to provide little bounce for Asian stock markets and did not prevent another drop in US shares.
The president said Wednesday that financial institutions would face greater government oversight in the wake of the global economic crisis, and that trust in the system could only be rebuilt with transparency and openness.
"This financial crisis was not inevitable," he said.
"Here in Washington, our regulations lagged behind changes in our markets, and too often regulators failed to use the authority that they had to protect consumers, markets and the economy."
As part of Obama's massive bailout package, the government injects capital into banks that need it, in exchange for preferred shares that pay a nine percent dividend and can be converted to common stock.
But some analysts say that this will effectively lead to nationalizing key banks -- something Federal Reserve chairman Ben Bernanke stressed the government wanted to avoid.
"I don't think we want to do that, and I don't think we need to do that," he said. "I think we have the tools, short of those draconian measures, to make sure the banks return to viability and to extending credit to the public."
The crisis was sparked more than a year ago by so-called subprime loans in the United States made to borrowers who were less than fully credit-worthy.
The loans were also resold as complicated investment instruments to banks, institutions and private investors around the world. Once large-scale defaults on those loans hit, the impact was felt around the globe.
"Wall Street wrongly presumed markets would continuously rise and traded in complex financial products without fully evaluating their risks," Obama said.
The resulting drying up of credit, with banks unable or unwilling to make the kinds of large-scale lending needed to keep the global economy ticking over, has helped to deepen the effects of the worldwide economic slowdown.
Governments around the world have been trying stimulus packages and other measures to try to revive their economies.
South Korea unveiled a new stimulus package on Thursday worth more than one billion dollars.
But there has been a seeming unending stream of gloomy news for months, with major economies tipping into outright recession.
Japan, the world's second-largest economy after the United States, announced this week that exports plunged more than 45 percent -- the worst such reading since record-keeping began 30 years ago.
France said unemployment made the biggest ever one-month jump in January, while French bank Natixis announced a loss of 2.8 billion euros (3.6 billion dollars) for 2008.
Hong Kong shares were down 0.8 in morning trade on Thursday, while Japan shares ended slightly lower, giving up early gains due to what dealers said was market worry about the rapid deteriorating situation.
The crisis claimed another scalp on Thursday as beleagured Swiss bank UBS, which has lost billions during the crisis, said CEO Marcel Rohner had resigned with immediate effect.
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Macy's reports 59 percent drop in 4Q profit
Macy's is reporting an almost 59 percent drop in fourth-quarter earnings.
The department store chain says its results were dragged down by weak sales and one-time costs associated with the consolidations of regional divisions and store closings.
The Cincinnati-based company said Tuesday that in the three months ended Jan. 31, it earned $310 million, or 73 cents per share. That compares with $750 million, or $1.73 per share, a year earlier.
Sales fell 7.7 percent to $7.93 billion from $8.59 billion a year ago.
Analysts surveyed by Thomson Reuters, who generally exclude one-time items, expected the company to earn $1.01 per share on revenue of $7.92 billion.
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World markets down amid US banking woes
World stock markets traded lower Tuesday on mounting concerns about the U.S. banking system and renewed fears about the capital position of leading financial firms in Europe and Asia.
The FTSE 100 index of leading British shares was down 34.93 points, or 0.9 percent, at 3,815.80, while Germany's DAX slid 56.37 points, or 1.4 percent, to 3,880.08. The CAC-40 in France was down 17.85 points, or 0.7 percent, to 2,710.02.
Earlier, Japan's Nikkei languished near 26-year lows, closing down 107.60 points, or 1.5 percent, to 7,268.56, while Hong Kong's Hang Seng index sank 376.58, or 2.9 percent, to 12,798.52.
The losses in Europe and Asia came after hefty selling in the U.S. that sent the Dow to a 12-year low on Monday even though the Obama administration tried to pacify fears, saying it would launch a revamped bank rescue program this week.
Though markets initially breathed a sigh of relief on weekend reports that the Obama administration was only looking at the part-nationalization of Citigroup Inc., speculation soon swirled that other banks would need urgent government help.
"Investors are still waiting for details of the Treasury's comprehensive rescue plan for financial markets but ongoing piecemeal releases will only increase the uncertainty surrounding the plans and not provide a much-needed shot in the arm for sentiment," said Brian Kim, an analyst at UBS.
Modest gains are expected when Wall Street opens later. Dow futures were pointing to a 62 point, or 0.9 percent, gain at the open to 7,178, while Standard & Poor's 500 futures were 6.8 points, or 0.9 percent, higher at 751.80.
On Monday, the Dow plunged 250.89, or 3.4 percent, to 7,114.78. It last closed this low on May 7, 1997 when it finished at 7,085.65. The Dow hasn't traded below the 7,000 mark since October 1997.
While the S&P managed to close above its Nov. 21 trading low — considered a key threshold among investors — it still took a beating. The benchmark fell 26.72, or 3.5 percent, to 743.33. It was the lowest close since April 11, 1997.
David Jones, chief market strategist at IG Index, thinks the next few days "really do look like crunch time" for world stock markets, as the late 2008-early 2009 gains have been given back.
"Unless some half-decent strength is seen in the short term, then the rally from last November looks like yet another dead cat bounce for markets, and it is time to brace ourselves for the next real lurch downwards," he said.
A "dead cat bounce" is market slang for a temporary recovery that does not imply reversal of the downward trend.
Without any improvement in the underlying strength of the financial sector, investor hopes of a global economic recovery remain thin on the ground. And the newsflow from the sector continues to be downbeat.
Earlier, shares in Nomura Holdings, Japan's biggest broker, slumped over 9 percent after it said it was looking to raise over $3 billion more in capital by selling shares to shore up its capital base, while shares in Axa SA, Europe's second largest insurer, dropped 6 percent on mounting concerns about its capital position.
And in the U.S., bailed-out insurer American International Group Inc. said it is evaluating "potential new alternatives" to tackle its continuing financial problems amid reports it will soon announce a $60 billion loss and ask the government for more aid.
After the markets closed, JPMorgan Chase said it was slashing its quarterly dividend to preserve capital in case economic conditions drastically worsen.
U.S. investors seemed unconvinced after regulators promised to ensure the viability of banks by providing capital and said they would start conducting "stress tests" on Wednesday to gauge the health of financial firms.
Elsewhere in Asia, South Korea's Kospi fell 3.2 percent to 1,063.88, while mainland Chinese shares, among the year's best performers, got slammed, pushing the Shanghai benchmark down 4.6 percent.
Sentiment there also took a hit after China's central bank said the country's economic downturn could worsen and warned the risk of deflation is "quite big" amid collapsing consumer demand. The bank's report could temper expectations that China's slump might be bottoming out and a recovery might be taking shape,
Elsewhere, Australia's stock measure was off 0.6 percent, and Singapore's benchmark lost 1 percent.
Oil prices were steady, with light, sweet crude for April delivery up 8 cents at $38.52 a barrel the New York Mercantile Exchange. The contract lost 4 percent, or $1.59, to settle at $38.44 overnight.
In currencies, the dollar strengthened 1.2 percent to 95.75 yen. The euro was up 0.6 percent at $1.2768.
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Stocks signal higher open after sell-off
Wall Street signaled a moderate rebound Tuesday as investors awaited economic readings and Federal Reserve Chairman Ben Bernanke's testimony on monetary policy.
The data on the economy follow another sharp drop in the market Monday that left the Dow Jones industrial average and the Standard & Poor's 500 index near 12-year lows.
Wall Street is awaiting a preliminary report on consumer sentiment for February that is expected to show Americans are growing more pessimistic amid rising layoffs, falling home prices and hard-hit retirement accounts.
