(Bloomberg) -- A House panel plans to ask trustees assigned to safeguard the U.S. government’s $182.5 billion investment in American International Group Inc. whether their supervision by the Federal Reserve Bank of New York serves taxpayers’ interests.
The trustees -- Jill Considine, Chester Feldberg and Douglas Foshee -- were appointed in January by the New York Fed, a private institution owned by member banks, which has the power to overturn some of their decisions and to remove them. Edolphus Towns, a New York Democrat who chairs the House Committee on Oversight and Reform that will hold hearings tomorrow, said he’s concerned that the interests of AIG’s customers and trading partners may outweigh those of taxpayers.
“As a $182.5 billion recipient of taxpayer dollars, AIG should no longer be able to operate in the dark,” said Towns in an e-mail. “The American people, who now own a major portion of this company, deserve clarification on core issues of the AIG bailout -- who exactly is in charge at AIG and who is protecting the taxpayer’s multibillion-dollar investment?”
AIG is the biggest recipient of government rescue funds. Whether it can repay the money may depend on actions by the trustees, some of which must be approved by the New York Fed. The New York-based insurer has received four bailouts valued at $182.5 billion since agreeing in September to turn over about an 80 percent stake in the company to the government.
AIG Counterparties
Peter Bakstansky, a spokesman for the trustees and a former spokesman for the New York Fed, said the three are “prepared to talk about” what they have been doing since their appointment when they testify. He said the trustees speak weekly with AIG management by telephone and meet monthly in person. He declined to give further details.
Deborah Kilroe, a spokeswoman for the New York Fed, declined to comment.
The insurer’s counterparties include firms connected to the New York Fed, such as Goldman Sachs Group Inc., which has received more than $8 billion of AIG’s bailout funds to settle credit-default swaps it had with the firm. Towns’s committee plans to ask the trustees and AIG Chief Executive Officer Edward Liddy, who is also scheduled to testify, why the company didn’t try to negotiate for payments of less than the full amount.
New York Fed President William Dudley worked until 2007 as Goldman Sachs’s chief economist. Stephen Friedman, who resigned as New York Fed chairman May 7, was once CEO of Goldman Sachs and supervised the search for Dudley.
Friedman resigned from his New York Fed post after the Wall Street Journal reported that he bought 37,300 shares of Goldman Sachs last year while seeking a waiver of Fed policy that would have precluded him from sitting on the Goldman Sachs board and being New York Fed chairman at the same time. The shares have since gained $3 million in value.
‘Widening Morass’
“These programs are drawing the Federal Reserve into a widening political morass and compromising Fed independence,” said William Poole, former president of the St. Louis Fed. The Fed lending programs “ought to have legislative authorization and ought to be run out of the Treasury or some other agency of the federal government.”
Goldman Sachs CEO Lloyd Blankfein rejected calls to remove Friedman. “He is a credit to our board,” Blankfein said last week at the firm’s annual meeting in New York. Friedman said he bought the shares “because I thought Goldman Sachs stock, under tangible net worth, was at a very attractive price.”
The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion of emergency lending programs. While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
Read more here
Tuesday, May 12, 2009
Monday, May 11, 2009
Rich May Be Australian Budget Target Amid Recession
(Bloomberg) -- Australian Treasurer Wayne Swan will tonight unveil a Robin Hood-style budget, slashing tax breaks and welfare-payments to high-income earners as he tries to contain a record deficit amid the global recession.
Swan will take away subsidies for the rich while protecting payments to lower-income earners, the aged and the unemployed in the budget, framed amid an economic slump that has cut tax revenue by more than A$200 billion ($153 billion), economists say. He releases the budget at 7:30 p.m. in Canberra.
The Labor government of Prime Minister Kevin Rudd will unveil a A$34 billion deficit in the year ending June 30, the first shortfall in seven years, as tax revenue from a commodities export boom dries up, according to the median of 16 economists surveyed by Bloomberg. Swan warned today there “will be tough decisions,” as he tries to limit debt in a budget the treasury department says won’t return to surplus until 2015-16.
