February 23, 2012

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Business: Ford pours $3.8 billion into pension plan, eyes shift to bonds

February 22, 2012 By Leave a Comment
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(Reuters) - Ford Motor Co (F.N) is pouring $3.8 billion into its global pension plan this year and will invest its plan assets more heavily in bonds, as the second-largest U.S. automaker moves more aggressively to minimize its pension risks in a shaky market. The planned cash injection, detailed in its annual securities filing posted on Tuesday, dwarfs the $1.5 billion Ford contributed in 2011. Ford also said 80 percent of its U.S. pension plans will be invested in bonds within "the next several years." Funds outside the United States have similar goals. The outsized cash contribution and shift to bonds reflect Ford's push to offset the challenges posed by rock-bottom interest rates, market volatility and lower expectations for investment returns. "With the lower returns, over time you need to be putting more into the plan to meet your liabilities," Morningstar analyst David Whiston said. "Your liabilities don't change. You still have to fund the plan." Assets in Ford's pension plan earned 7.7 percent in 2011, better than the broader U.S. stock market, which was flat, but lower than the expected 8 percent return. Ford's long-term return forecast is now 7.5 percent. In the filing, Ford said it expected its pension assets to match future benefit obligations in the next few years. If Ford fully funds its pension plans by around 2015, the stock could spike to $24 a share, nearly double its current level, Citigroup analyst Itay Michaeli said last month. Since Ford has already reinstated its dividend and chances for a share buyback are slim, Whiston of Morningstar said "the next best use of cash" is for Ford to fund its pension plan. Other major companies, including Boeing Co (BA.N) and Alcoa (AA.N), plan large cash payments to their pension plans this year. Ford's payout will be funded by cash from its automotive operations. MINIMIZING VOLATILITY Ford last month reported a lower-than-expected fourth-quarter profit as operations outside North America fell short of expectations and commodity costs shot up across all regions. At the end of 2011, Ford's U.S. benefit obligations came to nearly $49 billion. Outside the United States, Ford's pension liability totaled a little more than $25 billion. The size of a pension obligation is based on two factors - discount rates and the expected return on plan assets. Both rates and expected returns are now falling, forcing companies to have more cash on hand to meet payments. Over time, Ford plans to invest 80 percent of its U.S. pension plan assets in bonds. The remainder would be invested in "growth assets," including hedge funds and real estate. "We believe this is a prudent way to further minimize the volatility of our pension assets relative to the liabilities," Ford spokesman Todd Nissen said of the company's plan to shift more assets into fixed income investments. As recently as 2006, Ford targeted 70 percent in equities. Starting in 2007, Ford changed its goal and aimed … [Read more...]

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Business: Peugeot and GM discuss production deal – sources

February 22, 2012 By Leave a Comment
A combination photograph shows the car logos of Peugeot, Vauxhall and Opel

