Actual finance blog

Bush administration officials have had talks with the nation’s automakers about providing possible federal help for the cash-starved companies, a White House spokeswoman said Monday.

Spokeswoman Dana Perino, responding to questions at her daily press briefing, said a decision had not yet been made about whether federal help will be offered to General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC.

A number of experts have expressed concern that the automakers, which have suffered a sharp plunge in sales, could run through their cash reserves by next year.

The automakers could get help through the $700 billion Wall Street bailout passed by Congress earlier this month. The bailout was designed to prompt banks and securities firms to loan money to businesses and consumers, but automakers might qualify for help through their finance arms, Perino said.

"It’s possible that some of those financing arms could be a part of the rescue package, the TARP, as they call it, at the Treasury Department," Perino said. "That’s one of the reasons Treasury has been in contact with them."

Earlier this year, Congress approved a separate $25 billion loan program to help the automakers finance a switch in production from larger vehicles, such as pickups and full-size SUVs, to more fuel efficient vehicles.

The government has not started dispersing money under that program. The Department of Energy is working on regulations to govern the loans.

"I think that it’s clear that the automakers are dealing with a very serious situation," Perino said. "They have been for some time."

GM spokesman Greg Martin acknowledged Monday that automakers are interested in getting help from the federal government.

"We have been in contact with a variety of federal officials for some time during this extraordinary and difficult economic period," said Martin, who is the automaker’s Washington-based spokesman.

Martin declined to elaborate on the discussions. "We have said publicly that we believe the federal government should consider all of the tools available to it - some recently enacted - to support industries that are in distress and that are essential to the U.S. economy."

A Chrysler spokesperson said the company "worked hard" after the bailout was proposed last month "to be sure it was broad enough to offer the tools to address the automotive credit liquidity problem."

Ford declined to comment. Industry officials suggested that Ford was the least likely to be pushing for bailout funds because it had the strongest cash position of the three U.S. automakers.

Last week, Michigan’s 17-member congressional delegation signed a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke asking that the federal government help the U.S. automakers. The delegation is made up of nine Republican members of the House and seven Democrats, along with the two Democratic senators.

"There is no single segment of America’s economy that is more critical to the financial well-being of millions of Americans than the automotive industry," the letter stated. "One in ten American jobs is related to auto manufacturing one hour cash loan.

"In this current economic environment it is imperative that the government ensures that liquidity is restored so that the U.S. auto industry is able to function until normalcy is restored to credit markets," the letter continued.

Officials with the presidential campaigns of Democratic candidate Barack Obama and Republican John McCain have said they want the original $25 billion loan money made available to automakers more quickly. The loan money was originally authorized last year and finally enacted this year as part of an energy bill.

"It should not take 18 months to issue loans that were authorized in 2007," said Douglas Holtz-Eakin, McCain’s senior economic policy adviser.

The Wall Street Journal reported Monday evening that the Department of Energy may release to GM $5 billion from the $25 billion loan program.

Both presidential campaigns said they are open to using the Wall Street bailout program to help automakers, but they didn’t make firm commitments.

Jason Furman, Obama’s top economic policy adviser, said his candidate wants Treasury and the Federal Reserve to explore the subject.

"At the end of the day, Senator Obama has pledged that all options will be on the table to help our nation’s auto industry succeed," Furman said.

Holtz-Eakin said that McCain supports using the Wall Street bailout to help any industry that qualifies.

"It seems pretty clear that GMAC does, although Treasury will have to decide for others," he said. General Motors owns 49% of GMAC, a finance company that has an extensive home loan portfolio in addition to auto loans.

All of the automakers have announced plant closings and payroll reductions in recent years to stem losses from their core North American auto operations. Their combined U.S. sales in the first nine months of this year are down nearly 20% from year-ago levels.

Just last week, privately-held Chrysler LLC announced it would eliminate one in four salaried jobs at the company. It also said it would cut a shift at an Ohio plant and accelerate the planned closure of a Delaware assembly line.

Also last week, GM said that it is on track to meet its goal of a 20% reduction in salaried staff costs, and added that further cuts could be needed because of the weak sales environment.

GM and Chrysler are reported to be in talks about a possible merger that could eliminate tens of thousands of additional jobs in an effort to save billions of dollars. But finding financing for such a deal in the current environment has proved difficult.

