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)

Of DOW JONES NEWSWIRES

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.

Alcoa Posts Surprise Profit on Cost Cuts

By KATHY SHWIFF (Wall Street Journal)

Alcoa Inc. posted a third-quarter profit–after three quarterly losses in a row–surprising Wall Street, which had expected another loss, and getting the third-quarter earnings season off to a good start. Chief Executive Klaus Kleinfeld said cost-cutting and other steps the aluminum giant took earlier this year had a strong effect on the cash position and profit. "Despite unfavorable currency and energy headwinds, our performance this quarter indicates that Alcoa is weathering the economic storm and is in excellent shape to benefit when the market recovers," he added. Alcoa, the first blue-chip company to release quarterly results, said it sees signs that key markets are stabilizing and predicted global aluminum consumption would increase 11% in the second half of 2009. The company has cut output and costs during a brutal period for the aluminum industry, saving $1.61 billion in procurement costs and $375 million in overhead so far this year. Reductions in working capital generated $780 million in cash. Alcoa said it finished the quarter with $1.1 billion of cash on hand, up 29% from the end of the second quarter.

The company also has been investing in areas expected to recover early from the economic downturn, ranging from a construction-products factory in Russia to a small fasteners business in Morocco to sections of the oil-and-gas industry. Alcoa reported a profit of $77 million, or 8 cents a share, down from a year-earlier profit of $268 million, or 33 cents a share. The latest results included 3 cents a share in restructuring and other charges. Prior-year results included a 4-cent charge related to the curtailment of a smelter in Texas. Excluding items, earnings were 4 cents a share in the latest period. Revenue dropped 34% to $4.62 billion. Analysts' estimates were for a loss of 9 cents a share on revenue of $4.55 billion, according to a poll by Thomson Reuters. Alcoa's average realized aluminum price during the third quarter was $1,972 a metric ton, up 18% from the previous quarter. Shipments declined 8.3%. The company posted profits in all segments of its business, except primary metals. Alcoa's shares closed Wednesday up 2.2% at $14.20; trading was halted after hours. The stock, which has been rising recently on optimism about its results, has almost tripled from a 21-year low in March but is still down one-quarter from a year ago.

Russia lauds birthday strongman Putin

By Anna Smolchenko (AFP)

MOSCOW — An ode was published in his honour. A painting was given to him by the president. A novelist wished him a long life. And the Orthodox Church praised him for his tact. There was no shortage of leading Russians Wednesday queuing up to congratulate their favourite politician Vladimir Putin on his 57th birthday, with his critics still sidelined after 10 years in power. "Fifty-seven years is an average age," mused leading novelist Valentin Rasputin at a meeting Putin attended with some of Russia's best known writers.

"Today people live for a long time and statesmen -- the more they work... the more energies remain for the rest of the life," Rasputin was quoted as saying by Russia's official news agency ITAR-TASS. "God willing you manage the same. We wish everything goes well for you. And what is well? That means well for the country, well for us." Analysts say Putin, who served eight years as Russia's second post-Soviet president and has now settled comfortably into the role of prime minister, remains Russia's favourite politician. He is keeping the world in suspense over whether he is plotting a return to the Kremlin but if he wins the 2012 polls he is likely to stay in power for another 12 years, until he turns 72.

A Russian newspaper, the Nezavisimaya Gazeta, carried an ode in honour of Putin on its front page that stepped a fine line between eulogy and irony. "I congratulate you, comrade Putin/ And may God give you another 120 years," it said. Patriarch Kirill, head of the Russian Orthodox Church, extolled what he described as Putin's openness, wisdom and tact.

"With inherent tact you persistently defend the interests of the state, confirming the authority of power far outside the country's borders," he said in a statement posted on the Church's website. Putin's protege and now president, Dmitry Medvedev, also took the time to meet with Putin and presented him with a painting, the Russian television said. Earlier Wednesday, Putin met with some of Russia's leading writers at the Pushkin Art Museum in Moscow, pledging more financial aide for them in an apparent attempt to win the intellectuals' support. But several top writers, including author Dmitry Bykov and prize-winning novelist Lyudmila Ulitskaya, said they had declined invitations to meet Putin.

