AstraZeneca slashes 1,150 U.S. sales jobs

AstraZeneca is cutting nearly a quarter of its U.S. sales force in a second wave of redundancies in as many months as it seeks to reduce costs.



Britain's second biggest drugmaker said on Wednesday it would cut about 1,150 sales representative and management jobs at a cost of between $50 million and $100 million, charged in the fourth quarter.



Rich Fante, president of AstraZeneca U.S., said it was a difficult decision to make the reductions, which represent 24 percent of the U.S. sales organization and come on top of 400 job U.S. losses announced in October.



"The changes we are making, however, will help us deliver better results for our business and, most importantly, continue delivering on our mission of patient health," he said.



Since restructuring costs are not included in the company's core earnings measure, the cost of the cuts will not have any impact on its guidance for core earnings per share for 2011.



Generic competition and pricing pressures are already weighing on AstraZeneca's sales in the world's biggest market and things are about to get tougher.



Over the next few years, analysts forecast a steady decline in sales at the London-based group because patents expire on big sellers like Nexium for heartburn and schizophrenia drug Seroquel.



What is more, it faces a major challenge to its biggest-selling medicine Crestor, following the arrival of cheap generic copies of Pfizer's market-leading cholesterol pill Lipitor, which hit the market at the end of November.



AstraZeneca has relatively few new drugs to replace such blockbusters, leaving its sales line exposed and its management under pressure to cut costs wherever possible.



The latest round of job cuts, which are expected to be finalized by early February 2012, are in addition to the wide-ranging program of 8,000 job cuts, designed to be implemented over several years, that AstraZeneca announced in January 2010.



The likes of Pfizer, Merck and Novartis have also announced major job cuts but the scale of the retrenchment has been particularly severe at AstraZeneca.



The impact of the latest U.S. changes will vary by geography and selling teams and a company spokeswoman said AstraZeneca was looking to make greater use of alternative methods for promoting its medicines, such as online tools.




Source : Reuters
 [tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

American Airlines files for bankruptcy

A worker walks underneath an American Airlines airplane at Miami International airport in Miami, Florida November 29, 2011. American Airlines and its parent company AMR Corp filed for bankruptcy on Tuesday after failing to win a labor deal with pilots and suffering from mounting fuel costs.

Credit: Reuters/Lucas Jackson

By Kyle Peterson and Matt Daily

American Airlines filed for bankruptcy protection on Tuesday to cut labor costs in the face of high fuel prices and dampened travel demand, capping a prolonged descent for what was once the largest U.S. carrier.AMR Corp, the parent of American Airlines, also filed for bankruptcy and replaced its chief executive.
The company, which employs about 88,000, has been mired for years in fruitless union negotiations, complaining that it shoulders higher labor costs than rival domestic and foreign carriers that have already restructured in bankruptcy.
United Continental Holdings Inc's United Airlines and Delta Air Lines Inc, both of which used Chapter 11 to cut costs and later found merger partners, are now the largest U.S. carriers. American ranks third.
"The world changed around us," incoming Chief Executive Tom Horton told reporters on a conference call. "It became increasingly clear that the cost gap between us and our competitors was untenable."
AMR named Horton as chairman and chief executive, replacing Gerard Arpey, who retired.
American plans to operate normally while in bankruptcy, but the Chapter 11 filing could punch a hole in the pensions of roughly 130,000 workers and retirees.
AMR pension plans are $10 billion short of what the carrier owes, and any default could be the largest in U.S. history, government pension insurers estimated.
Ray Neidl, aerospace analyst at Maxim Group, said a lack of progress in contract talks with pilots tipped the carrier into Chapter 11, though it has enough cash to operate. The carrier's passenger planes average 3,000 daily U.S. departures.
"They were proactive," Neidl said. "They should have adequate cash reserves to get through this."
PROBLEMS TO ADDRESS
Bankruptcy gives AMR a chance to pare less profitable operations, and could result in the sale of flight routes. The process also gives AMR more flexibility, according to Jack Williams, a professor of law at Georgia State University.
"There are considerable tax benefits that they will be able to use in a bankruptcy case, and they will be able to more aggressively manage their liabilities," Williams said.
But analysts question whether the bankruptcy will address operational shortcomings that have eroded revenue.
"Bankruptcy is not necessarily the be-all, end-all," said Helane Becker, an analyst with Dahlman Rose & Co. "They've got more problems to address in addition to the cost problem."
Shares of AMR closed Tuesday down $1.36, or 84 percent, at 26 cents, down from a 52-week high of $8.89 on January 7. Stock typically is wiped out in bankruptcy.
Shares of rival airlines rallied on expectations that reduced competition could boost fares. AMR had kept a lid on industrywide fares in its effort to keep its airplanes full.
United Continental shares closed up 6.3 percent at $17.63, Delta rose 5 percent to $7.80 and US Airways Group Inc climbed 4.4 percent to $4.46.
AMR shares were halted 28 times on the NYSE on Tuesday for triggering a circuit breaker rule, activated when a stock moves up or down at least 10 percent within five minutes.
SLIMMED-DOWN AMR
In its bankruptcy petition filed in Manhattan, AMR reported assets of $24.72 billion and liabilities of $29.55 billion. The company has $4.1 billion in cash.
One bankruptcy rule is "don't wait too long," Harvey Miller, a partner at Weil, Gotshal & Manges representing AMR, said at a court hearing. "Don't wait until the course is irreversible. That is what American Airlines is doing today."
AMR's bankruptcy filing showed few details about how the company would proceed, said Stephen Selbst, a bankruptcy attorney with Herrick Feinstein in New York.
"It's possible they are still in negotiations and don't want to put something on paper that might prejudice those negotiations," he said.
Experts believe AMR stands to save billions by restructuring its obligations in bankruptcy.
"AMR will no longer have its defined benefit pension plan, helping absorb nearly $7 billion in debt," Morningstar equity analyst Basili Alukos said.
"I imagine the company can save between $1.2 billion to $1.5 billion in labor costs, in addition to savings on repair and maintenance and better fuel burn," he said.
MERGER IN THE OFFING?
AMR said the bankruptcy has no direct legal impact on non-U.S. operations. It also said it was not considering debtor-in-possession financing.
But it could susceptible to unsolicited takeover bids from rival carriers. AMR has long said it could thrive on its own.
Robert Herbst, an analyst with AirlineFinancials.com and a former American pilot, said there was a "95 percent" chance American would join up with another carrier within two years.
"US Airways is probably toward the top of the list but it wouldn't be the only (potential merger partner)," he said.
A US Airways representative did not immediately return a phone call seeking comment.
Most large U.S. carriers are the products of mergers.
United Continental combined the former United Airlines and Continental Airlines, while Delta bought the former Northwest Airlines. US Airways was formed from a 2005 merger with America West Airlines.
US Airways and United Airlines filed for bankruptcy protection in 2002, and Delta and Northwest in 2005. US Airways had tried to buy Delta out of bankruptcy.
Japan Airlines Co, one of American Airlines' alliance partners, filed for bankruptcy last year.
American Airlines said it would remain an active member of the oneworld global airline alliance.
LABOR PAIN
American struggled with labor costs despite massive concessions from unionized workers in 2003, which enabled it to avoid Chapter 11 at the time.
"That deal wasn't good enough," former American chief Robert Crandall told Reuters. "The other airlines that went bankrupt cut their costs much deeper than American.
"If you look at all of the elements of the problem, they all stem back to costs," he said. "It hasn't cut capacity effectively given the constraints" that labor placed.
Contract talks with pilots hit a wall in recent weeks over wages, benefits and work rules. Talks with unionized flight attendants have also flagged.
"While today's news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way," David Bates, president of the Allied Pilots Association, said in a statement.
A wave of pilot retirements this year prompted speculation of a Chapter 11 filing, given that the retirements could preserve pensions that might be at risk of being terminated.
"The 18-month timeline allotted for restructuring will almost certainly involve significant changes to the airline's business plan and to our contract," Bates said.
The case is In re: AMR Corp, U.S. Bankruptcy Court, Southern District Of New York, No. 11-15463.