Investors have also been scared away from the sector. Last week financier Kirk Kerkorian, the largest individual investor at Ford outside of the Ford family, announced that he had sold 7.3 million shares of Ford and was looking to sell his remaining 133 million shares. The sale means he’ll take a big loss on the Ford stake he purchased earlier this year. 

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EDINBURGH–Fresh from a surprise election victory, Scotland’s leader, Alex Salmond, vowed last year to win independence from the United Kingdom and with it, bring a wave of prosperity.

Salmond, whose separatist Scottish National Party won control of Scotland’s national Parliament last May from Britain’s governing Labour Party, has long aspired to end the 300-year union with England. He wants to take control of lucrative oil and natural gas reserves, slash corporate tax rates and transform this country of five million into an economic powerhouse.

But that was before the global financial meltdown redrew the economic map. Salmond once dreamed of a North Atlantic "arc of prosperity" stretching from Ireland through Iceland and Scotland to Norway. Now, his nation’s similar-sized neighbours are struggling with the ravages of the downturn.

Iceland, held up by Scottish nationalists as an example of how smaller nations can transform their fortunes, is possibly headed toward bankruptcy, while Ireland has slumped into recession.

At home, two of Scotland’s iconic businesses – the Royal Bank of Scotland and the Halifax Bank of Scotland – have found themselves savaged by the economic turmoil.

RBS is now partly owned by British – not just Scottish – taxpayers, who’ll also have a major stake in HBOS if it finalizes a combination with Lloyds TSB after a rescue deal was brokered by Salmond’s nemesis and fellow Scot, British Prime Minister Gordon Brown.

It has left Salmond’s claims that Scotland can cope without leadership from London, and his hopes of winning an independence vote in 2010, in tatters.

A year ago, RBS – Scotland’s largest business – was a proud emblem of economic prowess as it led buyouts of Dutch bank ABN AMRO and the Belgian-Dutch Fortis bank, turning in pre-tax profits in 2007 of £10 billion, or $20 internet pay day loans.3 billion (Canadian). Now it’s partly nationalized and has taken a £20 billion handout from the British government. If the combination of HBOS and Lloyds TSB goes ahead, the new bank will take a similar £16 billion cash injection.

Brown – a robust defender of the United Kingdom – claims that without England, Wales and Northern Ireland, Scotland could never have afforded to bail out its own banks. He suggests an independent Scotland would have an annual GDP of only about £100 billion, in contrast to a British annual total of around £2 trillion.

But Salmond argues that membership in the United Kingdom seems only to be dragging Scotland down.

Unemployment in Scotland rose by 19,000 people in September, economic growth slowed to 0.1 per cent and, according to the Nationwide Building Society, the nation’s once-booming housing sector saw prices drop by 5 per cent.

He said Brown’s "age of irresponsibility" was over. "The new age of responsibility means Scotland taking charge of its own destiny with independence," Salmond wrote.

Though Salmond, a former economist with RBS, has enjoyed an extended honeymoon in the 18 months since his party took power as a minority government at the Scottish Parliament, support for independence remains low. Most polls show that less than a third of Scots currently want to leave the union.

But Salmond’s SNP trounced Brown’s Labour Party in a special election for a British Parliament seat in Glasgow in July and is predicted to win again on Nov. 6 when a second special election takes place.

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For most banks, lending is all about the numbers.

If a customer has the right credit score, good financial records and a believable plan, the bank is interested in doing business. If they don’t, well, no dice, particularly in this economy.

Some banks are going beyond the numbers to develop long-term relationships, digging deeper to make sure business customers are doing all they can to survive the turbulent economy. It’s a long tradition among community banks, which focus on serving businesses, consumers and farmers in their local market areas.

The extra attention ranges from financial checkups or priority-setting sessions at Commerce Bancshares Inc. and National City to Enterprise Bank & Trust Co.’s college-style courses.

Sandy Washington, senior vice president of small-business banking at Commerce, said the bank has been doing its checkups for years, but customers are more receptive to them in the current environment.

"The more we understand what their goals and their objectives are, the more we can help them," Washington said.

Rick Sems, Missouri banking president for National City, said building relationships with business customers is nothing new for the bank. Twice a year, customers have a business priority agenda session with an account manager, a local branch manager and a cash management officer.

Jim Watson, president of Midwest BankCentre, said the bank also does checkups and sponsors regular gatherings with speakers who can help customers understand the economy.

"Communications is a mutual responsibility," Watson said. "Even our customers today are very concerned about how their bank is doing."

