Actual finance blog

South Korea’s central bank cut interest rates for the third time in a month on Friday to soothe markets and shore up its economy, after a flurry of deep rate cuts across Europe failed to calm panicky investors.

Central bank action could not halt a slide in global stock markets and coincided with a warning by the International Monetary Fund that the developed economies were headed for the first full-year contraction since the World War Two in 2009.

“Increasingly, the signs point to a deep and synchronized global recession that began last quarter and has gathered momentum,” said Bruce Kasman, an economist at JPMorgan Chase in New York.

The IMF cut its 2009 global growth forecast to 2.2 percent from 3 percent, a prediction made only last month, and urged governments to ramp up spending to support the economy.

Asian stocks fell for a third day and commodity prices also tumbled, as layoffs and corporate profit warnings piled up.

Later on Friday, Barack Obama is due to hold his first news conference since winning the U.S. presidency after a meeting with his economic team, as the world awaits signs of how he might tackle the economic crisis.

Markets are particularly keen to learn who will become Obama’s Treasury Secretary, but it was not clear when he might announce his choice.

Among those seen as leading candidates for the job are Timothy Geithner, president of the Federal Reserve Bank of New York; former Treasury Secretary Lawrence Summers; and former Federal Reserve Board Chairman Paul Volcker easy online payday loans.

Investors also looked anxiously ahead to Friday’s U.S. jobs payroll report for October, which is expected to further underscore the weakening economy.

According to the median of a Reuters forecast of 87 economists another 200,000 non-farm jobs were shed last month, which would be the largest monthly cut in jobs since March 2003 and would mark a 10th straight month of losses.

CORPORATE WOES

In Asia, Toyota saw its stock overwhelmed with sell orders and tumbling as much as 12 percent, after it halved its profit forecast because of dwindling demand. The carmaker’s stock had fallen 10 percent on Thursday ahead of the profit warning.

Its woes illustrate how the financial crisis, which started when the housing boom in the United States turned sour 15 months ago, has spread from Wall Street to Main Street.

Hit by economic slowdown, sliding property prices and a sharp fall in its capital markets business, Singapore’s DBS Group, Southeast Asia’s biggest bank, suffered a bigger-than-expected 38 percent drop in profit, as bad debt charges quadrupled. Its shares fell 9 percent.

As investors are bracing themselves for a dismal set of quarterly results from General Motors and Ford on Friday, industry sources said their chief executives sought a $50 billion federal bailout to survive a financial crunch blamed on a worsening economy and the “near collapse” in demand for cars. 

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Insurance firm Hartford Financial Services Group Inc. said Monday its capital position should be sufficient to maintain "AA" ratings levels at the end of the year, even assuming further deterioration in the markets.

Hartford Financial (HIG, Fortune 500) said that, to maintain investment-grade "AA" level ratings, it would need to have excess capital of about $2 billion if the Standard & Poor’s 500 index fell to 900. The company said its capital reserve totaled about $3.5 billion as of Oct. 6.

The S&P 500 closed Friday at 968.75.

The insurance firm also said its risk-based capital ratio was well above the levels historically associated with "AA" level ratings.

Should further capital be needed, Hartford Financial said it would not have to tap public markets during the ongoing credit crisis and instead could use a $500 million contingent capital facility and a $1 loan till payday.9 billion bank credit facility. Amid the downturn in credit markets, it has become difficult and expensive for financial firms to raise new cash.

Shares of Hartford Financial fell sharply last week after the company said it lost $2.6 billion, or $8.74 per share, during the third quarter, compared with a profit of $851 million, or $2.68 per share, in the year-ago period.

Hartford Financial shares plummeted 58% during the week, to close at $10.32. Shares fell as low as $8.23 during the week. 

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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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NEW YORK — Now that the government has decided it will spend $700 billion to get the economy started again, don’t expect immediate results.

It’s a little bit like those ads for protein drinks that show skinny milquetoasts turning into Schwarzeneggers in 60 days — you want it to be true, but you know in your heart it will take months or years of sweating in the gym to pack on that kind of muscle.

The latest readings on the U.S. economy show just how far we have to go. House prices and auto sales are plummeting, manufacturing activity has tumbled and the consumer is feeling increasingly strapped.

The economy seems nearly dead, and things could get worse before they improve — even with Washington’s help.

Much attention has been paid recently to the wrangling over the taxpayer-funded emergency rescue package. As it should. That’s enough money to give every man, woman and child in the United States about $2,325 each.

