Fed Expected to Trim Key Rates Again
The Federal Reserve is expected to lower interest rates before the end of their two-day meeting, which starts today.
If they do, this will be the second time in a month. The Fed is expected to lower the rate by either half a percentage point to 1 percent or, conservatively, make a smaller quarter-percentage reduction to 1.25 percent.
The prime rate, which is used to set home equity loans, certain credit cards, and other floating rate loans, is now at 4.5 percent. These rates will fall commensurately based on the size of the cut. Mortgage rates aren’t so directly affected, but may slip as other rates decline.
Source: The Associated Press, Jeannine Aversa (10/28/08)
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Fed Considers More Steps to Bolster Economy
Federal Reserve chairman Ben Bernanke urged the House Budget Committee to support another government stimulus package, particularly one that would encourage consumers to buy houses and cars.
"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers," Bernanke said.
Many economists believe members of the Fed will again lower its key rate – now at 1.5 percent – when it meets Oct. 28-29.
Source: The Associated Press, Jeannine Aversa (10/20/08)
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Dump Your Credit Card Debt, But Keep Your House
If you’re feeling overwhelmed by debt — credit cards, medical bills, mortgage payments, etc.– andespecially if you’re being hounded by collection companies, your best option is to make an appointment with a nonprofit credit counseling service. In exchange for agreeing to a budget plan, they’ll contact creditors for you and hopefully buy you more time to pay your bills.
Warning! As I wrote in a previous column, due to the number of for-profit scammers out there, look for an organization affiliated with the National Foundation for Credit Counseling (nfcc.org).
Don’t expect a miracle. “Counseling isn’t for everyone,” says Travis Plunkett with the Consumer Federation of America. He says that while a credit counseling agency “can provide some breathing room” by negotiating reduced payments with your creditors, “if you’re really in serious financial trouble, they can’t provide enough breathing room to help.”
Both Plunkett and Gerri Detweiler, author of several books on consumer credit, say that if your situation is especially dire, filing for bankruptcy may be your only recourse. If you think you might be headed down that path, she recommends making an appointment with a bankruptcy attorney as soon as possible.
While a bankruptcy filing is public record and remains on your credit history for 10 years, attorney Stephen Elias says it may not be as painful as you think — especially if most of your debt is unsecured, i.e. not backed by a tangible asset such as real estate or a car that can be seized. He points out that if you’ve already missed several payments, “your credit is in the tank, anyway, and that stays on your record for seven years.”
Elias, who has authored several file-your-own-bankruptcy books, describes it as an “amazing” process. He says, “First you have to file your papers. Thirty days later you go to a creditors meeting and under oath swear that your paperwork is correct. A minute later you walk out.”
Creditors then have 60 days to object to having your debt erased. But according to Elias, in his 25 years of practice, he’s never seen a creditor do this. He recalls one extreme case where clients had traveled the world, running up a $50,000 bill on their Bank of America credit card. Although he expected B of A to object, there was “not a peep. I was really surprised.”
If the court doesn’t hear from your creditors within the 60-day window, your debts are discharged.
Surprisingly, seniors are often more creditor-proof than younger debtors, especially if they don’t own their home or many tangible assets. That’s because much, if not all, of their income cannot be seized in bankruptcy. Even after it’s in your bank account, Social Security is strictly off-limits, says Elias. So are your company retirement plan, IRA, and pension. There’s also a chance that the income from these accounts is exempt. And, under the Fair Debt Collections Practices Act, anyone can demand that creditors stop harassing them.
But what if you’re middle-aged, have a couple of kids, a mortgage, health problems that have kept one spouse from working, and $30,000 in credit card and medical bills you can’t afford to pay?
Under the revised bankruptcy regulations enacted in 2005, if your income exceeds a certain threshold (set by each state), you cannot qualify for Chapter 7 bankruptcy, which allows you to essentially walk away from your debts. Your only option is to file under Chapter 13, where the court creates a five-year plan for you to pay back a portion of your debts.
But Chapter 13 can be a much better solution for many people, especially if you own a home and want to keep it. Instead of foreclosure, the court allows you to make up the mortgage payments you missed by adding a little extra to each payment left on your schedule.
Elias, who has just written “The Foreclosure Survival Guide,” says an option under Chapter 13 will allow you to keep your house while having your unsecured debt wiped out. He calls the “zero percent plan” the best choice “for most people who went way over on credit card or medical debt.”