The Conference Board's Consumer Confidence index is expected to come in at 35.5 for February, down from 37.7 in January, according to economists surveyed by Thomson Reuters.
Investors are also looking for earnings reports from retailers Macy's Inc., Target Corp. and Office Depot Inc. Consumers worried about the economy have stayed away from stores in recent months, hurting retail earnings.
Beyond the economic and corporate readings, investors will be eager for any insight Bernanke can provide on his expectations for the economy and for the administration's plans to assist banks struggling with bad debt.
His testimony comes a day after the government moved closer to dramatically expanding its ownership stakes in the nation's banks, including Citigroup Inc. The Treasury Department, the Fed and other banking regulators said Monday they could convert the government's stock in the banks from preferred shares to common shares.
Wall Street is worried about nationalization of banks but is also afraid of the prospects for the banks if left to make do on their own.
"Fear is winning. That's what is dominating everybody's perspective," said Rich Hughes, co-president of Portfolio Management Consultants in Los Angeles.
He said any rallies are likely to be based on hope or on rebounds from selloffs. He contends Wall Street still hasn't seen the wrenching decline that is often needed to scare investors from the market and set the ground for a lasting recovery.
"The underlying fundamentals just aren't there to support anything that's sustainable right now," he said. "We haven't seen the capitulation that you'd want to see before you'd get thoroughly enthused."
Stock futures rose early Tuesday following the sharp drop in stocks Monday. Some bargain-hunting often follows steep drops in the market.
Dow Jones industrial average futures rose 64, or 0.90 percent, to 7,180. Standard & Poor's 500 index futures rose 6.30, or 0.85 percent, to 751.30, while Nasdaq 100 index futures rose 3.50, or 0.31 percent, to 1,139.25.
On Monday, all the major indexes tumbled more than 3 percent. The Dow Jones industrial average fell 251 points to its lowest close since May 7, 1997, while the Standard & Poor's 500 index logged its lowest finish since April 11, 1997.
The market's slide has been tough on long-term savers. An investor who in 1997 had $50,000 in a 401(k) plan that tracks the S&P 500 would have lost money. The fund would now be worth $46,256. Still, stocks tend to perform better after steep pullbacks and their long-term returns often outpace other investments.
Bond prices were mixed early Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 2.78 percent from 2.76 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.30 percent from 0.29 percent Monday.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose 3 cents to $38.47 per barrel in electronic trading on the New York Mercantile Exchange.
Stocks fell in afternoon trading in Europe after Monday's drop on Wall Street. Britain's FTSE 100 fell 0.99 percent, Germany's DAX index fell 1.26 percent, and France's CAC-40 fell 0.50 percent. Earlier, Japan's Nikkei stock average fell 1.5 percent.
Tuesday's session comes ahead of a speech by President Barack Obama before the House of Representatives. He is expected to make the case that more has to be done to revive the economy. The speech is scheduled for 9 p.m.
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FDIC: 'Stress test' will determine banks' health
The head of the Federal Deposit Insurance Corp. said Tuesday additional government steps to shore up the shaky financial system will hinge in part on a test to determine how the largest banks would fare in an even weaker economy.
Chairman Sheila Bair cautioned at the same time against rushing to a judgment that Washington intends to take over the industry, saying, "I think there's ambiguity in the word 'nationalization.' "
"I think that is something that would be surprising," she said.
White House press secretary Robert Gibbs said the Obama administration is "going to help banks get through this crisis, but nobody imagines nationalizing banks."
Bair said that a "stress test" for some 20 of the largest banks this week will help federal policymakers "what type of additional capital investments the government may need to make."
Bair also said that if the test shows that the banks need more capital — and are unable to raise it privately — then the government might have to act. The purpose of the "stress test," she said, is to determine whether the banks "have an adequate enough buffer" to survive in an even more dire general economic condition.
As far as additional decisions, she said, "I think we need to do the stress test first ... before we determine what type of additional capital investments the government may need to make."
Asked about the declining confidence among investors as reflected in the continuing stock market plunge, Bair said the government already has taken a number of steps to steady the financial markets.
"People want the quick fix," she said, "and if you're looking for the quick fix, you're not going to get it."
Bair appeared on CBS's "The Early Show" and Gibbs made his comment in an interview on ABC's "Good Morning America."
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Vodafone to cut hundreds of jobs
Vodafone (VOD.L), the world's largest mobile phone group by revenue, is to cut hundreds of jobs in Britain according to a report on Sky News.
The move to cut jobs could be made as early as Tuesday, said the report.
The mobile phone operator, which employs 10,000 people, has previously said it will boost free cash flow by cutting 1 billion pounds of costs. Vodafone declined to comment on specific job cuts.
Shares in Vodafone climbed 1.59 percent at 127.5 at 2:46 p.m., in line with a 1.7 percent rise in the European sector (.SXKP).
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S & P downgrades Nissan Motor credit rating
Standard & Poor on Monday downgraded its credit rating for Nissan Motor Co., warning that profits at Japan's third largest automaker would remain under heavy pressure this year.
S & P lowered its long-term debt rating to "BBB" from "BBB-plus", saying the group's finances had deteriorated amid the global auto industry slump.
"Standard & Poor's expects profitability at Nissan to remain under considerable pressure in fiscal 2009, as global economies and auto markets are not expected to recover soon," the ratings firm said in a statement.
Nissan has forecast a net loss of 265 billion yen (2.8 billion dollars) in the financial year to March -- a dramatic reversal from the previous year's profit of 482 billion yen.
Earlier this month the automaker, which is 44 percent owned by France's Renault, announced 20,000 job cuts, blaming the global economic crisis.
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World stocks mostly rally on Citigroup report
Global stock markets mostly rebounded Monday on the back of a report that the US government was poised to take a 25-40 percent stake in troubled banking giant Citigroup.
Equities had plunged before the weekend as investors fretted over the struggling financial sector and a spreading economic downturn, analysts said.
Hong Kong jumped 3.8 percent higher, tracking a rally on the Shanghai bourse, dealers said.
And in early morning European trade, London gained 1.28 percent, Frankfurt won 1.83 percent and Paris soared 2.01 percent.
On the downside, Tokyo sank to a near four-month low as the failure of a Japanese money-lender and the poor health of US banks depressed sentiment.
"It looked as though markets would begin this week in the red but sentiment turned quickly following a press report that the US government could take a stake of as much as 40 percent in Citigroup," said Calyon analyst Mitul Kotecha.
The Wall Street Journal, citing unnamed people familiar with the situation, said US President Barack Obama's administration was in talks that could boost its Citigroup holding from 7.8 percent in return for fresh capital.
London shares were also lifted by weekend reports that Royal Bank of Scotland (RBS) would axe 20,000 jobs worldwide and sell off various assets this Thursday when it is due to post a record 28-billion-pound loss for 2008.
The Sunday Telegraph said RBS, which is about 70 percent state-owned, would split in two so that some 300 billion pounds of assets can be ring-fenced in a "bad bank" subsidiary.
In morning trade, RBS shares surged 16.58 percent to 22.50 pence, while Barclays and Lloyds Banking Group added 9.35 percent and 6.75 percent to stand at 104.10 pence and 60.10 pence respectively.
British banks were also in favour ahead of a widely-expected announcement that state-owned group Northern Rock will lend an additional 14 billion pounds to struggling homebuyers in the next two years.
"Equity markets are in for something of a defining week, not least amongst the banks, where a series of government measures are expected to be announced," said Matt Buckland, dealer at spead-betting firm CMC Markets.
"RBS will report those shocking full-year results and there's also speculation that across the Atlantic the Fed will extend its stake in Citigroup."