(Reuters) - General Motors (GM.N) and PSA Peugeot Citroen (PEUP.PA) are discussing a broad manufacturing alliance designed to stem losses in Europe and lower production costs elsewhere, sources with knowledge of the matter said. Talks between GM, the world's biggest automaker, and European no.2 Peugeot are focused on sharing vehicles and parts rather than a capital tie-up, according to the people. Any new shareholdings that emerged would be small and symbolic. Peugeot earlier acknowledged that alliance talks were taking place with an unnamed partner, sending its shares soaring after online newspaper La Tribune reported that discussions with GM had been underway for months. "There can be no certainty at this stage that these discussions will result in any agreement," the Paris-based company said, without elaborating. "We routinely talk to others in the industry but have no comment beyond that," GM spokeswoman Kelly Cusinato said. While potential synergies have been identified, Peugeot is treading cautiously to avoid building expectations, mindful of the 2010 failure of advanced tie-up talks with Mitsubishi Motors (7211.T). Like Peugeot, GM's European Opel division faces heavy restructuring to reverse losses compounded by the region's slumping auto market and cut-throat price competition. Peugeot on February 15 announced new cost cuts and put its Gefco logistics business up for sale to help finance the overseas expansion it badly needs to reduce exposure to stagnating home markets. With similar overcapacity problems and dependence on Western European small-car buyers, Peugeot and Opel have little to offer one another in the region, Credit Suisse analyst Erich Hauser said. "We struggle to see how yet another 'me-too' cooperation with GM Europe on componentry will help address any of the fundamental issues," Hauser said in a note to clients, reiterating the bank's "sell" rating on Peugeot stock. The French automaker's shares were up 9.5 percent as of 0849 GMT, paring the stock's 50 percent decline over 12 months - the worst performance on the 15-member Stoxx Europe autos and parts index .SXAP. One area of potential European cooperation is commercial vans, where Peugeot has said it is seeking a partner to replace Fiat (FIA.MI) after the Italian car maker withdraws from their Sevelnord joint venture in 2017. But the Peugeot-GM alliance under discussion includes shared manufacturing beyond Europe, the sources said. It would amount to more than a product-specific deal of the kind PSA also has with Ford (F.N), Toyota (7203.T) and BMW (BMWG.DE). In its earlier statement, Peugeot said it was pursuing talks "in the context of its globalization strategy" and to improve operational performance. A planned India factory may be opened to a new partner, Chief Executive Philippe Varin disclosed last week, after freezing the project in January to save cash. In presentations to analysts and reporters, Peugeot also said it was … [Read more...]

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Insight: Fed housing blueprint lost in din of politics

February 21, 2012 By Leave a Comment
U.S. Federal Reserve Chairman Ben Bernanke testifies before a Senate Budget Committee hearing on the outlook for the U.S. Monetary and Fiscal Policy on Capitol Hill in Washington, in this February 7, 2012 file photograph.

(Reuters) - In mid-2011, with the U.S. economy at risk of a new recession, top Federal Reserve officials began to explore a different way to shore up the recovery: looking for fixes for the battered housing market. The central bank had just wrapped up $2.3 trillion in bond purchases in an unprecedented attempt to snap the United States out of its economic blues. But its efforts were being frustrated. With nearly one in four Americans owing more on their mortgages than their homes were worth, millions remained locked out of credit markets and unable to reduce the cost of their loans. The Fed's board in Washington gathered a task force of around 30 staff and put them to work far from the public gaze on ways to turn around the worst housing slump in generations. More than six months later, the central bank surprised lawmakers with a string of proposals, including deploying the firepower of the massive U.S. housing finance agencies Fannie Mae and Freddie Mac to help struggling homeowners. But rather than spurring fresh debate among decision-makers in Washington on how to fix the housing market, the Fed put itself in the sights of Republicans angry at what they saw as election-year meddling, an intrusion on Congress' turf and a veiled attempt to further the Obama administration's agenda. "I was truly taken aback when just recently, as you know, the Fed issued an unsolicited white paper ... on housing policy where, if you didn't advocate for, you certainly mirrored much of the positions of this administration," Republican Representative Scott Garrett told Fed Chairman Ben Bernanke. "Why would you issue such a paper when we don't ask for it?" Bernanke was in an uncomfortable spot, and he issued what amounted to a rare public apology at the February 1 hearing. "We were trying to provide pros and cons, analysis, background -- I'm sorry if you think we went too far," he said. Fed officials were taken aback by the hostile reaction. They say they intended their work to be a good-faith effort to pinpoint policy changes that could help the shell-shocked economy. The 33 percent plunge in U.S. house prices since 2006 has wiped out an estimated $7 trillion in wealth. Their political miscalculation may have undermined one of their main hopes: building bipartisan consensus around ideas that could get the housing market off the ropes. "It wasn't that hard to predict that if you put out a white paper with specific housing proposals that are very political, you're going to get a political reaction and that might in fact not be productive," said former Fed staffer Julia Coronado, now chief North America economist for BNP Paribas in New York. CULTURE CLASH The Fed ran headlong into a culture clash between its own cerebral, deliberative norms and the sound-bite driven, polarized election-year political environment on Capitol Hill. The interest-rate sensitive housing sector usually helps lead economic recoveries, but this time was … [Read more...]