Source : Reuters
 [tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Cisco warns of sales miss, eyes $1 billion savings

Cisco Systems Inc warned that it will fare worse this quarter than Wall Street had feared, and laid out plans for global job cuts as it struggles to revive growth.
Shares of Cisco fell 3 percent after the world's largest networking equipment maker projected nearly flat sales growth this quarter.
CEO John Chambers, who admitted last month that the Silicon Valley bellwether had lost its way, cautioned that Cisco's fiscal year starting August would also not live up to the company's previous growth expectations.
The company is preparing a round of layoffs around the world, aiming to cut annual expenses by $1 billion, Chambers told analysts on a Wednesday conference call.
Most of the cutbacks would be done by the end of the company's fiscal first quarter, though Chambers would not be drawn on their scale. Employees hurt by the layoffs would know by the end of the summer.
"Cisco is a very strong company in a healthy market with a few problematic areas," he said.
But his optimism failed to impress shareholders, who sent Cisco shares down in late trade after the weak guidance. Cisco's sales warning obliterated an initial 4-percent lift after the company posted quarterly earnings that exceeded low expectations.
"Cisco is in a period of transition. There's a very negative camp that believes that Cisco is in a long decline ... which is why the stock is so inexpensive," said Evercore Partners analyst Alkesh Shah.
The results come as Chambers works to turn around the Silicon Valley bellwether.
Since the rare admission, he has trimmed the company's bloated management structure, offered early retirement to some employees, killed the Flip camcorder and laid off 550 workers. Chambers said he would decide on the next round of layoffs very quickly.
"Each time we've done this in the past, we've done it crisply and emerged out of it stronger. ... We want to do it surgically instead of with a blunt instrument," he said.
"We were all here for the last couple of weeks, 9:30 at night, although the pizza wasn't too good."
ZEROING IN ON SWITCHES
Cisco warned that overall fourth-quarter revenue would be flat to just 2 percent higher than a year earlier, implying a range of $10.84 billion to $11.05 billion, below expectations for $11.59 billion according to Thomson Reuters I/B/E/S.
Cisco shares slid 1 percent to $17.72 after rising as much as 4.2 percent to $18.53 from a Nasdaq close of $17.78.
During the conference call, analysts grilled Chambers about his plans for reviving his bread-and-butter business of selling the plumbing of the Internet and corporate networks. They zeroed in on its switching business, where sales fell 9 percent in the third quarter after sliding 7 percent in the second quarter.
Chief Financial Officer Frank Calderoni told Reuters he could not say when Cisco's switching business would grow again.
Before the company gave out weaker-than-expected guidance investors had been hoping the results would beat forecasts.
The company reported profit, excluding items, of 42 cents per share, for the fiscal third quarter ended April 30, beating the average analyst forecast of 37 cents according to Thomson Reuters I/B/E/S.
"This relieves a bit of investor concern in the near term," said Gleacher & Co analyst Brian Marshall. "While April results look decent relative to expectations, we've longer-term issues the company needs to address."
It delivered a non-GAAP gross margin of 63.9 percent, ahead of its forecast of 62 to 63 percent.
Net income fell to $1.8 billion, or 33 cents per share, from $2.2 billion, or 37 cents per share, a year earlier.



Source : Reuters
 [tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Microsoft cuts 800 jobs, completes layoff plan

Microsoft Corp said on Wednesday it is cutting a further 800 jobs across its operations, on top of 5,000 jobs already eliminated under a plan to reduce costs that was announced in January.
A spokesman for the world's largest software firm said the latest job cuts are spread across the company's global operations, but about 200 are in and around its headquarters in Redmond, Washington.
Microsoft originally had planned to cut 5,000 jobs, or about 5 percent out of 96,000, before June 2010. The Microsoft spokesman said that plan has been expanded with the new layoffs and is now complete, well ahead of schedule.
As of October 23, Microsoft had 91,005 employees worldwide, according to its website.


Source : Reuters
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Nine US banks seized in largest one-day haul

US authorities seized nine failed banks yesterday, the most in a single day since the financial crisis began and the latest stark sign that substantial parts of the nation’s banking industry are being crippled by bad loans.
The move brought the total number of failed banks in 2009 to 115 — their highest annual level since 1992 — with analysts expecting more to come. Among the lenders seized yesterday was Los Angeles-based California National Bank, in what was the fourth-largest US bank failure this year.

The largest institution to fail in the current financial crisis was Washington Mutual, which boasted US$307 billion (1,044 billion) in assets when it was shuttered in September 2008.

US Bancorp yesterday acquired the nine banks that had been held by FBOP Corp, picking up US$18.4 billion in assets and US$15.4 billion of deposits.

Visibly worried employees lined up to file into Cal National’s head offices in the heart of a deserted downtown Los Angeles on a chilly Friday evening, where they had their employers’ fate explained to them, regulators said.

“We’re getting ready to turn everything over to US Bank,” said Roberta Valdez, a spokeswoman for the Federal Deposit Insurance Corp, which helped supervise the transfer of FBOP’s assets. “They will continue to operate as normal in the interim,” she added, referring to lenders acquired from FBOP.

US Bancorp — which has been buying up distressed assets this year — is picking up the lenders once owned by FBOP, a private Illinois group with over US$18 billion in assets that owned banks in Texas, Illinois, Arizona and California.

Cal National is FBOP’s largest bank by branches. Others that will now go under the US Bancorp umbrella included BankUSA, Citizens National Bank, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and the Community Bank of Lemont.
“This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions,” said Rick Hartnack, vice chairman of consumer banking for US Bancorp.

“This transaction adds scale to our current California, Illinois and Arizona footprints.”
In the “near future”, all nine lenders’ branches will be re-branded US Bank, which is the California-focused unit of US Bancorp’s that operates a network of more than 770 branches across Illinois, Arizona and California.

US Bancorp did not specify what would happen to the new employees it inherits.
Cal National operates 68 branches across Southern California with more than US$7 billion in assets. As of June 30, the lender maintained five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier, according to the Los Angeles Times, which first reported news of its evening takeover yesterday.

Cal National lost about US$500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, the newspaper added, referring to securities rendered nearly worthless by the government takeover of the mortgage firms last year.

According to FDIC data, Cal National was the fourth biggest bank failure this year in terms of assets, just edging out Corus Bank, seized Sept 11 with a flat US$7 billion of assets.
A bank official who answered the main number at Cal National’s headquarters said they could not talk at the time.

Banks are still cleaning up their balance sheets from the recent credit boom that fuelled banks’ appetite to extend loans, many with poor underwriting and triggers that caused borrowers’ payments to spike to unaffordable levels.

More lenders are expected to go under this year as the industry tries to get a handle on commercial real estate loans that will continue to worsen, as more strip malls go vacant and residential developments stall.
Banks held about US$1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 per cent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks were better diversified.

