Actual finance blog

Executives from the country’s biggest banks met with U.S. Treasury officials Friday to discuss how debt auctions will be handled if Congress fails to raise the borrowing limit before Tuesday’s deadline.

Treasury officials met in New York with representatives from 20 large banks that serve as primary dealers for the sale of Treasury securities. They took questions amid growing concern that the borrowing limit will not be raised in time to avoid a default on the debt. And they discussed the possibility of delaying or reducing the size of the upcoming auctions if the debt limit is not raised.

Some of the banks recommended that the government use short-term Treasury bills, called cash management bills, in place of a full refunding auction. That would raise some debt but not as much as a refunding. So it could keep Treasury under the current $14.3 trillion borrowing limit.

No decisions were announced at the meeting, and Treasury provided no details of how the government will decide which bills to pay should the borrowing limit not be raised. A statement said the meeting was to prepare for an upcoming quarterly debt auction.

White House spokesman Jay Carney said the administration did not plan to provide the public with details Friday on how the government will prioritize payments. Carney said the administration plans to lay out its contingency plans, but it would wait until closer to next Tuesday’s deadline.

Treasury makes 80 million payments a month.

If the debt ceiling is not raised, Treasury will not have the ability after Aug. 2 to borrow new debt. But it would still be able to refinance debt that is maturing as long as the operation does not increase the total debt supply. Treasury has to borrow on average $125 billion in new debt each month and refinance $500 billion in maturing debt.

The next quarterly auction is scheduled for the week of Aug. 8. If it is not postponed, Treasury is scheduled to release its borrowing plans at a news conference Wednesday. Market participants had expected that Treasury would announce plans to borrow around $72 billion, the same amount that the government raised at the last refunding auction in May.

Scott Sherman, an interest-rate strategist at Credit Suisse, said that if the debt ceiling is not raised by Tuesday, Treasury will have to decide whether to proceed with a tentative schedule for the debt auctions the week or Aug. 8 or announce plans to trim the size of those auctions to keep under the current debt limit.

Moody’s Investors Service said late Friday that the United States should be able to keep its triple-A credit rating as long as Washington works out a deal that lets it continue to pay bondholders.

“If the debt limit is not raised before Aug. 2, we believe that Treasury would give priority to debt service payments and could thus postpone a potential debt default for a number of days,” Moody’s said in its new report. “Revenues would be more than adequate for some period of time to meet those payments although other outlays would be severely reduced as a result.”

Private economists believe the government would pay bond holders first if the debt limit is not raised. If the Treasury missed a bond payment, the country would likely default on its debt. That could rattle markets and increase borrowing costs on most consumer and business loans, many of which are linked to the rates on Treasurys.

Some economists say the government will have enough cash on hand to meet interest payments and some other payments until as late as Aug. 15.

Officials of the bond-trading divisions of JPMorgan, Goldman Sachs, Citigroup and the other big banks attended the meeting at the New York Federal Reserve Bank.

Treasury would normally meet with half of the 20 dealers before a quarterly auction. However, given the heighted concerns surrounding the debt stalemate, Treasury decided to expand the discussions to include all 20 banks.

Treasury said in its statement that the general consensus among the banks participating in the discussion was that Congress “should act as quickly as possible to raise the debt ceiling for as long a period as possible to lift the cloud of uncertainty from the economy.”

The Obama administration wants Congress to increase the borrowing limit to last beyond the November 2012 elections. Republicans in the House want a smaller initial increase, and second increases tied to more spending cuts that would take place next year before the election.

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WASHINGTON

Standard and Poor’s agency has cut Greece’s credit rating by 2 notches to CC, with a negative outlook.

The international ratings agency says the proposed restructuring of Greece’s heavy debt load under a new international bailout deal would amount to a selective default.

A Standard and Poor’s statement says the likelihood of a future Greek default is likely to remain high.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

ATHENS, Greece (AP) _ Greece has appointed BNP Paribas, Deutsche Bank and HSBC to act as dealer-managers for a voluntary private sector participation scheme, which is part of the country’s second financial bailout.

The finance ministry says the three banks were appointed Wednesday in the wake of last week’s EU-led bailout package, which altogether is worth euro109 billion ($157.7 billion).