Keep in mind that regardless which type of bankruptcy you file, you must complete a credit counseling course given by a federally-approved organization. And your bankruptcy filing will remain on your record for 10 years. That means you will find it next-to-impossible to get a loan. “Sure, they don’t have access to credit,” says Elias, “but that’s not necessarily a bad thing for many people.”
If you feel your current financial problems are temporary and you really, really want to hang on to your home, don’t give up. “The challenge is what when you’re under financial stress, it’s harder and harder to make the calls, handle the rejections, and be willing to keep going,” says Detweiler. As she put it, you have to “be a bulldog about it.”
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Stocks In Focus For Friday
SAN FRANCISCO — Among the companies whose shares are expected to see active trade in Friday’s session are Honeywell, Comerica, Schlumberger and GM.
Honeywell (HON: 30.93, +1.85, +6.36%) is expected to report third-quarter earnings of 95 cents a share, according to analysts surveyed by FactSet Research.
Comerica Inc. (CMA: 29.22, +0.92, +3.25%) is projected to post earnings of 26 cents a share in the third quarter, according to analysts polled by Thomson Reuters.
Schlumberger (SLB: 53.20, -1.20, -2.20%) is forecast to post earnings of $1.25 a share in the third quarter, according to analysts surveyed by FactSet Research.
Analysts polled by FactSet Research estimated VF Corp. (VFC: 58.50, +3.76, +6.86%) to report third-quarter earnings of $2.02 a share.
Wilmington Trust (WL: 27.45, +0.97, +3.66%) is expected to report earnings of 42 cents a share in the third quarter, according to a survey of analysts by Thomson Reuters.
First Horizon National Corp. (FHN: 11.32, +0.14, +1.25%) is likely to post a loss of 12 cents a share in the third quarter, according to analysts in a survey by FactSet Research.
After Thursday’s closing bell, Google Inc. (GOOG: 353.02, +13.85, +4.08%) said its third-quarter net income rose to $1.35 billion, or $4.24 a share, from $1.25 billion, or $3.92 a share in the same period a year earlier. Net revenue rose to $4.04 billion. Excluding special items, Google said earnings for the quarter were $4.92 a share. Analysts on average had estimated Google would post earnings, excluding special items, of $4.74 a share, on net revenue of $4.04 billion, according to FactSet Research. See full story
Watch list
Advanced Micro Devices Inc. (AMD: 4.12, +0.21, +5.37%) reported a third-quarter loss of $67 million, or 11 cents a share, compared with a loss of $396 million, or 71 cents a share for the year-earlier period. Revenue was $1.78 billion, up from $1.56 billion for the same period last year. Analysts had expected AMD to report a loss of 40 cents a share on revenue of $1.48 billion, according to a consensus survey by FactSet Research. See full story
American International Group (AIG: 2.43, +0.01, +0.41%) will take steps to recover "improper" bonuses and payments to former executives as part of its effort to assist New York State Attorney General Andrew Cuomo’s probe into the company’s expenditures. The decision came after Cuomo informed Chief Executive Edward Liddy that unless AIG takes steps to recover the funds, Cuomo will pursue it under the law. The recovery will include compensation paid to former Chief Executive Martin Sullivan. The insurer is also canceling all junkets and perks which are not justified by legitimate business needs, including more than 160 conferences and events, for a total savings of more than $8 million. Separately, AIG named David Herzog executive vice president and chief financial officer. Steven Bensinger, who served as acting CFO, has left the company.
Capital One Financial (COF: 38.70, +0.94, +2.48%) said it made net income of $374.1 million, or $1 a share, in the third quarter, up from a net loss of $81.7 million, or 21 cents a share, a year earlier. Earnings from continuing operations in the third quarter of 2008 were $385.8 million, or $1.03 a share, the credit card and banking company reported.
Merger discussions between General Motors Corp. (GM: 6.40, +0.18, +2.89%) and Chrysler LLC are picking up pace with strong support from banks and other potential lenders that are eager to see a deal, The Wall Street Journal reported Thursday in its online edition. GM is aiming to get a deal done as early as the end of October, the newspaper said. Other major players pushing the deal are J.P. Morgan Chase & Co. (JPM:40.49, +2.00, +5.19%) and Cerberus Capital Management, according to the Journal. Cerberus owns Chrysler, while JP Morgan is one of the largest holders of Chrysler bank debt and is a key lender for GM.