Kevin Eichner, who retired as chief executive of Enterprise Bank in May to become president of Ottawa University, said the bank started Enterprise University to give its business customers a chance to continue their education in a way that fit their schedules and their budgets.

"It’s part of a consultative approach" at Enterprise, said Jerry Mueller, the bank’s senior vice president of marketing. "The idea is, we want to partner with our clients and help them be more successful."

On a recent Wednesday morning, 20 executives sat at tables scattered around a classroom in an industrial building in Olivette.

Lori Lewis, Enterprise’s director of organizational development, was leading a class on "Managing Your Energy," based in part on "The Power of Full Engagement," a book by Jim Loehr and Tony Schwartz.

For nearly three hours, Lewis led the executives through exercises designed to help them manage their business and personal lives more effectively. Lewis, who has a doctorate in organizational psychology, sprinkled her lecture with a clip from National Public Radio, a Power Point presentation, handouts and a Sudoku puzzle.

Classes at Enterprise University range from marketing, sales and financial management to leadership effectiveness and personal financial planning. Some are taught by bank executives like Lewis or Stephen Marsh, the bank’s president. Other teachers include lawyers, business consultants or experts in things such as energy conservation.

The classes are open to anyone with an interest in the topics covered. There is no charge, and it’s up to attendees whether they’d like to be contacted by the bank after the class.

Kay Erb, registrar for the classes and a member of the bank’s marketing department, says between 300 and 500 people attend Enterprise University classes every semester. About 80 percent are presidents or top managers of their companies.

Jeffrey Jappa, president of JMC Manufacturing in Bridgeton, said the classes gave him a good introduction to the bank. He had been considering changing banks after he bought the wood products company from his father absolutely free credit report.

"Other banks sponsor seminars," Jappa said, "but not one that’s really put together like a university with a course load that’s really targeted to the small-business owner. Even though I was already interested in the bank, there was no selling whatsoever."

Jappa has since become an Enterprise customer, and likes their approach.

"Other banks just let you run, and you only hear from them when things are going wrong," he said. "My account manager is very interested in my business. He’s worked hard to create compliance targets that are reasonable and can be attained."

Mueller said Enterprise University has been a great way to set the bank apart.

"It enhances the relationship," Mueller said. "We can help (customers) improve their skills and show them ways to make their businesses more efficient."

Commerce Bank’s financial checkups include an hour-long meeting to review financial statements. Customers are encouraged to bring their tax advisers along. The bank may ask about the customer’s goals, the ways they’re collecting receivables or managing cash. Personal finance can be on the agenda as well.

"We always have an open door," Washington said. "We encourage our customers to meet with us regularly. As economic conditions change, so does the bank’s appetite to supply credit to particular businesses."

Washington said the bank recently worked with a family-owned bakery facing a downturn in its business because of a decline in the market for sweet goods.

"We sat down with the family and provided some reality checks," Washington said. The bank was able to help the business improve its collections and worked with an accountant to help the bakery manage its finances.

At National City, the agenda-setting sessions range from reviews of financial statements to discussions about cash management. Small-business customers’ personal wealth often is tied up in the company. Owners need to make sure their families are protected while they run the business, Sems said.

The bank has had to get more creative on loans lately, tapping Community Development Corp. programs and working with business development groups to arrange financing or equity injections, he said. Recently, customers have been more concerned about how their accounts are titled to ensure that they have the maximum insurance from the Federal Deposit Insurance Corp.

"I really try to push that what we’re trying to do is advise, not prod and poke so much," Sems said.

Wayne Kissel, owner of K1 Creative, a design firm in Eureka, said sessions with his National City banker have shown him how to protect assets, change investment strategy and handle employee benefits. Kissel said he went with National City after looking at proposals from six different banks.

"My personal lender has been down to earth and easy to work with," Kissel said. The bank was instrumental in helping the business build its own building after years in less desirable rented space.

Bankers have to be careful about how much advice they give because of potential liability if a customer feels he or she was pushed to make a decision that turns out badly, said Rick Palank, senior vice president for finance at the St. Louis County Economic Council.

Palank said it’s rare for banks to go beyond the numbers, especially now.

"They’re very, very conservative now," Palank said.

jerristroud@post-dispatch.com

314-340-8384

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Wachovia reported a massive loss of nearly $24 billion Wednesday, in what was expected to be its last quarter as an independent company.

