Actual finance blog

Money sent home by Mexican migrants declined by 2.2% in the first six months of 2008, the first sustained drop in more than a decade, Mexico’s Central Bank reported Wednesday.

The downturn in U.S. housing construction and stepped-up U.S. immigration raids have made it tougher for migrants to find jobs, and less able to send home money.

Jesus Cervantes, director of economic measurement for the bank, said year-end figures are expected to continue this trend — the first sustained drop since 1995, when Mexico’s central bank began keeping a tally.

Money sent home by Mexican migrants — also known as remittances — is the country’s second-largest legal source of foreign income, after oil exports. And for years, it contributed to a growing Mexican economy: Annual remittances nearly tripled from about $9 billion in 2001 to almost $24 billion in 2007, amid improved reporting methods and an exodus of migrants from Mexico.

Now, businesses in many Mexican towns that came to rely on the cash flow are now being forced to scale back — also because of the decline of the U.S. dollar, which has lost almost 8% of its value against the Mexican peso this year.

Agustin Escobar, an analyst with the Center for Investigations and Superior Studies in Social Anthropology, said Mexico’s overall economy should withstand these pressures, but some families will be hit hard.

"It depends on the type of household," Escobar said. "For households that are largely dependent on remittances, their poverty is going to be felt sharply." 

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Citigroup is preparing to fire thousands from its worldwide investment-banking division, The Wall Street Journal reported on Sunday.

The Journal, citing people familiar with the matter, said the layoffs are part of a plan to cut about 10% of the staff of the 65,000-member investment-banking group.

Messages left with Citigroup spokesmen on Sunday were not immediately returned. The Journal said the fired employees could be notified as early as Monday.

The New York-basked global bank, along with much of Wall Street, is in the throes of recovering from bad investments on mortgages and leveraged loans that cut billions of dollars from its portfolio.

It was not immediately clear if the reported job cuts would be in addition to cuts announced by Citigroup (C, Fortune 500) in April. After reporting a $5.1 billion first-quarter loss, the bank said then it was reducing its staff by 9,000, in addition to the 4,200 job cuts the bank announced late last year.

As of the end of last year, Citigroup had about 147,000 full-time employees.

In May, Citigroup unveiled a three-year plan that included getting rid of more businesses, mortgages, real-estate operations and jobs.

The bank called for shedding between $400 billion and $500 billion of its $2.2 trillion in assets and growing revenue by 9 percent over the next few years as it tries to rebound from the huge losses tied to deterioration in the credit markets.

Earlier this month, the bank said it was closing the Old Lane Partners hedge fund that was co-founded by Chief Executive Vikram Pandit. The bank is shuttering the fund just 11 months after it was acquired for more than $800 million. 

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Inflation, the curse of the 1970s, is staging a comeback, led by sky-high oil prices. This time, the menace is more genuinely global than three decades ago, and this time much of it is “Made in China”.

Wary of past errors, Western central banks may well opt for shock therapy — interest rate rises — in an effort to prevent prolonged stagflation, the toxic mix of inflation and economic stagnation that followed the oil crises of the 1970s.

Their prospects of success depend at least in part, though, on how willing the rising powers of the developing world are to play the game, above all China, an economy that was shut to the outside world 30 years ago but has now taken it by storm.

While inflation is far higher in faster-growing regions than in the United States and Western Europe, everyone feels the pain because of the globalization of trade, says Stephen Roach, Asia region chairman of Morgan Stanley.

“The risks of a new stagflation are mounting,” he said in an article earlier this month. “Like nearly everything else in the world these days this one is likely to be made in Asia.”

Average annual inflation rates in the developing world were about three times those of industrialized economies last year, and that overrun will widen in 2008, according to figures from the International Monetary Fund.

IMF forecasts, published last April and perhaps in need of upward revision, foresee world inflation rising from an average of 3.9 percent for 2007 to 4.7 percent in 2008. Revealingly, the IMF sees the inflation rate nearly doubling to just short of 12 percent in the emerging and developing world, as opposed to rising from 2.2 to 2.6 in advanced economies.

In rich and poor countries, fuel and food prices surges have sparked wave after wave of protests by truckers, taxi drivers, fishermen and farmers demanding government action, increasing fears of political instability and economic downturn. 

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Citigroup Inc will present plans to sell as much as $400 billion of extraneous assets when it meets with investors and analysts on Friday, a person familiar with the situation said.

Newly-installed Chief Executive Vikram Pandit, scrambling to slash Citi’s costs and assets that have been hard hit by the global credit crunch, also intends to reaffirm his promise to cut annual expenses at the largest U.S. bank by roughly 20 percent, the source told Reuters on Thursday.