"I am not attending," Ulitskaya told AFP.

"I am leaving today on my holidays and I bought my tickets in advance," she added without giving further details. Later Wednesday, Bykov attended an event to mark the memory of Anna Politkovskaya, an anti-Kremlin journalist killed three years ago. Neither the Kremlin nor Putin made any statements regarding her unsolved murder in 2006.
Bykov told Moscow Echo radio that he would have considered attending, but Putin's birthday was a bad choice for the event.

"The fact it's on his birthday turns it into protocol. My upbringing does not allow me to see someone on his birthday and then talk about problems with him, to express criticism." Putin's spokesman Dmitry Peskov confirmed that several writers were unable to come but denied this was because of any objections towards the prime minister. Putin loses no opportunity to stress that he is in good physical health -- be it by posturing with a naked torso in the Russian wilderness or diving to the bottom of the world's deepest lake. Moskovsky Komsomolets, a newspaper seen as being close to the Kremlin, said Medvedev's main problem was the elite didn't consider him to be a decision maker. "At a time when the president makes his speeches, the prime minister makes all the real decisions," it said. "That's the main internal political challenge faced today by Dmitry Medvedev."

Dell to lay off 905 in plant closure

By David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Computer maker Dell announced on Wednesday that it will close a plant in Winston-Salem, N.C., and will cut 905 jobs as a result. Dell said that 600 plant workers will be laid off in November, and the remaining 305 employees will be cut by January 2010, when the plant is scheduled to close. The cuts represent about 1% of the company's 76,000 employees. "This is a difficult decision, especially for our North Carolina colleagues, but a necessary one for Dell customers and our company," said Frank Miller, vice president of Dell, in a statement. "The efforts of our team members there have been significant and we're committed to helping them through their transition."

The Winston-Salem plant was used to make desktop computers. The company said the plant closing is part of a larger effort to simplify Dell's operations and improve its efficiency. Dell began cutting back staff and closing plants in January. In late September, Dell bought tech services provider Perot Systems (PER) for $3.9 billion as part of an effort to seek an additional source of revenue. Until the Perot deal, Dell has strictly been a hardware company, selling PCs and servers to its customers. But businesses have relied less on hardware recently, buying fewer computers and outsourcing their servers during the recent economic recession. Consumers also made fewer desktop and laptop purchases during the downturn. That cut into Dell's sales and profit in recent quarters and sent the stock down to an 11-year low in March before rebounding in recent months. Shares of Dell (DELL, Fortune 500) fell more than 1% in afternoon trading.

U.S. Consumers Reduce Debt for Fifth Month in a Row

By JEFF BATER (Wall Street Journal

WASHINGTON -- Americans cut their borrowing a fifth time in a row in June, underscoring how consumer caution could dog the economy's recovery. Consumer credit outstanding fell at a seasonally adjusted annual rate of 4.9% to $2.503 trillion, according to Federal Reserve data. The drop outpaced analysts' expectations. The big retreat in borrowing points to weakness in the economy even as hints of recovery emerge. Earlier Friday, the government reported the U.S. unemployment rate edged down in July to 9.4%. Job losses were lower than expected, too. Last week, the Commerce Department reported gross domestic product receded April through June just 1.0%, far less than the contraction over the prior nine months.

But consumers are focusing on rebuilding their savings that have been slashed by the recession. Wall Street analysts had projected a $4.1 billion decline in consumer credit during June. The actual $10.3 billion drop marked the fifth consecutive decline. Consumer credit in May decreased $5.4 billion, adjusted down from a previously estimated $3.2 billion drop. Borrowing hasn't fallen so many months in a row since 1991, when credit fell June through December. Revolving credit, which includes credit-card use, dropped in June by $5.3 billion to $917.0 billion. It was the 10th drop in a row, which is a record. Revolving credit fell $4.9 billion in May. Non-revolving credit, including automobile and mobile home loans, decreased in June by 3.8%, or $5 billion to $1.586 trillion. Non-revolving credit in May decreased 0.4%, or $506 million.