Lawmakers say the bill is the best hope to save the financial system and revive the economy. It would allow the government to buy bad mortgages and other devalued assets held by troubled financial institutions, thereby inducing them to lend again to businesses and consumers instead of hoarding their cash.

The package, which was signed by President George W. Bush on Friday, also would include tax breaks for companies and the middle class.

History tells us not to expect miracles overnight. After the last big U.S. bailout — the formation of the Resolution Trust Corp. in 1989 to stop the U.S. savings and loan crisis — it took a year for the stock market to hit bottom, two years for the economy and three years for the housing market, according to Merrill Lynch.

And when Japan put a bailout plan in place in the late 1990s, its stock market took another five years to recuperate. By some measures, its economy still hasn’t had a sustainable recovery, according to Merrill’s chief North American economist, David Rosenberg.

Standard & Poor’s global investment policy committee, in notes from its weekly meeting, said that even with a rescue plan, "cascading concerns remain."

"Will it be enough to accomplish the required task of unfreezing credit markets? If so, are we just back to recession 101?" asked the group of the firm’s senior investment advisers.

The bailout doesn’t even attack one of the biggest problems for our economy: the housing sector. Government officials from Treasury Secretary Henry Paulson on down have said the economy won’t recover until housing does.

Falling house prices were behind a wave of foreclosures that pushed many banks to take multibillion-dollar writedowns and some banks to fold or be rescued by the government or rivals. The contagion from that caused a crisis of confidence in the banking system that has led lending to freeze between banks, and to businesses and people (quick payday loan).

House prices tumbled in July by the sharpest annual rate ever, a 16.3 percent year-over-year decline, according to the latest reading from the closely watched Standard & Poor’s/Case-Shiller 20-city housing index. That was the biggest pullback since the index’s inception in 2000, and represents a 20 percent decline in prices since the peak in July 2006.

As weak as this report was, it also didn’t reflect the most recent turmoil in the financial markets at the end of the summer. Since then, credit conditions have tightened significantly.

That showed up in the awful September auto sales. Ford Motor Co., Toyota Motor Corp. and Chrysler LLC all posted steep drops of more than 30 percent.

Americans are turning increasingly cautious about spending and are buckling under the burden of excessive debt. Citigroup Inc. now anticipates surprisingly large credit losses of up to $10 billion — a 30 percent rise from the second quarter — due in part to its credit card holders not paying their bills.

The jobs outlook is dimming by the day. New applications for unemployment benefits are at a seven-year high. Employers slashed payrolls by a bigger-than-expected 159,000 in September, and the unemployment rate held steady at 6.1 percent, according to a Labor Department report on Friday.

Manufacturing activity has fallen off a cliff. After looking resilient for months, the September survey by the Institute for Supply Management showed manufacturing was at the lowest since after the Sept. 11, 2001 terrorist attacks. It was the biggest one-month decline since January 1985.

"Such a big drop would be remarkable under any circumstances, but the element of surprise in this report was especially big because there was no warning of it," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

All this gloomy data is convincing economists that a recession is upon us, with the gross domestic product possibly contracting in the third quarter for the first time in this economic downturn.

They say the Federal Reserve might have to lower its overnight bank lending rate, which has already gone from 5.25 percent to 2 percent in the last year. Fed Chairman Ben Bernanke and his colleagues may even have to make that move before the central bank holds its next regularly scheduled meeting on Oct. 28-29.

Even if they did cut the key rate, many economists believe it won’t have a lasting effect unless lending begins to thaw.

Until then the wait continues, and the economy will suffer more.

RACHEL BECK IS THE NATIONAL BUSINESS COLUMNIST FOR THE ASSOCIATED PRESS.

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WASHINGTON–New applications for unemployment benefits rose slightly last week to a seven-year high due to a weakening economy and the impact of Hurricanes Ike and Gustav, the Labor Department said Thursday.

The department reported that initial claims for jobless benefits increased by 1,000 to a seasonally adjusted 497,000. That's significantly above analysts' estimate of 475,000. The total is the highest since just after the Sept. 11 terrorist attacks seven years ago.

U.S. stock futures declined on the report. Dow Jones industrial average futures dropped 102 to the 10,785 level, pointing to a lower opening for shares.

The hurricanes, which hit Texas and Louisiana earlier this month, added about 45,000 claims from the two states for the week ending Sept. 27, the department said.

The hurricanes have led to higher claims for several weeks. As a result, the four-week average of claims, which smooths out fluctuations, jumped to 474,000, up 11,500 from the previous week.

