Actual finance blog

The biggest U.S. business organization has fallen out with influential parts of Corporate America because of its trenchant opposition to climate-change legislation making its way through Congress.

The U.S. Chamber of Commerce’s opposition to the climate bill has already cost it prominent members including Apple Inc and California utility PG&E Corp.

And this week two of the lobbying group’s most powerful members, the conglomerate General Electric Co and the telecommunications equipment provider Cisco Systems Inc told Reuters they do not see eye-to-eye with the group on climate regulations.

“The Chamber does not represent our views on the urgent need for climate legislation,” said Peter O’Toole, a spokesman for GE, the largest U.S. conglomerate. “We need climate legislation and a price for carbon in the U.S. now.”

The Chamber, which represents some 3 million U.S. businesses ranging from massive multinationals to mom-and-pop operations, says its positions take into account the needs of many sorts of businesses across a range of industries.

“Our goal is to have the positions that we actually take stances on be reflective of the democratic majority of the broad majority of the business community,” said Eric Wohlschlegel, a Chamber spokesman. “There are cases, not just with energy, where companies are going to peel off and take different positions than the Chamber.”

The bill making its way through Congress aims to reduce emissions of carbon dioxide — a greenhouse gas that contributes to global climate change — through a cap-and-trade system that would allow companies a limited amount of emissions. Those that emit more would need to buy additional credits; those that emit less would be able to sell credits no teletrek payday advance.

The Chamber has raised concerns that the bill is not comprehensive enough and is not international in scope while seeking to tackle a global problem.

Its opposition to the climate bill, as well as to proposed health care reforms, has become enough of a concern to the White House that U.S. President Barack Obama met with Chamber officials on Thursday.

NEED TO “MODERNIZE”

Apple, which makes Macintosh personal computers and iPod music players, as well as utilities PG&E, Exelon Corp and PNM Resources Inc, quit the Chamber outright over this issue, while giant sportswear maker Nike Inc stepped down from the board but remains a member of the group.

Even companies that are keeping up their memberships said they would like to see change.

Cisco, the world’s largest maker of equipment for networking computers, aims to work with the Chamber “to modernize their position,” said spokeswoman Jennifer Greeson.

Duke Energy Corp Chief Executive Jim Rogers has long advocated regulation of carbon dioxide emissions and threw his weight behind the House version of the bill. He has no plans to give up his seat on the Chamber’s board, a spokesman said.

“We work with the Chamber on lots of different issues, but we don’t always see eye-to-eye with them,” said Tom Williams, a spokesman for the Charlotte, North Carolina-based company. 

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The Obama administration’s pay czar said on Wednesday that renegotiating guaranteed bonus contracts at American International Group’s AIG Financial Products unit was a top priority for him in 2010.

Kenneth Feinberg, the U.S. Treasury bailout program’s “special master” for compensation practices, told the U.S. House of Representatives Oversight and Government Reform Committee that he believes renegotiation of such contracts will not cause large numbers of executives to leave the seven bailed out firms under his purview.

Feinberg said he took pains to retain key employees in his rulings on pay at the seven firms, and added that the lure of giving up cash for company stock that has a potentially higher value in the future would keep many top earners on the job no fax payday advances.

“I think that if you look at at the levels of total compensation that we established in our determination, we figured — I made this recommendation from my conclusion — they won’t jump ship,” Feinberg told the committee.

(Reporting by David Lawder, Editing by Chizu Nomiyama)

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Baidu’s hasty move to a new Internet ad system marks a rare stumble for China’s dominant search engine, opening a window of opportunity for others salivating for a piece of the country’s fast-growing online market.

Baidu, whose name is practically synonymous with Internet search in China, surprised investors when it revealed transition to its new Phoenix Nest system will lead to softer revenues into next year as customers adjust, sending its stock down sharply.

The news was music to others, such as Sina Corp and global search leader Google, looking for a bigger piece of the pie in the world’s biggest Internet market with 235 million search users in June, up about a third from a year ago.