Cleary Gottlieb Steen and Hamilton LLP has also been appointed international legal adviser, while Lazard Freres is to be the financial adviser.

Under the voluntary scheme, banks and other large private investors will swap Greek bonds for new debt instruments with longer maturities.

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The NFL Players Association executive board and 32 team reps voted unanimously Monday to approve the terms of a deal with owners to the end the 4 1/2-month lockout.

Owners overwhelmingly approved a proposal last week, but some unresolved issues still needed to be reviewed to satisfy players; the owners do not need to vote again.

The sides worked through the weekend and wrapped up the details Monday morning on a final pact that is for 10 years, without an opt-out clause, a person familiar with the deal told the AP on condition of anonymity.

Owners decided in 2008 to opt out of the league’s old labor contract, which expired March 11. That’s when the owners locked out the players, creating the NFL’s first work stoppage since 1987.

NFLPA head DeMaurice Smith stepped outside of the group’s headquarters in Washington at about 2 p.m. to announce that players approved the pact.

“I know it has been a very long process since the day we stood here that night in March,” Smith said. “But our guys stood together when nobody thought we would. And football is back because of it.”

As he spoke, Smith was flanked by NFLPA president Kevin Mawae, Saints quarterback Drew Brees, Colts center Jeff Saturday and Ravens defensive back Domonique Foxworth, key members of the players’ negotiating team instant payday loan lenders. Brees is one of 10 plaintiffs in the antitrust lawsuit that players filed against the league.

Moments later, NFL Commissioner Roger Goodell walked into the building, joined by owners Bob Kraft of the New England Patriots, John Mara of the New York Giants and Jerry Richardson of the Carolina Panthers.

“I believe it’s important that we talk about the future of football as a partnership,” Smith said.

A tentative timeline would allow NFL clubs to start signing 2011 draft picks and rookie free agents on Tuesday. Conversations with veteran free agents also could start Tuesday, and their signings could begin Friday.

Under the proposed schedule, training camps would open for 10 of the 32 teams on Wednesday, 10 more on Thursday, another 10 on Friday, and the last two teams on Sunday.

Both sides set up informational conference calls for Monday afternoon to go over the details of the agreement. The NFLPA told player agents they would be coached in particular on the guidelines and schedule for signing free agents and rookies; the NFL alerted general managers and coaches they would be briefed in separate calls.

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Steve Hancock is a science fiction kind of guy.

The semiretired Fenton resident prefers it over literary fiction because he would rather spend his time reading about a future that might actually come to pass one day.

But he’s not ready for a future that might resemble “Fahrenheit 451,” Ray Bradbury’s tale of a world where books are on the verge of extinction.

“I like to hold books in my hands,” he said as he was kneeling in the aisles of the Borders in Brentwood last week. “I hate to see the world moving away from physical books.”

But the signs are everywhere that it is happening

President Barack Obama and House Speaker John Boehner searched on Friday for an elusive debt-limit compromise as the Senate rejected a House plan containing deep spending cuts and for the moment put aside a last-ditch fallback option.

The 51-46 party-line Senate vote, and a decision by Senate Majority Leader Harry Reid, D-Nev., to cancel weekend Senate sessions, left unresolved the urgent issue of how to lift the nation’s borrowing powers to avoid a first-ever U.S. default on Aug. 3.

The moves also cleared the way for private negotiations between the president, Boehner and other key players.

But neither the president nor the speaker was openly optimistic that they would succeed.

Boehner, R-Ohio, told reporters that, despite reports that Obama and he were closing in on a $3 trillion deficit-reduction deal, “There was no agreement, publicly, privately, never an agreement, and frankly not close to an agreement.”

“So I suggest it’s going to be a hot weekend here in Washington, D.C.,” he added.

Obama urged congressional factions to unite and suggested the biggest obstacle to a deal remains a bloc of conservative Republicans in the House.

He said at a town hall-style meeting at the University of Maryland in College Park, Md., that he was still open to a deal _ even if it means deeper domestic spending cuts than many in his own party can stomach.

“I am willing to sign a plan that would include tough choices I would not ordinarily sign,” he said. “Whether I like it or not, I’ve got to get the debt ceiling raised.”