Banks that analysts say could risk big losses include Salt Lake City’s Zions Bancorp, Columbus, Georgia’s Synovus Financial Corp and Dallas-based Comerica Inc.

Before FBOP, US Bancorp bought Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those thrifts failed last November, the newspaper said. Just this month, US Bancorp bought 20 Nevada branches from BB&T Corp, which had acquired them as part of its deal to buy Colonial BancGroup Inc, it added


Source : TMI
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Time Inc. to cut US$100 m, and extensive layoffs expected

Signalling that worse times are ahead for magazines, Time Inc. is expected to announce next week that it will cut US$100 million (RM340 million) from costs, including another big round of layoffs.

Time Inc., the publisher of magazines like Time, Fortune, and People, has already cut costs drastically: a year ago, it announced it was dismissing 6 per cent of its work force, or about 600 people. The timing is coordinated with the third-quarter earnings announcement from its parent company, Time Warner, sources said. That is scheduled for Wednesday morning.

But that was apparently not enough to make up for revenue declines. The US$100 million in costs is expected to come largely from layoffs, said sources, who asked to remain anonymous as they were not authorised to discuss the matter.

Michael Nathanson, an analyst at Sanford C. Bernstein & Company, said that he expected third-quarter revenue at Time Inc. would fall about 19 per cent, to US$900 million.

“For the year, we’re at about US$3.7 billion, and this company had done almost US$5 billion as late as 2007,” Nathanson said.

Since 2004, Time Inc. has cut about US$800 million in costs, Nathanson said.

Over all, Nathanson said, he expects Time Warner to post earnings of 54 cents a share, well up from the 30 cents a share it posted in the third quarter of 2008.

Time Inc. has been cutting costs over the last several years. Since 2007, it has shut down magazines including Business 2.0, Cottage Living, Southern Accents and Life, which it had revived as a newspaper supplement. Last week, Fortune announced that it would no longer be published every other week, and would drop its frequency to 18 issues a year, from 25. A stricter expense-account policy has been in place for some time, and some magazines have decreased the weight of the paper they use.

A number of Time Inc. employees are covered by a union contract, which mandates severance in case of layoffs. Employees of Time, Sports Illustrated, People, Money, Fortune and Fortune Small Business are covered by agreements with the Newspaper Guild of America, said Bob Townsend, local representative for the guild.

Covered employees at those magazines are eligible for severance packages in a layoff, of two weeks’ pay for every year of employment, with a cap of 52 weeks’ pay. Longtime employees get a bonus, with 20-year veterans getting an additional eight weeks’ pay, and 25-year employees an additional 10.
Townsend said that the Guild was usually notified in advance of layoffs, but it had not heard anything yet. “We have not been told there are going to be any layoffs next week,” Townsend said.
Dawn Bridges, a Time Inc. spokeswoman, declined to comment.

The layoffs and cost-cutting follow moves at competitors. Forbes is in the midst of dismissing about 40 to 60 of its editorial staff, and most Condé Nast magazines are reducing their budgets by about 25 per cent, which has included handfuls of layoffs at many of its magazines.


Source : TMI
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

The Great Recession is Over

The worst US recession since the Great Depression has ended, but weak household spending as the labour market struggles to create jobs will slow the pace of the economy’s recovery, according to a survey released yesterday.

The survey of 44 professional forecasters released by the National Association for Business Economics, also known as the NABE, found that 80 per cent of the respondents believed the economy was growing again after four straight quarters of declines.

“The great recession is over,” NABE President-Elect Lynn Reaser said.

“The vast majority of business economists believe that the recession has ended, but that the economic recovery is likely to be more moderate than those typically experienced following steep declines.”

Recessions in the United States are dated by the National Bureau of Economic Research. The private-sector group, which does not define a recession as two consecutive quarters of decline in real gross domestic product, often takes months to make determinations.

The recession that started in December 2007 is the longest and deepest since the 1930s. It was triggered by the US housing market’s collapse and the ensuing global credit crisis.

While the economy is believed to have rebounded in the third quarter, analysts believe that ordinary Americans will probably not see much difference as unemployment will remain high well into 2010, restraining consumption.

“We don’t necessarily expect the US economy to fall into a double-dip recession. This time round, consumers will be reluctant to join the party,” said Paul Ashworth, senior US economist at Capital Economics in Toronto.

The NABE survey, conducted in September, predicted real GDP growth expanding at an annual pace of 2.9 per cent over the second half of this year. Output for all of 2009 is expected to contract 2.5 per cent and next year, rebound 2.6 per cent.

Much of the anticipated recovery was seen driven by businesses rebuilding their inventories after aggressively reducing unwanted stockpiles of unsold goods to match weak demand.

HOUSING PRICES TO HIT BOTTOM

Investment in the residential market would also add to growth, with the majority of the survey’s respondents convinced that the housing market downturn, which has lasted more than three years, was close to coming to an end.

About two-thirds of respondents believed house prices will reach a bottom this year. The survey found that high house prices would not pose a threat to the sector’s recovery.

The survey predicted that the unemployment rate will rise to 10 per cent in the first quarter of 2010 and edge down to 9.5 per cent by the end of that year. The labour market was not expected to regain most of the jobs destroyed in the recession until 2012 or beyond.

The weak labour market will continue to weigh on consumer spending, slowing the recovery. The jobless rate climbed to 9.8 per cent in September — a 26-year high — from August’s 9.7 per cent.

Labour market slack, combined with weak wage growth, meant inflation would not be an obstacle to the economic recovery and the Federal Reserve will not be under pressure to raise interest rates, the survey found.

“With improving credit markets, the US economy can return to solid growth next year without worry about rising inflation,” Reaser said.

The US central bank was seen leaving its overnight benchmark lending rate near zero until late next spring, followed by measured increases that would take the rate to 1 per cent by the end of 2010, the survey showed.

Despite signs of improvement in the financial markets, most respondents believed that it would take some time for them to return to normal. Only 29 per cent believed this would happen in the second half of next year.

Respondents also expected the US dollar to weaken further this year and into 2010, but did not see this contributing to a narrowing of the country’s trade deficit as the economic revival stimulates demand for imports.

The dollar has lost about 5.8 per cent of its value against a basket of currencies so far this year, largely because of worries over the government’s growing budget deficit and expectations that the Fed will keep interest rates at super-low levels for a while.

Source : TMI
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Wal-Mart chairman warns of lethargic economic recovery

The chairman of Wal-Mart Stores Inc. warned Wednesday the global economic recovery will likely be lethargic, even as the retailing behemoth sees great growth potential in China and India.

"The world recovery is going to be led by Asia although it's going to be very challenging. I think this recovery is going to be a slow one," Robson Walton told a global CEO business conference here.

Walton said "sales have been tough" for Wal-Mart, the world's biggest retailer, even though it was benefiting from the economic downturn as more people shop at discounters for bargains including over-the-counter drugs and eat-at-home food.

The Wal Mart chief's comments echoed remarks Tuesday in Singapore by General Electric Co. chief executive Jeffrey Immelt.

He warned that high unemployment and slower lending will drag on U.S. economic growth, likely resulting in the weakest recovery in decades.

Chairman of Wal-Mart Stores Inc Robson Walton

Walton said international operations accounted for one-third of Wal-Mart's global sales, and the proportion was expected to increase as the group focuses on larger markets in Asia.

"China is a big opportunity for us. We are just getting started in India, where there's great opportunity for us," he said.