“In the short term Baidu could possibly lose market share to Google,” said JP Morgan analyst Dick Wei.

“From the end user perspective, they aren’t going to see much of a difference, but from the advertisers perspective, if you look at monetization market share, it (Baidu’s market share) could be a bit lower in the next few months,” he said.

Baidu expects to lose some customers and have lower revenue in the near term after the system is fully rolled out.

Baidu shares, which shed 0.5 percent to close at $432.97 during regular trading hours in New York, fell more than 13 percent in after-hours trade to $375.99 after the company gave its revenue forecast that was well below Wall Street estimates.

The glitch isn’t the first for Baidu, which was previously accused by some of the world’s biggest music companies of allowing illegal trading of copyrighted songs over its system.

But the stumble could have more serious implications as it relates directly to the company’s revenue generation model.

ONLINE PLAYERS

Baidu, whose name comes from an ancient Chinese poem, is just one of a growing field of upstart firms seeking to cash in on China’s rapidly growing Internet, home to a search market valued at 1.8 billion yuan ($264 million) in the second quarter.

Online game companies such as Shanda Games and NetEase vie for dominance in the country’s Internet gaming market worth nearly $1 billion in the second quarter, while portal operators such as Sina and Sohu.com also spar for dominance in the portal space.

In an Internet market where two or three names usually control each space, Baidu stands out because of its single-handed dominance of China Internet search.

Several Chinese Internet firms such as NetEase, Perfect World and Baidu, have seen their share prices skyrocket this year. However, softer-than-expected fourth quarter guidance from two other companies may further dampen investor sentiment.

Sohu and its recently listed gaming unit Changyou.com warned on Monday that current-quarter revenue would come in below Wall Street estimates, sending their shares down. 

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The economy in the U.S. probably grew in the third quarter at the fastest pace in two years as government stimulus helped bring an end to the worst recession since the 1930s, economists said before reports this week.

The world’s largest economy grew at a 3.2 percent pace from July through September after shrinking the previous four quarters, according to the median estimate of 65 economists surveyed by Bloomberg News. Other reports may show sales of new homes and orders for long-lasting goods increased.

Americans flocked to auto showrooms and real-estate offices last quarter to take advantage of government programs such as “cash-for-clunkers” and tax credits for first-time homebuyers. Growing demand caused stockpiles to keep falling, which will prompt companies to rev up assembly lines and help sustain the recovery into 2010 even as unemployment climbs.

“The recovery is off to a decent but unspectacular start,” said Joe Brusuelas, a director at Moody’s Economy.com in West Chester, Pennsylvania. “While another large drawdown in inventories will be a drag on third-quarter growth, it sets the stage for a longer and stronger upturn in manufacturing.”

The Commerce Department’s report on gross domestic product is due Oct. 29. The four consecutive decreases through the second quarter marks the longest stretch of declines since quarterly records began in 1947. The economy shrank 3.8 percent in the 12 months to June, the worst performance in seven decades.

Stocks Climb

Stocks have rallied as earnings at companies from Caterpillar Inc. to Morgan Stanley topped estimates. Profits exceeded expectations at about 80 percent of the companies in the Standard & Poor’s 500 Index that have released results, according to Bloomberg data. That marks the highest proportion in data going back to 1993. The S&P 500 closed at a one-year high on Oct. 19.

Consumer spending last quarter probably jumped at a 3.1 percent annual rate from the previous three months, the biggest gain since the first quarter of 2007, the GDP report is also projected to show.

September readings on household purchases, due from the Commerce Department on Oct. 30, may show the quarter ended on a soft note after the Obama administration’s car incentive expired the month before. Spending probably fell 0.5 percent last month as car sales slowed after jumping 1.3 percent in August, the biggest gain since 2001.

The so-called cash-for-clunkers program offered buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan boosted sales by about 700,000 vehicles, according to a Transportation Department estimate.