The struggling Charlotte, N.C.-based bank, which agreed to be acquired by Wells Fargo earlier this month, reported a net loss of $23.9 billion, or $11.18 a share, which included a whopping $18.8 billion impairment charge partly related to the planned merger.

Just a year ago, the company reported a profit of $1.62 billion, or 85 cents a share.

Despite the recent turmoil in financial markets, analysts were actually expecting the company to report a third-quarter profit of $547 million, or 2 cents a share.

Wachovia (WB, Fortune 500) shares fell 1.6% in early NYSE trading.

Wells Fargo execs, including CEO John Stumpf, said Wachovia’s results were about as dreary as they expected after poring over the company’s books and agreeing to buy the bank earlier this month.

"Wachovia’s third-quarter results were very much in line with our expectations," Stumpf said in a statement.

Like many of its peers, Wachovia was hit hard this quarter by issues of credit and bad bets on the U.S. mortgage market, most notably its 2006 purchase of the California mortgage lender Golden West Financial Corp.

Over the last three months, the company said it set aside $4.8 billion for loan losses, as the economy showed increasing signs of weakness and the housing market continued to deteriorate in already hard-hit parts of the country such as California and Florida.

Wachovia added Wednesday that non-performing assets, or loans that are not collecting interest or principal payments, increased five-fold from a year earlier to just over 3% of all loans.

Still, much of the blame for Wednesday’s results was the $18.8 billion impairment related, in part, to the tie-up with Wells Fargo.

Morgan Keegan analyst Robert Patten said the charge represented just how hard the two companies were working to clean up Wachovia’s books before proceeding with the merger.

"You want to set up ‘09 to look as good as possible," he said direct payday loan cash advance.

Assuming the company’s anticipated merger with Wells Fargo (WFC, Fortune 500) comes off without a hitch, Wachovia’s latest quarterly numbers will prove largely moot.

Still, the results offer a glimpse into just how badly the company was faring when investors seemed all but certain that Wachovia was destined to collapse.

Fears about Wachovia’s ultimate demise first took hold in mid-September following the collapse of Lehman Brothers and shortly after Lehman rival Merrill Lynch was forced into the arms of Bank of America (BAC, Fortune 500).

Speculation continued to swirl about the 129-year-old bank in the days that followed, including rumors of a possible merger with with investment bank Morgan Stanley (MS, Fortune 500).

Even as Wachovia’s consumer customers remained relatively calm about the bank’s fate in the days that followed, Wednesday’s results revealed that commercial depositors feared that the bank could be next. In just one quarter, the amount of commercial core deposits plunged by a colossal 24% from the previous quarter to $83.4 billion.

(Big customers flee)

Regulators finally interceded on Wachovia’s behalf the last weekend in September, helping broker a $2.2 billion purchase of Wachovia’s banking assets by Citigroup (C, Fortune 500).

Wachovia had a change of heart just days later, as it agreed to a sweetened offer from San Francisco-based Wells Fargo for all of Wachovia’s operations.

After some legal wrangling, Citigroup eventually walked away, leaving Wells Fargo in control of Wachovia in a deal worth $11.7 billion.

Wachovia shareholders have yet to approve the deal, although they are widely expected to do so by year’s end.

The combination of the two firms would transform Wells Fargo into a major player in the U.S. banking industry, with approximately $1.4 trillion in assets, a footprint in 39 states and the nation’s second-biggest retail brokerage network. 

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The global financial crisis will add at least 20 million people to the world’s unemployed, bringing the total to 210 million by the end of next year, the U.N. labor agency said Monday.

That will be the first time in a decade of record keeping that the global total has been above 200 million people, said officials of the International Labor Organization.

Global leaders need to focus on the impact on individuals rather than just financial institutions when they devise rescue plans, ILO Director-General Juan Somavia told reporters.

"We thought it was not good to talk about the financial crisis exclusively in financial terms," Somavia said. "We have to talk about the financial crisis in terms of what happens to people and in terms of what happens to jobs and enterprises."

He said it is already clear that people are going to be hurt by the financial crisis and that measures should be taken to provide unemployment compensation and other social protection.

"If we have enough resources to pump into the financial system, this is not the moment to say, ‘Yes, but we don’t have the resources to care about people,"’ said Somavia.

He said the first step in a global rescue plan remains getting out of "the credit paralysis."