He added: "General consensus, however, seems to be one of pessimism and the distressed state of the global economy doesn't seem as if it is about to change quickly."
The Wall Street Journal reported Sunday that a substantial portion of the 45 billion dollars in preferred shares held by the US government would be converted into common stock.
The government has already obtained a 7.8-percent stake in the bank in return for pumping capital into Citigroup.
In October, the US Treasury poured 125 billion dollars into eight financial giants including 25 billion dollars for Citigroup, in exchange for preferred shares and warrants to buy stock.
"There are expectations that ... this template might be followed across the sector," added NCB analyst Bernard McAlinden.
"Asian financials benefited from the associated prospect of greater stability in the global financial system, although the bankruptcy of Japanese small business lender SFCG and rumours that Toshiba will raise new equity funding were negative."
In Japan's largest bankruptcy this year, corporate money-lender SFCG went under with debts of more than 3.6 billion dollars, spooking investors.
Tokyo's benchmark Nikkei-225 index fell 0.54 percent to 7,376.16, the lowest closing level since October 27.
Meanwhile over the weekend, the heads of Europe's largest economies agreed on the need for greater regulation of financial markets and to double IMF funding to avoid a repeat of the global economic crisis.
The leaders of Britain, France, Germany, Italy, Spain and the Netherlands met on Sunday in Berlin to hammer out a joint European stance for the Group of 20 meeting of developed and developing countries in London on April 2.
But Barclays Capital analyst David Woo said the absence of more specific plans to tackle the financial crisis could weigh on markets.
"The lack of policy initiatives from European officials following the G20 meeting over the weekend could affect sentiment," Woo warned.
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Oil rises on views US may step up banks rescue
Improved confidence in financial markets, helped by reports the U.S. government may increase its ownership in Citigroup, boosted oil prices above $40 a barrel Monday despite a steady stream of bleak corporate and economic news.
Benchmark crude for April delivery rose 28 cents to $40.31 a barrel by midday in Europe on the New York Mercantile Exchange. The contract fell 15 cents to settle at $40.03 on Friday.
The March contract expired Friday at $38.94 a barrel.
Oil prices have recently been following equity markets as an indicator of confidence in the global economy, and investors seemed relieved by a report by the Wall Street Journal late Sunday saying Citigroup is in negotiations to let the U.S. government increase its stake in the troubled lender to as much as 40 percent.
However, analysts believe the uptick in confidence may be only temporary, as the backdrop of economic and corporate data remains weak and suggests oil demand may fall further.
Dismal jobs, industrial production and corporate earnings reports so far this year have heightened investor fears that the worst U.S. recession in decades is deepening.
J.C. Penney Co. reported a 51 percent drop in fourth-quarter profit as customers sharply cut spending on clothing and other more discretionary items. The department store chain also projected a wider first-quarter loss than analysts had predicted.
Home improvement retailer Lowe's said its fourth-quarter profit dropped 60 percent, and its earnings forecast for this year was worse than expected.
"The macroeconomics news has been nothing but gloomy, especially on jobs, which really affects the real economy," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Demand looks gloomy in the near term, so there continues to be a lot of downward pressure on oil."
This downward pressure is not likely to recover soon, according to some analysts.
"Global economic statistics and lackluster performance in global shares suggest the odds are lengthening we will see a global economic recovery in the second half of this year," said analyst Stephen Schork. "The odds are lengthening we will see a recovery in commodity prices over the next three to six months."
Current output reductions by the Organization of Petroleum Exporting Countries are helping to bolster prices, which fell as low as $35 a barrel last week.
OPEC has pledged to cut 4.2 million barrels a day from production since September, and the group's former president, Algerian Energy and Mines Minister Chakib Khelil, told state media on Sunday that the 13-nation cartel is likely to cut further when it meets on March 15.
The Energy Information Agency reported last week that crude inventories in U.S. storage fell unexpectedly, proof the OPEC cuts are starting to impact supplies, Shum said.
"OPEC production cut are starting to show up in real data rather than just anecdotal evidence," Shum said. "Oil has shown a remarkable resilience considering the bad economic backdrop."
In other Nymex trading, gasoline futures rose 1 cent to $1.08 a gallon. Heating oil remained steady at $1.20 a gallon, while natural gas for March delivery jumped 2 cents to $4.03 per 1,000 cubic feet.
Brent prices rose 56 cents to $42.45 on the ICE Futures exchange in London.
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Anglo American plans 19,000 job cuts
Mining group Anglo American said on Friday it intended to cut 19,000 jobs by the end of the year after reporting a 29-percent fall in 2008 net earnings to 5.2 billion dollars (3.65 billion pounds).
The cuts are part of an economy drive that the group hopes will result in a savings of 2.0 billion dollars a year between now and 2011.
The group in a statement recalled that it had announced in December it would reduce its 2009 investment program by half to 4.5 billion dollars in response to a sharp fall in metals prices brought on by a contraction in the global economy.
Anglo American is a diversified enterprise, producing platinum, coal and base metals such as copper, zinc and nickel.
It also has a 45-percent stake in De Beers, the world's largest diamond company.
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GM unit Saab files for bankruptcy protection
Automaker Saab filed for bankruptcy protection Friday and has applied to be spun off from its parent company General Motors, officials said.
An application to reorganize the Swedish-based unit was filed at a district court in Vanersborg, in southwestern Sweden, Saab spokeswoman Margareta Hogstrom said.
The move comes after the Swedish government rejected a request from loss-making GM to inject money into the carmaker. GM has been looking for buyers for Saab but said it needs more funding to put the brand up for sale.
"We explored and will continue to explore all available options for funding and/or selling Saab and it was determined a formal restructuring would be the best way to create a truly independent entity that is ready for investment," Saab's managing director, Jan Ake Jonsson, said in a statement.
The process is similar to a Chapter 11 bankruptcy in the U.S.
"Pending court approval, the reorganization will be executed over a three-month period and will require independent funding to succeed," Saab said.
On Wednesday the Swedish government rejected GM's plea for state funding for Saab, saying it was up to the U.S. automaker to save the brand.
GM said it needed about $6 billion in support from the governments of Canada, Germany, Britain, Sweden and Thailand to provide liquidity for its operations in those countries.
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European equities slide further
European stocks sank for a third straight day on Wednesday after losses overnight on Wall Street and in Asia, as investor sentiment was hit by deepening economic woes and the fate of US automakers.
London slumped under the psychological 4,000 points barrier as Tokyo shed 1.45 percent to finish at the lowest level in more than three months after New York's Dow Jones index wiped out almost four percent overnight.
In late morning European deals, London's FTSE 100 index of leading shares dropped 0.94 percent to 3,996.35 points, Frankfurt's DAX 30 slid 0.86 percent to 4,180.40 points and in Paris the CAC 40 lost 0.51 percent to 2,860.48.
The DJ Euro Stoxx 50 index of leading eurozone shares shed 0.60 percent to 2,107.20 points.
The European single currency recovered to stand at 1.2593 dollars after striking a two-month low of 1.2558 in Asian deals.
Investors meanwhile appeared unconvinced by a 787-billion-dollar economic stimulus bill signed into law by US President Barack Obama on Tuesday, analysts said.
Elsewhere, General Motors (GM) and Chrysler went cap-in-hand to the US government on Tuesday, seeking 21.6 billion dollars in additional federal loans to stave off bankruptcy and win extra time for restructuring.
"The good news is that President Obama signed into law the US stimulus package, but on the flip side is that the car giants GM and Chrysler announced that they would require more Federal support," said Calyon analyst Stuart Bennett.
"Indeed, GM suggested that without further funds they would run out of funds as early as March.
"The doom and gloom engulfing global markets therefore shows no sign of abating, with equity markets sliding."
