7th , June - 2009
In reasserting his support last week for a new government health plan for the uninsured, President Obama stoked the fears of private insurers that they would not be able to compete with a Medicare-like option and might gradually be priced out of existence.
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Doug Mills/The New York Times
With health care officials behind him, President Obama delivered remarks on changing the health care system in May.
Related
Taking the Hill (June 7, 2009)
Obama to Forge a Greater Role on Health Care (June 7, 2009)
The Obama administration has sought to reassure the industry, with its substantial lobbying might, by pointing to the three dozen states that offer their employees a choice between government-backed insurance options and a menu of commercial policies.
But health policy experts are deeply divided about whether the state employee plans bear any meaningful resemblance to the public plan options being considered in Washington. And that divide reinforces how little can really be known about how a government plan may fare in competition with private carriers, and whether it may eventually evolve into the country’s lone health insurer.
Although state governments bear the ultimate financial risk for their self-insured employee plans, most are administered by major commercial insurers that are given broad authority to negotiate payment rates with doctors and hospitals. In addition, the state plans typically have not used their purchasing clout to control costs, link pay to medical performance or drive other quality improvements.
A 2002 study by two policy research groups concluded that state employee plans have been no more effective at controlling costs than private insurers. In some states, the plans have become a major financial headache, most notably in North Carolina, where the governor just signed a $675 million two-year bailout for the state’s employee health insurance plan.
“Even the best of them are pretty far short of what most of us who advocate public plan choice want,” said Jacob S. Hacker, a political scientist at the University of California, Berkeley, who is considered one of the intellectual forces behind the public plan option.
The very point of a federal public plan, as Mr. Obama explained in a letter to Senate leaders, would be to take advantage of an enormous risk pool and efficiencies of scale “to make the health care market more competitive and keep insurance companies honest.” But in projecting how such competition might actually affect the market, the devil is clearly in the details of who Congress would make eligible for coverage, what benefits would be granted and, perhaps most important, how much providers would be paid.
The public plan concept has excited intense opposition from Republicans, insurers and big business. Stuart Butler, a domestic policy expert at the conservative Heritage Foundation, calls it “a nuclear minefield on the road to universal coverage.”
But the White House and Democratic leaders in Congress continue to insist that it is vital to their broader goals of covering all Americans and slowing the growth of costs. Their focus now is on finding a compromise that will maintain a level playing field by requiring, for instance, that a public plan be self-sustaining rather than reliant on tax dollars and that it maintain reserves like a private insurer.
Insurance industry lobbyists are skeptical that the government can fairly referee a contest between its own insurance plan and private offerings. In an era of serial federal bailouts, they ask, would the government really let its own insurance plan fail?
But the administration’s leading voices on health policy say the coexistence of public and private options within state employee benefit programs demonstrates that it can be done.
State employee health plans cover more than three million workers, from park rangers to university professors, and some also offer coverage to municipal governments and authorities. A bill on its way to Gov. M. Jodi Rell of Connecticut would make that state the first to open its plan to small employers as well. Ms. Rell, a Republican, vetoed a similar bill last year.
In most cases, the state’s self-insured, or public, option is a preferred provider organization that competes against private health maintenance organizations. A 2008 survey by Mercer, the health benefits consulting firm, found that 61 percent of the members of state employee health plans were enrolled in P.P.O.’s, but that private H.M.O.’s managed to maintain a third of the market.
A notable exception is the largest state plan, the California Public Employees Retirement System, where more than two-thirds of members choose a private insurance option.
“It has not destroyed the market,” Kathleen Sebelius, the secretary of health and human services, said at her Senate confirmation hearing in April. “It has not tilted the playing field. But that’s all about the way the rules are set.”
Len Nichols, the director of health policy at the New America Foundation and the co-author of a proposal to level the field through governance and pricing regulations, said that state employee health plans are “proof of concept” that governments can maintain fair competition. “They do not unleash this impulse to take over the world,” Mr. Nichols said. “I don’t see this leviathan behavior.”
But critics argue that with low administrative costs and no need to produce profits, a public plan will start with an unfair pricing advantage. They say that if a public plan is allowed to pay doctors and hospitals at levels comparable to Medicare’s, which are substantially below commercial insurance rates, it could set premiums so low it would quickly consume the market.
Although the numbers are disputed by public plan advocates, the Lewin Group, a health care consulting firm, recently projected that a plan paying Medicare rates would prompt 119 million of the 172 million people who are privately insured to switch policies (while also providing coverage to 28 million of the 46 million uninsured).
“No one has ever put up a plan to compete that exploited the bargaining leverage that you have with Medicare,” said John F. Sheils, a senior vice president at Lewin, which is owned by UnitedHealth Group, a major insurer. “It’s never been done, and if it’s never been done there’s not much you can conclude from looking at these state plans.”
Mr. Sheils estimated that only 12 million people with private coverage would migrate to a public plan if Congress provided protections for insurers, along principles suggested by Senator Charles E. Schumer, Democrat of New York. Seeking to broker a deal that might attract Republican support, Mr. Schumer is promoting many of Mr. Nichols’s proposals, including that a public plan be subject to the same regulations as private plans and that it pay providers at higher levels than Medicare.