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Analysis: Euro zone gropes for way out of state-bank dependency

February 20, 2012 By Leave a Comment
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(Reuters) - Like drunks at a bar door, the euro zone's governments and banks are leaning unsteadily on each other for support. The banks know they have to sober up, but governments are urging them to have one more for the road. Europe's policymakers may have managed to stop the entire building from swaying in the last few weeks, but they have not yet found a way to break the dangerous mutual dependency between over indebted states and overleveraged banks. "If you don't cut the dependency between sovereigns and banks, inevitably states will be inhibited by the risks of their banks and banks will be inhibited by the risks of their states," said Jean Pisani-Ferry, director of the Brussels-based Bruegel economic think-tank. For almost a decade, European banks binged on euro zone sovereign debt, with the blessing of national regulators, making little distinction between German Bunds, Italian treasuries and Greek government bonds. They have learned the hard way that there's no such thing as a risk-free asset. When the true scale of Greece's public debt and deficit was revealed at the end of 2009, the market panicked, setting off a vicious cycle of rising interest rates, credit rating downgrades and bank liquidity problems. Economists call this a "negative feedback loop." Weakened governments are less able to guarantee their domestic banks, which in turn are weakened by the dwindling value of their sovereign bond holdings. When credit ratings agencies downgrade states such as Italy, Spain or Portugal, that automatically hits banks that hold their governments' debt, often leading to those banks having their own ratings cut and facing an increased cost of credit. That in turn makes banks less able to lend to business, reducing the country's economic growth potential and hence its ability to repay its debt. So the vicious cycle goes. In the worst case, it could trigger a run on a bank that might precipitate a chaotic sovereign default. Silent bank runs have been taking place invisibly across southern Europe over the last year as depositors have withdrawn funds, especially from Greece, but a damaging public stampede has been avoided so far. Data collated by Bruegel from national sources shows foreign investors reduced their holdings of bonds of Europe's weakest states between 2007 and mid-2011, while domestic banks increased their exposure substantially during the same period. This exacerbated their mutual vulnerability. According to the most recent available figures, which pre-date the latest sell-off of bank assets, Spanish banks owned 27 percent of their government's debt. The figure for Portugal was 22.4 percent and for Greece 19.4 percent. "DOOM LOOP" Many banks chose to reduce their sovereign bond holdings after the European Banking Authority ordered them to mark them to market value in stress tests, and to raise their core capital ratio to 9 percent by mid-2012. The European Central Bank narrowly prevented … [Read more...]

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No sense in splitting Greek aid package: German finance minister

February 19, 2012 By Leave a Comment
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(Reuters) - It would make no sense to split the second bailout program for Greece, German Finance Minister Wolfgang Schaeuble was quoted as saying by the weekly Tagesspiegel am Sonntag. "If Greece gets all the necessary approvals and implements reforms and clears other matters, then it will be able to get the second aid package," Schaeuble said. "A staggered agreement or an agreement step by step would not be constructive." "We will decide on a whole program on Monday," he added. Sources told Reuters on Wednesday that euro zone finance officials had been examining ways of delaying part or all of a 130 billion euro bailout for Greece. But European leaders expressed optimism on Friday that Greece would secure the whole of the new rescue package worth 130 billion euros after Athens set out the remaining cuts in a 3.3 billion euro austerity package. Schaeuble also defended himself against the criticism of Greek President Karolos Papoulias, who angrily accused him of insulting Greece. "I do not know any Mr Schaeuble who would do such a thing," he said. "Perhaps the Greek President heard something wrong." He said that all finance ministers in the euro zone had been fighting for two years to stabilise the euro, "and in particular to stabilize Greece." Schaeuble said the euro zone was not setting new conditions for aid, but it was necessary for Greece to give "sufficient guarantees that it will stick to that which has been agreed independently of the outcome of the elections." Schaeuble has twice this week spoken of Greece as a "bottomless pit," causing outrage in Greece and fueling suspicion that north Europeans may be preparing to push Athens out of the euro zone - comforted by calculations that this would no longer destroy the euro. (Reporting By Sarah Marsh; editing by Tim Pearce) … [Read more...]