Wall Street had slumped overnight to November lows as GM and Chrysler raced to submit the plans for their survival.
New York's Dow Jones Industrial Average sank by a hefty 3.79 percent to finish at 7,552.60 points.
Jittery European markets fell hard Tuesday on fears for the health of the banking and automobile sectors and doubts about the effectiveness of the new US economic stimulus law.
European markets took another knock on Wednesday after more news in the troubled banking sector.
The German government is set to adopt a law allowing it to temporarily nationalise troubled banks through the seizure of shares, according to a draft text to be agreed Wednesday and obtained by AFP.
"The possibility to launch an expropriation procedure ends on June 30, 2009. Nationalisation is a last resort," said the draft, due to be finalised in a cabinet meeting later Wednesday.
The law is seen paving the way for a total nationalisation of stricken Germany property lender Hypo Real Estate, which would be the first time in modern German history the state has taken control of a bank.
In Asia on Wednesday, Tokyo's benchmark Nikkei-225 index dropped to 7,534.44 points, the lowest closing level since October 27.
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As Credit Dries Up, More Owners Seek Microloans
In September, Sarwat Etman, with a credit score in the high 700s, was looking for a loan and an overdraft account to help him expand Direct Furniture Source, his two-employee, $400,000 retailer in Brooklyn, N.Y. Etman's bank turned him down. That surprised him, but, he says, "I had other options. I knew someone would appreciate me." He turned to microlender Accion New York & New Jersey, which loaned him $20,000 for 48 months at 11% a year.
Microlenders are nonprofits that historically make small loans of up to about $25,000 to owners with spotty credit or slim experience. Their money comes from private donors and sometimes the government. As banks clamp down, says Sara Ignas, a spokeswoman for the Association for Enterprise Opportunity, a microlending trade group, "our members have seen an increase in demand for loans from those who a year ago could get a bank loan" -- entrepreneurs like Etman.
Reports from microlenders nationwide bear her out. The Accion network, which has eight branches across the country, says it saw 905 applicants with credit scores of 700 or greater in the first nine months of 2008, a 43% jump over the same period in 2007. At Opportunity Fund, a San Jose (Calif.) microlender, 16% of applicants in the second half of 2008 had credit scores above 700, compared with 7% in the first half. And at Community First Fund in Lancaster, Pa., applicants in the second half of the year averaged a credit score 53 points higher than those in the first half. Another microlender, the Wisconsin Women's Business Initiative Corp., is receiving "four to five" calls a week from banks referring clients, up from four to five a month, says President Wendy Baumann.
Community Service
Microlending, which is usually associated with loans to individuals in developing nations, was in the spotlight in 2006 after lender Grameen Bank and its founder, Muhammad Yunus, won the Nobel Peace Prize. But microlending in the U.S. has been quietly growing since the 1960s, when nonprofits began lending to women during the start of the women's movement. In the U.S., microlenders dole out an average of $7,000 to up to 20,000 entrepreneurs a year, according to the Association for Enterprise Opportunity.
As nonprofits, microlenders have a community mission to help entrepreneurs with shaky credit. But because they also must maintain their own financial stability, microlenders welcome would-be bank customers. "We're excited because these loans look great compared to a lot of what we were seeing," says Gina Harman, president of Accion. The new borrowers generally have higher credit scores and more financial-management experience than the lenders' traditional clients. They're far more likely to have adopted formal practices such as maintaining detailed bookkeeping, so most don't need the business counseling that microlenders offer. "If we can get more (high-quality) deals, we can grow our portfolio readily, and that'll allow us to do more mission deals," says Baumann. That would be good news for a wide range of entrepreneurs.
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Wal-Mart's 4Q earnings decline 7.4 percent
Wal-Mart Stores Inc., the world's largest retailer, said Tuesday that its fourth-quarter profit fell 7.4 percent as it was hurt by the strong dollar and a charge from settling a labor lawsuit. The company also said first-quarter earnings could miss Wall Street expectations.
The Bentonville, Ark.-based discounter earned $3.79 billion, or 96 cents per share in the quarter ended Jan. 31. That compares with $4.096 billion, or $1.02 per share, a year earlier.
Analysts surveyed by Thomson Reuters had expected the company to earn 99 cents per share, excluding the after-tax charge for the settlement announced in December of 63 class-action wage and hour lawsuits. Excluding the impact of that, Wal-Mart earned $1.03 per share, which beat Wall Street expectations.
Shares of Wal-Mart rose in pre-market trading as the company's results also beat its own forecast for earnings of 91 cents to 94 cents per share.
Total sales rose to $109.12 billion from $107.34 billion a year earlier. Analysts expected $109.1 billion. Sales at stores open at least a year rose 2.8 percent in the quarter. Same-store sales are considered a key indicator of retailer's health.
"Our performance relative to competitors was exceptionally strong in the fourth quarter and throughout the year. We expect this momentum to continue," said Mike Duke, Wal-Mart's new chief executive, who succeeded Lee Scott this month.
During the quarter, Wal-Mart's U.S. sales rose 6 percent to $71.46 billion. The Sam's Club warehouse division saw sales virtually flat at $11.84 billion, as its small business members cut back amid a deteriorating economy.
Sales fell 8.4 percent to $24.7 billion at the company's important international division, hurt by the lower value of currencies against the strengthening dollar. On a constant currency basis, international sales rose 9 percent in the fourth quarter, the company said.
Duke said Wal-Mart finished the year with a strong balance sheet, record free cash flow of $11.6 billion and "great inventory management."
"Wal-Mart remains well-positioned to continue to serve its customers in a challenging environment because of its strong price leadership," Duke added.
The company has been one of the few bright spots in retailing as it benefits from shoppers looking for cheaper options and focusing on necessities during the recession. But it is now being forced to adjust to the deteriorating economy — announcing last week that it will cut up to 800 jobs at its headquarters as it makes changes, including cutting the number of new stores it will build this year. It's also cutting inventory.
Wal-Mart now expects earnings for the fiscal first quarter of 72 cents to 77 cents per share. Analysts project 77 cents per share. For the full fiscal year, Wal-Mart expects a profit of $3.45 per share to $3.60 per share. Analysts expect $3.59 per share.
Chief Financial Officer Tom Schoewe said the projections assume currency rates will remain about the same as they were at the end of its 2009 fiscal year — which would hurt its year-over-year comparison of fiscal 2010 earnings per share by approximately 13 cents per share.
Wal-Mart had announced in December that it will pay up to $640 million to settle 63 lawsuits over wage-and-hour violations, ending the vast majority of such cases against it. The retailer, which has more than 1.4 million employees, said how much it pays will depend on how many claims are submitted. Each settlement still must be approved by a trial court.
The company has maintained that many of the settled lawsuits were filed years ago and the allegations are not representative of the company now.
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Stock futures slide on recession woes
Stock index futures tumbled on Tuesday on concern that the recession is worsening and that efforts to stabilize the global financial system may not be enough.
The diminishing appetite for riskier assets made stocks sink in Asia overnight while in Europe benchmark indexes were down more than 2 percent.
Top drags before the bell included financials, with shares of Bank of America (BAC.N) down 6 percent to $5.24 and JPMorgan (JPM.N) off 4.4 percent to $23.60. Among big manufacturers, shares of Caterpillar Inc (CAT.N) declined more than 2 percent.
Wal-Mart Stores Inc (WMT.N), up 1.4 percent to $47.20 before the bell, was the bright spot after the retailer posted a quarterly profit that beat Wall Street expectations, but its boost was eclipsed by signs that the recession is worsening and fears that the U.S. economic stimulus won't be a quick fix.