The question, at a time of deep concern over health costs, is whether that proposal would compromise away the full potential of a public plan to suppress provider payments and control the growth of premiums.
Saturday, June 6, 2009
Retail Sales Probably Rose on Auto Demand: U.S. Economy Preview
June 7 (Bloomberg) -- Sales at U.S. retailers probably rose in May for the first time in three months as demand for automobiles picked up, economists said before a government report this week.
Purchases climbed 0.5 percent, according to the median of 61 estimates in a Bloomberg News survey ahead of Commerce Department figures due June 11. Another report may show the trade gap widened in April, reflecting an increase in the cost of imported oil.
Shoppers returned to Chrysler LLC and General Motors Corp. showrooms looking for bargains as some dealers slashed prices leading up to the automakers’ restructuring. Smaller job cuts and government stimulus measures may give consumers the confidence and means to sustain spending and help pull the economy out of the recession.
“Consumers are out there spending again,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “They are clearly feeling better about the health of their finances.”
The Labor Department reported last week that employers eliminated 345,000 jobs in May, the fewest since September and a sign the recession is abating. Retailers cut 17,500 positions, the smallest reduction since June 2008, the month before purchases started to sink.
Sales of cars and light trucks rose to a 9.9 million annual unit pace in May from a 9.3 million rate the prior month, according to industry figures released last week. Purchases reached a 9.1 million pace in February, the lowest level since December 1981.
Smaller Declines
General Motors, Chrysler and Ford Motor Co., the only major U.S. automaker not in bankruptcy, all had smaller declines than forecast in comparison with May 2008.
“It’s just a slight uptick,” Ken Czubay, Ford vice president of sales and marketing, said on a conference call last week. “This is still a very fragile industry.”
Commerce’s report may also show that, excluding automobiles, sales rose 0.2 percent last month, according to the median estimate of economists surveyed. The increase is likely to in part reflect an increase in service-station receipts as gasoline prices climbed.
The International Council of Shopping Centers last week said May same-store sales dropped 4.6 percent from the same month last year, more than double its forecast of a 2 percent decline. Macy’s Inc., Dillard’s Inc. and Saks Inc. were among merchants that reported steeper declines than analysts estimated as Americans focused on buying essentials rather than discretionary items.
Buying Necessities
With home values falling, credit tight and unemployment at a 25-year high of 9.4 percent and forecast to keep rising, consumers are reluctant to spend on anything beyond necessities such as gasoline and food.
Wal-Mart Stores Inc., the biggest retailer, projected last month that its U.S. comparable-store sales may rise as much as 3 percent in the 13 weeks through July 31.
As the economy steadies and oil prices climb, imports are likely to rise. The trade deficit probably widened to $29 billion in April, according to economists surveyed, from $27.6 billion the prior month. Commerce will release that report on June 10.
Business inventories probably shrank 1 percent in April, an eighth consecutive decrease, as companies continued to draw down stockpiles in the face of weak demand, economists said the Commerce Department’s report will show the following day.
More Expensive
A report from the Labor Department on June 12 may show the cost of imported goods rose 1.4 percent in May, due mainly to higher oil prices, the survey showed. Import prices increased 1.6 percent the prior month.
Rising stock prices and signs the economy may have bottomed are boosting consumer confidence. The Reuters/University of Michigan preliminary sentiment gauge for June may rise to 69.5, the highest reading since September, from 68.7 in May, according to economists surveyed before the June 12 release.
“Our expectation is that we’ll begin to see growth in the economy,” Federal Reserve Chairman Ben S. Bernanke told Congress last week. “Underlying that prediction is some stabilization in final demand, including consumer spending.”
Purchases climbed 0.5 percent, according to the median of 61 estimates in a Bloomberg News survey ahead of Commerce Department figures due June 11. Another report may show the trade gap widened in April, reflecting an increase in the cost of imported oil.
Shoppers returned to Chrysler LLC and General Motors Corp. showrooms looking for bargains as some dealers slashed prices leading up to the automakers’ restructuring. Smaller job cuts and government stimulus measures may give consumers the confidence and means to sustain spending and help pull the economy out of the recession.
“Consumers are out there spending again,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “They are clearly feeling better about the health of their finances.”
The Labor Department reported last week that employers eliminated 345,000 jobs in May, the fewest since September and a sign the recession is abating. Retailers cut 17,500 positions, the smallest reduction since June 2008, the month before purchases started to sink.
Sales of cars and light trucks rose to a 9.9 million annual unit pace in May from a 9.3 million rate the prior month, according to industry figures released last week. Purchases reached a 9.1 million pace in February, the lowest level since December 1981.
Smaller Declines
General Motors, Chrysler and Ford Motor Co., the only major U.S. automaker not in bankruptcy, all had smaller declines than forecast in comparison with May 2008.