"There is change and opportunity in the crisis. If we want to be successful, we got to change. We are working very hard to get our cost down and developing high-efficiency smaller stores to go into urban areas," he said.

He didn't elaborate and couldn't be reached for further comments.

Wal-Mart has more than 250 stores in China but only ventured into India in May to tap the country's $430 billion retail market.

Bharti Wal-Mart Private Ltd., a joint venture between India's Bharti Enterprises and Wal-Mart, opened its first wholesale outlet called "Best Price Modern Wholesale" in Amritsar in India's northern state of Punjab

The company has plans to invest $100 million over the next three years to open 10 to 15 more wholesale outlets, which would employ 5,000 people across India.

But for now, it can only sell its 6,000 food and nonfood items to other businesses because Indian law prohibits foreign companies from selling direct to customers in multi-brand retail outlets to protect smaller domestic retailers.

Wal-Mart has benefited from shoppers focusing on necessities during the recession and it has drawn more affluent shoppers away from rivals with its new focus on better brands, better service and cleaner stores.

The chain has tightened its inventory controls and improved its earnings in the second quarter.

However, the key barometer of same-stores sales in the U.S. - or sales at stores open at least a year - slipped 1.2 percent during the period - a worrisome confirmation of broad weakness in consumer spending.

It has said the U.S. economy will remain challenging in coming months and force shoppers to keep seeking low prices and small packages.

Source : STAR
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

US deficit US$1.58 trillion this year

The deficit this year is three times that of last year

WASHINGTON: The White House plans to announce the federal deficit is about $262 billion less than officials predicted early this year, in part because the Obama administration has provided less aid than expected to Wall Street.

The deficit still will be three times bigger than last year's.

The federal deficit this year will total $1.58 trillion, a senior White House official said late Wednesday.

The official spoke on condition of anonymity to discuss the report before its release Tuesday when President Barack Obama will be on vacation in Massachusetts.

The nonpartisan Congressional Budget Office is expected to release its midsession review the same day.

It estimated in June that it expected a deficit of $1.825 trillion.

The report for the budget year that ends Sept. 30 also would predict Washington to spend $3.653 trillion this year, the official said.

Revenue, however, would reach only $2.074 trillion.

The new deficit numbers are record-shattering, but would give the administration the opportunity to say that its policies have avoided a more extreme financial crisis and eliminated the need for further bank infusions.

Still, the deficit amount is a tremendous obstacle for an administration trying to undertake massive policy overhauls in health care and the environment.

"Whether it's $1.6 trillion or $1.8 trillion, it's pretty bad," said Robert Bixby, executive director of the bipartisan fiscal watchdog The Concord Coalition.

"I hope no one tries to spin that as good news."

But Stan Collender, a former congressional budget staffer, said the White House's new deficit numbers cannot be blamed on Obama.

Collender, now with Qorvis Communications, a Washington consulting firm, noted that the deficit estimate when President George W. Bush left office was $1.2 trillion and that did not include a tax adjustment and additional spending for operations in Iraq and Afghanistan, approved this year, that Bush also would have sought.

The midsummer report was supposed to have been released by mid-July but was delayed, which led to speculation the White House was delaying the bad news until Congress left on its August recess.

Other administrations delayed releasing similar reports during their first year in office.

Obama's budget had included a $250 billion placeholder for a second bailout of the nation's troubled banks but did not ask Congress for it because of the fear that the administration was spending too heavily.

The administration also had anticipated failures of more banks, but the survival of most banks saved billions for Washington.

The report comes during a rough patch for Obama's presidency.

The rancor surrounding the Democrats' proposed health care overhaul also provides a distraction during a monthlong break when much of Washington is in a lull.

The administration predicted this year that unemployment would peak at about 9 percent without a big stimulus package and 8 percent with one.

Congress passed a $787 billion two-year stimulus measure, yet unemployment soared to 9.4 percent in July and appears headed for double digits.

The nation's debt, the total of accumulated annual budget deficits, now stands at $11.7 trillion.

In the scheme of things, that is more important than talking about the "deficit," which only looks at a one-year slice of bookkeeping and ignores previous indebtedness that is still outstanding.

Even so, the administration has projected that the annual deficit for the current budget year will hit the $1.58 trillion figure, more than three times the size of last year's deficit of $455 billion.

Economists predict that an improved economic climate could help reduce the deficit in the 2010 fiscal year to $1.3 trillion.

Obama has promised to reduce the budget to $533 billion in the 2013 fiscal year.

"The deficit is obviously very large and a problem," said economist Mark Zandi of Moody's Economy.com.

"But it's not quite as bad as what expectations were a few months ago."

Earlier this year, Zandi, whose observations are frequently cited by administration and congressional officials, had predicted that the administration would have to get congressional approval for additional rescue funds for financial institutions.

"It's working out better than I anticipated," he said.

Source : STAR
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Billionaire Buffet urges US to stop 'printing' money and halt debt rise

Now that the worst of the economic crisis is past and recovery is slowly under way, Congress must halt the mounting increase in U.S. debt to avoid damage to long-term growth and destruction of the dollar, Warren Buffett is urging.

The plainspoken billionaire weighed in with his view in an Op-Ed piece published in The New York Times Wednesday, saying that once recovery is solidified, lawmakers need to exercise "extraordinary political will" and slow the printing of money to finance the spike in debt.

That huge spending for financial bailout and economic stimulus was sorely needed to rescue the economy in its greatest peril since the 1930s, Buffett said, but now "unchecked emissions" of dollars "will certainly cause the purchasing power of currency to melt" the way runaway carbon emissions will likely melt icebergs.

With government spending now nearly double what it is taking in, "truly major changes in both taxes and outlays will be required," Buffett wrote.

"A revived economy can't come close to bridging that sort of gap."

Buffett, one of the world's wealthiest men, enjoys opining on issues of the day.

And as the "Oracle of Omaha" and head of a successful investment firm, his views carry weight in the public arena.

He has gained a sharper political profile in recent years and has spoken out, for example, on the obligation of the privileged to help the poor.

Buffett was a top economic adviser to Republican Arnold Schwarzenegger's first campaign for California governor and advised Democrat John Kerry's presidential campaign in 2004.

Last September at the height of the financial turmoil, Buffett's firm, Berkshire Hathway Inc., rushed in with a $5 billion in investment in Wall Street powerhouse Goldman Sachs Group Inc., a move viewed as a vote of confidence for a survivor of a crisis that felled two of its investment banking peers.

The economy "is now out of the emergency room and appears to be on a slow path to recovery," Buffett wrote in the Op-Ed.

"But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself."

Because of the deficit, the amount of U.S. debt that is publicly held likely will rise to around 56 percent of Gross Domestic Product this fiscal year ending Oct. 1, from 41 percent last year, Buffett noted.

The three ways of financing the rising debt - borrowing from other countries, borrowing from Americans or printing money - all carry problems, he said.

"The United States is spewing a potentially damaging substance into our economy - greenback emissions," Buffett wrote.

Source : STAR
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Numbers of poor in US projected to increase to 38.8mil

The numbers of poor and uninsured Americans are likely rising - with more than 38.8 million believed to be in poverty.

Rebecca Blank, the Commerce Department's undersecretary of economic affairs, spoke to The Associated Press in advance of next month's closely watched release of 2008 census data.

Noting the figures are not yet final, Blank said the numbers will likely show a "statistically significant" increase in the poverty rate, to at least 12.7 percent.