"There's just an absence of good news," said Rick Meckler, president of investment firm LibertyView Capital Management in New York. "I won't be surprised to see the market come down and test the lows of late last year."
S&P 500 futures fell 14.00 points, and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures declined 139 points, and Nasdaq 100 futures were off 23.75 points.
U.S. President Barack Obama is due to sign a $787 billion economic stimulus bill into law on Tuesday, but investors worried that the measure would not help soften the impact of the 14-month-old recession soon enough. The White House hopes the package will save or create 3.5 million jobs.
"The reality is setting in now that this is not a quick fix," said Meckler. "The package, whilst impressive in its scope, is going to take a long time to be implemented and as that is happening there are a lot of businesses that are in some very difficult positions already."
A precipitous slide on Wall Street, a day after the Presidents Day holiday, would put U.S. stocks on the cusp of retesting an 11-year low hit on November 21.
The benchmark S&P 500 (.SPX) started 2009 up more than 20 percent from that bear market low, but through Friday's close it had since halved those gains.
Data on Monday showed Japan's economy shrank 3.3 percent in the fourth quarter, its worst quarter since the 1974 oil crisis, while a Reuters poll on Tuesday showed confidence among Japanese manufacturers stayed near record lows. The United States is Japan's biggest export market.
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Trump Entertainment files for bankruptcy
Casino operator Trump Entertainment Resorts Inc filed for Chapter 11 bankruptcy protection on Tuesday, according to court documents, wiped out by the recession and a mountain of debt.
The move was widely expected, coming days after the casino operator's namesake tycoon, Chairman and founder Donald Trump, walked away from the company.
The casino operator had assets of about $2.1 billion and total debts of about $1.74 billion on December 31, 2008, it said in its filing with the U.S. Bankruptcy Court for the District of New Jersey.
The company missed a $53.1 million bond interest payment due on December 1 as a sharp downturn in consumer spending hit casino revenues, prompting bondholders to push for bankruptcy.
Trump, the most flamboyant player in an industry filled with colorful, headstrong executives, said the company represents less than 1 percent of his net worth, and that "my investment in it is worthless to me now."
No stranger to bankruptcy, Trump Entertainment Resort Holdings went into chapter 11 in 2004, from which it emerged a year later with Trump having relinquished the position of CEO.
Friday's statement did not say when Trump's resignation would be offered or take effect. His daughter Ivanka Trump is also resigning, it said.
Nine affiliates of the casino operator including Trump Plaza Associates, Trump Plaza Associates, Trump Marina Associates and Trump Taj Mahal Associates simultaneously sought protection, according to the filing.
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Wall Street set to bounce on stimulus and mortgage plan
Stock index futures signaled Wall Street was likely to rise at the open on Friday, with sentiment buoyed by expectations of the passage of a $789 billion stimulus package to jolt the economy out of recession.
Additionally, investors were heartened by news on Thursday that the Obama administration was creating a plan to subsidize mortgage payments for troubled homeowners.
The stimulus, which the U.S. Congress is due to vote on Friday, includes infrastructure spending that could be a boon for industrial companies such as Caterpillar Inc (CAT.N) , whose stock rose 1.2 percent to $31.40 in thin volume.
In corporate earnings news, PepsiCo Inc's (PEP.N) quarterly profit met estimates but looking ahead, the maker of Pepsi-Cola drinks and Frito-Lay snacks forecasts pressure from a stronger dollar.
On the economic data front, the Reuters/University of Michigan U.S. consumer sentiment report for February is due at 9:55 a.m. EST, with the main index expected to ease to 61.0 from 61.2.
"The market really is looking for any sign of positive news, anything it can hang its hat on to get some momentum," said Dean Barber, president of investment firm Barber Financial Group in Kansas City. "You are going to see some impact from the stimulus, but I'm afraid it's not going to be enough."
S&P 500 futures rose 2.70 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 12 points, and Nasdaq 100 futures gained 6.25 points.
On Thursday, U.S. stocks narrowly averted a slide to their November bear market low after Reuters reported the Obama administration was working on a program to subsidize mortgage payments for troubled homeowners, sparking a huge market turnaround.
Investors are on the lookout for confirmation and details about when and how such a plan would be implemented, added Barber.
With its vote on Friday, Congress is expected to pass the $789 billion package of economic stimulus measures aimed at unleashing large spending and tax cuts to help dig the economy out of a 14-month recession.
Approval of the emergency measures by the Democratic-controlled House of Representatives and Senate would give President Barack Obama a political victory, but fall short of his goal of broad Republican backing.
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Congress readies final vote on $790B stimulus bill
President Barack Obama's massive, $790 billion economic stimulus plan is on track for a Friday vote in the House, Democratic leaders say, after a 24-hour delay caused by late, lingering controversy.
The Senate could vote on the package of spending and tax cuts later in the day or over the weekend, sending the measure to Obama's desk and awarding him a crucial victory. He says the measure will create or save 3.5 million jobs, while critics contend the bill is filled with wasteful spending and provisions that won't boost the economy.
A day after Senate Majority Leader Harry Reid, D-Nev., announced agreement had been reached between the White House and congressional negotiators, the measure still had not been revealed in full late Thursday. After a disagreement over school construction funds had been resolved, causing several hours of delay, it took hours for staff aides to read the huge bill line by line to make sure no mistakes were made.
As the overtime drama played out in Washington, Obama delivered what has become a daily call for final congressional action, this time from the industrial heartland, before employees of Caterpillar Inc. in Peoria, Ill.
"Right now, we have a once in a generation chance to act boldly, to turn adversity into opportunity, and use this crisis as a chance to transform our economy for the 21st century," Obama said Thursday. "That is the driving purpose of the recovery and reinvestment plan."
The plan is the signature initiative of the fledgling Obama administration, which is betting that combining tax cuts of just a few dollars a week for most workers with an infusion of hundreds of billions of dollars of government spending over the next few years will arrest the economy's fall.
Larry Summers, a former Clinton administration Treasury secretary and now head of Obama's White House-based economics council, was asked Friday how far the bill will go toward reviving the economy.
"It is the biggest fiscal expansion in our country's history," he replied in an appearance on NBC's "Today" show.
But Summers cautioned against raising expectations too high.
"I think this is a key part of what's gong to be a multipart strategy to contain this decline," he said. But Summers added that the problems "weren't made in a week, a month, a year. It's going to take time to fix."
He said it should not be considered a "silver bullet," or panacea for deeply rooted business woes.
"We don't have a viable alternative," he said. "We're going to have starts and stops."
Much of the spending won't be delivered this year or even next, and Republicans pointed to studies by the Congressional Budget Office that say that adding so much to the national debt would cost the economy by the end of the decade.
The $790 billion plan combines $286 billion in tax cuts with $311 billion in programs funded by the appropriations committees and about $193 billion in spending for benefit programs such as unemployment assistance, $250 payments or millions of people receiving Social Security benefits, and extra money for states to help with the Medicaid health program for the poor and disabled.
Obama's "Making Work Pay" tax cut would be scaled back from $500 for most workers to $400, with couples getting $800 instead of $1,000.
Republicans, lined up to vote against the bill, piled on the scorn. "This is not the smart approach," said Sen. Mitch McConnell of Kentucky, the Republican leader. "The taxpayers of today and tomorrow will be left to clean up the mess."
It was clear that the measure was the result of old-fashioned sausage-making. Pet provisions were coming to light that had not been included in the original bills that passed the House or Senate — or that differed markedly from earlier versions. Some appeared to brush up against claims of the bill's supporters that no pet projects known as "earmarks" were included.