The consumer-credit data exclude home mortgages and other real estate-secured loans. These tend to be highly volatile from month to month and are frequently revised. But the report still has interesting details on how Americans finance their lifestyles.

Cudia Will Succeed McGillin, World's Longest-Running Phantom, on Broadway

Howard McGillin will exit Broadway's The Phantom of the Opera on July 25 to pursue new projects. He leaves the Majestic Theatre after ten years — with some breaks in between — and takes with him a new record: world's longest-running Phantom.

At a record-breaking 2,450 performances and counting, McGillin has already played the title role more than any other performer on Broadway. His closest competition, as far as performance count, at just under 2,400 performances, is the late Rob Guest, who played the title role in Australia and New Zealand. Americans Franc D'Ambrosio — the longtime record-holder before Guest — and Brad Little follow with over 2,100 performances each.

After ten years since his first of many engagements with the production, McGillin has decided to pursue other theatrical ventures, according to a statement released May 7.

McGillin is a two-time Tony Award nominee as Best Actor in a Musical (Anything Goes) and Best Featured Actor in a Musical (The Mystery of Edwin Drood).

Read More At Playbill.com

Obama Pushes Broad Rules for Oversight of Derivatives

By STEPHEN LABATON (New York Times)

WASHINGTON — Marking its first major effort to overhaul financial regulation, the Obama administration will seek new authority to supervise the virtually unregulated complex financial instruments, known as derivatives, that were a major cause of the market crisis, Congressional aides and others who have been briefed on the decision said Wednesday.

The administration will ask Congress to approve legislation that would impose a new government oversight structure for the instruments, which Warren Buffett once called “weapons of mass destruction.”

In a two-page letter to Congressional leaders, Treasury Secretary Timothy F. Geithner asked for the swift approval of a measure that would require many kinds of derivative instruments, including credit default swaps, to be traded on exchanges and subject to tighter regulation. Derivatives can take many forms, but in total there are trillions of dollars’ worth exchanging hands every day around the globe.

The letter asked the lawmakers to give regulators the authority to impose new capital and business conduct requirements on the large Wall Street companies that issue the financial instruments. Capital requirements would, for example, require companies that issue derivatives to hold capital in reserve in case of a default, much the way banks must hold reserves when they make loans.

The letter leaves it to Congress to decide whether the Securities and Exchange Commission or the Commodity Futures Trading Commission would be playing the lead role in supervising the new system for trading such instruments.

People briefed on the plan said the administration had asserted four major principles guiding the legislative process. The legislation should be aimed at reducing trading practices that pose major risks to the financial system. The regulatory overhaul should promote efficiency and transparency in the markets. The legislation should discourage market manipulation and fraud. And it should protect investors.

Credit default swaps, a type of derivative instrument that acts like an insurance policy by protecting investors from defaults of mortgage backed securities, played a central role in the collapse of American International Group. The company, one of the largest issuers of such swaps, nearly collapsed as a result of issuing a huge volume of such instruments that it was unable to support.

Mr. Geithner, along with the leaders from the two agencies, was set to brief reporters about the proposal at the Treasury Department late Wednesday afternoon.

The proposal would not require that derivative instruments with unique characteristics negotiated between companies be traded on exchanges or through clearinghouses. But standardized or uniform ones would. If approved, the plan would require the development of timely reports of trades, similar to the system now used for corporate bonds.

During his confirmation hearings in January, Mr. Geithner vowed to move quickly to push for regulation of derivative instruments, and both Mary Schapiro, the new head of the Securities and Exchange Commission, and Gary Gensler, the nominee to head to the C.F.T.C., also made similar commitments.

Lawmakers in the House and Senate have already introduced legislation to regulate derivative instruments. But a number of members have pressed the administration to put out its own plan. Last Friday, at the confirmation hearing of Neal Wolin to be the next deputy Treasury secretary, Senator Maria Cantwell, Democrat of Washington, pressed the nominee to move quickly to get the administration’s views on the regulation of derivatives.