That would represent a jump of more than 1.5 million poor people last year.

"There's no question that 2008 economically was a much worse year than 2007," she said Wednesday.

"The question is how much and how bad."

The number of Americans without medical insurance is also expected to notably increase due largely to rising unemployment and the erosion of private coverage paid for by employers and individuals, but Blank declined to say by how much.

In 2007, the number of uninsured fell by more than 1 million mostly because government programs such as Medicaid for the poor picked up the slack.

The census figures, set to be released Sept. 10, could have important ramifications as Congress returns from its August recess to debate health reform, its cost, and the ways to pay for it.

Republicans also have traditionally pointed to the intractable poverty rate as a sign that government programs do not work, a claim likely to be repeated often in light of the federal economic stimulus package.

In a 30-minute interview, Blank said the census figures released next month could possibly understate the actual number of poor people, since the poverty rate is a lagging indicator that tends to accelerate over time.

As a result, the 2008 data could prove to be the tip of the iceberg, with more significant declines reflected in 2009 figures released next year.

Blank, a former co-director of the National Poverty Center at the University of Michigan, estimated this year that poverty could eventually hit 14.8 percent or more in the United States should unemployment reach 10 percent as some analysts have predicted.

That would be almost one of every seven Americans.

Based on 2007 figures, the poverty rate currently stands at 12.5 percent, or 37.3 million, largely unchanged from recent years.

The official poverty level is now $21,203 for a family of four, $13,540 for a family of two, based on a calculation that includes only cash income before deductions for taxes.

It excludes capital gains and it does not take into account accumulated wealth or assets, such as a home.

On Wednesday, Blank said she was working with the Census Bureau to provide better measures of poverty.

Such alternative measures, which will be released sometime after Sept. 10, will seek to better incorporate added costs of health care, child care, housing and transportation, but also noncash income from the stimulus and other government programs, such as tax credits and food stamps.

Source : STAR
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Layoffs rise first time in 6 months; 97,000 job cuts in July

Job cuts announced by US employers jumped 31 per cent in July to over 97,000, increasing for the first time in six months, warning of a further hike in downsizing activity by the last quarter of the year, a report said today.

After falling to a 15-month low in June planned job cuts announced by US employers jumped to 97,373 in July. It was the first increase in monthly job cuts since January, global outplacement consultancy Challenger, Gray & Christmas Inc said here in its latest report.

"After June's surprisingly low job-cut total, a July rebound was not entirely unexpected. While there are signs that the economy is stabilising and the pace of layoffs slowing, we are still a long way from a full recovery. In fact, monthly job cuts are likely to return to levels in excess of 100,000 by the fourth quarter," Challenger, Gray & Christmas CEO John Challenger said.

Job cuts had fallen 33 per cent in June to 74,393, the lowest monthly total since March 2008. The July total was 6 per cent lower than the same month a year ago, when employers announced 1,03,312 cuts. So far this year, employers have announced 9,94,048 job cuts, 72 per cent more than 5,79,260 layoffs through the first seven months of 2008.

The July surge in job cuts was led by firms in the transportation industry, which announced plans to reduce payrolls by 27,954 positions, a five-fold increase from the June layoff total of 5,587.

The telecommunications sector also experienced an increase in layoffs last month with job cuts surging to 17,601 in July from 802 in June.

Meanwhile, the automotive sector, which leads all other industries in year-to-date job cuts with 1,22,212 layoffs has seen layoff announcements decline in each of the last three months. These companies announced 2,716 job cuts in July.

"Declining layoffs in the automotive industry may not be indicative of a turnaround. Instead, these employers simply may not have any room for additional job cuts if they hope to build new fleets of more eco-friendly cars," Challenger added.

With consumer and business spending at a standstill transportation companies have little choice but to make further cutbacks in staffing, it said, adding, that a surge in hiring could take place around the holidays.

Other sectors which saw downsizing during July are government/non-profit (7,131), industrial goods (6,548) and financial (5,030). While economic conditions and cost-cutting claimed over 58,000 jobs, voluntary severance led to 15,070 job cuts in July.

Employers also announced plans to hire a total of 17,183 employees with retail (14,200) and aerospace/defence (1,160) leading the pack.

Source : Business Standard
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Lockheed Martin to Cut 800 Space Systems Jobs

Lockheed Martin, the world's largest defense contractor, said it plans to cut about 800 jobs at its space systems division by the end of the year, as it anticipates flat budgets for space programs at NASA and the Pentagon in the coming decade.

"We looked at the budget forecasts and new program starts looking at three to five years in the future and realized we need to be appropriately sized," said Charles Manor, a Lockheed spokesman. "We need to get a bit smaller" he said, because the company expects few new programs starting with the Defense Department and NASA.

"It is a very unfortunate step, but it is necessary," he said. "It is clear that DOD's space modernization effort has reached its apex. Things will be relatively flat for the foreseeable future."

Manor said the Bethesda-based company would offer a voluntary buyout plan this month to its space systems employees. The cuts will include technical, managerial and administrative positions at facilities in Denver and Sunnyvale, Calif. The reductions represent about 4.5 percent of Lockheed's roughly 140,000-person workforce.

"NASA and DOD's budgets for space are not going to grow by leaps and bounds," said Marco A. Caceres, a senior analyst and director of space studies at the Teal Group, a Fairfax industry consultant. "There's a dose of reality that's going to set in because of the economic situation."

The job cuts announced Monday come as Lockheed is also downsizing its operation in Louisiana where it makes rocket fuel tanks for the space shuttle. The shuttle is scheduled to make its last flight in 2010. Lockheed has had other job reductions in Owego, N.Y., where it makes the new presidential helicopters. A multibillion-dollar contract on the helicopters was recently canceled.

Source : Washington Post
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Samsung files notice of 550 job cuts

Samsung Austin Semiconductor plans to cut 550 jobs from its Northeast Austin manufacturing operations starting on or about Oct. 18, according to a notice submitted by the company to the Texas Workforce Commission Tuesday.

The company did not immediately provide a list of job categories affected.

Samsung has said that many of the job cuts would affect equipment operators at Fab 1, which will be shut down on or about Oct. 18. But spokesman Bill Cryer acknowledged that other job classifications, including engineers and technicians also will be affected.

Samsung informed workers of the impending shutdown of Fab 1 last Friday. The company expects to spend $500 million renovating and re-equipping the older chip factory to become a part of the newer Fab 2, which is inext door to Fab 1.

Fab 1 began producing chips in 1997. Fab 2, which is much larger and far more automated, started production in 2007.

Fab 2 makes flash memory chips used in smart phones, portable media players and other consumer devices.

When the renovation is complete, Samsung said it expects to hire 150 to 200 workers next year to work in the expanded Fab 2.

Source : Statesman
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

After nine decades of short stories, Reader's Digest turns to Chapter 11

Reader's Digest Association, the venerable staple of doctors' waiting rooms and middle-class bedside tables, yesterday announced plans for voluntary bankruptcy as it became the latest victim of the advertising recession.

Equity investors, led by Ripplewood Holdings, who announced the $2.4bn acquisition in November 2006, will lose their entire $600m investment.

The pre-packaged Chapter 11 filing, agreed with senior lenders but contingent on agreement with other lenders, marks the latest media industry deal struck at the peak of the credit-fuelled buy-out market to head towards the bankruptcy courts.

Reader's Digest, launched by a husband and wife in New York in 1921 from one room under a Greenwich Village speakeasy, began as a mail-order collection of condensed articles from other magazines and evolved into a direct-mail pioneer and one of the world's largest publishers.