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Business: Megaupload faces more copyright, wire fraud charges

February 18, 2012 By Leave a Comment
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(Reuters) - A U.S. grand jury added more charges against file-sharing website Megaupload and its executives, and also accused them of taking copyrighted content from sites such as YouTube for its own service, according to a new indictment released on Friday. The founder, Kim Dotcom, and six others employed by the site were charged with eight additional counts of copyright infringement and wire fraud. They were originally charged with five counts of conspiracy and copyright infringement. Dotcom and four of his co-workers have been arrested and are awaiting extradition proceedings in New Zealand and the Netherlands. Two suspects remain at large. They have been charged in a federal court in Virginia with a making millions of dollars from peddling copyrighted materials, including popular television shows, movies and music to millions of users around the world. A lawyer for Megaupload was not immediately available for comment. Previously a lawyer for the company said the site served merely as a place for users to store data online and the company has said previously it took down content upon request. The superseding indictment said the Megaupload site had 66.6 million registered users as of January 2012 and just under 10 percent had ever uploaded a single file, suggesting most people used the site only to download infringed material, according to the Justice Department. The indictment also accused the group of taking copyrighted material from sites such as Google's YouTube video service for use on Megaupload websites. The Megaupload service has been shut down. The case is USA v. Kim Dotcom et al, No. 12-cr-3, in U.S. District Court for the Eastern District of Virginia. (Reporting By Jeremy Pelofsky; editing by Andre Grenon) … [Read more...]

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Exclusive: Ally Financial weighs sale as IPO looks bleak

February 17, 2012 By Leave a Comment
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(Reuters) - Ally Financial is weighing a sale of all or part of its auto lending and banking businesses, as an initial public offering looks increasingly remote and the U.S. government seeks to recoup some $17 billion in bailout money, sources familiar with the situation said. Ally, which is 73.8 percent owned by the U.S. government, is already in the process of selling its mortgage unit, Residential Capital, and sale of other assets could happen even as that continues, one of the sources said. The logical universe of buyers for Ally's core operations include big banks such as JPMorgan Chase & Co (JPM.N), Toronto-Dominion Bank (TD.TO) and Wells Fargo & Co (WFC.N), as well as auto makers such as General Motors Co (GM.N), the sources said. The discussions on whether to sell the auto lending operations or its online bank are at very early stages, the sources said. They said no decisions have been made on what path to pursue, with an IPO also remaining a possibility. It wasn't clear what these assets would be worth in a sale. Last year sources said Ally was planning to raise around $6 billion in common stock and convertible securities through a public offering though the size of that offering was not disclosed. TD declined to comment, while Ally, JPMorgan, Wells and GM were not immediately available for comment on Thursday evening. The talks about a potential sale of Ally come as the subject of bailouts becomes a contentious political issue in an election year, likely mounting pressure on the U.S. government to show progress at Ally and others that received taxpayer-funded rescues. U.S. presidential hopeful Mitt Romney has criticized President Barack Obama's $81 billion auto industry bailout in 2009 as "crony capitalism" that rewarded unions and other political allies of the president. Ally, the former lending arm of General Motors, ran into trouble during the financial crisis as its mortgage loans soured, forcing the government to inject more than $17 billion into it in 2008-2009 to keep the company afloat. Ally has said it has since repaid the government $5.4 billion. The government took a controlling stake in Ally, and cut the stakes of its other shareholders. Private equity firm Cerberus Capital Management CBS.UL now owns 8.9 percent of the company, General Motors Trust 5.9 percent and General Motors itself 4 percent. Ally put forward a plan to go public in June last year. But it had to postpone the IPO as problems mounted at ResCap and market conditions deteriorated in the wake of the European sovereign debt crisis. The company's problems include getting dragged into a nationwide furore over faulty housing foreclosures and the mishandling of requests for loan modifications. Earlier this month it was among five big U.S. banks that agreed to a $25 billion government settlement. The market for IPOs also remains difficult, thanks in part to the euro zone debt crisis, leaving Ally and the Treasury to think about other … [Read more...]