Citigroup declined to comment.

The sales could amount to nearly 20 percent of Citi’s current assets, and according to the Financial Times, which first reported the story on Thursday, would take place over several years.

Although Citi has said previously that it plans to shed assets to improve its capital position, the magnitude of the potential sales struck some analysts as worrisome.

“The only reason you’d sell off that many assets is you have a lot more losses coming than you originally thought,” said Jim Huguet, co-chief executive at fund manager Great Companies LLC, which does not own Citi shares.

Since late last year, Citi has recorded more than $45 billion of writedowns and credit losses, raised more than $40 billion of new capital including $2 billion of preferred shares this week, and slashed its dividend 41 percent.

Precisely which non-core assets are for sale is unclear, but analysts speculated that consumer finance businesses in the United States, Japan, Mexico, and Germany are possible. 

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Consumer products maker Newell Rubbermaid is reporting a 15% increase in first-quarter profit on a modest increase in sales.

The results reported Thursday, when one-time items are excluded, were in line with Wall Street expectations.

The Atlanta-based maker of Sharpie pens, Rubbermaid trash cans and Graco car seats says it earned $56.9 million, or 20 cents a share, in the January-March quarter, compared to a profit of $49.3 million, or 18 cents a share, in the same period a year ago.

Excluding charges, the company earned $74 million, or 27 cents a share, in the quarter. That met the forecast of analysts surveyed by Thomson Financial.

Revenue increased 3.6% to $1.43 billion from $1.38 billion recorded a year earlier.

Rubbermaid (NWL, Fortune 500) says it is raising its full-year sales outlook, but is adjusting its earnings per share outlook due to higher cost inflation. 

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New York City’s comptroller, who helps oversee the city’s pension funds, on Tuesday said he will investigate whether the failure of Bear Stearns & Co was due to miscalculation or deception, which could trigger a lawsuit to recover losses.

The drop in Bear Stearns’ share price has resulted in a loss for the city’s public pension funds of about $10 million, City Comptroller William Thompson told Reuters in a phone interview.

“I think a lot of people are going to be taking a look. … Was there some deception in there or was this just a miscalculation?” Thompson, a Democrat, said when asked about a possible lawsuit against Bear Stearns.

Massachusetts on Monday had said it was reviewing whether to sue Bear Stearns to recover money it lost as a result of the plunge in the investment bank’s stock.

Bear Stearns’ market value fell after the bank on Sunday agreed to be bought by JPMorgan Chase (JPM.N: Quote, Profile, Research) at a price of $2 a share. On Friday Bear Stearns’ stock had closed at $30.85. The shares on Tuesday closed up 22.9 percent at $5.91, suggesting some were closing out short positions or believe the firm could fetch a higher price.

New York City’s pension fund has a long history of suing companies it believes defrauded investors. The $110 billion fund Thompson helps run is currently the lead plaintiff in a class-action suit against top U.S. mortgage lender Countrywide Financial Corp (CFC.N: Quote, Profile, Research).

Thompson, a possible mayoral contender, said he does not believe Bear Stearns should be immediately kicked off the city underwriting teams.

“Bear had a very good municipal department,” which came up with some innovative ideas, he said. “It’s not just the firm, you also look at the personnel and the people who are there,” he said, noting JPMorgan also underwrites city debt. 

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The fat compensation packages of three U.S. CEOs whose companies are being hammered by the widening mortgage crisis came under harsh criticism on Friday at a congressional hearing on executive pay.

In the last two quarters of 2007 alone, the three executives’ firms lost more than $20 billion on investments in subprime and other risky mortgages, said the House of Representatives Oversight and Government Operations Committee.

Yet the three took home fortunes in 2007 — $120 million for Countrywide Financial Corp (CFC.N: Quote, Profile, Research) CEO Angelo Mozilo; a $161 million retirement package for ex-Merrill Lynch (MER.N: Quote, Profile, Research) CEO Stanley O’Neal; and $39.5 million in stock, options, bonus and perks for former Citigroup (C.N: Quote, Profile, Research) CEO Charles Prince.

“The mortgage crisis is having enormous repercussions. Families are losing their homes … Thousands are losing their jobs. It seems like everybody is hurting, except for the CEOs who had the most responsibility,” said California Democratic Rep. Henry Waxman, committee chairman.

In a hearing room packed with bank lobbyists and lawyers, Waxman said, “I have no problem with paying for success. But it looks like when you’re a CEO you get paid for failure.”