IBM Corp. (IBM: 91.52, +3.23, +3.65%) reported a third-quarter operating income of $2.8 billion, or $2.05 per share, compared to earnings of $2.4 billion, or $1.68 per share, for the same period last year. Revenue rose 5% to $25.3 billion for the quarter. The company said revenue from its software segment grew by 12% to $5.2 billion during the period. See full story
Intuitive Surgical Inc. (ISRG: 214.80, +24.68, +12.98%) said its third-quarter profit rose to $57.6 million, or $1.44 a share, from $40.9 million, or $1.04 a share, in the year-ago period. Revenue rose to $236 million from $156.9 million last year. Analysts surveyed by FactSet Research estimated quarterly earnings of $1.27 a share on revenue of $226.6 million.
Leggett & Platt Inc. (LEG: 18.57, +1.16, +6.66%) reported a third-quarter net income of $32.7 million, or 20 cents a share, down from $65.7 million, or 37 cents, a year ago. Excluding one-time items, the company earned 34 cents a share from continuing operations. Revenue rose to $1.13 billion from $1.09 billion. Analysts polled by FactSet Research predicted the engineered parts maker would post per-share earnings of 30 cents on $1.05 billion in revenue. The company, citing weak market demand, said it expects to earn $1 to $1.15 a share for the full year, down from $1.10 to $1.40 estimated in July.
PMC-Sierra Inc. (PMCS: 5.59, +0.36, +6.88%) said it swung to a third-quarter profit of $16.2 million, or 7 cents a share, from a loss of $5.9 million, or 3 cents a share, in the year-ago period. Excluding one-time items, the company would have reported earnings of 13 cents a share. Revenue rose to $139.3 million from $117.5 million last year. Analysts surveyed by FactSet Research estimated quarterly earnings of 12 cents a share excluding stock option expenses on revenue of $139.1 million.
Stryker Corp. (SYK: 54.75, +1.42, +2.66%) said its third-quarter profit rose to $273.8 million, or 66 cents a share, from $228.7 million, or 55 cents a share, in the year-ago period. Revenue rose to $1.65 billion from $1.45 billion last year. Analysts surveyed by FactSet Research estimated a quarterly profit of 67 cents a share on revenue of $1.66 billion. The company forecast 2008 earnings of $2.88 a share. Analysts estimate $2.87 a share.
Texas Instruments Inc.’s board (TXN: 17.63, +0.28, +1.61%) on Thursday declared a quarterly dividend of 11 cents, up from 10 cents in the previous quarter. The dividend will be paid Nov. 17 to stockholders of record on Oct. 31.
United Airlines, operated by UAL Corp. (UAUA: 10.30, +2.95, +40.13%) , said 322 employees represented by the International Association of Machinists have taken advantage of the airline’s voluntary furlough program. Since July, United said that 1,500 flight attendants, 200 pilots and 100 mechanics have taken advantage of the program. In July, United said it needed to reduce capacity, resulting in the need for 7,000 fewer employees.
Zions Bancorporation (ZION: 40.20, +2.61, +6.94%) said third-quarter net income came in at $37.8 million, 72% lower than a year earlier when the bank made $135.7 million. Net income per common share came in at 31 cents versus $1.22 a year ago, the company reported. Nonperforming assets were $924.4 million at the end of September, up from $196.6 million a year earlier. Zions said this was driven mainly by deterioration in residential real estate acquisition, development and construction loans in the Southwest, and by continued weakening in Utah residential construction and commercial and industrial portfolios.
Read the article here.
U.S. to Buy Stakes in Nation’s Largest Banks
Recipients Include Citi, Bank of America, Goldman; Government Pressures All to Accept Money as Part of Broadened Rescue Effort
By DEBORAH SOLOMON, DAMIAN PALETTA, JON HILSENRATH and AARON LUCCHETTI
WASHINGTON — The U.S. government is expected to take stakes in nine of the nation’s top financial institutions as part of a new plan to restore confidence to the battered U.S. banking system, a far-reaching effort that puts the government’s guarantee behind the basic plumbing of financial markets.
To kick off Tuesday’s expected announcement, the government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. — including the soon-to-be acquired Merrill Lynch — Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp., according to people familiar with the matter.
Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Treasury Secretary Henry Paulson in a meeting Monday. During the financial crisis, the government has steadily increased its involvement in financial markets, culminating with a move that rivals the breadth of the government’s response to the Great Depression. It intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.
Other elements of the plan, which will be announced Tuesday morning, include: equity investments in possibly thousands of other banks; lifting the cap on deposit insurance for certain bank accounts, such as those used by small businesses; and guaranteeing certain types of bank lending. It builds on an earlier plan to buy up rotten assets dragging down banks, which failed to calm investor fears, and follows similar moves by major European countries.
Formulated jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., these moves are designed to keep money flowing through the financial system, ensuring that banks continue lending to companies, consumers and each other. A freeze in these markets rippled through the economy and helped cause stocks to crater last week.