Nine of its 94 magazines have a circulation of more than 1m in the US alone, and its titles claim a combined global readership of 130m people in 78 countries.

But the group has been hit hard by changing reading habits and an advertising recession.

Advertising revenue from the flagship magazine fell 18.4 per cent last year, and is down another 7.2 per cent in the first six months of this year, according to the Publishers Information Bureau .

"The deal was done at the height of the frothy investment banking model, and the company was saddled with $2.2bn worth of debt," said Tom Williams, chief financial officer. Group revenues are down just 2 per cent this year, said Mary Berner, chief executive.

However, as cash flows came in below the Ripplewood-led buy-out group's expectations, it found itself struggling to make a $27m interest payment, due yesterday.

Ms Berner said the restructuring would not affect its operations or suppliers. "This is a balance sheet issue and not an operational issue," she said.

Source : Financial Times
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

US stocks in biggest loss in two months

A surprisingly bleak forecast for the world economy pushed stocks to their biggest loss in two months.

Major stock indexes tumbled by more than 2 percent Monday, sending the Dow Jones industrial average down 201 points, after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent contraction.

The grim assessment was the latest unwelcome surprise for the market since last month and further eroded hopes that the economy was starting to emerge from recession.

Investors began driving stocks sharply higher in early March, encouraged by modest improvements in housing, manufacturing and even unemployment.

The dampened economic outlook from the World Bank, a global lender based in Washington, also weighed on the prices of oil, metals, and other commodities.

Those price drops in turn sent energy and metal producers' shares falling.

Hugh Johnson, chief investment officer of Johnson Illington Advisors, said the downbeat economic prediction confirmed fears that have been building in the market for two weeks.

"The forecast by the World Bank just dramatized that the market may have overstated what's coming for the economy," he said.

The stock market is coming off its first weekly loss in more than a month after mixed economic readings last week.

Investors have gone from enjoying a string of better-than-expected economic data to trying to manage a list of worries about the economy.

Stocks have lost ground several times in the last month on fears that rising interest rates and inflation would upend an economic recovery.

Many analysts also say the relief that erupted in early March about the economy then led to outsize expectations for how quickly a recovery could occur.

Other economic news has hit stocks since May.

A disappointing government report last month on retail sales suggested the economy remained fragile, and the Federal Reserve reined in its expectations for how the economy will fare this year.

There were no major economic reports Monday, but traders will get data this week on new and existing home sales, durable goods orders, gross domestic product and personal incomes and spending.

The Federal Reserve also will be in the spotlight after its two-day meeting on monetary policy ends Wednesday.

The central bank is widely expected to hold its key funds rate steady near zero, but investors want to know whether policymakers will say the economy is recovering or still in need of aid.

The Dow fell 200.72, or 2.4 percent, to 8,339.01, its lowest finish since May 27.

It was the biggest drop for the blue chips since losing 290 points, or 3.6 percent, on April 20 as investors worried about the soundness of bank balance sheets.

The Dow has fallen for five of the last six days and remains down for June.

The Standard & Poor's 500 index fell 28.19, or 3.1 percent, to 893.04, also leaving the index with its biggest slide since April 20 and erasing its advance for the year.

The Nasdaq composite index fell 61.28, or 3.4 percent, to 1,766.19.

After Monday's drop and a 3 percent slide last week, the Dow is down 5 percent for the year.

The Nasdaq, however, remains up by 12 percent in 2009.

The market is selling off on the uncertainty of what lies ahead, said David Kotok, chairman and chief investment officer of Cumberland Advisors.

"The picture's not clear. You've got a market that's acting just that way," Kotok said.

Bond prices jumped Monday, pushing yields down, as the drop in stocks drove demand for the safety of government debt.

The yield on the benchmark 10-year Treasury note sank to 3.69 percent from 3.78 percent late Friday.

The Fed has been buying Treasurys and other kinds of debt with the hope of keeping borrowing rates low at the same time the government has been issuing record amounts of debt.

The Treasury Department is planning to auction another $104 billion in debt this week.

A gauge of stock market volatility known as Wall Street's "fear index" spiked. The VIX rose more than 11 percent Monday, its biggest one-day gain since April.

Benchmark crude for August delivery fell $2.52 to settle at $67.50 a barrel on the New York Mercantile Exchange. Gold prices also slid.

Shares of companies that produce commodities dropped.

Oil company Chevron Corp. fell $2.30, or 3.4 percent, to $65.76, while aluminum producer Alcoa Inc. fell 98 cents, or 8.9 percent, to $10.02.

Few areas were spared the selling Monday, but investors moved toward industries like consumer staples and utilities that are expected to offer shelter in a tough economy.

Procter & Gamble, the maker of Tide detergent and Crest toothpaste, slipped 8 cents to $50.56.

Duke Energy Corp. rose 24 cents, or 1.7 percent, to $14.65.

The dollar was mostly higher against other major currencies.

The Russell 2000 index of smaller companies fell 19.91, or 3.9 percent, to 492.81.

About eight stocks fell for every stock that rose on the New York Stock Exchange, where consolidated volume came to 5.1 billion shares, down from 5.5 billion Friday.

Trading was heavy Friday because of expiration of options and futures contracts.

Overseas, Japan's Nikkei stock average rose 0.4 percent.

Britain's FTSE 100 fell 2.6 percent, Germany's DAX index fell 3 percent, and France's CAC-40 fell 3 percent.

Source : STAR
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

The St. Regis Monarch Beach schedule for a Foreclosure Auction!

The St. Regis Monarch Beach, infamous as the hotel where American International Group sponsored a luxury retreat just days after accepting a federal bailout, has been scheduled for a foreclosure auction.

The companies that own the resort are in default on a $70-million loan from Citigroup Global Markets Realty Group, people knowledgeable about the debt said Tuesday.

Negotiations continue in an effort to avoid an auction, according to those sources. But unless something is worked out, the St. Regis will go on the block July 7, to be sold to the highest bidder, according to a "terms of public sale" document obtained by The Times.

The resort's troubles come as the recession and credit crunch have hammered the hotel industry, depressing room rates and occupancy levels and making loans all but impossible for hotel owners to get.

Resorts like the St. Regis, which cater to wealthy travelers and the high-end corporate retreat business, have seen some of the steepest declines in revenue.

Business is so bad -- and funding so expensive -- that hardly any hotels are being sold these days, and most are now worth 50% to 80% less than at the peak, said hotel broker Alan X. Reay of Atlas Hospitality Group in Costa Mesa.

Just this week, Sunstone Hotel Investors Inc. said it would turn the trendy W Hotel in downtown San Diego over to its lenders, part of a growing trend that Reay said was a "bloodbath."

The St. Regis -- which has several restaurants, a golf course and a private beach club -- has been hit by a steep drop in bookings, according to the people with knowledge of the situation.

Built by the Makarechian development family of Newport Beach, the property is current, for now, on two other mortgages totaling $230 million on the 400-room hotel and golf course, these people said, speaking on condition of anonymity because of the sensitivity of the situation.

When the Makarechians and their partners, including San Francisco's Farralon Capital hedge fund, refinanced the property and incurred $300 million in debt in 2007, credit markets had not yet seized up and the hotel's revenues were high enough to support the payments.

But that's no longer the case, these people said. Neither Citigroup nor representatives of the St. Regis would comment on the record.