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Business: After MF Global, traders hold tight to excess collateral

February 17, 2012 By Leave a Comment
The sign marking the MF Global Holdings Ltd. offices at 52nd Street in midtown Manhattan is seen in New York

(Reuters) - Until last October, farmers and fund managers rarely lost sleep over the extra money that they habitually maintained in their brokerage accounts, confident that it would be there the next morning. Now, stung by the loss of customer money from the failure of MF Global Inc, many cannot sleep soundly without transferring every spare cent into their own banks overnight. It is a sea change in the way that traders manage their "excess collateral" -- cash on account that is over and above the margin required to guarantee their trades. It means that floor traders and corn growers are spending more time, and in some cases money, moving cash in a process known as "sweeping." It is also one the clearest examples of the damaged trust between futures commission merchants and their customers in the wake of MF Global, which had been the country's most active commodity broker. Former clients are still missing over $1.5 billion of their MF Global funds, much of that "excess." For now, the impact of this change is limited. An extra hassle for some traders, more paperwork for brokers, and a boon for boutique firms that specialize in managing cash. But if interest rates begin to rise, the independent brokers hit hardest by the MF Global collapse will rue the loss of income. "For the clients who haven't taken advantage of this, they are doing it more now," says Pauline Modjeski, president of Chicago-based Horizon Cash Management, which helps manage about $2.5 billion of cash on behalf of dozens of funds and traders. "As opposed to sweeping large cash balances once in awhile, we're sweeping large cash balances every day." This week, for the first time, regulators put a precise number on the excess cash: $10.6 billion at the end of December, some 6.8 percent of total segregated funds, according to figures from the U.S. Commodity Futures Trading Commission. Previously the CFTC had only published a figure for "required segregated funds" to cover margins. The new figure for the first time included the total assets in customer accounts, explicitly noting the surplus cash that traders often keep on hand either because they intend to open new trades or for the ease of covering any increase in margins. One large trader said the excess figures appeared to be about half as much as would typically be left on account, and a half-dozen industry figures all agreed that "sweeping" accounts was far more prevalent now than before the October 31 bankruptcy. The reason is clear: The unprecedented misappropriation of segregated funds has shaken faith in one of the most fundamental cogs in the futures market. More than three months since the collapse, former MF Global customers have only recovered about 72 percent of their total collateral. The trustee said last week that he is still $1.6 billion short of the funds needed to make customers whole. MARGIN MANAGEMENT Collateral is in many ways the lifeblood of the futures market. It is needed … [Read more...]

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Exclusive: Clinton in talks about possible move to World Bank

February 16, 2012 By Leave a Comment
U.S. Secretary of State Hillary Clinton arrives for a news conference after the third contact group meeting on Libya, in Abu Dhabi