"Hopefully, the decisions that have been taken are going to work," he said, adding that all measures should be taken to contain as much as possible the fall of the real economy and reduce the recession possibilities as much as possible.

But then attention should turn to "taking care of those enterprises that produce the most jobs," Somavia said payday advance lenders. "Those tend to be the small enterprises."

"The financial system has to go back to its fundamental function," he said, meaning providing credit to people with entrepreneurial spirit to set up a company that will produce goods and services and create jobs.

Another issue is protecting pensions, especially for those whose funds are invested in the stock market, he said.

"You better give enough credit to the pension systems so they don’t have to sell [shares] in a battered market," said Somavia, noting that the U.S. Congress had passed a US$700 billion rescue plan for financial institutions.

"Make sure some of that money goes to the pension systems so that they can pay pensions," he added. "People are very afraid all over the world."

The ILO based its unemployment projection in part on the latest forecast by the International Monetary Fund that the economies of the United States and Europe would virtually stop growing and that Japan would have only 0.5% growth, Somavia said.

The agency also factored in data from the United Nations and from countries that have produced recent statistics, he said.

"The estimate that we are now making is that as compared with January 2008 to December 2009 we are probably going to have about 20 million jobs lost, and this may be underestimated," Somavia said.

He said the agency had yet to break the forecast down by region or country. 

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The U.S. Defense Department has decided to postpone a decision in a multibillion dollar satellite communications competition between Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz) and Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) until fiscal year 2010, an industry source informed about the decision said on Sunday.

The Pentagon’s Defense Advisory Working Group (DAWG) decided on Saturday to terminate the current competition for the Transformation Satellite (TSAT) program, and put off awarding a contract until the fourth quarter of fiscal 2010, said the source, who asked not to be identified.

The Air Force had hoped to award a contract for the new advanced military communications satellite program in December, after completing a thorough internal review, and “an independent scrub” by chief Pentagon arms buyer John Young.

Gary Payton, Air Force deputy undersecretary for space programs, told reporters last month that officials mounted the reviews to help avoid another major contract protest, but said they also needed to carefully evaluate the results of a new study of military satellite communications needs cash advance loan.

The TSAT program already suffered a 40 percent funding cut when the Bush administration announced its long term budget plans in February. Pentagon officials decided this weekend to scale down the program even further and postpone a scaled-down contract award for more than a year, said defense analyst Loren Thompson of the Virginia-based Lexington Institute.

“This program is sinking fast,” Thompson told Reuters on Sunday. He said the decision would have grave consequences for the military’s goal of offering soldiers on the battlefield access to satellite communications anytime soon.

The delayed award means the first TSAT satellite would not be launched until around 2019, raising serious questions about the ability of the U.S. Army to move ahead with its Future Combat Systems modernization program, which is meant to rely heavily on advanced satellite communications, Thompson said.

The industry source agreed the Pentagon decision “will clearly have implications for Future Combat Systems.” 

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Battered British banks, along with the United Kingdom Treasury office, are expected to unveil details of a massive capital raising plan early Monday, according to The Wall Street Journal, citing people familiar with the situation.

On Sunday night, the paper reported that the British government was close to a plan to take control of the Royal Bank of Scotland, injecting at least 15 billion British pounds ($25.5 billion).

Last week, the British government said it would make $87 billion available to the nation’s eight largest banks in an effort to shore-up their capital positions. In return for the infusion of capital the British government will receive preferred shares of those banks.

In addition to RBS, affected institutionss include Barclays and HBOS, a mortgage lender.

The announcement last week came a day after the U.K. Treasury teamed up with five central banks around the world to cut interest rates in an effort to bolster global economies.

"A healthy banking system is the cornerstone of the economy. But many banks, all over the world, don’t have sufficient capital," British Finance Minister Alistair Darling said after the rate cuts were announced. "What started in America, last year, has now spread to every part of the world. And I’ve made it clear that we will do whatever is necessary to maintain stability."

The government has already moved several times to increase the amount of long-term funding it is providing to banks under a special liquidity plan announced in April guaranteed approval cash advance loans. The amount, which has totaled over $176 billion year to date, was recently increased to upwards of $350 billion.

According to the Journal, the rout on Wall Street was responsible for pushing the U.K. to speed up the announcement, with at least some banks expected to say by Sunday how the capital will be raised.

Nothing is set in stone, however, including Monday’s deadline.