He made no mention of whether he believed progress was being made in his negotiations with Boehner.

The president also for the first time dismissed a strategy promoted by some liberals as a possible solution, the notion that the 14th Amendment to the Constitution might give the president the ability to proceed unilaterally in raising the debt limit without congressional approval.

“I have talked to my lawyers, they are not persuaded that that is a winning argument,” he said.

The administration says the government is in danger of defaulting for the first time in its history after an Aug. 2 deadline, unless Congress raises the $14.3 trillion federal debt ceiling so the U.S. can keep borrowing enough to pay its bills.

Those in both parties want to couple a deficit-reduction provision to the debt limit increase. Obama and his Democratic allies want the package to include some tax increases while Republicans want to do it with spending cuts alone.

The vote in the Democratic-controlled Senate blocked a House-passed bill, strongly backed by tea party factions, that would have required Congress to slash spending and pass a balanced budget amendment before raising the nation’s borrowing powers.

The House measure was a GOP conservative priority, although its passage in the Democratic-controlled Senate was never expected. Still, the narrow party line vote underscored the deep differences between the two parties on deficit reduction.

Boehner, in a speech on the House floor following the Senate vote, said, “The House has acted. …We’ve done our job. The Democrats who run Washington have done nothing. They can’t stop spending the American people’s money. They won’t and they refuse.”

After the vote, Reid said the Senate would not meet over the weekend and that he was temporarily putting aside a backup plan he had been pushing along with Senate Republican Leader Mitch McConnell of Kentucky.

That plan would guarantee that the president would get a debt ceiling increase through 2012. But it would extract a political price from Obama, who would have to ask Congress for increases in three separate increments, and it would allow Republicans to avoid casting a difficult vote in favor of a debt ceiling increase that would anger their constituents.

“Circumstances have changed. The speaker of the House and the president have been working to reach agreement on a major deficit-reduction measure. I wish them both very well,” Reid said in a floor speech.

Reid said that talks ongoing between Obama and Boehner are focused on producing legislation involving taxes and that the House would have to act before the Senate, because tax measures must originate in the House.

Sen. Kent Conrad, D-N.D., a member of a group of senators known as the Gang of Six who proposed a plan to cut the deficit by about $4 trillion over ten years, with $1 trillion coming from taxes, suggested various options may still be in play.

“I don’t think anybody can be certain at this moment what the outcome will be,” he said.

Meanwhile, Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and New York Fed President William Dudley met Friday morning “to discuss the implications for the U.S. economy if Congress fails to act,” they said in a joint statement. But the statement said they “remain confident that Congress will raise the debt ceiling soon.”

Separately, former Treasury Secretary Henry Paulson, who served under President George W. Bush, had a breakfast meeting with Geithner and said afterward, “Failing to raise the debt ceiling would do irreparable harm to our credit standing, would undermine our ability to lead on global economic issues and would damage our economy.”

Boehner underscored his willingness to keep negotiations going, telling reporters, “As a responsible leader, I think it is my job to keep lines of communications open.”

The continuing Obama-Boehner talks kept alive the possibility of substantial deficit reduction that would combine cuts in spending on major benefit programs like Medicare and Medicaid and revenue increases through a broad overhaul of the tax code.

At the University of Maryland, Obama told his audience of mostly students that, “The United States of America doesn’t run out without paying the tab. We pay our bills. We meet our obligations.”

Asserting that the American people as well as many in Congress are on board with his approach of mixing higher taxes for some with steep spending cuts, the president said, “The only people we have left to convince are some folks in the House of Representatives and we’re going to keep working on that.”

White House spokesman Jay Carney said Thursday that Obama remained “unalterably opposed” to debt limit extensions in the order of six months, nine months or one year. “His premise is that we have to raise the debt ceiling for an extended period of time into 2013 regardless,” Carney said.

Democratic officials familiar with the Obama-Boehner discussions said both sides remained apart on key components of the deal, including the amount of revenue that a revamped tax code could yield, the nature of the changes to Medicare and Medicaid, and the process that would guarantee that both taxes and benefit programs would in fact be overhauled.