One last-minute addition was a $3.2 billion tax break for General Motors Corp. that would allow the ailing auto giant to use current losses to claim refunds for taxes paid when times were good. GM got a $13.4 billion federal bailout late last year — and is expected to receive more in 2009 — and argued that without the provision, its government-financed turnaround plan could force the company to pay higher taxes.
Then there was $8 billion for high-speed rail projects, a priority for both Obama and Reid, who's up for re-election and is a GOP target. While not explicitly named, a Los Angeles to Las Vegas rail project that Reid's been backing for years stands to win funding as does a project in Obama's home state of Illinois.
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Economic stimulus package on track for final votes
Economic stimulus legislation at the heart of President Barack Obama's recovery plan is on track for final votes in the House and Senate after a dizzying final round of bargaining that yielded agreement on tax cuts and spending totaling $789 billion.
Obama, who has campaigned energetically for the legislation, welcomed the agreement, saying it would "save or create more than 3.5 million jobs and get our economy back on track."
The $500-per-worker credit for lower- and middle-income taxpayers that Obama outlined during his presidential campaign was scaled back to $400 during bargaining by the Democratic-controlled Congress and White House. Couples would receive $800 instead of $1,000. Over two years, that move would pump about $25 billion less into the economy than had been previously planned.
Officials estimated it would mean about $13 a week more in people's paychecks when withholding tables are adjusted in late spring. Critics say that's unlikely to do much to boost consumption.
Millions of people receiving Social Security benefits would get a one-time payment of $250 under the agreement, along with veterans receiving pensions, and poor people receiving Supplemental Security Income payments.
An additional $46 billion would go to transportation projects such as highway, bridge and mass transit construction; many lawmakers wanted more.
The House could vote on the bill as early as Thursday, though Friday seemed more likely. The Senate would follow, but its schedule is less certain.
The Obama plan offers a 60 percent subsidy to help unemployed people pay health insurance premiums under the COBRA program and divvies up $87 billion among the states to help them with their Medicaid costs for the next two years. It provides $19 billion to modernize health information technology systems, even though such funding will create few jobs right away.
To tamp down costs, several tax provisions were dropped or sharply cut back. A provision popular with Republicans and the big business lobby that would have awarded about $54 billion to money-losing businesses over the next two years was instead limited to small businesses, greatly reducing its cost.
A $15,000 tax credit for anybody buying a home over the next year was dropped; instead, first-time homebuyers could claim an $8,000 credit for homes bought by the end of August. Car buyers could deduct the sales tax they paid on a new car but not the interest on their car loans.
But nothing could shake negotiators from insisting on including $70 billion to shelter middle- to upper-income taxpayers from the alternative minimum tax, originally passed a generation ago to make sure the super-rich didn't avoid taxes.
The move is aimed at easing headaches that would follow if Congress passed it later in the year — rather than creating jobs. The Congressional Budget Office estimates that provision will have relatively little impact on the economy.
In late-stage talks, Obama and Senate Majority Leader Harry Reid, D-Nev., pressed for $8 billion to construct high-speed rail lines, quadrupling the amount in the bill that passed the Senate on Tuesday.
Reid's office issued a statement noting that a proposed Los Angeles-to-Las Vegas rail might get a big chunk of the money.
Scaling back the bill to levels lower than either the $838 billion Senate measure or the original $820 billion House-passed measure caused grumbling among liberal Democrats, who described the cutbacks as a concession to the moderates, particularly Sen. Arlen Specter, R-Pa., who are feeling heat from constituents for supporting the bill.
Specter played an active role, however, in making sure $10 billion for the National Institutes of Health, a pet priority, wasn't cut back.
After final agreements were sealed Wednesday afternoon, staff aides worked into the night drafting and double-checking in hopes of officially unveiling the measure Thursday.
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Negotiations intensify on final stimulus plan
Negotiators hoped to seal agreement on President Barack Obama's economic stimulus package Wednesday after making good progress in the first rounds of closed-door talks.
Obama's negotiating team insisted on restoring some lost funding for school construction projects as talks began Tuesday in hopes of striking a quick agreement, but by late in the day it appeared resigned to losing up to $40 billion in aid to state governments.
Earlier Tuesday, the Senate sailed to approval of its $838 billion economic stimulus bill, but with only three moderate Republicans signing on and then demanding the bill's cost go down when the final version emerges from negotiations.
Negotiators were working with a target of about $800 billion for the final bill, lawmakers said.
"That's in the ballpark," Senate Finance Committee Chairman Max Baucus, D-Mont., said of the $800 billion figure late Tuesday.
Baucus had said earlier that $35.5 billion to provide a $15,000 homebuyer tax credit, approved in the Senate last week, would be cut back. There was also pressure to reduce a Senate-passed tax break for new car buyers, according to Democratic officials.
Within hours of the 61-37 Senate vote, White House Chief of Staff Rahm Emanuel and other top Obama aides met in the Capitol with Democratic leaders as well as moderate senators from both parties whose support looms as crucial for any eventual agreement.
House Democratic leaders promised to fight to restore some of $16 billion for school construction cut by the Senate. Those funds could create more than 100,000 jobs, according to Will Straw, an economist at the liberal Center for American Progress.
The moderate senators — Olympia Snowe and Susan Collins of Maine and Arlen Specter of Pennsylvania — are demanding that the final House-Senate compromise resemble the Senate measure, which devotes about 42 percent of its $838 billion in debt-financed costs to tax cuts, including Obama's signature $500 tax credit for 95 percent of workers, with $1,000 going to couples.
The $820 billion House measure is about one-third tax cuts.
Collins said last week she won't vote for any final bill exceeding $800 billion in spending and tax cuts. Specter warned that the Senate bill must stay "virtually intact."
The GOP moderates also want the final bill to retain a $70 billion Senate plan to patch the alternative minimum tax, or AMT, for one year. The provision would make sure 24 million families won't get socked with unexpected tax bills during the 2010 filing season.
The AMT was designed 40 years ago to make sure wealthy people pay at least some tax, but it is updated for inflation each year to avoid tax increases averaging $2,300 a year. Fixing the annual problems now allows lawmakers to avoid difficult battles down the road, but economists say the move won't do much to lift the economy.
House leaders are tempering expectations that they'll restore many of the cuts.
"You cannot allow the perfect to be the enemy of the effective and of the necessary, and we will not," said House Speaker Nancy Pelosi, D-Calif.
While they're fighting to preserve cuts to Obama priorities, Specter is fighting to preserve an enormous $10 billion increase for the National Institutes of Health, while Collins obtained $870 million for community health centers in talks last week.
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World stocks fall on skepticism over US bank plan
World stock markets dropped Wednesday, following a steep sell-off on Wall Street, as investors reacted with skepticism to the U.S. government's latest plan to rescue the ailing financial industry with as much as $2 trillion in funding.
Nearly ever major market in Asia retreated, further hurt by new figures showing China's exports plunged 17.5 percent in January — the sharpest drop in more than a decade. European shares fell in early trade as Credit Suisse reported a massive quarterly loss far worse than expectations.
As in the U.S., investors across Asian and Europe questioned whether the revamped bailout program, unveiled Tuesday by Treasury Secretary Timothy Geithner, would be enough to absorb the bad assets saddling bank balance sheets and free up the credit markets that govern lending to consumers and businesses.
Geithner said the plan to get trillions of dollars in financing flowing through the world's largest economy was urgently needed as part of the government's effort to stave off "catastrophic failure" of institutions. A centerpiece involves the government teaming with the private sector to buy up to $1 trillion in souring assets from financial firms. A separate lending program would be expanded to as much as $1 trillion from $200 billion for consumers and businesses.
However, investors complained about they what they viewed as a lack of detail. For example, officials were short on specifics about how exactly the public-private partnership might work, analysts said.