Under the plan, the banks will be required to raise an additional £25 billion ($42 billion) by year end, according to the U.K. Treasury Web site. The institutions can either raise the funds through private investors or through the British government.

RBS and HBOS are considered the two most likely to seek the funds from the government, said the Journal, according to people familiar with the situation and analysts that cover the two banks. The paper also said RBS Chief Executive Fred Goodwin has intimated that he would step down if that’s what it takes to shore up the bank’s financial position.

A person familiar with the U.K. Treasury’s plan told the Journal that an injection of taxpayer money would most likely lead to talk of executive departures, including Mr. Goodwin. 

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Facing a barrage of public criticism, big banks lowered their prime lending rates again yesterday after the federal government announced plans to buy from them $25 billion in residential mortgages – a massive cash injection designed to shore up this country’s banking system.

Just days before a federal election, Finance Minister Jim Flaherty said the move would help domestic banks, which are dealing with skyrocketing funding costs, to raise more longer-term funds so that they can keep providing mortgages to consumers.

The action plan involves the government purchasing up to $25 billion in "insured mortgage pools" through the Canada Mortgage and Housing Corp., a Crown corporation that is responsible for the housing industry.

The extraordinary measure means that Ottawa, through the federal government and the Bank of Canada, will have injected a whopping $45 billion in additional cash into the financial system in an effort to combat the credit crunch that is choking banks around the world.

Even so, Prime Minister Stephen Harper insisted yesterday’s announcement was not a bailout of Canadian banks.

"This transaction is simply a market intervention," Harper told reporters.

"What we are doing is exchanging assets that we already hold the insurance on."

Echoing those sentiments was Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association: "It is definitely not a bank bailout. I mean what has happened in the U.S. was buying up bad assets and those kinds of things. It has nothing to do with that."

Commercial banks, however, reacted by lowering their prime rates by differing amounts. Toronto-Dominion Bank was first to trim its prime rate, by 15 basis points to 4.35 per cent, effective Tuesday. Canadian Imperial Bank of Commerce also lowered its prime rate, to 4.35 per cent.

Breaking ranks with those rivals, though, were the Bank of Nova Scotia, Bank of Montreal, Royal Bank of Canada and National Bank of Canada.

They all cut their respective prime rates by a full quarter-point to 4.25 per cent. Those four banks have now fully matched the Bank of Canada’s half-point interest rate cut, a move that will likely quell consumer condemnation of an initial quarter-point reduction from big banks earlier this week.

It was not clear if CIBC and TD would relent and lower rates even further over the coming days. For his part, Tim Hockey, president and CEO of TD Canada Trust, offered this explanation: "The Bank of Canada’s rate change is just not a lock-step change in financial institutions’ funding these days. It is a very complex mix of deposit costs, borrowing costs through multiple instruments, liquidity premiums, you name it.

"In fact, the Bank of Canada rate change did not lower our funding costs by 50 basis points, not at all." He was unable to specify just what kind of savings TD did enjoy after the Bank of Canada’s rate cut, citing competitive reasons. Funding costs do vary from bank to bank.

"But it did have an impact, which is why we decided to move to some degree," Hockey said.

Earlier in the day, some observers suggested that consumer outrage would force banks to completely match the full half-point cut.

"It would look quite bad to the public if they remained at a quarter point, yet they’re being perceived as being helped out by the government," said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc.

Canada’s stock of residential mortgages amounts to about $773 billion, according to finance officials.

Subprime mortgages represent less than 5 per cent of all outstanding mortgages in the country, compared with about 20 per cent in the United States.

The government said its mortgage program involves "insured mortgage pools" that already carry government backing, creating "no additional risk" to taxpayers. The securities are expected to earn interest that is "well above" the government’s own cost of borrowing, officials said.

"It is important to underline that Canada’s banks and other financial institutions are sound, well capitalized and less leveraged than their international peers," Flaherty said. "Our mortgage system is sound. Canadian households have smaller mortgages relative both to the value of their homes and to their disposable incomes than in the U.S."

The government will begin buying mortgages next Thursday, with an initial purchase of up to $5 billion. The remainder will be purchased over the coming weeks. Officials said a "competitive auction process" would be used to purchase the insured mortgage pools.

Canadian banks, while more conservative than their American and European counterparts, have found themselves further entangled in the financial crisis in recent weeks as funding costs spiked. Despite massive injections of cash, interest rate cuts and costly bailouts of American and some European banks, inter-bank lending has largely remained frozen.