“It’s just a slight uptick,” Ken Czubay, Ford vice president of sales and marketing, said on a conference call last week. “This is still a very fragile industry.”
Commerce’s report may also show that, excluding automobiles, sales rose 0.2 percent last month, according to the median estimate of economists surveyed. The increase is likely to in part reflect an increase in service-station receipts as gasoline prices climbed.
The International Council of Shopping Centers last week said May same-store sales dropped 4.6 percent from the same month last year, more than double its forecast of a 2 percent decline. Macy’s Inc., Dillard’s Inc. and Saks Inc. were among merchants that reported steeper declines than analysts estimated as Americans focused on buying essentials rather than discretionary items.
Buying Necessities
With home values falling, credit tight and unemployment at a 25-year high of 9.4 percent and forecast to keep rising, consumers are reluctant to spend on anything beyond necessities such as gasoline and food.
Wal-Mart Stores Inc., the biggest retailer, projected last month that its U.S. comparable-store sales may rise as much as 3 percent in the 13 weeks through July 31.
As the economy steadies and oil prices climb, imports are likely to rise. The trade deficit probably widened to $29 billion in April, according to economists surveyed, from $27.6 billion the prior month. Commerce will release that report on June 10.
Business inventories probably shrank 1 percent in April, an eighth consecutive decrease, as companies continued to draw down stockpiles in the face of weak demand, economists said the Commerce Department’s report will show the following day.
More Expensive
A report from the Labor Department on June 12 may show the cost of imported goods rose 1.4 percent in May, due mainly to higher oil prices, the survey showed. Import prices increased 1.6 percent the prior month.
Rising stock prices and signs the economy may have bottomed are boosting consumer confidence. The Reuters/University of Michigan preliminary sentiment gauge for June may rise to 69.5, the highest reading since September, from 68.7 in May, according to economists surveyed before the June 12 release.
“Our expectation is that we’ll begin to see growth in the economy,” Federal Reserve Chairman Ben S. Bernanke told Congress last week. “Underlying that prediction is some stabilization in final demand, including consumer spending.”
Friday, June 5, 2009
Asian Currencies Gain, Led by Rupiah, Won as Recession Abates
June 6 (Bloomberg) -- Asian currencies rose this week, led by Indonesia’s rupiah and the Korean won, as reports signaling a global recession is easing bolstered demand for riskier assets.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, and the MSCI Asia-Pacific Index of shares both reached their highest levels since October after U.S. home sales jumped the most in seven years and China’s manufacturing expanded for a third month. Equity funds investing in the region’s emerging markets took in $1.54 billion in the week ended June 3, according to EPFR Global.
“We still see Asian currency strength,” said Emmanuel Ng, an economist at Oversea Chinese Banking Corp. in Singapore. “It is expected to ride on the recovery story.”
The rupiah advanced 3.8 percent this week to 9,930 per dollar in Jakarta, strengthening beyond 10,000 for the first time in more than seven months. The won appreciated 1 percent to 1,243.15 in Seoul.
The rupiah had its biggest weekly gain since April as the nation’s economic growth, the fastest in Southeast Asia, helped attract funds. Gross domestic product grew 4.4 percent in the first quarter from a year earlier, compared with 0.4 percent in the Philippines and contractions of more than 6 percent in Singapore, Malaysia and Thailand.
‘Fairly Robust’
“The rupiah is still one of our picks because the Indonesian economy is fairly robust,” Ng said.
Foreign investors bought $159 million more Indonesian equities than they sold this week, according to stock exchange data.
The rupiah, Asia’s best-performing currency this year, will rise 3.5 percent by the end of June due to the outlook for a “prudent” interest-rate policy and economic growth, according to Craig Chan, a Singapore-based strategist at Nomura Holdings Inc. The currency will advance to 9,600 by June 30, he said, revising an April forecast of 11,000.
South Korea’s currency approached a seven-month high of 1,225.97 reached on May 11 as global funds bought $552 million more of the nation’s shares than they sold this week and exporters repatriated overseas income.
“The won is experiencing modest upward pressure,” said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. “There are some flows from exporters.”
Worst Is Over
Share purchases by global funds also helped lift Thailand’s baht. The currency strengthened for a seventh week, the longest run of gains since 2007, after Finance Minister Korn Chatikavanij said on June 4 the economy has bottomed and government spending on “shovel-ready” projects will help spur demand and create jobs.
“We do believe the worst may be over for Thailand’s economy, and the rest of Asia,” said Suresh Kumar Ramanathan , a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “Inflows are still going on, especially into Asia. Gains in Asian currencies are also being driven by dollar weakness.”
The Thai baht strengthened 0.4 percent this week to 34.19 per dollar. Overseas investors have bought $257 million more Thai shares than they sold this month, following net purchases in each of the last three months.
Elsewhere, Taiwan’s dollar rose 0.1 percent this week to NT$32.607 and the Philippine peso gained 0.2 percent to 47.24. The Malaysian ringgit weakened 0.2 percent to 3.4965 and the Singapore dollar fell 0.2 percent to S$1.4469.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, and the MSCI Asia-Pacific Index of shares both reached their highest levels since October after U.S. home sales jumped the most in seven years and China’s manufacturing expanded for a third month. Equity funds investing in the region’s emerging markets took in $1.54 billion in the week ended June 3, according to EPFR Global.