Garry Evans, a chief Asian equity strategist with HSBC in Hong Kong, called the plan "muddled." He said the government was skirting around what many investors have already concluded: that the U.S. may have to nationalize the banks for a period.
"People are not convinced that this plan is what it is needed," Evans said.
"They (U.S. officials) have still philosophically backed away from the ultimate conclusion, which is the government will have to take over financial institutions," he said. "Philosophically that's quite hard for the U.S. government to admit, but the history of banking crises shows that is what governments usually do."
Not even the colossal amounts of money announced in the U.S. are likely to make up the funding shortfall created by the risky mortgage securities and other distressed assets banks are holding, said Paul Schulte, a chief Asia equity strategist at Nomura International in Hong Kong.
The financial hole could be as big as $4 trillion, but U.S. officials have yet to fully explain the scope of the problem, he said.
"The problem is much larger than people thought and the solutions to this much larger problem are still not coherent," Schulte said. "The plan is absolutely a step in the right direction, but we have like 45 more steps to go."
While recouping some of their losses, most Asian markets closed down. In Hong Kong, the Hang Seng tumbled 341.43 points, or 2.5 percent, to 13,539.21, while South Korea's Kospi lost 8.69, or 0.7 percent, to 1,190.18. Japanese markets were closed for a public holiday.
Elsewhere, benchmarks in Australia and India fell 0.4 percent and 0.5 percent, respectively.
In mainland China, Shanghai's main stock measure sank about 0.2 percent in a choppy session after news of last month's fall in exports, the third straight month of declines.
The collapse in global demand for Chinese textiles, toys and other goods are devastating export-dependent coastal areas. The figures add to the threat of more job losses and increase pressure on Beijing to boost slumping economic growth.
As trading opened in Europe, stocks were down moderately after falling sharply the day before, with benchmarks in Britain, Germany and France off by 0.7 percent or less. Weighing on investors were Credit Suisse Group results showing a fourth-quarter net loss of 6 billion Swiss francs ($5.61 billion) as both asset management and investment banking posted large deficits. The report was far worse than the 3.72-billion-franc loss analysts had excepted.
The retreat in Asian and European markets was tame compared to Wall Street's. U.S. markets plummeted overnight as investors soured on the financial rescue and seemed to ignore the Senate's approval of its $838 billion economic stimulus package.
The Dow industrials fell 381.99, or 4.62 percent, to 7,888.88. Broader stock indicators also tumbled, with the Standard & Poor's 500 index down 42.73, or 4.91 percent, to 827.16. It was the biggest drop for the index since the Obama inauguration on Jan. 20.
Wall Street futures were up modestly, suggesting U.S. markets could recover some at the open. Dow futures were up 17, or 0.2 percent, at 7,895 and S&P500 futures rose 3, or 0.4 percent, to 829.90.
Asian financials, like those in the U.S., took a bruising.
KB Financial Group Inc., the holding company for top South Korean lender Kookmin Bank, tumbled 3.8 percent. Leading Australian investment bank Macquarie Group Ltd. dropped 1.9 percent. And European heavyweight HSBC Holdings shed 4.8 percent in Hong Kong.
In oil, light sweet crude for March delivery rose 67 cents to $38.22 a barrel in Asian trade. The contract fell $2.01 to settle at $37.55 overnight.
In currencies, the dollar was at 89.95 yen compared to 90.43 yen, while euro traded at $1.2963, up from $1.3903.
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Administration readies overhaul of bailout program
The Obama administration, seeking to deal with the political outrage over the handling of the government's $700 billion financial rescue program, plans to impose tough new standards on future payments to banks. It is also greatly expanding an effort to unclog credit markets to provide loans to consumers and businesses.
Funding to unfreeze borrowing in such areas as credit card debt, auto loans and student loans, will see a huge increase — from $20 billion to $100 billion, according to administration officials who spoke on condition of anonymity because the program had not yet been publicly announced.
The officials said the increase, combined with a program operated by the Federal Reserve, would be enough to support an additional $1 trillion of lending in this area. Officials said the program would also be expanded beyond consumer and small business loans to cover loans for commercial real estate projects.
Treasury Secretary Timothy Geithner said that the new plan was intended to change the "dangerous dynamic" of a financial system that was impeding economic recovery rather than supporting it.
"It is essential for every American to understand that the battle for economic recovery must be fought on two fronts," Geithner said in excerpts of remarks obtained by The Associated Press. "We have to both jump-start job creation and private investment and we must get credit flowing again to businesses and families."
Geithner is scheduled to unveil the new plan Tuesday. The major overhaul of the program begun by the Bush administration seeks to address widespread criticism that banks were getting billions of dollars in taxpayer support with few strings attached and that all the government aid was failing to deal with the worst financial crisis to hit the country in seven decades.
Under the overhaul, the administration will seek to deal with those issues by more closely monitoring banks to make sure the money they receive is being used to increase lending.
The biggest banks participating in the program will also have to undergo a stress test of their balance sheets to ensure they are in sound enough condition to receive additional government support.
The administration's new plan, officials said, will include a government-private sector partnership aimed at removing toxic assets from banks' balance sheets, although the details on how this program would operate were still being worked out.
Treasury officials suggested two approaches that the administration is considering, according to congressional staffers who were briefed on the plan Monday night and also spoke on condition of anonymity before the program was unveiled.
These aides said the government might provide guarantees for the bad assets to establish a floor on possible losses, or perhaps provide low-cost financing through the Federal Reserve for investors willing to purchase the bad assets.
President Barack Obama, speaking at a prime-time news conference Monday night, said his overhaul of the financial rescue program would bring "transparency and oversight" to the heavily criticized program.
He said the overhaul would correct previous mistakes such as a "lack of consistency" and what he said was the failure to require banks to show "some restraint" in terms of executive compensation and spending in such areas as corporate jets.
Congress passed the financial rescue bill on Oct. 3 and the first $350 billion in the program was committed by the Bush administration under the direction of former Treasury Secretary Henry Paulson.
However, that effort generated a huge political backlash with critics charging that the Bush administration failed to impose enough restrictions on banks to make sure they used the billions of dollars they were receiving to boost lending and keep the country from toppling into an even deeper recession.
In part because of the political outrage, the Obama administration decided against seeking any additional money beyond the $350 billion left to be spent as part of its initial overhaul. Many economists believe that $700 billion will not be enough to get the financial system operating normally and that the administration will eventually have to ask for billions more, pushing the ultimate price tag for the rescue to $1 trillion or more.
Asked about the possibility that his administration will ultimately need more money, Obama said Monday that the goal now is to "get this right" because it was important to restore financial market confidence so banks will resume more normal lending.
Officials, speaking on condition of anonymity before the plan's release, said it would include the following major elements:
_Continued government purchases of stock in banks as a way to bolster banks' balance sheets. The new stock purchases will come with tighter oversight to make sure banks are using the government support to increase lending. The new requirements will not apply to banks that have already received support.
_A government-private sector partnership aimed at encouraging private investors to buy banks' bad assets, although details were yet to be fully worked out.
_Provision of at least $50 billion of the remaining $350 billion rescue fund to bolster government efforts to help homeowners deal with rising foreclosures in the current steep housing slump. The actual details on the housing measures were being delayed for an announcement in the coming weeks.
The mortgage support would be a major policy shift from the Bush administration, which relied on voluntary, industry-led measures and did not want to commit taxpayer dollars to foreclosure prevention. The administration was still reviewing various proposals on exactly how the new anti-foreclosure efforts would be implemented.
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Stock futures point lower ahead of gov't moves
Wall Street pointed toward a lower opening Tuesday ahead of the government's unveiling of a revamped bank rescue plan and the expected Senate approval of a massive economic stimulus package.