With worldwide subprime-related writedowns and credit losses now nearing $600 billion (U.S.), banks around the world are terrified to lend to each other. That, in turn, has driven up the costs of borrowing for individuals and businesses.

Canadian banks – while touted this week as being the envy of the world by the World Economic Forum’s Global Competitiveness report – have also become less willing to lend to each other. The difference in yield between Canada’s three-month Treasury bill and the three-month dollar London Interbank Offered Rate rose to the highest since at least 1990 this week.

"It is not a silver bullet that is going to solve every single problem of this situation around the world but it is certainly going to help Canadian banks get their hands on increased funding," said Hughes Anthony of the bankers association.

With files from the Star’s wire services

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IBM Corp. announced its third-quarter results earlier than expected Wednesday, and the company beat Wall Street’s profit estimate and reaffirmed its full-year 2008 guidance. The stock, a component of the Dow Jones industrial average, gained nearly 4% in after-hours trading on the news.

The Armonk, N.Y.-based company said after the market closed that it earned $2.05 per share in the July-September period, four pennies higher than the average estimate of analysts polled by Thomson Reuters. Net income for the period was $2.8 billion, an increase of 20% over the same period last year.

Sales increased 5% to $25.3 billion but fell short of Wall Street’s expectations. Excluding the effects of currency fluctuations, IBM’s sales increased 2% (faxless payday loans).

Analysts were expecting sales of $26.5 billion, but some had started to lower their forecasts ahead of the unexpected announcement Wednesday because of a strengthening U.S. dollar and the deteriorating economy.

IBM maintained its forecast of at least $8.75 per share in profit in 2008, a 22% improvement over last year.

IBM (IBM, Fortune 500) shares gained $3.46, 3.8%, to $94.01 in after-hours trading. They closed down $5.10, 5.3%, at $90.55 during the regular trading session. 

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In a move to dramatically cut costs and better compete with Intel Corp., chip maker Advanced Micro Devices Inc. said Tuesday it will spin off its factories into a new joint venture with investors in the Persian Gulf state of Abu Dhabi.

The deal should shore up AMD’s (AMD, Fortune 500) finances and let it focus on the design and development of computer chips.

The new venture, to be based in the U.S. and for now called Foundry Co., will include AMD’s manufacturing plants, including two in Dresden, Germany.

In conjunction with the spin off, Abu Dhabi’s investment arm, Mubadala Development Co., will invest $314 million to more than double its current stake in AMD to 19.3% from 8.1%.

Another entity backed by the Persian Gulf state, Advanced Technology Investment Co., will invest $2.1 billion for a stake in Foundry Co., which also will assume about $1.2 billion of AMD’s existing debt.

Advanced Technology Investment then plans to contribute between $3.6 billion and $6 billion to Foundry Co. over the next five years to fund the expansion of the company’s chip-making capacity. That plan includes the construction of a new facility in Saratoga County, New York.

Sunnyvale, Calif.-based AMD, the world’s No. 2 maker of computer microprocessors, has been saddled with debt and hurt by product delays.

Hector Ruiz stepped aside as CEO in July as pressure grew for the company to improve its finances and regain its competitive edge against Intel (INTC, Fortune 500). AMD lost $1 (payday loan).19 billion in the second quarter, nearly double its losses from a year earlier.

AMD’s finances have also been hurt by its 2006 acquisition of graphics chip maker ATI Technologies. As part of that buyout, AMD absorbed divisions that make chips for cell phones and digital television sets. Both were underperforming, and AMD wrote down their value by $876 million.

AMD replaced Ruiz with Dirk Meyer, who had been president and chief operating officer, and focused on developing a strategy for cutting its manufacturing expenses, which are large for any semiconductor company but particularly troubling for AMD as it burns through cash and faces fierce competition with Intel.

"With The Foundry Company, AMD has developed an innovative way to focus our efforts on design while maintaining access to the leading-edge manufacturing technologies that our business needs without the required capital-intensive investments of semiconductor manufacturing," Meyer said in a statement.

Foundry’s board will be made up of executives from AMD, which will own 44.4% of the company, and Advanced Technology Investment, which will own 55.6%.

An AMD senior vice president, Doug Grose, is to become chief executive of Foundry Co., and Ruiz, who had been AMD chairman, will step down to take on that post at Foundry Co.

The transaction is expected to close at the beginning of 2009, pending regulatory approvals. 

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