Along with the government’s involvement come certain restrictions, such as caps on executive pay. For example, firms can’t write new employment contracts containing golden parachutes and their ability to use certain executive salaries as a tax deduction is capped. These restrictions are relatively weak compared with what congressional Democrats had wanted when they approved this spending, a potential flash point.
Some critics also say Treasury should have formulated a comprehensive plan earlier in the crisis. Even if this move helps mend credit markets, the economy is likely to suffer in the months ahead from the aftershocks of the recent turmoil.
A central plank of these new efforts is a plan for the Treasury to take about $250 billion in equity stakes in potentially thousands of banks, according to people familiar with the matter, using funds approved by Congress through the recently approved $700 billion bailout plan.
Treasury will buy $25 billion in preferred stock in Bank of America — including Merrill Lynch — as well as J.P. Morgan and Citigroup; between $20 billion and $25 billion in Wells Fargo; $10 billion in Goldman and Morgan Stanley; $3 billion in Bank of New York Mellon; and about $2 billion in State Street.
The government will purchase preferred stock, an equity investment designed to avoid hurting existing shareholders and deterring new ones. Such shares typically don’t come with voting rights. They will carry a 5% annual dividend that rises to 9% after five years, according to a person familiar with the matter. By investing in several big firms at once, the government hopes to avoid placing a stigma on any one firm for getting government help.
The plan will be structured to encourage firms to bring in private capital. For instance, firms returning capital to the government by 2009 may get better terms for the government’s stake, a person familiar with the discussions said.
Among the other key components of the plan: The FDIC is expected to offer to temporarily guarantee, for a fee, certain types of new debt called senior unsecured debt issued by banks and thrifts. This would apply to debt issued by June 30 with maturities up to three years. One problem plaguing credit markets has been a fear among financial institutions that it is unsafe to lend to each other even for periods of a few days. U.S. officials hope this guarantee removes that fear, which could bring down short-term lending rates, such as the London interbank offered rate, or Libor, a benchmark for consumer and business loans.
The FDIC is also expected to temporarily offer banks unlimited deposit insurance for non-interest bearing bank accounts typically used by small businesses, through 2009. This would be voluntary for banks, and would extend the $250,000 per depositor limit lawmakers agreed on two weeks ago. To use these new powers, the FDIC is invoking a "systemic risk" clause in federal banking law that allows it to take extreme steps to prevent shocks to the economy.
The FDIC’s central role in the plan is consistent with its presence during past banking crises, the Great Depression and the savings and loan crisis. Each crisis sparked a major boost in the agency’s power.
The shift brings U.S. policy more in line with that of other countries. Monday, the U.K., Germany, France, Spain and Italy provided further details of measures to buy stakes in struggling banks and offer lending guarantees. The U.K., which first formulated such a plan, is planning to issue some £37 billion ($63.1 billion) in new government debt to pay for purchases of the common and preferred shares of three big banks.
“These are tough times for our economies. Yet we can be confident that we can work our way through these challenges.”President Bush in a joint statement with Prime Minister Berlusconi of Italy
The U.S. plan to inject capital into banks is expected to be open to almost all such institutions, with a focus on getting the participation of the firms most important to the financial system, according to people familiar with the matter. Treasury’s main goal is to attract private capital. To make sure private investors aren’t scared away, it is expected to structure its investment on terms favorable to the banks and will inject capital in exchange for preferred shares or warrants, these people said.
The government’s new focus is raising questions about why it didn’t adopt such an approach sooner. Mr. Paulson actively opposed the idea of investing in banks because he worried about picking winners and losers, though Fed Chairman Ben Bernanke was an early advocate. Mr. Paulson was also concerned banks wouldn’t participate because of the perceived stigma and the potential for the government to meddle in their affairs, according to people familiar with the matter.
Senior executives and advisers to some of the nation’s leading banks pitched such a plan at various points earlier this summer but were rebuffed by officials at Treasury and the Fed, according to people familiar with the matter. Instead, Treasury initially marched ahead with a plan to buy distressed assets directly from banks.
House Democratic leaders, including Speaker Nancy Pelosi and House Financial Services Committee Chairman Barney Frank, held a closed-door session Monday with 11 economists and other advisers. The group threw its weight behind Treasury’s decision to inject capital into the banking system.
"The consensus was so strong towards direct equity injections that there was literally no dissension on the point," said one of the invited economists, Jared Bernstein of the liberal Economic Policy Institute. "The only head-scratching is why did it take us so long to get here?"