“Swan will rob rich Peter to pay poor Paul,” said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. “The rivers of gold from the commodities boom flowing through the economy are well and truly over.”
The economists’ survey predicts Swan will also forecast budget deficits of A$58.5 billion in 2009-10 and A$60 billion in 2010-11. The economy will contract 0.3 percent in 2009-10, they forecast.
Treasury has said the government will have to borrow as much as A$200 billion through the bond market to fund deficits until 2015-16.
Tax Breaks
Swan has already signaled he will halve tax breaks for high-income earners contributing to pension funds and slash their government subsidy for private health insurance. At the same time, he’ll deliver extra help for families earning less than A$150,000 a year and increase payments to aged pensioners.
Still, income-tax cuts for people earning between A$80,000 and A$180,000 scheduled for the two years starting July 1 will go ahead. The cuts were part of A$23 billion in cuts announced in last year’s budget.
“Everybody in Australia has to do their bit and some people have the capacity to do a bit more,” Swan told reporters in Canberra today.
Swan’s imposts on high-income earners mirrors steps in the U.S. and the U.K.
Read more here
Swan will take away subsidies for the rich while protecting payments to lower-income earners, the aged and the unemployed in the budget, framed amid an economic slump that has cut tax revenue by more than A$200 billion ($153 billion), economists say. He releases the budget at 7:30 p.m. in Canberra.
The Labor government of Prime Minister Kevin Rudd will unveil a A$34 billion deficit in the year ending June 30, the first shortfall in seven years, as tax revenue from a commodities export boom dries up, according to the median of 16 economists surveyed by Bloomberg. Swan warned today there “will be tough decisions,” as he tries to limit debt in a budget the treasury department says won’t return to surplus until 2015-16.
“Swan will rob rich Peter to pay poor Paul,” said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. “The rivers of gold from the commodities boom flowing through the economy are well and truly over.”
The economists’ survey predicts Swan will also forecast budget deficits of A$58.5 billion in 2009-10 and A$60 billion in 2010-11. The economy will contract 0.3 percent in 2009-10, they forecast.
Treasury has said the government will have to borrow as much as A$200 billion through the bond market to fund deficits until 2015-16.
Tax Breaks
Swan has already signaled he will halve tax breaks for high-income earners contributing to pension funds and slash their government subsidy for private health insurance. At the same time, he’ll deliver extra help for families earning less than A$150,000 a year and increase payments to aged pensioners.
Still, income-tax cuts for people earning between A$80,000 and A$180,000 scheduled for the two years starting July 1 will go ahead. The cuts were part of A$23 billion in cuts announced in last year’s budget.
“Everybody in Australia has to do their bit and some people have the capacity to do a bit more,” Swan told reporters in Canberra today.
Swan’s imposts on high-income earners mirrors steps in the U.S. and the U.K.
Read more here
Thursday, May 7, 2009
Marchionne Picks Over U.S. Wreckage to Build European Car Group
(Bloomberg) -- Fiat SpA Chief Executive Officer Sergio Marchionne is setting out to build a pan-European car company from the rubble of the U.S. auto industry.
The car industry is in turmoil, and Marchionne, the 56-year-old deputy chairman of UBS AG, says he sees opportunity. He’s taking over Chrysler LLC after a U.S.-arranged bankruptcy and seeking to incorporate units owned by General Motors Corp., including three European brands, Opel, Vauxhall and Saab, and some Latin American operations.
“The sector produces 90 million vehicles against a demand of 60 million,” Marchionne said in an interview yesterday. “This overcapacity has to be managed and the American approach proved to be very efficient,” he said, referring to the U.S. administration’s readiness to lend $23.9 billion to Chrysler and GM on the condition that they cut costs.
Blending automakers to gain scale and geographic scope has been tried before. Chrysler and Daimler AG split up after a decade together. Carlos Ghosn “has had a hard time running Renault and Nissan,” as CEO of the allied automakers, said Tom Stallkamp, a former Chrysler president who is now a managing partner at Ripplewood Holdings LLC.