Homebuyer Credit

The administration’s $787 billion stimulus package, signed into law in February, included an $8,000 tax credit for first- time homebuyers that expires at the end of November.

New-home sales last month increased 2.6 percent to an annual pace of 440,000, the highest level since August 2008 and reflecting the boost from the credit, according to economists surveyed. The Commerce Department’s report is due Oct. 28.

Lawmakers in Washington are debating an extension of the credit through June, and are discussing expanding it to all buyers under an income cap.

A report from S&P/Case-Shiller home-price index due Oct. 27 may show home values in 20 U.S. metropolitan areas declined in the year ended August at the slowest pace since January 2008, according to the survey median.

More Orders

Orders for durable goods rose 1 percent in September, economists project the Commerce Department will report Oct. 28. A gain would be the fourth in the last six months and indicates companies are starting to invest in new equipment.

Business spending and housing “stand ready to provide the oomph necessary to generate continued optimism until consumer activity stabilizes,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.

Optimism among U.S. consumers in October is forecast to rise even as unemployment probably also increased, economists said. The Conference Board’s confidence index, due Oct. 27, climbed to 53.5 from 53.1, according to the survey median.

The economy will likely grow at a 2.4 percent annual rate from October through December, according to a Bloomberg survey earlier this month. GDP will also expand 2.4 percent next year and 2.8 percent in 2011, the survey showed, compared with an average of 3.4 percent growth over the past six decades.

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Spain’s unemployment rate, the highest in Europe, held at 17.9 percent in the third quarter as state stimulus spending put people to work, even as the government warned the figure would rise again by year-end.

The number of unemployed fell by 14,100 from the previous three months to 4.12 million people, the Madrid-based National Statistics Institute said today. From a year earlier, 1.52 million people joined the unemployment lines. The jobless rate was expected to rise to 18.7 percent, according to the median forecast in a Bloomberg News survey of eight economists.

Spain’s government has implemented one of the largest stimulus plans in Europe, putting more than 400,000 people to work widening sidewalks and building cycle tracks in cities. Finance Minister Elena Salgado said yesterday that the fourth quarter could bring “more worrying” jobless data as the third quarter was traditionally more favorable for employment.

“We’ll reach the peak of unemployment in Spain in the second quarter of next year, and it will be very close to 18 percent,” said Jose Carlos Diez, chief economist at Intermoney Valores in Madrid, the only economist in the Bloomberg survey to forecast a third-quarter rate below 18 percent.

Immigrants Leaving

The active population, or the number of people employed or looking for work, fell by 89,000 people in the third quarter, or 0.4 percent, and most of the decline was among foreigners, suggesting some immigrants may have gone home.

The International Monetary Fund forecasts unemployment will exceed 20 percent next year, and joblessness among young people is almost twice that level, sapping support for Prime Minister Jose Luis Rodriguez Zapatero. Spain’s opposition People’s Party extended its lead over the ruling Socialists to five percentage points, the most since Zapatero was first elected in 2004, according to an Oct. 12 poll in newspaper Publico.

Zapatero’s Socialists would win 38 percent of the vote compared with 43 percent for the PP if elections were held now, said the poll prepared by Publiscopio. Unemployment is Spaniards’ main concern, according to the state- run Center for Sociological Research.

Once the motor of job-creation in the euro region, Spain is now suffering from the end of a decade-long construction boom that has left a glut of 1 million new, unsold homes and produced the deepest recession in more than half a century. The IMF expects the Spanish economy to contract 0.7 percent in 2010, while the euro area, U.S., and U.K. post full-year growth.

Rising joblessness is swelling the budget deficit as the government has extended jobless benefits for the long-term unemployed and is implementing stimulus measures worth 2.3 percent of gross domestic product. The shortfall will swell to 9.5 percent of GDP this year, one of the largest in the euro region, before narrowing to 8.1 percent in 2010.

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Wells Fargo & Co and U.S. Bancorp posted earnings that trounced Wall Street expectations, helped by outsized revenue from underwriting mortgages.