Mozilo, O’Neal and Prince told Waxman’s panel that they earned their compensation. They conceded misjudgments in the subprime debacle, while one Republican lawmaker blasted the hearing as “a sanctimonious search for scapegoats.”

Virginia Rep. Tom Davis said, “Punishing individual corporate executives with public floggings like this may be a politically satisfying ritual — like an island tribe sacrificing a virgin to a grumbling volcano.

“But in the end, it won’t answer the questions … about corporate responsibility and economic stability.” 

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Apple Inc (AAPL.O: Quote, Profile, Research) has no plans to declare a dividend or buy back stock, Chief Executive Steve Jobs told the annual meeting of shareholders on Tuesday, adding that iPhone sales were on track.

Jobs said he was confident that Apple would hit its 2008 sales target of 10 million iPhones, a figure which some analysts have questioned in the face of a weaker U.S. economy, and executives said the communications device would reach Asian markets this year.

But Chief Operating Officer Tim Cook was elusive on timing for selling into the key market of China.

“We will enter Asia with the iPhone in 2008 … We will one day enter China, we’re not saying when, and we will one day enter India,” Cook said.

Jobs was asked if the company planned to start paying a dividend or initiate a stock buyback program. “At this time, we have no plans to do either,” he told shareholders.

The company’s stockpile of cash and short-term investments topped $18 billion at the end of last year, leading to speculation about how the maker of iPods, iPhones and Macintosh computers might spend some of its cash reserves.

Shares of Apple were up 57 cents at $122.30 in afternoon trade on Nasdaq.

Investors at the meeting took the opportunity to tell management that they wanted more of a say in how the company was run, passing a resolution in favor of an annual advisory vote by shareholders on executive compensation. 

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After Chris Scheid graduated from Queens’ Richmond Hill high school in 1982, he landed a lowly job in Manhattan as a futures exchange floor runner thanks to the brother of his Boy Scout troop den mother.

“Ninety-eight percent of the people on the floor got their job because they knew somebody,” he told Reuters after a day of trading in the frozen concentrated orange juice market. “I started at the bottom.”

Scheid, 43, learned the ropes and struck it big trading agricultural commodities like frozen concentrated orange juice, coffee, sugar, cocoa and cotton. But now, after 2-1/2 decades of yelling orders and flapping hands to buy and sell futures, he must change careers when more than a century of agricultural commodities futures trading in New York ends on March 3.

The IntercontinentalExchange’s ICE Futures US, which bought the NYBOT last year, will cease open outcry trading of all futures contracts and become wholly electronic.

Scheid will keep his hand in the market by trading orange juice options — the FCOJ options ring is not closing. He is investing in a southern cooking-themed restaurant and an auction company. There is also a thriving antique business.

Hoarse from years of barking at each other, dozens of traders and brokers from New York City, Long Island, and New Jersey are assessing their skills. It will be tough to find a job that matches floor trading for its combination of great pay and a big adrenaline rush.

INTO THE PIT

Scheid’s story of a young man with a working class background carving out a career without the benefit of college is hardly unique on commodity exchanges in New York, Chicago or London. 

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Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research) posted better-than-expected fourth quarter profit on Tuesday as penny-pinching U.S. shoppers scoured its discount stores for low prices on necessities like food to offset tough economic conditions.

The world’s largest retailer, which has cut prices to try to win sales in the tough environment, acknowledged that the economic situation remains “challenging,” and it gave a first-quarter and full-year earnings forecast that could come in below Wall Street’s expectations.

Joseph Feldman, an analyst with Telsey Advisory Group, said that given the tough climate, in which many U.S. retailers have cut their sales or earnings forecasts as shoppers rein in spending, providing a cautious earnings forecast near Wall Street’s expectations was “perfectly fine.”

“Wal-Mart is perfectly positioned for this type of environment,” he said. “They’ve got a lot of consumable items, like groceries, so they’re going to drive traffic and maybe even get additional traffic because of this environment.”

Net income rose 4 percent to $4.096 billion, or $1.02 per share, for its fiscal fourth quarter ended January 31, from $3.94 billion, or 95 cents per share, a year earlier.

The most recent quarter’s results included charges of 3 cents per share for dropped real estate projects and a restructuring charge for its Japanese operations, and a 1 cent per share benefit from the sale of real estate properties.

Excluding the items, Wal-Mart reported earnings of $1.04 per share, above analysts’ average estimate of $1.02 per share, according to Reuters Estimates.

Revenue, which includes membership revenue for its Sam’s Club warehouses, where shoppers pay an annual fee to shop, rose to $107.43 billion from $99.08 billion. 

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