Treasury Secretary Timothy Geithner is scheduled to announce how the government will spend the remaining $350 billion of the $700 billion financial bailout package passed by Congress last fall.
It is expected the plan will impose tough new standards on future payments to banks and will expand an effort to help unfreeze the credit markets and get banks lending again.
The new plan seeks to address widespread criticism that banks were getting billions of dollars in taxpayer support without much oversight and that the government aid failed to increase lending and remedy the financial crisis.
The administration plan, officials said, will include a government-private sector partnership to help remove banks' soured assets from their books.
At the same time, an $838 billion stimulus bill was expected to win approval in the Senate. Congressional leaders hope to have the bill on President Obama's desk before a recess next week.
Ahead of the market's open, Dow Jones industrial average futures fell 26, or 0.32 percent, to 8,192. Standard & Poor's 500 index futures dropped 5.00, or 0.58 percent, to 860.10, while Nasdaq 100 index futures shed 1.75, or 0.14 percent, to 1,274.
Also Tuesday, the Commerce Department will release a report on wholesale trade inventories for December at 10 a.m. Eastern time. And Federal Reserve Chairman Ben Bernanke will testify at a House Financial Services Committee hearing on the central bank's efforts to provide liquidity during the financial crisis.
On Monday, stocks fluctuated between gains and losses for most of the day, ending the session with only modest changes in anticipation of the government's announcements. The Dow Jones industrials fell about 9 points to 8,270. Broader stock indicators were mixed after a big rally last week.
Among corporate news, Swiss bank UBS AG reported a larger-than-expected loss of $7.57 billion in the fourth quarter and announced it would cut another 2,000 jobs.
Molson Coors Brewing and SABMiller said fourth-quarter profit for their joint venture MillerCoors fell 40 percent, partly on a decline in sales to retailers.
Meanwhile, airplane maker and defense contractor Boeing Co. late Monday lowered its reported fourth-quarter and fiscal 2008 earnings per share results, citing lower aircraft values in its customer financing portfolio and increased liabilities linked to an arbitration ruling. Last month, the company reported a surprise fourth-quarter loss and announced plans to cut 10,000 jobs.
Bond prices were mixed early Tuesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.94 percent from 2.99 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, was unchanged from late Monday at 0.32 percent.
The dollar was mixed against other major currencies. Gold prices rose.
Light, sweet crude rose $1.63 to $41.19 in electronic premarket trading on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average fell 0.29 percent. Hong Kong's Hang Seng index rose 0.81 percent. In afternoon trading, Britain's FTSE 100 was down 0.40 percent, Germany's DAX index was down 0.87 percent, and France's CAC-40 was down 0.57 percent.
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World oil prices rallied Tuesday as traders awaited a key vote on a massive US economic stimulus plan that could boost crude demand in the world's biggest energy consumer, analysts said.
Brent North Sea crude for March delivery climbed 1.09 dollars to 47.11 dollars a barrel in London trade.
New York's main futures contract, light sweet crude for March, added 1.01 dollars to 40.57 dollars a barrel.
The market had slid on Monday, ending below 40 dollars in New York, on jitters over the fate of the stimulus package which could help pull the United States out of recession, dealers said.
"The market benefited (on Tuesday) from ... high hopes for the US fiscal stimulus plan, proposed by the Obama administration," said VTB Capital analyst Andrey Kryuchenkov.
"The euphoria surrounding the US fiscal injection is likely to come to an end this week, with investors realising that it will be some time before the actual implementation takes an effect," he added.
US President Barack Obama warned Congress of "catastrophe" if it did not pass his stimulus plan this week, as America's dire economic plight cast a sombre shadow over his first news conference.
Obama piled more pressure on lawmakers to complete a long political tug-of-war over the 800-billion-dollar-plus package, with the once mighty US economy suffocated by staggering job losses and mired in a credit crunch.
The Senate earlier voted 61-36 to end debate on its 838-billion-dollar version of the stimulus package, reviving hopes the final bill could end up on Obama's desk by his self-imposed deadline of February 16.
Obama's Democrats needed 60 votes in the 100-seat chamber to overcome Republican blocking tactics and the Senate is expected to hold a final vote later on Tuesday.
Elsewhere, traders were eyeing more possible output cuts by OPEC when the cartel meets next month in Vienna.
"Uncertainty over the possibility for further OPEC production cuts was still haunting the market," Kryuchenkov said.
The Organization of the Petroleum Exporting Countries (OPEC) had Monday said that its members had shelved 35 drilling projects indefinitely until prices recovered.
Crude prices have plunged by more than 100 dollars since striking record highs above 147 dollars a barrel in July, as the global economic slowdown has curbed world energy demand.
OPEC nations pump about 40 percent of the roughly 86 million barrels of oil consumed globally every day, but cartel members have seen their revenues tumble in recent months as prices dive.
The cartel announced production cuts totalling 4.2 million barrels per day late last year and recently signalled it would consider further reductions in a bid to bolster prices.
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Wall Street opens lower on grim corporate news
Wall Street gave back some of last week's big gains Monday as euphoria over the government's expected stimulus bill waned amid more grim corporate news.
The Senate is expected to pass an $827 billion stimulus bill on Tuesday. The government, however, still faces the challenge of reconciling the Senate bill with the House's $819 billion version that passed earlier. Republicans and Democrats have been at odds over the plan, which is designed to help pull the economy out of the worst recession in decades. President Barack Obama is still pressing to have the stimulus measure on his desk for signing by the middle of this month.
Investors are also awaiting a Tuesday speech by Treasury Secretary Timothy Geithner outlining the Obama administration's plan to overhaul the government's $700 billion financial bailout package passed by Congress last fall. Geithner had been scheduled to announce the plan Monday, but the White House pushed back the speech to focus on the stimulus bill.
"The delay in the Geithner announcement means the markets are going to have to wait another 24 hours, and markets don't wait very well," said Alan Gayle, senior investment strategist at RidgeWorth Investments. "The delay only raises anxiety."
Amid the anticipation over the government's plans there were stark reminders that an economic recovery is still far off.
Nissan Motor Co. said it will slash 20,000 jobs, or 8.5 percent of its global work force, over the next year to cope with what the Japanese automaker expects will be its first annual loss in nine years.
Home appliance maker Whirlpool Corp. said fourth-quarter profit dropped 77 percent, hurt by a restructuring charge, a recall expense and the stronger dollar.
Meanwhile, Barclays PLC warned that further asset write-downs — on top of the massive $11.9 billion booked for 2008 — were likely and said executive directors would not be getting any bonuses. However, Britain's third-largest bank by assets said its 2008 net profit fell only 1 percent, boosted by last September's acquisition of part of failed investment bank Lehman Brothers Holdings Inc.
In the first hour of trading, the Dow Jones industrial average fell 26.53, or 0.32 percent, to 8,254.06.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 1.10, or 0.13 percent, to 867.60, and the Nasdaq composite index fell 5.58, or 0.35 percent, to 1,586.13.
On Friday, the market largely overlooked a horrible jobs report and rallied in anticipation of the stimulus bill. The Labor Department said U.S. employers slashed 598,000 jobs in January, sending the unemployment rate to 7.6 percent, the highest since late 1992. The day's gains helped push Wall Street up sharply higher for the week.
The Dow Jones industrials ended the week up 3.5 percent, the Standard & Poor's 500 rose 5.2 percent and the Nasdaq composite index posted a huge 7.8 percent gain.
"Given that we had a good two-day rally and a strong performance last week, it's not surprising that we would see some softness," Gayle said. "There is a tug of war between the problems that we know are in front of us and the promise that is expected between the bank rescue package and the stimulus plan."
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