“We still see Asian currency strength,” said Emmanuel Ng, an economist at Oversea Chinese Banking Corp. in Singapore. “It is expected to ride on the recovery story.”
The rupiah advanced 3.8 percent this week to 9,930 per dollar in Jakarta, strengthening beyond 10,000 for the first time in more than seven months. The won appreciated 1 percent to 1,243.15 in Seoul.
The rupiah had its biggest weekly gain since April as the nation’s economic growth, the fastest in Southeast Asia, helped attract funds. Gross domestic product grew 4.4 percent in the first quarter from a year earlier, compared with 0.4 percent in the Philippines and contractions of more than 6 percent in Singapore, Malaysia and Thailand.
‘Fairly Robust’
“The rupiah is still one of our picks because the Indonesian economy is fairly robust,” Ng said.
Foreign investors bought $159 million more Indonesian equities than they sold this week, according to stock exchange data.
The rupiah, Asia’s best-performing currency this year, will rise 3.5 percent by the end of June due to the outlook for a “prudent” interest-rate policy and economic growth, according to Craig Chan, a Singapore-based strategist at Nomura Holdings Inc. The currency will advance to 9,600 by June 30, he said, revising an April forecast of 11,000.
South Korea’s currency approached a seven-month high of 1,225.97 reached on May 11 as global funds bought $552 million more of the nation’s shares than they sold this week and exporters repatriated overseas income.
“The won is experiencing modest upward pressure,” said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. “There are some flows from exporters.”
Worst Is Over
Share purchases by global funds also helped lift Thailand’s baht. The currency strengthened for a seventh week, the longest run of gains since 2007, after Finance Minister Korn Chatikavanij said on June 4 the economy has bottomed and government spending on “shovel-ready” projects will help spur demand and create jobs.
“We do believe the worst may be over for Thailand’s economy, and the rest of Asia,” said Suresh Kumar Ramanathan , a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “Inflows are still going on, especially into Asia. Gains in Asian currencies are also being driven by dollar weakness.”
The Thai baht strengthened 0.4 percent this week to 34.19 per dollar. Overseas investors have bought $257 million more Thai shares than they sold this month, following net purchases in each of the last three months.
Elsewhere, Taiwan’s dollar rose 0.1 percent this week to NT$32.607 and the Philippine peso gained 0.2 percent to 47.24. The Malaysian ringgit weakened 0.2 percent to 3.4965 and the Singapore dollar fell 0.2 percent to S$1.4469.
Bank of America Stocks Board With Ex-Regulators, Former Bankers
June 6 (Bloomberg) -- Bank of America Corp. named two ex- regulators and two former bankers as directors, remaking the board five weeks after shareholders ousted Chief Executive Officer Kenneth Lewis as chairman.
The bank, recipient of a $45 billion government infusion, is revamping a board that lost two other members in the past two weeks. Among them was lead director O. Temple Sloan, who had defended Lewis against attempts to force him out for failing to disclose mounting losses at Merrill Lynch & Co. before the lender took it over this year.
The new directors, among them ex-Federal Reserve Board Governor Susan Bies and Donald Powell, former chairman of the Federal Deposit Insurance Corp., inherit a lender that faces the biggest capital gap among 19 companies scrutinized in federal stress tests. This week, it replaced Chief Risk Officer Amy Woods Brinkley with Gregory L. Curl, a three-decade bank veteran who helped Lewis arrange acquisitions including Countrywide Financial Corp.
“As chairman, Lewis has really selected the board members that he wanted,” said Gary Townsend, president of Hill-Townsend Capital, a hedge fund in Chevy Chase, Maryland. The board changes and Brinkley’s exit are “an indication that the level of his control is reduced,” he said.
Bies, 62, and Powell, 67, are joined on the board by William Boardman, 67, a retired executive of Bank One Corp. and Visa International Inc.; and D. Paul Jones, 66, who was CEO of Compass Bancshares Inc., Charlotte, North Carolina-based Bank of America said in a statement yesterday.
Stress Test
Bank of America had a $33.9 billion capital shortfall that could lead to loan losses for 2009 and 2010 of $136.6 billion, or 10 percent of total loans, according to the stress test. Regulators said they might press banks for management changes when the tests were done.
“You are going to have some real board meetings at Bank of America now, and this is no longer a good-old-boy, friend-of- Ken-Lewis board,” said Anthony Polini, an analyst at Raymond James & Associates Inc. “Now you’ve got some independent thinkers and industry experts. This is an incredible move for the company.”
Regulators urged Bank of America to recruit new board members with risk management and financial services expertise, Polini said. “I don’t think they gave them these specific names,” he said.
Bank of America Chairman Walter E. Massey promised to reconstitute the board in April after stockholders voted to oust Lewis as chairman and said he would consider directors with financial service backgrounds.