Republicans have insisted that entitlement programs such as Medicare need substantial changes, but have loudly objected to any revenue provision that could be deemed a tax increase. Democrats, eager to keep changes to their cherished health care programs to a minimum, have demanded that any plan must have new tax revenue.

Democrats in the Senate reacted angrily when word spread that Obama and the House leaders appeared to be closing in on a deal that would include $3 trillion in spending cuts but only a promise of higher revenues to be realized through a comprehensive overhaul of the tax code.

White House officials went out of their way to deny that a deal was near.

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Associated Press writers David Espo, Ben Feller, Andrew Taylor, Donna Cassata and Alan Fram contributed to this report.

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The tax credit package put forth by House and Senate leaders Wednesday includes:

Things keep getting worse for Bank of America.

The nation’s largest bank reported a loss of $9.1billion during the second quarter, partly due to an $8.5 billion settlement with investors. That agreement, reached in June, settled claims that the bank had sold the investors poor-quality mortgage bonds.

The Charlotte, N.C. bank has been hamstrung by litigation and demands from investors who want Bank of America to buy back the bonds that it sold years ago. In the quarter, the bank set aside an additional $1.9 billion to fight litigation bringing the total mortgage-related charges in the second quarter to $20.7 billion. The bank does not disclose the total amount reserved for litigation costs.

The reported loss available to common shareholders was 90 cents per share, wider than the 85 cents a share loss expected by analysts surveyed by FactSet. Excluding charges related to investor settlements, Bank of America Corp. earned $3.7 billion, or 33 cents per share. That compares with net income of $3.1 billion, or 27 cents a share, in the same quarter last year. The bank’s revenue declined 54 percent to $13.2 billion from $29.1 billion in the same period last year.

While several of the bank’s businesses reported positive earnings, almost all of them saw declines in revenue. Loan losses in its consumer businesses dropped for the fifth consecutive quarter. More of the bank’s customers paid on time, which led to a 60 percent decline in the amount the bank puts aside for credit losses from last year.

Bank of America’s credit card division reported income of $2 billion, up $1.2 billion from the year-ago quarter, as customers paid on time. However, revenue declined by $1.4 billion.

Commercial banking was another bright spot, reporting net income of $1.4 billion, up $566 million from a year ago. But revenue in the division decreased $73 million from a year ago.

Its Merrill Lynch investment banking unit reported fees of $1.6 billion, a 28 percent increase from a year ago.

Bank of America shares were up less than 1 percent in pre-market trading to $9.77.

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Libya’s embattled leader Moammar Gadhafi said Saturday his country will never surrender in the face of assaults by rebels and a NATO air campaign.

In an audio address directed at the city of Zawiya where thousands demonstrated their support, Gadhafi promised that Libya would keep fighting.

“After we gave our children as martyrs, we can’t backtrack, or surrender or give up or move an inch,” he said, his voice booming over loudspeakers in the center of town. “Rest assured in your tombs, our martyrs, we will not betray you ever.”

The speech was the third in as many days, each addressing inhabitants of a town under his control while thousands chanted their support for the country’s leader of the past 41 years.

In his speech, also broadcast on national television, Gadhafi said the NATO airstrikes on Libya must stop to save civilian lives.

The rally was staged in the center of Zawiya, a city once under rebel control in the early weeks of the revolt against Gadhafi’s rule and only taken back after a brutal battle.

The center of the city still bore scars of the fighting, with burned out and shattered buildings overlooking the cheering crowds swathed in green, Libya’s national color.

“Here is Zawiya. Where are the … traitors and the agents that you depended on? Where are those you bought with your money, you brainwashed?” he asked, addressing NATO no fax cash advances.

“Zawiya can’t be ruled by agents, non-believers, and traitors who are seeking help from the cross,” he added.

The speeches and rallies come after Libya’s main opposition group was recognized by more than 30 nations, including the U.S., as Libya’s legitimate government.

Friday’s decision potentially frees up billions of dollars in cash that the rebels urgently need.

Libya’s civil war has fallen into a stalemate since the mass uprising seeking to oust ruler Gadhafi broke out in mid-February. Rebels have set up an interim administration in the eastern city of Benghazi and seized control of the port city of Misrata and much of the western Nafusa mountain range.

Gadhafi controls the rest from his stronghold in the capital Tripoli.