“Chrysler is going to be a full-time job in itself,” said Stallkamp, who warned that financing such a sprawling company will be difficult. “On paper, this probably makes sense, numbers wise, but it’s a cultural and logistical nightmare to make it all work.”
New CEO
For Marchionne and Turin, Italy-based Fiat, it’s a chance to save Chrysler, rescue Saab and pick up Opel to assemble a 6.8-million vehicle per year auto company.
“Chrysler is on track to re-emerge from bankruptcy in 60 days,” he said. “I will become Chrysler CEO after that.” The idea has been discussed in meetings with the Treasury, he said.
Saab is another matter. The Swedish carmaker sought protection from creditors Feb. 20 after General Motors Corp. said it would sever ties with the unit by 2010 as part of its own reorganization.
“Saab is an interesting opportunity, the brand is, however, too small for the auto mass market,” Marchionne said. “We could combine Saab with another brand. In the U.S., there’s a Saab dealership network. It would be a pity to give that up.”
He has said that a global auto group needs 5.5 million to 6 million vehicles annually to have the economies of scale to compete.
Read more here
The car industry is in turmoil, and Marchionne, the 56-year-old deputy chairman of UBS AG, says he sees opportunity. He’s taking over Chrysler LLC after a U.S.-arranged bankruptcy and seeking to incorporate units owned by General Motors Corp., including three European brands, Opel, Vauxhall and Saab, and some Latin American operations.
“The sector produces 90 million vehicles against a demand of 60 million,” Marchionne said in an interview yesterday. “This overcapacity has to be managed and the American approach proved to be very efficient,” he said, referring to the U.S. administration’s readiness to lend $23.9 billion to Chrysler and GM on the condition that they cut costs.
Blending automakers to gain scale and geographic scope has been tried before. Chrysler and Daimler AG split up after a decade together. Carlos Ghosn “has had a hard time running Renault and Nissan,” as CEO of the allied automakers, said Tom Stallkamp, a former Chrysler president who is now a managing partner at Ripplewood Holdings LLC.
“Chrysler is going to be a full-time job in itself,” said Stallkamp, who warned that financing such a sprawling company will be difficult. “On paper, this probably makes sense, numbers wise, but it’s a cultural and logistical nightmare to make it all work.”
New CEO
For Marchionne and Turin, Italy-based Fiat, it’s a chance to save Chrysler, rescue Saab and pick up Opel to assemble a 6.8-million vehicle per year auto company.
“Chrysler is on track to re-emerge from bankruptcy in 60 days,” he said. “I will become Chrysler CEO after that.” The idea has been discussed in meetings with the Treasury, he said.
Saab is another matter. The Swedish carmaker sought protection from creditors Feb. 20 after General Motors Corp. said it would sever ties with the unit by 2010 as part of its own reorganization.
“Saab is an interesting opportunity, the brand is, however, too small for the auto mass market,” Marchionne said. “We could combine Saab with another brand. In the U.S., there’s a Saab dealership network. It would be a pity to give that up.”
He has said that a global auto group needs 5.5 million to 6 million vehicles annually to have the economies of scale to compete.
Read more here
Wednesday, May 6, 2009
Putnam’s CEO to Propose Expansion of 401(k) Retirement Plans
(Bloomberg) -- Putnam Investments Chief Executive Officer Robert Reynolds plans to urge regulators and investment professionals today to expand workplace retirement plans and make them safer.
Reynolds, in the text of a speech set to be delivered in Washington, proposes mandatory 401(k) enrollment for workers whose employers offer the plan and bigger tax breaks for companies that match contributions. He will speak at an event organized by 401kWire.com, a retirement industry Web site.
The average retirement-account balance sank 30 percent to $58,000 in the two years ended Dec. 31, according to Hewitt Associates Inc., a Lincolnshire, Illinois-based benefits- consulting firm. Investors had $2.7 trillion in 401(k) accounts as of Sept. 30, according to the Washington-based Investment Company Institute, a trade group representing mutual funds.
