Wednesday, October 21, 2009

Obama to Offer Banks Capital for More Small Businesses Lending

By Rebecca Christie and Hans Nichols

Oct. 21 (Bloomberg) -- President Barack Obama plans to announce new measures to open up credit for small businesses, including capital injections for community banks to spur lending, the administration said. Community banks with less than $1 billion in assets will be eligible for lower-cost capital if they submit a small business lending plan and document their lending in quarterly reports, according to a White House fact sheet. If approved by regulators, these banks would pay the government an initial 3 percent dividend on the injection, instead of the previous 5 percent rate. Obama also will seek legislation raising the limits for Small Business Administration loans from $2 million to $5 million and as much as $5.5 million for manufacturing. The president will visit a small business in Maryland this afternoon to make the announcement, White House press secretary Robert Gibbs said. The Treasury Department will work with banks to develop program terms, including ways they could replace older, and more expensive, infusions from the Troubled Asset Relief Program. The Treasury also is looking at ways to expand its Community Development Financial Institutions program to promote small business lending, according to the administration statement. Some credit unions also will be eligible for capital assistance under the administration’s new plan, the first time those institutions have had access to the bank rescue funds, according to the fact sheet. Credit unions that qualify as community development financial institutions will be able to apply for capital injections in the form of subordinated debt.

Conference of Regulators

In addition, Obama will call for Treasury Secretary Timothy Geithner and SBA administrator Karen Mills “to convene a conference of regulators, congressional leaders and small business owners to establish further steps the government can take to help small businesses achieve greater access to capital,” Gibbs said this morning. Senate Democrats are pushing for more aid to small businesses to counter the perception that the administration is focusing on big banks. The announcement comes seven months after the Treasury’s March announcement of a $15 billion program to purchase pools of SBA loans, which so far has not been implemented. “We see continued evidence that Wall Street has been stabilized, but to date it seems that Main Street continues to struggle to create new jobs,” Senator Mark Warner, a Virginia Democrat on the banking committee, wrote in a letter to Obama yesterday that was signed by 30 other lawmakers. Co-signers include Senate Banking Committee Chairman Christopher Dodd of Connecticut.

New TARP Program

The lawmakers called on Obama to redirect bank rescue funds for community lending by creating a new program within the $700 billion TARP. The program suggests using federal financing to anchor a $40 billion pool to support new lending, accompanied by as much as $10 billion in private investment.

Gibbs said “Geithner’s announcement of TARP programs that had been set up for larger banks and were used also for the auto industry will begin to wind down.” Obama’s announcement today won’t dissuade Warner from pushing for further assistance to small businesses to make it easier for them to hire, aides said. “We certainly intend to continue working on this issue,” spokesman Kevin Hall said. Some Republican lawmakers argued that Obama’s small- business initiative won’t make a difference if Congress places new tax burdens on companies by enacting health-care legislation.

Pink Slip

“The president offering bailout funds to small businesses while pushing a government takeover of health care is like getting a Christmas bonus right before you get a pink slip,” said Indiana Representative Mike Pence, chairman of the House Republican Conference. House Republican Leader John Boehner said lower taxes and other policies to help small businesses invest in equipment and jobs are needed to restart the economy. “Until we get the small businesses working again, we are not going to get the economy working again,” he said. Uncertainty about more expenses contained in health-care and energy legislation is causing small business owners “to sit on their hands,” he said.

Fiat 3Q Trading Pft Down 62%, Write-Offs Seen

By Gilles Castonguay (Wall Street Journal)


MILAN (Dow Jones)--Italian auto maker Fiat SpA (F.MI) Wednesday posted a 62% drop in quarterly trading profit as the recession hit its sales hard, and it spoke of possible write-downs due to its partnership with Chrysler Group LLC. The warning is one of the first signs that its holding in the U.S. car maker, brokered by the U.S. government earlier this year, could weigh on its earnings even though Fiat had vowed it would not cost it any money.

"This is a sign that it might have an impact on its P&L," one London analyst said on condition of anonymity. In June, Fiat took a 20% stake and full management control of Chrysler. Fiat said it was reviewing the carrying value of some investments in platforms and architectures, especially in its cars, as it aligned its business with that of the U.S. company. "The group may revisit the future viability of some of its past investments, necessitating the write-off, as unusual items, of these legacy investments," it said. "They will not have a cash impact."

Fiat Chief Executive Sergio Marchionne declined to elaborate on a conference call with analysts ahead of the Nov. 4 presentation of his plan to revive Chrysler. UBS analyst Philippe Houchois said it likely meant ditching old platforms at the cost of hundreds of millions of euros. For the third quarter, Fiat's net profit tumbled 95% to EUR25 million, as revenue fell 16% to EUR12 billion. Its closely-watched trading profit - operating profit excluding exceptional items - totaled EUR308 million, ahead of analysts' expectations of EUR260 million, according to a Fiat poll.

"Aggressive cost containment actions helped mitigate the effect of revenue declines and pushed trading margins up to 2.6% (against 2.4% in the second quarter)," Fiat said in a statement. Like other car makers, the Turin-based maker of Fiat, Alfa Romeo and Lancia cars has suspended some production at its factories, cut costs and reduced cash burn in the face of the downturn. Fiat confirmed its 2009 targets, including a group trading profit exceeding EUR1 billion and a net industrial debt of less than EUR5 billion. Marchionne told analysts he expected Fiat to produce a trading profit of EUR1.5 billion in 2010 on a 2%-3% rise in sales as long as the government in its home market of Italy extended its scrapping scheme in some form beyond the Dec. 31 deadline.

Fiat and other manufacturers have had a fillip over the summer and autumn with demand for their cars being bolstered by government schemes across Europe to encourage the scrapping of old cars and the purchase of new, less polluting ones. Industry experts fear demand will fall once more when the scrapping schemes end. As for its Iveco truck and CNH (CNH) agriculture and construction equipment units, Fiat said it expected them to keep facing depressed demand for the whole year. Fiat shares ended 2.05% down at EUR11 in Milan, following the whole European auto sector lower following the publication of lower sales figures by France's PSA Peugeot-Citroen (UG.FR) earlier Wednesday. One Milan analyst cited profit-taking after a surge in Fiat's stock ahead of its results as well as speculation on the extent of the write-offs.