(Reuters) - Secretary of State Hillary Clinton has been in discussions with the White House about leaving her job next year to become head of the World Bank, sources familiar with the discussions said on Thursday. The former first lady and onetime political rival to President Barack Obama quickly became one of the most influential members of his Cabinet after she began her tenure at State in early 2009. She has said publicly she did not plan to stay on at the State Department for more than four years. Associates say Clinton has expressed interest in having the World Bank job should the bank's current president, Robert Zoellick, leave at the end of his term, in the middle of 2012. "Hillary Clinton wants the job," said one source who knows the secretary well. A second source also said Clinton wants the position. A third source said Obama had already expressed support for the change in her role. It is unclear whether Obama has formally agreed to nominate her for the post, which would require approval by the 187 member countries of the World Bank. White House Press Secretary Jay Carney denied the discussions. "It's totally wrong," he told Reuters. A spokesman for Clinton, Philippe Reines, denied Clinton wanted the job, had conversations with the White House about it or would accept it. People familiar with the situation, told of the denials from the White House and State Department, reaffirmed the accuracy of the report. Revelations of the discussions could hurt Clinton's efforts as America's top diplomat if she is seen as a lame duck in the job at a time of great foreign policy challenges for the Obama administration. Under normal circumstances, names of potential candidates for the World Bank would not surface more than a year before the post becomes vacant. But the timing of the discussions is not unusual this year given the sudden opening of the top job at the bank's sister organization, the IMF, after Dominique Strauss-Kahn's resignation following his arrest on charges of sexually assaulting a hotel maid in New York. The World Bank provides billions of dollars in development funds to the poorest countries and is also at the center of issues such as climate change, rebuilding countries emerging from conflict and recently the transitions to democracy in Tunisia and Egypt. WOMAN HAS NEVER HEADED WORLD BANK OR IMF The head of the International Monetary Fund has always been a European and the World Bank presidency has always been held by an American. That gentleman's agreement between Europe and the United States is being aggressively challenged by fast-growing emerging market economies that have been shut out of the process. The United States has not publicly supported the European candidate for the IMF, French Finance Minister Christine Lagarde, although Washington's support is expected. Neither institution has ever been headed by a woman. If Clinton were to leave State, John Kerry, a close Obama ally … [Read more...]

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Business: U.S. banks agree to $25 billion in homeowner help

February 16, 2012 By Leave a Comment
U.S. Attorney General Eric Holder and U.S. Housing and Urban Development Secretary Shaun Donovan announce $25 billion agreement with mortgage servicers in Washington

(Reuters) - Five big U.S. banks accused of abusive mortgage practices have agreed to a $25 billion government settlement that may help roughly one million borrowers but is no magic bullet for the ailing housing market. Thursday's announcement brings an end to 16 months of negotiations that culminated in a tense week of round-the-clock dealmaking. The result is a record state-federal settlement that will deliver wide, but not deep, relief to U.S. homeowners. The deal, to be spread out over three years, requires the banks to cut mortgage debt amounts and extend $2,000 payments to borrowers who lost their homes to foreclosure. It will also release the banks - Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc - from civil government claims over faulty foreclosures and the mishandling of requests for loan modifications. But the banks still face a host of other potential government enforcement actions and investor lawsuits related to their packaging of home loans into securities, and other mortgage-related activities. "The bottom line about this settlement, is it's okay, it's a step forward, it's a step in the right direction. But let's not kid ourselves, there's a hell of a lot more that needs to be done," said Ira Rheingold, executive director of the National Association of Consumer Advocates. California, the state that has suffered around one-third of the country's foreclosures in the past few years, will receive an outsized portion of the relief, some 45 percent, after its attorney general held out for a better deal. And Bank of America, the bank with the most liability from the fallout of the housing crash, will pay the lion's share of the settlement - $11.8 billion of it. Home values have dropped 33 percent from a 2006 peak that was fueled by generous loans, often to people with dubious credit records, and nearly 11 million Americans now owe more than their homes are worth. The housing settlement gives President Barack Obama, as he seeks re-election in November, a chance to show his administration is willing to get tough with big banks to help ordinary Americans survive the pain of the nation's foreclosure crisis. "We have reached a landmark settlement with the nation's largest banks that will speed relief to the hardest hit homeowners in some of the most abusive practices of the mortgage industry and begin to turn the page on an era of recklessness that has left so much damage in its wake," Obama told a news conference on Thursday. The settlement is one piece of a larger package of relief efforts the administration hopes will boost the housing market, after prior programs to modify loans fell short of expectations. RELIEF BREAKDOWN The deal with 49 states and federal agencies, including the U.S. Justice Department and the Department of Housing and Urban Development, is being billed as the largest federal-state settlement ever obtained. The investigation started … [Read more...]

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