“The multitrillion-dollar wave of wealth destruction that struck America’s markets in 2008 inflicted serious losses for retirement savings,” Reynolds said. “We need to act now to reboot the system and boost retirement savings.”
In February, Representative George Miller, a California Democrat and chairman of the House Education and Labor Committee, called 401(k)s “little more than a high-stakes crapshoot.”
A law passed in 2006 allowed 401(k) providers to automatically enroll new workers, forcing them to opt out if they desired. For the 30 percent of plans that switched from voluntary enrollment, participation rose to about 90 percent of employees from 60 percent, according to Boston-based Putnam.
Read more here
Reynolds, in the text of a speech set to be delivered in Washington, proposes mandatory 401(k) enrollment for workers whose employers offer the plan and bigger tax breaks for companies that match contributions. He will speak at an event organized by 401kWire.com, a retirement industry Web site.
The average retirement-account balance sank 30 percent to $58,000 in the two years ended Dec. 31, according to Hewitt Associates Inc., a Lincolnshire, Illinois-based benefits- consulting firm. Investors had $2.7 trillion in 401(k) accounts as of Sept. 30, according to the Washington-based Investment Company Institute, a trade group representing mutual funds.
“The multitrillion-dollar wave of wealth destruction that struck America’s markets in 2008 inflicted serious losses for retirement savings,” Reynolds said. “We need to act now to reboot the system and boost retirement savings.”
In February, Representative George Miller, a California Democrat and chairman of the House Education and Labor Committee, called 401(k)s “little more than a high-stakes crapshoot.”
A law passed in 2006 allowed 401(k) providers to automatically enroll new workers, forcing them to opt out if they desired. For the 30 percent of plans that switched from voluntary enrollment, participation rose to about 90 percent of employees from 60 percent, according to Boston-based Putnam.
Read more here
Tuesday, May 5, 2009
Wall Street Firms Will Revert to Pre-Crisis Model, Cohen Says
(Bloomberg) -- Wall Street, after getting billions of taxpayer dollars, will emerge from the financial crisis looking much the same as before markets collapsed, said H. Rodgin Cohen, chairman of law firm Sullivan & Cromwell LLP.
“The system will look more like what preceded the current environment than many people seem to believe,” Cohen said yesterday at a panel discussion on the future of Wall Street sponsored by Bloomberg News in New York. “I am far from convinced there was something inherently wrong with the system.”
Cohen, 64, joined Lazard Ltd. Deputy Chairman Gary Parr, 52, and Carlyle Group co-founder David Rubenstein, 59, in discussing the industry’s future after the deepest financial crisis since the Great Depression forced the government to take equity stakes in hundreds of financial institutions. The panelists projected a future led by core banking and lower risk for established firms.
“There’s a good chance there are five to seven or eight global institutions, of which three or four will be clear winners and then some others will be good, doing full-service banking and securities business sort of as we knew it five years ago,” Parr said. They will operate “with a lot lower return on equity and a lot lower risk profile,” he added.
Banks and other financial institutions reported more than $1.37 trillion in writedowns and losses since the mortgage markets collapsed in 2007, and Parr said more are ahead. “There is still hundreds of billions of dollars of losses to be realized at a number of financial institutions,” he said. “There will be a need for substantial capital raising.”
Wall Street ‘Reshaped’
Rubenstein said that while Wall Street will likely rebound after the recession, competition probably will emerge from global banks being formed in China and the Middle East as well as from so-called boutique investment banks at home.
“Wall Street will be reshaped,” Rubenstein said. “People once thought that American brand-name institutions could do no wrong and that if they sold a product, it was a good product, and if they said something was worth a certain value, it was worth a certain value. Now that has changed.”
U.S. Treasury Secretary Timothy Geithner has urged broad changes in regulating the U.S. financial system to address a lack of confidence caused by the credit crisis.