Officials at the Treasury and Federal Reserve have been looking for a comprehensive approach to the credit crisis after a series of ad hoc interventions and say they didn’t have the authority to make such a comprehensive move until Congress passed the bailout bill. The government’s various moves, from saving mortgage giants Fannie Mae and Freddie Mac to letting Lehman Brothers Holdings Inc. fail, have confused investors and frozen many in place at a time when the banking system was desperate for fresh capital. That contributed to what in essence was a high-level run on Wall Street banks, with funding drying up overnight.
The government’s hope is that the new plan will more thoroughly address the problems of ailing financial institutions and persuade private investors that government involvement won’t come at their expense.
For troubled assets there is the Troubled Asset Relief Program, created by the $700 billion bailout bill, which gives the Treasury Department authority to acquire bad assets from banks and other financial institutions. TARP will also be used by Treasury when it puts new equity into banks.
The other steps, including the FDIC’s role in guaranteeing new funds raised by banks and thrifts, are designed to address the way banks fund themselves, freeing them to start lending again. The Fed is expected to announce Tuesday that a separate plan to lend directly to companies and banks through instruments called commercial paper will start in about two weeks.
William Poole, former president of the Federal Reserve Bank of St. Louis, was a fierce critic of Treasury’s initial plan to buy up distressed mortgage-backed securities. Such a scheme, he said, would lead banks to dump their worst assets on the taxpayers.
But Treasury’s new tack may well do the trick, said Mr. Poole, now a senior fellow at the free-market-oriented Cato Institute.
"Investors need to be confident that the banks they’re dealing with are unquestionably solvent, and it’s in the interest of banks to assure investors that that’s the case," he said. "One way banks can provide that assurance is to raise additional capital, in some combination of private and government capital."
Dean Baker, co-director of the left-of-center Center for Economic and Policy Research, argues the country may have turned a corner on the financial panic — the fear that has kept banks and investors from making even the most prudent loans. "I think we’re through the worst on that," he said. "Maybe I’ll be proven wrong, but it really was at an extreme last week."
Blanket guarantees, however, might inspire banks to take unnecessary risks, warned Frederic Mishkin, a Columbia University economist who stepped down as Fed governor in August. "You don’t want to give a guarantee to banks that are in trouble" that might try to gamble their way out of problems, he said. He says offering broad guarantees will require that U.S. officials more aggressively act to sort out good banks from bad banks.
One sticking point could come from Congress, which wrote into the original bailout bill requirements that Treasury tamp down executive pay. Rep. Frank said Monday he wants the government to set tough conditions for any company that receives a capital injection. If Mr. Paulson didn’t enforce such rules, Mr. Frank said the Treasury secretary could be "making a big mistake."
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World Leaders Take Big Steps Against Credit Crunch
Government leaders in the U.S. and abroad took big steps this weekend to battle the financial ‘flu’ that has spread across the globe.
In an effort to thaw the credit crunch, Europe’s euro-backed countries decided Sunday to guarantee bank refinancing through the end of 2009 and took measures to prevent more banks from failing. Fifteen European leaders met in an emergency meeting in Paris on Sunday to address the crisis, aiming to help bolster banks’ confidence in lending with one another and get credit flowing once again.
While no sum was given on how much the efforts would cost, French President and summit host Nicolas Sarkozy said each nation would determine how much to spend and implement the measures.
"I want to tell our compatriots in all the countries of Europe that they can and should have confidence," he said.
At the same time, the World Bank announced Sunday it will work to develop and strengthen the economies of developing countries. At a joint news conference with Dominique Strauss-Kahn, head of the International Monetary Fund, World Bank President Robert Zoellick said Sunday that any extended contraction of credit could cause further turmoil in developing countries’ ability to provide for their citizens, who already face high energy and food prices.
Zoellick called for a revamping of the global economic system to ensure that a financial crisis of this level “never happens again.”
International efforts to stem the credit crisis reached a peak on Wednesday, as central banks made an unprecedented decision to take a coordinated interest rate cut. The move came during a week in which global markets suffered some of their worst losses on record.
As finance leaders from the Group of Seven (or G7) met Friday to come up with a unified plan to battle the credit crunch, Treasury Secretary Henry Paulson announced that the U.S. government will buy an ownership stake in some of the nation’s private financial institutions – a move not seen since the Great Depression.
“This is a period like none of us has ever seen before,” Paulson said in a news conference late Friday.
Read the story here.
