Archive: November, 2008
Last week PhillyDeals reported Democrats expected Main Line native Lawrence Summers to reprise his old Clinton Administration role as Secretary of the U.S. Treasury for President Obama, with New York Fed chief Timothy Geithner as a runner-up.
There's been no decision to date, so speculation continues, as complaints about Summers and other front-runners accumulated. As previously noted, feminists forced Summers out as President of Harvard when he suggested girls aren't so good at math; Geither upset New York bankers by not curbing subprime operators until it was too late; etc. Also, there's chatter about picking a succesful financier -- Warren Buffett! JPMorgan's Jamie Dimon! -- as if they didn't have enough to keep them stimulated, Boston BJ story here.
The financial press is giddy over the prospect of sometime bulldog Rep. Henry Waxman, D-Calif., grilling hedge fund managers in a hearing today, at a time when big private money managers are being cast as villains in the global financial tragedy.
But a look at the guest list shows there may be less real conflict in store than meets the eye. The first two names on the witness list are John Alfred Paulson, who famously made a fortune betting against subprime home loans and Wall Street excess, and George Soros, an outspoken opponent of President Bush and his policies and a big-wallet backer of Democratic Party candidates and causes.
Ed Clark, chief of TD Bank, the Toronto giant that plastered its green-and-black signs on its former Commerce Bank branches around Philadelphia and New York last weekend, tells CNBC's Maria Bartiromo what he expects from the merger -- and why Canadian banks avoided U.S. problems, enabling his company to grow in Philadelphia and other U.S. markets. Excerpts:
At ex-Commerce, "The first thing to do is to make the merger work. We're launching America's Most Convenient Bank...What was great about Commerce is they owned the convenience-service space. We want to reserve and build that model."
With the stock market flat over the past 10 years and poor future prospects, 401-k plans aren't providing workers with the retirement savings they'd hoped for. So people who sell investments for a living are coming up with new schemes.
"Automatically enrolling employees in plans, then hiking savings with pay raises, overcomes the inertia that results in nearly a quarter of workers eligible for an employer-sponsored retirement plan not signing up," writes Obama presidential-transition economic adviser Roger W. Ferguson Jr. in the WSJ here "Automatic enrollment plans should mandate employer and employee contributions, and the percentage amounts of each," adds Ferguson, an ex-Federal Reserve official and current chief executive of the TIAA-CREF college professors' retirement plan. Still, this sounds like a boom for
Why not just step aside and let the government expand Social Security -- or the federal retirement system? "Default enrollment works because it’s better to opt out than to opt in if the goal is participation," says TIAA-CREF spokesman Chad Ferguson. "Of course, automatic enrollment plans include “opt outs” for individuals who choose not to participate."
Still, this sounds like a boom forthe investment firms. Like some of their brothers in the health insurance industry, they'd like government help expanding the business.
Updated: Two days after cut-rate Circuit City declared bankruptcy, "customer-centric" rival home-electronics chain Best Buys says its profits are down, even though it's been gaining market share. "Rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen," said chief executive Brad Anderson in this statement.
Best Buy "simply can't adjust fast enough" to prevent profits from missing targets this Christmas shopping season, said Anderson. "We're beginning to adjust our cost structure to restore earnings momentum and still gain market share."
UPDATE2: Worse than we thought.QVC says it's phasing out distribution (other than jewelry) at its West Chester distribution center and cutting 500 jobs by the end of this year. Another 250 jobs in call center will go, and 110 in operations and headquarters. Inquirer story at (cut & paste:) http://www.philly.com/philly/business/homepage/20081112_QVC_starts_layoff_of_900__most_in_West_Chester.html
Two weeks ago, Liberty Media Corp. reported slow sales at its QVC Inc. television-based shopping division in West Chester, and chief executive Michael George said he'd frozen hiring and was looking at cost cuts.
"We're clearly seeing our core customers become more cautious," he told investors in a conference call. "They are making one or two fewer purchases." He talked about new sales initiatives; but he declined to be pinned down to specific expense cuts, when investors asked for more detail.
Secretary of the Treasury Henry Paulson makes it official: He's using the $700 billion Congress gave him for the "Treasury Asset Recovery Program," not as originally claimed to buy bad home loans and mortgage bonds, but to shore up troubled banks.
"Over these past weeks we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use TARP funds," he says in this statement.
Update: "Paulson has committed all but $60 billion of the initial $350 billion allocated by Congress to take equity stakes in banks and in insurer American International Group Inc. Lawmakers, who could reject Treasury requests for the remaining $350 billion, are pushing for aid to automakers including General Motors Corp. Paulson is resisting," writes Bloomberg in this story.
With Democrats in debt to voters and donors in Michigan and other auto-producing states, "The political stars are in alignment to move quickly to help the auto companies...prevent financial collapse and bankruptcy," probably through direct government loans secured by the companies' stock, writes CreditSights Inc. analyst Glenn Reynolds in a note to clients.
The big question, he adds, is whether Bush will act quickly, or refuse, which would set the stage for a big partisan fight as the Obama administration and a more-Democratic Congress takes power in January. "The fear is the process will get ugly."
As GM goes, so goes GMAC, the company's former finance arm, which still does a lot of auto loans, adds CreditSights' Rich Hoffman in a separate report. He predicts it'll get a bailout, too, as it tries to reorganize as a bank.
Home loan finance giant Fannie Mae could lose another $20-40 billion on its profit statements in the next few quarters, with loan losses of $80-100 billion, writes Friedman Billings Ramsey analyst Paul J. Miller Jr. That's partly because "few" loan servicing companies "have so far embraced the loan modification efforts" led by the Bush administration, refusing to ease loan terms as foreclosures keep rising, he told clients in a report today.
Miller expects the government will have to keep control of Fannie Mae at least through next year with "the continued weak housing market and rising delinquencies."
High demand for scrap steel by low-cost producers around the world, combined with weak controls and greedy suppliers in India and many other countries, has led to radioactive energy and medical equipment being sold to shredders and electric furnaces, putting dangerous radiation in new steel parts, reports Bloomberg News: ``A lot of the scrap coming to us right now is from the 1970s and 1980s, when there were a lot of uncontrolled radioactive sources distributed to industry... Because of high scrap prices, any little piece is being sold for recycling." Story here.