President Barack Obama in the New York Times Magazine May 3 called for “an updating of the regulatory regimes comparable to what we did in the 1930s, when there were rules that were put in place that gave investors a little more assurance that they knew what they were buying.” Obama stopped short of calling for a restoration of the Depression-era separation between banks and brokerages created by the Glass-Steagall Act of 1933, which was repealed in 1999.
Glass-Steagall
“Some people say, did all of this arise due to the elimination of Glass-Steagall and we should put Glass-Steagall back into place,” Parr, a specialist in advising financial firms, said at the panel. “I’ve observed that that had little or nothing to do with this crisis.”
Rubenstein said private-equity firms will take advantage of the financial crisis by investing in “smaller” financial companies.
“This is a good opportunity for private equity to show what it can do,” Rubenstein said.
Carlyle is preparing a bid for BankUnited Financial Corp., a Florida lender deemed “critically undercapitalized” by federal regulators, with Blackstone Group LP and billionaire Wilbur Ross, people familiar with the offer said April 22.
“Whenever there is disequilibrium or imbalance in a system, there is always opportunity,” Rubenstein said, declining to comment on BankUnited. “Opportunities will be in smaller banks where you can do the due diligence and where you can have some involvement in management and you can effectuate some changes in the way the company is run.”
Read more here
“The system will look more like what preceded the current environment than many people seem to believe,” Cohen said yesterday at a panel discussion on the future of Wall Street sponsored by Bloomberg News in New York. “I am far from convinced there was something inherently wrong with the system.”
Cohen, 64, joined Lazard Ltd. Deputy Chairman Gary Parr, 52, and Carlyle Group co-founder David Rubenstein, 59, in discussing the industry’s future after the deepest financial crisis since the Great Depression forced the government to take equity stakes in hundreds of financial institutions. The panelists projected a future led by core banking and lower risk for established firms.
“There’s a good chance there are five to seven or eight global institutions, of which three or four will be clear winners and then some others will be good, doing full-service banking and securities business sort of as we knew it five years ago,” Parr said. They will operate “with a lot lower return on equity and a lot lower risk profile,” he added.
Banks and other financial institutions reported more than $1.37 trillion in writedowns and losses since the mortgage markets collapsed in 2007, and Parr said more are ahead. “There is still hundreds of billions of dollars of losses to be realized at a number of financial institutions,” he said. “There will be a need for substantial capital raising.”
Wall Street ‘Reshaped’
Rubenstein said that while Wall Street will likely rebound after the recession, competition probably will emerge from global banks being formed in China and the Middle East as well as from so-called boutique investment banks at home.
“Wall Street will be reshaped,” Rubenstein said. “People once thought that American brand-name institutions could do no wrong and that if they sold a product, it was a good product, and if they said something was worth a certain value, it was worth a certain value. Now that has changed.”
U.S. Treasury Secretary Timothy Geithner has urged broad changes in regulating the U.S. financial system to address a lack of confidence caused by the credit crisis.
President Barack Obama in the New York Times Magazine May 3 called for “an updating of the regulatory regimes comparable to what we did in the 1930s, when there were rules that were put in place that gave investors a little more assurance that they knew what they were buying.” Obama stopped short of calling for a restoration of the Depression-era separation between banks and brokerages created by the Glass-Steagall Act of 1933, which was repealed in 1999.
Glass-Steagall
“Some people say, did all of this arise due to the elimination of Glass-Steagall and we should put Glass-Steagall back into place,” Parr, a specialist in advising financial firms, said at the panel. “I’ve observed that that had little or nothing to do with this crisis.”
Rubenstein said private-equity firms will take advantage of the financial crisis by investing in “smaller” financial companies.
“This is a good opportunity for private equity to show what it can do,” Rubenstein said.
Carlyle is preparing a bid for BankUnited Financial Corp., a Florida lender deemed “critically undercapitalized” by federal regulators, with Blackstone Group LP and billionaire Wilbur Ross, people familiar with the offer said April 22.