But it is not clear how long that bonanza will last.

U.S. mortgage applications have fallen 15 percent so far this month, according to an industry trade group. Declining application volume usually translates to lower underwriting activity.

At both Wells Fargo and U.S. Bancorp, third-quarter fees from mortgage underwriting were up dramatically from a year earlier but down from the second quarter.

“On the whole, mortgage operations probably won’t be as profitable going forward; so the question is, what gives them growth next,” said Blake Howells, head of stock research at Becker Capital Management, which owns U.S. Bancorp shares.

For U.S. Bancorp, revenue growth could come from processing transactions, Howells said. The Minneapolis-based bank generates substantial revenue every quarter from credit and debit card transactions and other payments.

For Wells Fargo, improving markets could trigger higher revenue for businesses ranging from wealth management to investment banking, said Alan Villalon, senior research analyst at First American Funds, which owns Wells Fargo shares.

The San Francisco-based bank picked up those businesses last year when it snatched Wachovia Corp away from Citigroup Inc no fax payday loan.

As Wells Fargo generates more profit, it should move closer to repaying the $25 billion it borrowed under the government’s Troubled Asset Relief Program, Villalon said.

Wells Fargo has expressed interest in repaying TARP soon. The bank said on Wednesday that it is earning 35 percent more money — before taxes and funds set aside for bad loans — than the government had forecast when it tested banks’ capital strength under adverse scenarios earlier this year.

But the bank said its overall nonperforming assets had risen by $5.1 billion from the second quarter, more than some analysts had hoped. The bank’s tier 1 capital ratio, a measure of its capital strength, is lower than those of Citigroup Inc and Bank of America Corp, two banks that have performed much worse than Wells Fargo during the credit crisis.

“Wells Fargo is improving, but it’s happening slowly,” Villalon said.

These credit difficulties helped push Wells Fargo’s shares down 1.4 percent in afternoon trading, to $30.03.

For U.S. Bancorp, nonperforming loans and assets were virtually unchanged from the second quarter. The company’s shares rose 6.0 percent to $25.23 in afternoon trading.

RISING RATES 

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Wal-Mart and Amazon continued a price war on Friday as the retail heavyweights vie for online book sales ahead of the critical holiday shopping season.

One day after Wal-Mart announced it was pre-selling 10 highly-anticipated books for $10 each on its Web site, Amazon (AMZN, Fortune 500) said it would match that price.

In response, Wal-Mart.com (WMT, Fortune 500) dropped the price to $9, a move Amazon also met.

The books, which all have release dates in November, are by big-name authors such as Sarah Palin, John Grisham and Stephen King.

The price war comes as retailers look for ways to entice bargain shoppers ahead of the holiday sales period, when retailers bring in the bulk of their profit for the year. Last year, consumers spent nearly $450 billion.

While the move could have serious implications for the publishing industry, some observers say Wal-Mart may be more interested in kick-starting online sales than taking over the book business.

"It’s hard to know if this is an effort to transform the book business, as they’ve done with many other businesses before, or an effort to draw attention to the fact that you can buy a lot of [Wal-Mart’s]products online," said Charles Fishman, author of "The Wal-Mart Effect."

Raul Vazquez, chief executive of Walmart.com, would only say that the company is "committed to providing our online customers with the lowest prices available."

"That commitment extends to the nation’s best-selling books, especially during an increasingly challenging year for many of our customers," he added in a prepared statement released on Thursday.

While book sales are not a big part of Wal-Mart’s overall business and the company may actually lose money on the $9 offer, the low-cost juggernaut’s presence in the book business is disturbing, Fishman said.

"As an author, this is a little scary," he said. "If consumers expect to get hardcover books for $10, that will have a dramatic impact on the quality of books they get." 

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Sweeping rule changes meant to shed light on so-called dark pools, where stock-trading is done anonymously, could ultimately hurt the traditional investors that regulators are trying to empower, trading executives warned over the past few days.