Southern U.S.
Three of the four bankers have experience working with lenders in the Southern United States. Bies was an executive vice president at First Tennessee National Corp. Powell was chief executive officer at First National Bank of Amarillo, Texas. Jones led Compass before its sale to Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender.
“These new directors bring a wealth of experience in financial services from a variety of perspectives,” Massey said in the statement. “Their participation will make our board even stronger.”
Massey would not be available for further comment, bank spokeswoman Eloise Hale said.
Lewis is scheduled to appear at a congressional hearing next week to testify about the purchase of Merrill Lynch and the bank’s need for federal assistance.
Questions
The House Oversight and Government Reform Committee posed seven questions about the purchase, including when Bank of America executives knew about deteriorating conditions at the New York brokerage and any role federal officials played in the decision to complete the deal.
New York Attorney General Andrew Cuomo revealed in April that Lewis had testified then-Treasury Secretary Henry Paulson may have threatened to remove the bank’s management and directors in December if the lender tried to back out of buying Merrill Lynch.
“I suspect the board wants to improve its regulatory relationships and believes having a couple of ex-regulators on the board will help in that process,” former FDIC Chairman William Isaac said.
Citigroup Inc. reached an agreement with the U.S. Treasury Department in February to alter its board so that the majority is comprised of independent directors. The agreement was part of the government’s plan to convert preferred shares into common stock to strengthen the bank.
Leaving Board
Chairman Winfried Bischoff and three other board members, including former Treasury Secretary Robert Rubin, announced in January they would be stepping down from New York-based Citigroup’s board. Four outside directors replaced them.
Bank of America’s new directors reflect the challenge of overseeing the bank while managing government influence, said Robert Eisenbeis, chief monetary economist for Vineland, New Jersey-based Cumberland Advisors Inc., and former research director at the Federal Reserve Bank in Atlanta.
“This would send a message: all four have banking experience,” Eisenbeis said. “Dealing with the regulators will be a key issue going forward. The deep government involvement in financial institutions is going to have to be unwound. In the meantime, they are going to have to deal with the regulators.”
The bank, recipient of a $45 billion government infusion, is revamping a board that lost two other members in the past two weeks. Among them was lead director O. Temple Sloan, who had defended Lewis against attempts to force him out for failing to disclose mounting losses at Merrill Lynch & Co. before the lender took it over this year.
The new directors, among them ex-Federal Reserve Board Governor Susan Bies and Donald Powell, former chairman of the Federal Deposit Insurance Corp., inherit a lender that faces the biggest capital gap among 19 companies scrutinized in federal stress tests. This week, it replaced Chief Risk Officer Amy Woods Brinkley with Gregory L. Curl, a three-decade bank veteran who helped Lewis arrange acquisitions including Countrywide Financial Corp.
“As chairman, Lewis has really selected the board members that he wanted,” said Gary Townsend, president of Hill-Townsend Capital, a hedge fund in Chevy Chase, Maryland. The board changes and Brinkley’s exit are “an indication that the level of his control is reduced,” he said.
Bies, 62, and Powell, 67, are joined on the board by William Boardman, 67, a retired executive of Bank One Corp. and Visa International Inc.; and D. Paul Jones, 66, who was CEO of Compass Bancshares Inc., Charlotte, North Carolina-based Bank of America said in a statement yesterday.
Stress Test
Bank of America had a $33.9 billion capital shortfall that could lead to loan losses for 2009 and 2010 of $136.6 billion, or 10 percent of total loans, according to the stress test. Regulators said they might press banks for management changes when the tests were done.
“You are going to have some real board meetings at Bank of America now, and this is no longer a good-old-boy, friend-of- Ken-Lewis board,” said Anthony Polini, an analyst at Raymond James & Associates Inc. “Now you’ve got some independent thinkers and industry experts. This is an incredible move for the company.”
Regulators urged Bank of America to recruit new board members with risk management and financial services expertise, Polini said. “I don’t think they gave them these specific names,” he said.
Bank of America Chairman Walter E. Massey promised to reconstitute the board in April after stockholders voted to oust Lewis as chairman and said he would consider directors with financial service backgrounds.
Southern U.S.
Three of the four bankers have experience working with lenders in the Southern United States. Bies was an executive vice president at First Tennessee National Corp. Powell was chief executive officer at First National Bank of Amarillo, Texas. Jones led Compass before its sale to Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender.
“These new directors bring a wealth of experience in financial services from a variety of perspectives,” Massey said in the statement. “Their participation will make our board even stronger.”
Massey would not be available for further comment, bank spokeswoman Eloise Hale said.
Lewis is scheduled to appear at a congressional hearing next week to testify about the purchase of Merrill Lynch and the bank’s need for federal assistance.
Questions
The House Oversight and Government Reform Committee posed seven questions about the purchase, including when Bank of America executives knew about deteriorating conditions at the New York brokerage and any role federal officials played in the decision to complete the deal.
New York Attorney General Andrew Cuomo revealed in April that Lewis had testified then-Treasury Secretary Henry Paulson may have threatened to remove the bank’s management and directors in December if the lender tried to back out of buying Merrill Lynch.