The St. Regis always aimed to satisfy the smallest whims of wealthy people and high-end corporate travelers.

Before the hotel opened in 2001, Paul Makarechian, the 27-year-old scion overseeing non-residential projects for the family, took The Times on a tour, pointing out sweeping tapestries, elaborately stitched duvet covers matching fabric-draped headboards -- even motion sensors so employees would know without knocking if guests were present.

"If you're going to build a five-star luxury resort hotel that will outdo every other deluxe hotel on the planet, you don't scrimp on sheets," he said. "You don't scrimp on anything."

But in these times, perhaps a bit more austerity is in order.

Although the St. Regis is not directly on the waterfront, the Pacific Ocean is visible from its six restaurants and it boasts a five-star Mobil Travel Guide rating, compared with four stars for the nearby Ritz-Carlton and Montage resorts.

Guests can take a shuttle across the golf course to a private ocean-front club at Monarch Beach, the northernmost stretch of Dana Point, where they can sip cocktails after taking surfing lessons.

The St. Regis became something of an emblem of corporate excess and greed last October, as the global financial system was threatening to melt down.

The taint arrived by association with AIG, the giant New York insurer that, because of massive wrong-way bets on the mortgage markets, became the largest recipient of bailout money from the federal government.

Just weeks after receiving its first $85 billion in federal funds, AIG shelled out more than $440,000 at the St. Regis for rooms, wining and dining, spa treatments and rounds of golf to reward 100 top salespeople.

The Presidential Suite, which normally goes for $3,200, was booked for five nights, The Times reported.

The event was widely vilified and lampooned, and bookings at the St. Regis dropped by 20% in the months following it, St. Regis marketing director Michael Mustafa told Hotels Magazine.

By Mustafa's estimate, about a third of the drop-off was attributable to what the magazine termed the "AIG curse."

"My phone started ringing off the hook," Mustafa recalled. "That was the worst week of my life."

At the St. Regis, managers couldn't be reached for comment Tuesday. But it appeared the debt problem would not directly affect resort visitors. The Citigroup real estate arm is pursuing what is known as a non-judicial foreclosure, meaning no sheriff's deputies nailing notices to the hotel walls or sales on the courthouse steps.

Instead, the auction is to be held at First American Title Co. in Santa Ana.

Bidders would be vying for the hotel and golf course, but not the surrounding residential areas, including a yet-to-be-developed parcel on the hotel's south flank, which is owned separately by the Makarechian-Farralon partnership.

Citigroup itself is allowed to bid, according to the "terms of public sale" document. The Makarechians and partners also are likely to enter bids.

The package to be sold includes the obligation to pay the $230 million in senior mortgages on the property.

Source : HotelsMag
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

General Motors to File for Bankruptcy

GM - the biggest car manufacturer in the world until last year - will file for bankruptcy in the US courts as it seeks to restructure its stricken operations.

The US government is said to be planning to take a 60% stake in the Detroit company under a deal to provide an additional £19 billion in aid to help GM emerge from bankruptcy.

President Barack Obama is preparing to make a White House address in which it is understood he will reassure that a revived GM will come out of the restructuring process.

It is also thought that he will stress the government's commitment to staying out of the carmaker's business decisions, in spite of its majority ownership stake.

The Canadian government is also reportedly taking a 12.5% stake in GM and a United Auto Workers trust for health care expenses would get 17.5%.

Holders of GM corporate bonds are expected to receive a 10% stake, with the possibility of increasing their share to 25%.

GM, maker of Chevrolet, Buick and Cadillac cars and trucks, is expected to file for bankruptcy protection at 8am in the US (1pm BST). The move will not affect Magna International's rescue deal to buy GM Europe and the Vauxhall and Opel brands.

The bankruptcy - the fourth-largest of its kind in the world - is set to trigger an intensive two to three-month restructuring that will see thousands of US workers axed, with many dealerships and factories also closed.

GM plans to name veteran turnaround specialist Al Koch to serve as its chief restructuring officer to help the company through bankruptcy protection.

He will lead the separation of the carmaker's assets into a "new GM" and the remaining parts of the company that will form "old GM".

The "old GM" company is then set to be wound down once the company emerges from bankruptcy.

GM was founded in 1908 by William Durant, who brought several car companies under one roof and developed the strategy of "a car for every purse and purpose" in the 1920s that was designed to appeal to consumers of all ages and financial status.

The group commanded more than half the US car market in the 1950s and employed more than 600,000 workers in the late 1970s, making it the largest private employer in the country.

It is still one of America's largest employers today, but will come out of its Chapter 11 process a far leaner firm, focusing only on its four core brands - Chevrolet, Cadillac, Buick and GMC.

Source : Independent
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

Wall Street rescue: $2.3 trillion - the cost of US bank bailout

President Barack Obama's administration placed an eye-watering $2.3 trillion price tag on its plan to bail out the US banking system yesterday, opening up what it called a second front in the battle to pull the country out of recession.

As the $800bn economic stimulus plan finally passed the Senate, attention began shifting to the even bigger problem of fixing a financial system that has been on government life support since September.

Tim Geithner, the US Treasury secretary, said expansion of the unpopular Wall Street bailout plan is necessary because the government has for too long been "behind the curve, always chasing the escalating crisis". But expansion of the scheme, first launched by George Bush, threatens to unleash new political controversy. Critics say the new plan is short on detail, leaving some of the most important and vexing issues unresolved.

Mr Geithner called the expansion "comprehensive and forceful", but stock markets tumbled as investors derided the lack of detail.

The administration has pledged the revised financial stability plan will come with tough rules on what banks can do with government money.

This comes in response to public fury over continuing bonuses and perks being enjoyed on Wall Street, despite some $350bn of government money already having been given to ailing institutions. Under the new plan, instead of diverting cash into shareholder dividends or acquisitions, each bank will have to lend the fresh money to small businesses and consumers, who are bearing the brunt of the credit crunch.

There will be much more transparency, too, Mr Geithner promised. "Our challenge is much greater today because the American people have lost faith in the leaders of our financial institutions, and are sceptical that their government has used taxpayers' money in ways that will benefit them," he said. But he echoed Mr Obama's warning during Monday's televised press conference that rescuing the banking system is central to restoring health to the US economy: "Instead of catalysing recovery, the financial system is working against recovery," said the Treasury Secretary. "The battle for recovery must be fought on two fronts. We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families."

The new plan aims to balance aid for Wall Street with support, too, for main street. In particular, there will be $50bn set aside to bring down mortgage payments for borrowers struggling to avoid foreclosure. However, the bulk of assistance will be targeted at banks, which will undergo a "stress test" to see if they need government funds. And there will be a $1trn "public-private investment fund" that will buy toxic assets from the banks, finally freeing them up to start lending again. However, despite stoking anticipation on Wall Street, Mr Geithner said only that he was "examining a range of different structures" – comments which sent the US stock market down almost 4 per cent.

In addition, there will be extraordinary new efforts to get the credit markets moving, even without the help of moribund banks. The Federal Reserve will flood the system with $1trn in new loans to investors who want to help finance business and consumer lending.

Mr Obama used his televised press conference on Monday night to pile still more pressure on Congress to pass his economic stimulus plan, which aims to create jobs through about $800bn in Government spending and tax cuts. Yesterday he went to Fort Myers in Florida, where the jobless total has tripled in two years, to telegraph back to Washington the pain being felt in parts of the country. "We can't afford to posture and bicker," he said. Senate Democrats passed an $838bn stimulus bill with the help of three Republicans, but its menu of tax and spending measures differs significantly from a Democrats-only plan passed by the House of Representatives last month. Marrying the two could be politically volatile, although the White House says it still expects a final compromise plan to reach the President by 16 February.