The U.S. Securities and Exchange Commission meets in the coming week to consider changes that the industry widely expects will bring some order to the way dark pools communicate, force them to display more quotes, and publicly reveal more data about the amount of trading taking place outside the formal exchanges.

Executives at a conference said political pressure had a hand in pushing new regulations. They argued that although some changes may be needed, a lack of understanding the way orders circulate among the more than 40 U.S. trading venues could lead to poorer prices and executions for mutual funds, pension funds, and individual retail investors.

“Does the public understand that (new rules are) actually going to have real negative consequences to larger orders that are generally made up of a lot of small retail interest?” Shane Swanson, head of transactions at Citigroup Inc’s Lava unit, told the Security Traders Association conference.

Dark pools, private venues primarily used to match large trades, have proliferated this decade as institutions sought safe places to buy and sell “blocks” of stock. They now account for an estimated 10 to 15 percent of U.S. equity volumes.

The SEC, having last month proposed a ban on so-called flash orders, has now turned to dark pools as it cracks down on an increasingly opaque and complex marketplace that some say favors the most sophisticated players at the expense of others.

Commissioners, who meet in Washington on Wednesday, are expected to require from dark pools real-time post-trade transparency so that the public has a better idea where trading actually takes place.

Brett Redfearn, global head of liquidity at JPMorgan Securities, said new data would matter little to the public but would be a boon for high-frequency trading shops — the market’s fastest players that use lightning-fast algorithms to seek out market imbalances, and who could take advantage of the dark pool information.

Swanson added: “That will result in worse impact for those orders. And quite honestly, the small retail orders that are going into the market today already interact with these dark pools. That’s the point that seems to be missed.”

Similar objections were raised over a likely SEC proposal to lower the threshold at which dark pools must publicly display quotes and allow fair access to 1 or 2 percent of market share in a particular stock from 5 percent.

WHAT’S A QUOTE

The SEC is also expected to decide that most so-called actionable indications of interest, or IOIs, should be treated as regular quotes and added to the public quote stream.

Dark pools, exchanges, and other market players send or receive IOIs to sniff out trading interest elsewhere. They vary, but can include the stock symbol, order size, and the price, much like a public quote, raising concerns over a two-tiered market favoring those in the know.

“Depending on how you define IOIs, you may find that many dark pools are not so dark. And that is a little bit scary for institutional orders,” Jeromee Johnson, vice president at BATS Exchange, said in an interview. “If they can’t execute in a dark pool, where do they go?”

Len Amoruso, senior managing director at Knight Capital Markets Group, told the conference: “There could be a host of very legitimate, very bona fide reasons people are using those IOIs to help execute their underlying orders.” 

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Goldman Sachs Group Inc’s vaunted trading operations helped the dominant Wall Street firm quadruple its earnings, but investment banking results were lackluster and its shares fell.

Goldman, whose lavish compensation has drawn scrutiny, stayed on pace to hand out more than $20 billion in year-end bonuses. That would be equivalent to more than $630,000 per employee and could beat a record set for compensation in 2007.

But in a sign of weakness, Goldman’s investment banking and asset management revenues were lower. The bank fell to No. 2, behind Morgan Stanley, in merger and acquisition adviser rankings for deals announced globally through the third quarter, according to Thomson Reuters. It also dropped a spot to No. 7 in global capital markets.

“Goldman produced great numbers but apparently didn’t live up to those heightened expectations,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments.

“Their real earnings, the question is how repeatable are they,” he said. “Trading gains come and go. They’re genuine earnings at the time, but it’s not like something you rely on quarter to quarter.”

Fixed income, currency and commodities (FICC) trading nearly quadrupled, helping propel overall revenue to a forecast beating $12.37 billion.

Yet the $5.99 billion in FICC revenue, fueled by credit products and mortgages, also lagged the second quarter and fell short of some high expectations.