“I suspect the board wants to improve its regulatory relationships and believes having a couple of ex-regulators on the board will help in that process,” former FDIC Chairman William Isaac said.
Citigroup Inc. reached an agreement with the U.S. Treasury Department in February to alter its board so that the majority is comprised of independent directors. The agreement was part of the government’s plan to convert preferred shares into common stock to strengthen the bank.
Leaving Board
Chairman Winfried Bischoff and three other board members, including former Treasury Secretary Robert Rubin, announced in January they would be stepping down from New York-based Citigroup’s board. Four outside directors replaced them.
Bank of America’s new directors reflect the challenge of overseeing the bank while managing government influence, said Robert Eisenbeis, chief monetary economist for Vineland, New Jersey-based Cumberland Advisors Inc., and former research director at the Federal Reserve Bank in Atlanta.
“This would send a message: all four have banking experience,” Eisenbeis said. “Dealing with the regulators will be a key issue going forward. The deep government involvement in financial institutions is going to have to be unwound. In the meantime, they are going to have to deal with the regulators.”
Slower U.S. Job Losses Signal Recession Is Starting to Ease
June 6 (Bloomberg) -- Employers eliminated the fewest jobs in eight months in May, strengthening signs that the recession is easing, while a drop in wage growth offered a warning the recovery may be muted.
Payrolls fell by 345,000, less than forecast, while the unemployment rate hit a 25-year high of 9.4 percent, partly because more people joined the workforce to look for jobs, Labor Department figures showed. The annual rate of average hourly earnings growth touched its lowest since November 2005.
“The rate of decline has slowed some, but the losses to date are causing sharp declines in U.S. per capita income,” David Malpass, an economist and president of Encima Global in New York, wrote in a note to clients. Malpass predicted a “slow recovery” from the deepest recession in half a century.
Some investors focused on the report’s relief from payroll losses that surpassed half a million in each of the previous six months. The dollar rallied, Treasury yields rose and some traders added to bets the Federal Reserve will raise interest rates this year. The head of the panel that dates U.S. recessions warned it’s still “too early” to call an end to the slump.
Americans are spending less and saving more as home values fall and companies from American Express Co. to General Motors Corp. continue to cut workforces.
Credit Drops
Another report showed consumer borrowing dropped by $15.7 billion in April, the second-biggest decline on record, as loans remained difficult to get. Consumer credit fell at a 7.4 percent annual rate to $2.52 trillion, the Fed reported yesterday in Washington.
Yields on benchmark 10-year U.S. notes jumped to 3.83 percent in New York yesterday from 3.71 percent June 4, and the dollar climbed to a four-week high against the yen. The Standard & Poor’s 500 Stock Index slipped 0.3 percent to 940.09 after rising as much as 1 percent earlier.
Stocks initially rallied, then slid on concern that the Labor Department had overstated the slowdown in job losses. They recouped losses later when Labor Secretary Hilda Solis said the report was accurate. Labor’s estimate of net jobs created by the formation of new companies and demise of established firms, known as the birth/death model, had fed the confusion.
Revisions added 82,000 to payroll figures previously reported for April and March, the Labor report said.
Fed Rate
Some traders for the first time in months began to price in expectations that the Fed will raise interest rates this year as the economy improves.
Federal-funds futures contracts on the Chicago Board of Trade show a 59 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by November. The odds were 27 percent a day earlier.
While the economy is showing signs of stabilizing, it’s “way too early” to say the contraction is over, said Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, the group that officially makes the call.
Payrolls were forecast to drop 520,000, according to the median of 76 economists surveyed by Bloomberg News. Estimates ranged from declines of 450,000 to 600,000. Job losses peaked at 741,000 in January, the most since 1949.
The jobless rate was projected to jump to 9.2 percent, with forecasts ranging from 9 percent to 9.4 percent.
6 Million
The world’s largest economy has lost 6 million jobs since the recession began in December 2007, exacerbating the biggest drop in any post-World War II economic downturn.
The U.S. may suffer additional “sizable” job losses, Fed Chairman Ben S. Bernanke said this week in testimony to lawmakers. While economic growth will return “later this year,” he said, unemployment will rise “into next year.”
“We are starting to see indications of economic progress as the recovery package begins to take hold,” Representative Carolyn Maloney, a New York Democrat who chairs the congressional Joint Economic Committee, said in a statement. Rising unemployment “is a sobering reminder that we still have a long way” to go, she added.
Including those who’ve stopped looking for work because they are discouraged by employment prospects and those working only part-time who prefer a full-time job, the jobless rate would’ve jumped to 16.4 percent in May, the highest level since comparable records began in 1994, from 15.8 percent in April.
Factory payrolls fell by 156,000. Economists forecast a drop of 150,000. The decline included a drop of 29,800 jobs in auto manufacturing and parts industries.