In contrast to the stimulus bill, the new Wall Street rescue plan unveiled yesterday is not likely to require significant legislation by Congress. Later, Mr Geithner warned Congress it might have to approve significant additional funds on top of the original bill.

Last October, it voted to allocate $700bn to bail out the banks, half of which has been spent. The government money eventually spent on the new plan will be significantly less the $2.3trn headline cost, because much of the money is only being loaned, and the assets purchased might turn a profit. While working on the details of the latest rescue, Mr Geithner said that he would step up efforts to reach international agreements that could prevent a similar crisis. Finance ministers from the G20 industrialised nations will meet in Italy this weekend and discuss regulatory reform.

Obama's proposals

Reduce home repossessions: $50bn

Why is this important?

The giant hole at the centre of the banking system opened when US house prices began to fall, wiping trillions of dollars from the value of collateral held by banks – and it is widening still. As repossessed homes flood the market, it remains in freefall and is causing untold human misery.

What is the plan?

To encourage mortgage lenders to lower repayments or even the size of the debt. There will be a variety of incentives for lenders, including government compensation and possibly protection from lawsuits filed by investors.

Unanswered questions

The details will be announced in the next few weeks. It is unclear whether the sums involved will be enough to make a real dent in the rate of foreclosures, and reducing the supply of repossessed homes is only part of the problem. As the recession gathers pace, demand from nervous buyers has also slumped.

More money for banks: $300bn

Why is this important?

Until the giant hole at the centre of the financial system is plugged, the banks' lending activity will remain at a sluggish pace, and that means businesses, homeowners, car buyers, college students and property developers will continue to have trouble finding loans. Those loans are the life-blood of economic activity, and their absence is compounding the recession.

What is the plan?

Major banks will face a "stress test" to judge how much capital they need, not just to stay solvent through the recession but to increase their lending again. If banks need taxpayers' money, they will have to pay punitive interest rates, give the Government a stake in their company and accept transparency rules to shame them into cutting executive pay and perks.

Unanswered questions

All depends on the assumptions that go into the "stress test". If the economy worsens, the administration may need to ask Congress for more than the $300bn that remains in the kitty. The government could end up effectively owning the biggest banks in the US, and private investors are unlikely to advance their own capital to banks under those circumstances.

Dealing with toxic loans: $500bn to $1trn

Why is this important?

Banks are still sitting on trillions of dollars of soured mortgage investments and other bad loans, whose value depends entirely on how bad the economy gets. Because there is no clarity, there is paralysis. Banks have wrestled for more than a year with ways to rid themselves of these toxic assets.

What is the plan?

Using tax dollars, loans from the Federal Reserve and private money, the Treasury plans a "public-private investment fund" to buy toxic assets. It will grow over time and use expertise from private companies to set a value for the assets.

Unanswered questions

There is still no answer to the pivotal question of how much to pay banks for their toxic assets. If the price is low, several lenders could be forced to write down the value of their assets to a point that makes them insolvent. But private investors hardly want to pay over the odds – and neither should taxpayers.

Kick-start credit markets: $1trn

Why is this important?

The loans that businesses and consumers rely on do not all come from the banking system. About 40 per cent are financed by hedge funds and other investors, who buy parcels of these loans in the secondary market. That market has all but dried up, which is making loans even harder to come by.

What is the plan?

The US Treasury and Federal Reserve already have a $200bn lending programme aimed at kick-starting these markets, but this will be vastly increased in size. Investors will be lent money to buy parcels of credit card loans, student and small business loans, and now commercial mortgages as well, to prevent a collapse in the property market.

Unanswered questions

The appetite of worried investors for re-entering the embattled American credit markets is still to be tested, because the existing programme is still in its infancy. No matter how much financing becomes is available, there could be resistance to making new loans if the US economy is still heading downwards.

Source : Independent
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]

General Motors to slash 10,000 salaried jobs

General Motors Corp, staying afloat with $13.4 billion in federal rescue loans, announced early today that it is cutting its worldwide salaried workforce by 10,000, or 14%, this year and temporarily reducing the pay for a majority of its U.S. white-collar workforce.

"These difficult actions are necessitated by a severe drop in vehicle sales worldwide and by the need to restructure GM for long term viability," the company said in a statement.
GM Chief Executive Rick Wagoner, who was meeting with congressional leaders in Washington about global warming legislation, said the announcement is “indicative of the kind of things we need to do to get this viability plan in shape and respond to these tough market conditions.”

The Detroit automaker is racing to put together a long-term viability plan to present to the government Feb. 17. It has said it needs to cut its U.S. salaried and hourly workforce by as much as 31,500 people through 2012.

“The announcement this week begins implementation of this aspect of the plan,” the company said.

In the U.S., GM's salaried workforce of 29,500 will be cut by about 3,400, or 12%, by May 1.

In a statement, GM said the job cuts “will be made using GM separation programs and policies which provide for severance payments, benefit contributions and outplacement assistance.”

The company also said executive employees in the United States will have their base pay cut by 10% and "many other" salaried employees will see reductions ranging from 3% to 7%. The U.S. pay reductions will also go into effect May 1 and will be in effect through the end of the year.

One 20-year GM employee said he heard the news on the radio this morning but had the day off, so he hadn’t had time to talk to coworkers yet. Anxiety, he said, was already running high before the announcement.

“Frankly, I am still trying to take it all in,” said the employee, who did not want to be identified.

“Everybody is worried and they are concerned,” he said. “It’s really been a situation where you don’t know what’s going to happen. And you are kind of waiting for whatever the next shoe is to drop.”

The employee, who works at the GM Technical Center in Warren, said his wife works for an automotive parts supplier and her job is also at risk.

“When you look at the economy in general, you know its not just General Motors,” he said. “If it was just General Motors, you could look someplace else for a job.”

Dustin Suppes, 29, of Novi, said, "I had heard rumblings and I figured it would be sooner rather than later because the viability plan is due the 17th and we're getting pretty close to that."

A white-collar worker at Delphi Corp., which is GM’s largest supplier and has been struggling to emerge from bankruptcy, said today’s news out of GM only further sank the mood at Delphi. He did not want to be identified for fears of repercussions in the current environment.

“Are people on suicide watch? No,” he said. “But they are trying to survive. The news is coming out faster and faster, so people are more apprehensive every day and every week.”

Workers there are also concerned, he said, that Delphi will implement pay cuts similar to the ones GM announced.

“I wouldn’t be surprised to see Delphi, Visteon and others follow suit,” he said.

The job cuts announced at GM follow a slew of job cuts announced at major employers nationwide over the past few months. About 600,000 jobs were lost in January, bringing U.S. unemployment to 7.6%. The number of unemployed Americans now stands at 11.6 million.

GM salaried retiree Gerald Patrick, 69, of Shelby Township said he thinks the news about the additional GM job cuts comes at a terrible time.

“For every good-paying automotive job that's lost, I think you have six to 10 other people affected,” he said. “It's a big snowball, and it just keeps gathering people and jobs and getting bigger and bigger. … It’s getting bigger and getting faster.”

Patrick said somebody needs to step in to stop the job losses from getting any worse.

“We need to do what we can to protect these jobs,” he said. “Something has got to be done.”

Source : Freep
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]