But rebel forces _ mostly volunteers armed with captured weapons _ have failed to make significant advances recently, even with NATO bombing Gadhafi’s troops under a U.N. mandate to protect civilians.

On Saturday 10 rebels were killed in their latest advance on the strategic oil town of Brega. Rebel fighters said they were sweeping the outskirts for land mines so they could move in.

Rebels have been trying to take the town with its large gas and oil storage facilities for weeks.

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Activist investor Carl Icahn made an unusual offer to buy Clorox Co. this week, presenting himself almost as a disinterested bidder and encouraging the company to try to find a better offer.

The billionaire hedge fund manager sent a letter to Clorox CEO Don Knauss on Thursday offering to pay $76.50 per share in cash, according to a regulatory filing Friday. That’s a 12 percent premium to Thursday’s closing price.

Clorox shares leapt Friday on the news. However, Icahn seemed more interested in drumming up another buyer, such as Procter & Gamble Co. or Colgate-Palmolive Co., than actually buying Clorox himself.

In his letter to Knauss, Icahn said that his firm wore “two hats” both as a potential buyer of Clorox and as its biggest shareholder. He said shareholders would benefit the most if Clorox were sold to another consumer products company that could take advantage of “significant inherent synergies.”

He suggested that Procter & Gamble, Colgate and Kimberly-Clark Corp., which are headquartered in the U.S., might be interested. So might Unilever PLC, Reckitt Benckiser and Henkel AG, he said. He expressed confidence that Clorox would find “numerous superior bids” if it shopped itself around.

If no other bidders stepped forward, Icahn wrote, then “our fellow stockholders” should have the opportunity to vote on the Icahn bid.

Icahn became Clorox’s biggest shareholder in December, spending nearly $800 million to buy a 9.4 percent stake. He has already made money on the investment: Shares have risen more than 8 percent since he made his investment, not including Friday’s gains.

Clorox was formed 98 years ago in Oakland, Calif., by five entrepreneurs selling what became the company’s namesake bleach. The company, which now is also the maker of Burt’s Bees lip balm, Glad trash bags, Brita water filters and an eclectic mix of other household products, said its board would review the offer “in due course” and couldn’t comment until then. Spokesman Dan Staublin said the board is “committed to acting in the best interests of our company and our shareholders.”

Despite its stock performance, Clorox has faced challenges, with year-over-year revenue declining for the past three quarters free credit score online. Of 14 analysts surveyed by FactSet, only two listed it as a buy.

Like its peers, Clorox is facing higher prices for materials it needs to make and transport its products, and it also has to persuade customers to keep buying as they get squeezed by higher gas and grocery prices.

Icahn is known for buying and shaking up struggling companies, with mixed success. His other holdings at the end of the first quarter included the drug maker Biogen Idec Inc., movie studio Lions Gate Entertainment Corp., Motorola Solutions Inc. and power producer Dynegy Inc., according to a May 16 regulatory filing.

Icahn valued his offer at $12.6 billion. That includes paying about $8.9 billion for the shares he doesn’t own, and putting up the shares he does own, which are valued at nearly $1 billion. He would also take on Clorox’s debt.

Icahn told Clorox that if it accepts the deal by July 29 and then he fails to close it, he will pay Clorox $100 million for its “time and effort.” He also said he would not ask for a breakup fee if Clorox sold itself to another bidder.

Citigroup Inc. analyst Wendy Nicholson said Icahn appears to be offering a fair price. She and Weeden & Co. analyst Javier Escalante said they thought it unlikely that any other consumer products companies would want to buy Clorox.

It is already a well-run company, so it’s not clear what a new management team could do, they said. Knauss, the CEO since fall 2006 and a veteran of the Coca-Cola Co., has increased net income to about $603 million during last fiscal year, up from $443 million for the year ended June 30, 2006.

More importantly, Clorox has failed to tap the fast-growing emerging markets as well as its rivals have, and it’s unlikely that other companies would be interested in saddling themselves with more exposure to saturated U.S. markets.

Anyone who did buy Clorox would likely sell it for parts, getting rid of as many as half of its units, such as cat litter or charcoal, Escalante said.

Clorox shares closed Friday up 9 percent to $74.55.

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