In the week ending Sept. 20, Texas reported a 22,235 jump in claims, while Louisiana said claims rose by 9,671.

The number of people continuing to receive benefits increased to 3.59 million, up 48,000 and higher than analysts' estimates. That's the highest total in five years.

Jobless claims are at elevated levels even excluding the hurricanes. Weekly claims have now topped 400,000 for 11 straight weeks, a level economists consider a sign of recession payday loans in 1 hour. A year ago, claims stood at 324,000.

The economy is struggling with the financial crisis and slowing consumer spending, leading to increased layoffs by the nation's employers.

Economists expect a separate Labor Department report Friday on payrolls to reflect further weakness in the labor market. They predict the report will show that the nation's employers cut 100,000 jobs last month. That's on top of 605,000 jobs that were eliminated in the first eight months of this year.

The report is expected to show that the jobless rate remains at 6.1 percent. The rate jumped above 6 percent for the first time in five years in August.

The financial crisis will likely cause greater job cuts in the coming months. Several large, troubled banks have been bought by competitors and layoffs are likely.

Citigroup Inc. on Monday purchased Wachovia Corp., which had about 120,000 employees. JPMorgan Chase & Co. last week bought Seattle-based Washington Mutual, which employed roughly 43,000.

Several companies have announced layoffs in the past week, including aluminum company Alcoa Inc., auto retailer CarMax, Inc. and chicken producer Pilgrim's Pride Corp.

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Britain is set to nationalize troubled bank Bradford & Bingley on Monday after Spanish bank Santander agreed to buy its retail deposits and branch network.

B&B would be the second British bank nationalized this year and the latest in a string of high-profile banks in Europe and the United States to fall victim to the global credit crunch.

Santander will pay about 400 million pounds ($735 million) to acquire 2.7 million Bradford & Bingley customer savings accounts containing some 21 billion pounds of deposits, a company spokesman said.

It will also take over the mortgage lender’s network of around 200 branches, the spokesman said. The B&B brand will remain for now but the accounts will transfer to Abbey, a British bank bought by Santander in 2004.

Finance minister Alistair Darling is expected to announce plans early on Monday to nationalize the remainder of Bradford & Bingley, people familiar with the matter said free credit report.com.

The Treasury led intense talks on the rescue of Britain’s 9th biggest mortgage provider over the weekend.

The government would have preferred a private-sector buyer to acquire all of B&B, but rivals appeared unwilling to take on B&B’s 41 billion pound residential mortgage portfolio amid the global credit crisis and weakening British housing market.

B&B shares tumbled to a record low on Friday and closed at 20 pence, valuing the company at less than 300 million pounds. 

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Coca-Cola Co (KO.N: Quote, Profile, Research, Stock Buzz) plans to seek approval under China’s antitrust law for its $2.5 billion bid for top domestic juice maker Huiyuan, the final obstacle to what would be the largest foreign takeover of a local firm.

Analysts and lawyers said the application will be closely watched as it is the first case to test the nascent law.

Fears that the deal — which critics warn would mark the loss of a local champion to foreign control — could be derailed under the anti-monopoly regulations, have helped push down Huiyuan Juice Group’s (1886.HK: Quote, Profile, Research, Stock Buzz) shares 13 percent from its year high on Sept 3, struck after the purchase was announced.

“This will be the very first case under China’s antitrust law, implemented on August 1,” Huiyuan’s Chief Financial Officer Francis Ng told a news conference on Wednesday cashadvance.com.

“The offer price had been carefully considered by both the buyer and the sellers,” said Ng, when asked whether he thought the offer price was fair.

Coca-Cola’s Hong-based spokesman Kenth Kaerhoeg said: “We will obviously comply with the process, and we’ll facilitate it based on what the regulators ask of us.”

“It would be inappropriate to comment on the regulatory process,” he added.

The European Union Chamber of Commerce in China said on Tuesday rising economic nationalism was deterring investment by European companies and hampering access to the domestic market, saying the Huiyuan deal would be a litmus test of Beijing’s attitude toward foreign business. 

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Stephen Fleming has been named president and chief executive officer of RCB Corp. and River City Bank, the largest locally owned bank in the Sacramento region.

Fleming, a 25-year banking veteran, replaces Jeanne Reaves, who will continue her director positions with the bank and RCB boards. RCB is the holding company of River City Bank.

Fleming will oversee the daily operations of River City, an $861 million-asset bank based in Sacramento. He has been a senior executive with Bank of America in the Sacramento region and London, chief executive officer of National Bank of the Redwoods in Santa Rosa, and was the co-founder and CEO of Presidio Bank in San Francisco.