World Is United To Tackle Financial Crisis, IMF Says
WASHINGTON — Financial policymakers from 180 nations around the world are united in their resolve to tackle the financial crisis, Youssef Boutros-Ghali, head of the International Monetary Fund’s policy committee, said Saturday. The International Monetary Fund endorsed the plan of action released Friday by the Group of Seven nations, he said. "The crisis is global, so the solution has to be global," he said. "No tools will be spared." Later Saturday, a smaller group of the 20 most important economies will meet to hammer out more details of what each country can do to restore confidence in markets. "No one is going to let an important financial institution fail," IMF Managing Director Dominique Strauss-Kahn said.
Read the article here.
Stocks In Focus For Friday
SAN FRANCISCO — Among the companies whose shares are expected to see active trade in Friday’s session are General Electric Co., Host Hotels & Resorts Inc., and Infosys Technologies Ltd.
General Electric Co. (GE: 19.01, -1.64, -7.94%) is expected to report third-quarter earnings of 46 cents a share, according to analysts surveyed by FactSet Research.
Host Hotels & Resorts Inc. (HST: 7.85, -1.91, -19.56%) is forecast to post earnings of 28 cents a share in the third-quarter, according to analysts surveyed by Thomson Reuters.
Infosys Technologies Ltd. (INFY: 25.02, -0.50, -1.95%) is estimated to report a profit of 56 cents a U.S. share in the fiscal second quarter, according to analysts surveyed by FactSet Research.
After Thursday’s closing bell, Citigroup Inc. (C: 12.93, -1.47, -10.20%) said it reached no agreement with Wells Fargo & Co. (WFC: 27.25, -4.65, -14.57%) over Wachovia Corp. (WB: 3.60, -1.46, -28.85%) "The dramatic differences in the parties’ transaction structures and their views of the risks involved made it impossible to reach a mutually acceptable agreement," Citigroup said in a statement. The bank said it will pursue damages against Wachovia and Wells Fargo, but will not seek to block the combination. See full story.
Watch list
American Axle & Manufacturing Holdings Inc. (AXL: 3.46, -0.35, -9.18%) had its ratings lowered to B from B+ by Standard & Poor’s, which then placed them on review for a possible further downgrade. Earlier in the day, S&P put the ratings of General Motors Corp. (GM: 4.76, -2.15, -31.11%) , a major American Axle customer, on review for a possible downgrade.
Home builder Centex Corp. (CTX: 10.17, -1.68, -14.17%) said its board suspended the company’s quarterly dividend of 4 cents a share because of economic conditions. Centex said it "will continue to weigh alternatives for returning cash to shareholders as economic conditions improve."
Chevron Corp. (CVX: 64.00, -9.10, -12.44%) forecasted that its third-quarter earnings will be higher than second quarter on the back of strong improvement in downstream results while upstream earnings are expected to decline due to the effect of hurricanes and lower commodity prices. The company also expects net after-tax charges of $250 million and $300 million in the quarter.
Ford Motor Co. (F: 2.08, -0.58, -21.80%) had its B- long-term corporate credit rating put on CreditWatch with negative implications, by Standard & Poor’s. "The CreditWatch placement reflects the rapidly weakening state of most global automotive markets along with capital market conditions that will remain a major challenge for the foreseeable future," said Robert Schulz, an S&P credit analyst. S&P believes Ford has adequate liquidity for at least the rest of 2008 but the accelerating deterioration of industry fundamentals will be a serious challenge in 2009. The ratings agency also placed Ford Motor Credit Co. on negative CreditWatch.
Longs Drug Stores Corp. (LDG: 68.93, -2.75, -3.83%) said September sales at stores open for at least a year fell 1.7% from a year ago. Analysts surveyed by Thomson Reuters expected a same-store sales decline of 1%. Total September sales at Longs were flat at $447 million.
Morgan Stanley (MS: 12.45, -4.35, -25.89%) said it is the target of a class action lawsuit related to its involvement as an underwriter of a preferred share offering for Lehman Bros. earlier this year. "The complaint alleges that the offering documents for this offering contained material misstatements and missions and asserts claims against the company under Section 11 of the Securities Act of 1933, as amended," Morgan Stanley said in quarterly report filed with the SEC on Thursday. The company also said that although it believes it has raised all the capital it needs through the end of the year, that, "to the extent we are not able to access the debt markets on acceptable terms in the future, we may increase our use of deposit funding and other funding sources generally available to a financial holding company, and/or may seek to raise funding and capital through equity issuance."
Read the story here.
Stocks In Focus For Thursday
SAN FRANCISCO — Among the companies whose shares are expected to see active trade in Thursday’s session are International Speedway Corp., RPM International Inc., and Chevron Corp.