“Whenever there is disequilibrium or imbalance in a system, there is always opportunity,” Rubenstein said, declining to comment on BankUnited. “Opportunities will be in smaller banks where you can do the due diligence and where you can have some involvement in management and you can effectuate some changes in the way the company is run.”
Read more here
Monday, May 4, 2009
New Chrysler auto incentives coming
(CNNMoney.com) -- With bankruptcy threatening to further weigh down the carmaker's sales, Chrysler is expected to announce a new incentive program Tuesday.
Chrysler's "Employee Pricing Plus Plus," program ended just days after the carmaker declared Chapter 11 bankruptcy. That program combined cash rebates with price reductions and cut-rate financing for qualified customers.
The new sales program is expected to rely heavily on giving dealers cash incentives, which means that customers will see big price reductions at the dealership, said Jessica Caldwell, an industry analyst with the automotive Website Edmunds.com.
Dealer incentives give auto dealers extra cash that can, in turn, be used to offset price reductions negotiated with customers. Dealer cash incentives are more subtle than straight cash rebates, so they aren't as damaging to a car brand's image and they don't reduce resale value of cars the way more straightforward customer rebates do.
But incentive money for dealers will likely be paired with limited customer rebates as well, Caldwell said. The carmaker announced in a conference call on Friday that the incentive plan would include some "loyalty" incentives for returning Chrysler, Dodge and Jeep buyers.
Chrysler has been the biggest spender among all auto manufacturers on incentives in the U.S. market. Last month, Chrysler spent $4,288 per vehicle on incentives.
Read more here
Chrysler's "Employee Pricing Plus Plus," program ended just days after the carmaker declared Chapter 11 bankruptcy. That program combined cash rebates with price reductions and cut-rate financing for qualified customers.
The new sales program is expected to rely heavily on giving dealers cash incentives, which means that customers will see big price reductions at the dealership, said Jessica Caldwell, an industry analyst with the automotive Website Edmunds.com.
Dealer incentives give auto dealers extra cash that can, in turn, be used to offset price reductions negotiated with customers. Dealer cash incentives are more subtle than straight cash rebates, so they aren't as damaging to a car brand's image and they don't reduce resale value of cars the way more straightforward customer rebates do.
But incentive money for dealers will likely be paired with limited customer rebates as well, Caldwell said. The carmaker announced in a conference call on Friday that the incentive plan would include some "loyalty" incentives for returning Chrysler, Dodge and Jeep buyers.
Chrysler has been the biggest spender among all auto manufacturers on incentives in the U.S. market. Last month, Chrysler spent $4,288 per vehicle on incentives.
Read more here
Sunday, May 3, 2009
Catch-Up Buying May Lift S&P 500 as High as 1,000
(Bloomberg) -- “Most investors have missed the rally” in U.S. stocks, so further gains are likely as they spend some of their cash to buy shares, according to Andrew Garthwaite, a global strategist at Credit Suisse Group.
The Standard & Poor’s 500 Index may reach 1,000 before prices peak, he wrote in a report yesterday. His estimate is 15 percent higher than yesterday’s close of 872.81, which resulted from the S&P 500’s biggest monthly gain since March 2000. The index last closed above 1,000 on Nov. 4.
As the CHART OF THE DAY shows, investors have more money stashed away in money-market mutual funds than in equity funds, according to data compiled by the Investment Company Institute. That hadn’t been the case for 16 years, according to the report, which included a chart comparing the funds’ assets since 1991.
Read more here
The Standard & Poor’s 500 Index may reach 1,000 before prices peak, he wrote in a report yesterday. His estimate is 15 percent higher than yesterday’s close of 872.81, which resulted from the S&P 500’s biggest monthly gain since March 2000. The index last closed above 1,000 on Nov. 4.
As the CHART OF THE DAY shows, investors have more money stashed away in money-market mutual funds than in equity funds, according to data compiled by the Investment Company Institute. That hadn’t been the case for 16 years, according to the report, which included a chart comparing the funds’ assets since 1991.
Read more here
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