World Bank cuts China 2009 GDP forecast to 6.5 pct

By Alan Wheatley, China Economics Editor

BEIJING, March 18 (Reuters) - The World Bank lowered its forecast for China's 2009 economic growth on Wednesday but warned Beijing that it would be thwarting its own medium-term goals if it tried to offset the slowdown by further boosting investment.

In a quarterly economic update, the bank cut its projection of gross domestic product growth this year to 6.5 percent from the 7.5 percent outcome it had forecast in November. It said there were both upward and downward risks to its outlook.

The global crisis would be a drag both this year and next, mainly via weaker exports and non-government investment, but the bank said China's economic fundamentals were still strong enough to give policymakers the luxury of looking well beyond 2009. The bank welcomed the inclusion of steps to boost consumption in the government's 4 trillion yuan ($585 billion) stimulus package since over-reliance on capital-intensive investment could damage the pace of job creation and the quality of growth. Indeed, it said there was room for a further shift towards consumption and for less emphasis on capital spending in order to rebalance the economy so that growth is more sustainable economically, socially and environmentally.

"The fundamentals for China are strong enough to ride out this storm, and it may be just as appropriate to shift the focus as much as possible to the medium and long-term challenges instead of a very narrow focus on short-term growth objectives," Louis Kuijs, the senior economist in the bank's Beijing office, said at a news conference to launch the report. The bank said it expected 16-17 million non-farm jobs to disappear this year but it played down the social repercussions.

"Somewhat lower overall growth is not likely to jeopardize China's economy or social stability, especially if the adverse consequences of dislocation and layoffs are alleviated by using and expanding the social safety net," the report said. The median forecast in a Reuters poll of economists published on Wednesday is for GDP to expand by 7.8 percent this year, narrowly missing Beijing's target of 8 percent. For a table with details of the World Bank's forecasts. For a graphic on China's growth over the past three decades.

COULD BE WORSE

The bank's advice flies in the face of the ruling Communist Party's determination to do whatever is necessary to meet its self-imposed target of 8 percent growth this year. Last Friday, Premier Wen Jiabao said the government was ready to roll out extra stimulus measures if needed. But the World Bank said Beijing should keep some of its powder dry in case growth next year proves even weaker. What's more, the government cannot hope to take up all the slack left by the collapse in exports and knock-on drop in private investment; for a start, there may be limits to how much money can be spent efficiently on traditional investment schemes. As it is, the bank already expects 4.9 percentage points of its projected 6.5 percent growth this year to stem from government-influenced investment and public-sector consumption.

"China's economy cannot escape the impact of the global weakness. Government-influenced activity makes up a modest share of the total: it cannot and should not offset fully the downward pressures on market-based activity," the report said. The bank tempered this message of resignation with the assurance that China would continue to grow substantially faster than most other countries this year and next. Indeed, the stimulus is already supporting activity and sentiment, even if it is too early to expect a sustained rebound, the World Bank said. The bank said it expected the yuan to keep strengthening in the next decade given China's prospective balance-of-payments and productivity trends. Kuijs described the outlook for exports this year as "grim" and "sombre". But he said depreciating the currency in the short term would not help revive exports, because global demand is so weak, and would slow China's switch to consumption-led growth.

2 dozen victims seek to be heard at Madoff plea

NEW YORK - (Business Week) Federal prosecutors say they've received more than two dozen e-mails from investors seeking to speak Thursday when Bernard Madoff is expected to plead guilty. Prosecutors described the e-mails in a letter to Judge Denny Chin, who sent notification to investors last week saying they could speak Thursday. Prosecutors say they have received 25 e-mails from investors asking to be heard. They did not say if each e-mail pertains to a single investor or multiple ones. The 70-year-old former Nasdaq chairman was arrested in December on a securities fraud charge. Prosecutors say he confessed to family members that he had run a $50 billion Ponzi scheme for years.