GM Bankruptcy
The bankruptcies of General Motors and Chrysler LLC may generate more job losses. AutoNation Inc., the largest U.S. new- vehicle retailer, plans to close seven showrooms, while Visteon Corp., the former parts-making unit of Ford Motor Co., and chassis manufacturer Metaldyne Corp. also filed for bankruptcy.
Builders cut 59,000 jobs and financial firms cut 30,000. Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 120,000 workers. Retail payrolls decreased by 17,500. Government payrolls fell by 7,000 after rising 92,000 in the prior month.
Some companies are looking to grow. Wal-Mart Stores Inc., the largest U.S. private employer, plans to add more than 22,000 jobs for the 142 to 157 outlets it may open or expand in the 12 months through Jan. 31.
Rising unemployment and record wealth destruction mean consumer spending may not sustain the gains reported in the first quarter. Purchases fell in April as Americans boosted the savings rate to a 14-year high. Department stores Macy’s Inc. and Dillard’s Inc. and luxury chain Saks Inc. reported steeper- than-forecast sales declines for May.
‘Fear’ Factor
“Fear drives conservatism in consumer spending, and the biggest fear now is about losing jobs,” Eric Wiseman, chief executive officer of VF Corp., the world’s largest clothing maker, said in an interview in May.
American Express, the largest U.S. credit-card company by purchases, will cut 4,000 positions as cardholders squeezed by job losses fail to pay debts.
The average work week shrank, while hourly earnings were 3.1 percent higher than May 2008, the smallest gain since November 2005.
Payrolls fell by 345,000, less than forecast, while the unemployment rate hit a 25-year high of 9.4 percent, partly because more people joined the workforce to look for jobs, Labor Department figures showed. The annual rate of average hourly earnings growth touched its lowest since November 2005.
“The rate of decline has slowed some, but the losses to date are causing sharp declines in U.S. per capita income,” David Malpass, an economist and president of Encima Global in New York, wrote in a note to clients. Malpass predicted a “slow recovery” from the deepest recession in half a century.
Some investors focused on the report’s relief from payroll losses that surpassed half a million in each of the previous six months. The dollar rallied, Treasury yields rose and some traders added to bets the Federal Reserve will raise interest rates this year. The head of the panel that dates U.S. recessions warned it’s still “too early” to call an end to the slump.
Americans are spending less and saving more as home values fall and companies from American Express Co. to General Motors Corp. continue to cut workforces.
Credit Drops
Another report showed consumer borrowing dropped by $15.7 billion in April, the second-biggest decline on record, as loans remained difficult to get. Consumer credit fell at a 7.4 percent annual rate to $2.52 trillion, the Fed reported yesterday in Washington.
Yields on benchmark 10-year U.S. notes jumped to 3.83 percent in New York yesterday from 3.71 percent June 4, and the dollar climbed to a four-week high against the yen. The Standard & Poor’s 500 Stock Index slipped 0.3 percent to 940.09 after rising as much as 1 percent earlier.
Stocks initially rallied, then slid on concern that the Labor Department had overstated the slowdown in job losses. They recouped losses later when Labor Secretary Hilda Solis said the report was accurate. Labor’s estimate of net jobs created by the formation of new companies and demise of established firms, known as the birth/death model, had fed the confusion.
Revisions added 82,000 to payroll figures previously reported for April and March, the Labor report said.
Fed Rate
Some traders for the first time in months began to price in expectations that the Fed will raise interest rates this year as the economy improves.
Federal-funds futures contracts on the Chicago Board of Trade show a 59 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by November. The odds were 27 percent a day earlier.
While the economy is showing signs of stabilizing, it’s “way too early” to say the contraction is over, said Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, the group that officially makes the call.
Payrolls were forecast to drop 520,000, according to the median of 76 economists surveyed by Bloomberg News. Estimates ranged from declines of 450,000 to 600,000. Job losses peaked at 741,000 in January, the most since 1949.
The jobless rate was projected to jump to 9.2 percent, with forecasts ranging from 9 percent to 9.4 percent.
6 Million
The world’s largest economy has lost 6 million jobs since the recession began in December 2007, exacerbating the biggest drop in any post-World War II economic downturn.
The U.S. may suffer additional “sizable” job losses, Fed Chairman Ben S. Bernanke said this week in testimony to lawmakers. While economic growth will return “later this year,” he said, unemployment will rise “into next year.”
“We are starting to see indications of economic progress as the recovery package begins to take hold,” Representative Carolyn Maloney, a New York Democrat who chairs the congressional Joint Economic Committee, said in a statement. Rising unemployment “is a sobering reminder that we still have a long way” to go, she added.
Including those who’ve stopped looking for work because they are discouraged by employment prospects and those working only part-time who prefer a full-time job, the jobless rate would’ve jumped to 16.4 percent in May, the highest level since comparable records began in 1994, from 15.8 percent in April.
Factory payrolls fell by 156,000. Economists forecast a drop of 150,000. The decline included a drop of 29,800 jobs in auto manufacturing and parts industries.