“His diverse banking experience adds a dimension that matches the ever increasingly diverse business climate of the Central Valley,” RCB and bank chairman Jon Kelly said in a news release late Friday free credit reports. “I have known Steve for more than 20 years and am excited about the leadership skills that he will bring to our team as we look to prudently accelerate our growth.”

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Automakers are expected to post a 10th consecutive month of U.S. sales declines on Wednesday as incentives on slow-selling trucks and SUVs and General Motors Corp’s employee pricing promotion failed to ignite demand from struggling consumers in August.

Analysts see automakers posting double-digit declines in U.S. auto sales for August — adding to the longest monthly losing streak for the industry since the domestic recession of 2001.

U.S. auto sales may have been down anywhere from 14 to 19 percent industrywide in August from a year earlier, according to analysts, but should have been up slightly from the 16-year low reported in July.

August sales are expected to reflect the continued shift toward smaller, more economical passenger cars and away from large pickup trucks and SUVs, as well as some difficulty supplying fuel efficient vehicles customers want.

U.S.-based GM, Ford Motor Co and Chrysler LLC — which have a much higher percentage of sales linked to the larger vehicles than transplant carmakers — are expected to have felt the most impact from the continued shift.

Toyota Motor Corp, the No bad credit payday loan. 2 auto seller in the United States, is also expected to report sales declines. Analysts see Honda Motor Co Ltd’s sales ranging from a slight gain to a big decline and Nissan Motor Co Ltd posting sales growth of about 2 percent.

“Light vehicle sales in the U.S. appear to have continued at depressed levels through August, despite the very generous incentive programs that several major manufacturers have launched in recent weeks,” Lehman Brothers analyst Brian Johnson said in a note to clients.

Auto sales are a closely watched and early key indicator of consumer demand in the United States for big ticket items, with investors focused on whether the second-quarter economic growth will be sustained through the rest of 2008. 

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Gas prices zoomed higher in states along the Gulf of Mexico as workers on offshore oil rigs abandon ship ahead of Hurricane Gustav which became a category 4 storm on Saturday.

Meanwhile, the national average price of gasoline crawled up for a second day in a row. A gallon of regular unleaded gas rose by about a penny to $3.682 a gallon overnight, according to the motorist group AAA.

The price increase was most dramatic in Mississippi, where the statewide average for unleaded gasoline rose about 4 cents a gallon on Saturday. Gas rose by about 5 cents a gallon in the coastal cities of Biloxi, Gulfport and Pascagoula, said AAA.

Gas also rose by about 4 cents a gallon in Louisiana. Alabama saw a daily increase of about 3 cents. In Texas prices rose more than 2 cents, and in Florida prices rose by more than a penny, according to AAA. In New Orleans, gas prices rose by just over 4 cents a gallon. All of these areas are dependent upon oil rigs in the Gulf of Mexico as a major part of their oil supply.

In comparison, gas prices declined overnight in New York, New Jersey, California, states that are not directly dependent on the Gulf.

"Prices are more affected down South, while New York is supplied through [New York] Harbor," said Fred Rozell, oil analyst with the Oil Price Information Service.

Rozell said these increases are particularly painful to Mississippi, not just because the price increases are the most dramatic there, but because it’s a state where people tend to have less discretionary income.

"I think some of those areas are going to get hit hard again and it’s really going to squeeze people," said Rozell.

Get ready for high gas prices: The price increases are likely to continue, said Rozell, partly because of the storm, and partly because of recent increases in wholesale gasoline prices, which tend to lead retail prices http://payday-faxless.com. Rozell expects prices nationwide to increase by 10 cents a gallon over the next five to seven days, or by 15 to 25 cents in the Gulf Coast states.

Hurricane Gustav smashed into the Dominican Republic and Haiti on Thursday, killing more than 50 people and causing extensive flooding. The storm headed west and whipped into Jamaica at midday on Friday. The storm crashed through the Caymans and Cuba as it headed for the Gulf of Mexico. It built into a category 3 hurricane and now threatens to smash into New Orleans and the surrounding region early next week.

If the storm continues along its projected course, it could threaten the 4,000 drilling platforms and 33,000 miles of pipeline in the Gulf Coast, which sends 1.3 million barrels a day to the Gulf Coast’s 56 refineries.

"We are seeing [gas price] increases here that are based on the possibility that there may be some supply dislocation," said Peter Beutel, oil analyst with the firm Cameron Hanover. "That would affect supply close to the affected area, as opposed to anywhere else." 

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