“While it is difficult to call $6 bln in FICC trading a miss, we suspect the recent run-up in GS shares reflected expectations for a stronger trading revenue number,” analyst Jeff Harte of Sandler O’Neill wrote in a research note.

The New York-based firm posted third-quarter net income for common shareholders of $3.03 billion, or $5.25 a share, up from $845 million, or $1.81 per share, a year earlier.

It easily beat analysts’ average forecast of $4.24 a share, according to Thomson Reuters I/B/E/S. But one analyst noted the beat was helped by Goldman’s decision to set aside less than usual for compensation.

‘HEIGHTENED EXPECTATIONS’

Goldman, which has been under fire from some quarters over gold-plated pay so soon after taking government bailout funds, allocated 43 percent of net revenue in the third quarter to compensation and benefits, down from 49 percent in the first half.

Stellar results by rival JPMorgan Chase & Co on Wednesday may have prompted investors to raise the bar for Goldman.

JPMorgan’s lift from fixed income — its trading revenues in that area rose more than five-fold to $5 billion — in particular led analysts and investors to expect a similar or larger jump at Goldman, which has a reputation as a more aggressive risk-taker than the commercial bank.

Goldman shares fell 2.0 percent to $188.45 in afternoon trading, underperforming the Amex Securities Broker dealer index .XBD, which was 1.2 percent lower. The shares are up nearly 124 percent this year. 

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Bank of America Corp agreed to give regulators more information about why it refrained from disclosing details about Merrill Lynch’s performance before it bought the investment bank, federal regulators said on Tuesday.

The agreement, still subject to court approval, would allow the U.S. Securities and Exchange Commission to look at details on the bank’s failure to disclose information to shareholders about Merrill’s $15.8 billion fourth-quarter losses and bonuses paid to Merrill employees.

The bank faces an array of lawsuits and investigations by lawmakers and regulators. New York Attorney General Andrew Cuomo has threatened to sue bank officers and is seeking more information on who knew what prior to the December 5 shareholder vote to approve the merger.

Under the SEC pact, Bank of America would waive its attorney-client privilege that protects the names of those who made decisions on the Merrill merger.

“Attorney-client privilege is a very important business principle but given the pressure in several inquiries for further insight we decided to waive it in this matter,” said Bank of America spokesman Larry Di Rita.

“We have nothing to hide and believe our actions throughout the Merrill Lynch acquisition were appropriate and in the best interest of our shareholders,” he said.

Last month, a federal judge rejected Bank of America’s $33 million settlement with the SEC, which alleged it misled investors about $3.6 billion of bonuses paid to Merrill employees.

U.S. District Court Judge Jed Rakoff faulted the SEC for accepting the bank’s effort to invoke attorney-client privilege and avoid disclosing what executives and lawyers knew about its authorization to pay the bonuses no fax pay day loan.

If the pact is approved, the SEC would have access to information on the bank’s decisions about whether to disclose impairment of goodwill of Merrill and other financial results of Merrill Lynch during the fourth quarter of fiscal year 2008.

The agreement would give the SEC access to the bank’s communications with the Federal Reserve and the Treasury Department, which helped broker the deal and buttress the bank with taxpayer funds.

That would likely include communications between departing Bank of America CEO Ken Lewis who was at the center of negotiations with federal regulators.

The order would allow the SEC to share the information from Bank of America with other government authorities including federal and state regulators, the SEC said.

The bank announced at the end of last month that 62-year-old Lewis will retire by the end of the year. His reputation has been badly bruised by government investigations into the Merrill acquisition, as well as massive credit losses that led the bank to take two rounds of U.S. bank bailout funds.

Bank of America is searching for a successor with a view to appointing a replacement before Lewis leaves. Possible candidates include Brian Moynihan, head of consumer banking, and Joe Price, the bank’s chief financial officer.

Lewis had previously said he wanted to stay at the bank until it had returned the $45 billion in government funds it received.

(Reporting by Rachelle Younglai, Elinor Comlay, Dan Wilchins, editing by Dave Zimmerman)

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