International Speedway Corp. (ISCA: 31.51, -1.64, -4.94%) is forecast to post earnings of 71 cents a share in the third quarter, according to analysts surveyed by FactSet Research.
RPM International Inc. (RPM: 15.60, +0.08, +0.51%) is expected to report fiscal first-quarter earnings of 52 cents a share, according to analysts surveyed by FactSet Research.
Chevron Corp. (CVX: 73.10, -0.25, -0.34%) is scheduled to announce an interim update to the quarter.
After Tuesday’s closing bell, International Business Machines (IBM: 90.55, -5.10, -5.33%) said it expects to post third quarter earnings of $2.05 a share on revenue of $25.3 billion. For the year, the company reaffirmed its earnings a share target of at least $8.75. Analysts surveyed by FactSet Research expect earnings of $2.01 a share on revenue of $26.5 billion for the quarter, and $8.98 a share for the year. See full story
Watch list
Aeropostale Inc. (ARO: 27.26, +0.70, +2.63%) said that September sales in stores open for at least a year rose 5% from a year ago. Analysts surveyed by Thomson Reuters estimated same-store sales to rise 4.7%. Total sales for the five-week period ended Oct. 6 rose 15% to $146.7 million from $127.9 million a year ago. Aeropostale also reiterated its third-quarter earnings outlook of 59 cents to 61 cents a share. Analysts surveyed by FactSet Research estimate third-quarter earnings of 61 cents a share.
American Eagle Outfitters Inc. (AEO: 11.27, -1.24, -9.91%) said that September sales at stores open at least a year fell 6% from a year ago. Analysts surveyed by Thomson Reuters estimated a drop of 5%. Total sales for the five weeks ended Oct. 4 increased 3% to $229.2 million from $222.8 million in the year-ago period. American Eagle narrowed its third-quarter earnings estimate range to 31 cents to 34 cents a share, compared with a previous range of 31 cents to 36 cents a share. Analysts surveyed by FactSet Research estimate 33 cents a share.
American International Group Inc. (AIG: 3.19, -0.32, -9.11%) will get an additional $37.8 billion loan from the Federal Reserve, which is invoking its emergency powers to combat financial market stress. AIG already has an $85 billion line of credit with the Fed. As of last week, AIG had used $60 billion of this loan, according to Fed data. This new program will allow AIG to replenish liquidity, the Fed said.
Hot Topic Inc. (HOTT: 4.92, -0.45, -8.37%) said sales at stores open at least one year slid 1.8% in September, compared with a fall of 2.9% in September 2007. Analysts, on average, had expected the same-store sales to drop 4.3%, according to Thomson Reuters. Net sales for the five weeks ended Oct. 4 increased 2.5% to $60.8 million.
InBev (000379310) said David Peacock will become president of Anheuser-Busch upon the closing of Inbev’s acquisition of Anheuser-Busch Cos. (BUD: 62.92, +0.07, +0.11%) . Peacock will manage all U.S. operations for the combined company, including the brand management of Budweiser and Bud Light, Inbev said. Inbev also named Luiz Fernando Edmond North America zone president of the combined company.
Limited Brands Inc. (LTD: 14.11, -0.66, -4.46%) said that September sales in stores open at least a year fell 6% from a year ago. Analysts surveyed by Thomson Reuters estimated same-store sales to fall 5.4% Total sales for the five weeks ended Oct. 4 fell to $673.4 million from $713.2 million last year.
Men’s Wearhouse Inc. (MW: 17.64, +0.07, +0.39%) lowered its third-quarter earnings outlook to 22 cents to 26 cents a share from 34 cents to 38 cents a share previously. The men’s clothing retailer also cut its adjusted earnings view to a range of 24 cents to 28 cents a share from 36 cents to 40 cents a share. Analysts surveyed by FactSet are projecting the company to earn, on average, 36 cents a share in the third quarter.
MetLife Inc. (MET: 27.00, -9.87, -26.76%) said it priced a secondary offering of 75 million shares at $26.50 a share, or about $2 billion. Underwriters will get an option for just under 11.3 million shares to cover over-allotments. MetLife expects to use the capital for general corporate purposes and potential strategic initiatives.
Walgreen Co. (WAG: 26.18, -0.56, -2.09%) said it withdrew its $75-a-share bid for Longs Drug Stores Corp. (LDG: 71.68, -0.08, -0.11%) Longs’ board declined the offer in favor of CVS Caremark Corp.’s (CVS: 29.84,+0.71, +2.43%) $71.50 a share offer. "While we believe we made a compelling proposal for Longs, we do not believe it would be in the best interests of Walgreens shareholders, customers or employees to allow this situation to remain unresolved for an extended period of time," said Jeffrey Rein, Walgreen chairman and chief executive, in a statement. See full story
Zumiez Inc.’s (ZUMZ: 13.82, -0.73, -5.01%) same-store sales slumped 9% in September, compared with an increase of 13.9% in September 2007, said the specialty apparel retailer late Wednesday. Analysts, on average, had expected same-store sales to fall 4.3%, according to Thomson Reuters. Total net sales for the five-week period ended Oct. 4 rose 4.8% to $33.6 million.
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Central Banks Cut Rates World-Wide
By SUDEEP REDDY and JOELLEN PERRY
With unprecedented global coordination, six central banks including the Federal Reserve and European Central Bank cut interest rates sharply Wednesday in an emergency move designed to offset the economic damage from a deepening financial shock.
The half-point rate cut, which includes action by central banks in the U.K., Canada, Sweden and Switzerland, came as stock markets around the world tumbled and troubles in the U.S. continued to infect foreign economies. The global move, after more than a week of speculation, came alongside separate rate cuts by central banks in China, Hong Kong and Australia over the past day.
Markets opened lower on the news but recovered a bit and were trading slightly higher. (See related article.)
The Fed’s reduction brought its interest-rate target down to 1.5%, ahead of its regularly scheduled meeting October 28-29, as the U.S. economy faces the prospect of deteriorating significantly in the coming months due to credit-market turmoil. Until recent weeks, Fed officials had resisted further easing due to worries about aggravating inflation risks after watching volatile swings in commodity prices throughout the past year.
The action also marks a sharp turnaround for the European Central Bank, which had held its key rate target steady at 4.25% due to inflation concerns.
The ECB’s single mandate is keeping euro-zone prices steady, and annual inflation across the bloc was 3.6% in September, nearly double the ECB’s target of just below 2%.
But ECB president Jean-Claude Trichet, in a press conference following the bank’s decision to keep its key rate steady last Thursday, said policymakers had discussed a cut in the face of market turmoil that looked increasingly likely to damp growth and inflation. Wednesday’s move takes the ECB’s key rate to 3.75% and many economists say the central bank is likely to follow Wednesday’s move with another cut at its scheduled meeting November 6.
The ECB has acted in tandem with the Fed just once before — in the aftermath of the September, 11, 2001 terrorist attacks, when both central banks also lowered their key rates by a half percentage-point.
The Bank of England’s half percentage-point cut, which brings its key rate to 4.5%, comes one day before its scheduled meeting in London.
The central banks said in a joint statement that inflationary pressures "have started to moderate" due to declines in commodity prices. "The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," the statement said. "Some easing of global monetary conditions is therefore warranted." (Read the Fed’s statement.)
Since the credit crisis started in August 2007, central bank officials have taken joint actions repeatedly to ease pressure in short-term money markets. They’ve stepped up efforts in recent weeks as conditions deteriorated further.
Finance ministers and central bankers meet this weekend in Washington and could discuss other options to address the worsening global crisis.
Fed officials fear the turmoil in credit markets will further damage the U.S. economy, which has already been hit by a troubled housing sector and high energy prices. As banks tighten credit, preventing consumers and businesses from getting loans, consumer spending and the overall U.S. economy are likely to contract in the current quarter.
The Federal Open Market Committee voted 10-0 to cut its rate target.
"Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months," the Fed said in a statement Wednesday morning. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."
"Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation," the Fed’s statement said.
The Fed and other central banks also lowered their direct-lending rates. Financial institutions borrowing from the U.S. central bank’s discount window will now pay 1.75%, down half a percentage point.
"Given central banks are increasingly taking on the role of lender of last resort it will lower borrowing costs," ING economist James Knightley said in a note to clients. "It is also clearly boosting market confidence as can be seen in market moves."
But that confidence boost will be "temporary" and the rate cut "will not even be enough to offset the rise in market interest rates over the last few weeks," said Julian Jessop, chief international economist at Capital Economics Ltd. "The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become." He said Wednesday’s cuts would be "the first in a series" bringing rates lower around the world in coming months.
Other economists said the size of the cut suggested policymakers hoped to influence asset-price developments. Central banks are "adjusting the fundamental risk-free rate in the economy," said Julian Callow, economist with Barclays Capital in London. "If you do that, you’re affecting the price of all financial assets. So this about trying to shore up asset prices, which have been collapsing. That’s fundamentally what this is about."
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