GM Bankruptcy
The bankruptcies of General Motors and Chrysler LLC may generate more job losses. AutoNation Inc., the largest U.S. new- vehicle retailer, plans to close seven showrooms, while Visteon Corp., the former parts-making unit of Ford Motor Co., and chassis manufacturer Metaldyne Corp. also filed for bankruptcy.
Builders cut 59,000 jobs and financial firms cut 30,000. Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 120,000 workers. Retail payrolls decreased by 17,500. Government payrolls fell by 7,000 after rising 92,000 in the prior month.
Some companies are looking to grow. Wal-Mart Stores Inc., the largest U.S. private employer, plans to add more than 22,000 jobs for the 142 to 157 outlets it may open or expand in the 12 months through Jan. 31.
Rising unemployment and record wealth destruction mean consumer spending may not sustain the gains reported in the first quarter. Purchases fell in April as Americans boosted the savings rate to a 14-year high. Department stores Macy’s Inc. and Dillard’s Inc. and luxury chain Saks Inc. reported steeper- than-forecast sales declines for May.
‘Fear’ Factor
“Fear drives conservatism in consumer spending, and the biggest fear now is about losing jobs,” Eric Wiseman, chief executive officer of VF Corp., the world’s largest clothing maker, said in an interview in May.
American Express, the largest U.S. credit-card company by purchases, will cut 4,000 positions as cardholders squeezed by job losses fail to pay debts.
The average work week shrank, while hourly earnings were 3.1 percent higher than May 2008, the smallest gain since November 2005.
Thursday, June 4, 2009
Intel Buys a Software Company to Extend Chip Marke
5th June - 2009
The Intel Corporation said Thursday that it had agreed to buy Wind River Systems, a software company, for about $884 million in a bid to put its chips into more consumer electronics and wireless devices.
Intel said it had agreed to pay $11.50 a share for Wind River, a 44 percent premium over its closing price on Wednesday.
Wind River makes operating systems for platforms as diverse as autos and mobile phones, serving customers like Sony and Boeing.
Intel, whose processors run about 80 percent of the world’s personal computers, is expanding into new markets, including chips for televisions and mobile devices. Wind River’s software and customer list will pave the way for Intel to win more chip contracts, said Cody Acree, an analyst at Stifel Nicolaus & Company in Dallas.
“If you have a chip you want to put in a lot of things other than a PC, you need code,” Mr. Acree said. “Wind River brings that, and it brings customers.”
Shares of Wind River, which is based in Alameda, Calif., rose $3.76, or 47 percent, to $11.76 a share. Shares of Intel, based in Santa Clara, Calif., rose 19 cents, to $16.13 a share.
It is Intel’s first major acquisition since Paul S. Otellini took over as chief executive in 2005.
Intel expects chips for so-called embedded systems, like the electronics in car navigation systems, to generate billions of dollars in annual sales, said Bill Kircos, a company spokesman. Intel already supplies chips to BMW for car stereos that use Wind River software.
“It’s trying to get our chips into new systems in your car, into new meters that let you monitor how you use electricity,” Mr. Kircos said. “It’s about getting into new consumer electronics, smartphones and health care.”
The Intel Corporation said Thursday that it had agreed to buy Wind River Systems, a software company, for about $884 million in a bid to put its chips into more consumer electronics and wireless devices.
Intel said it had agreed to pay $11.50 a share for Wind River, a 44 percent premium over its closing price on Wednesday.
Wind River makes operating systems for platforms as diverse as autos and mobile phones, serving customers like Sony and Boeing.
Intel, whose processors run about 80 percent of the world’s personal computers, is expanding into new markets, including chips for televisions and mobile devices. Wind River’s software and customer list will pave the way for Intel to win more chip contracts, said Cody Acree, an analyst at Stifel Nicolaus & Company in Dallas.
“If you have a chip you want to put in a lot of things other than a PC, you need code,” Mr. Acree said. “Wind River brings that, and it brings customers.”
Shares of Wind River, which is based in Alameda, Calif., rose $3.76, or 47 percent, to $11.76 a share. Shares of Intel, based in Santa Clara, Calif., rose 19 cents, to $16.13 a share.
It is Intel’s first major acquisition since Paul S. Otellini took over as chief executive in 2005.
Intel expects chips for so-called embedded systems, like the electronics in car navigation systems, to generate billions of dollars in annual sales, said Bill Kircos, a company spokesman. Intel already supplies chips to BMW for car stereos that use Wind River software.
“It’s trying to get our chips into new systems in your car, into new meters that let you monitor how you use electricity,” Mr. Kircos said. “It’s about getting into new consumer electronics, smartphones and health care.”
Asian Stocks Head for Third Weekly Gain; BHP, Rio Tinto Surge
June 5 (Bloomberg) -- Asian stocks gained, with the MSCI Asia Pacific Index set for its third weekly advance, after Rio Tinto Group scrapped an investment by China in favor of a $15.2 billion share sale as commodity prices rebound.
Rio surged 9.9 percent in Sydney after saying it will sell shares and form a $5.8 billion venture with BHP Billiton Ltd. instead of pursuing Aluminum Corp. of China’s investment. BHP, the world’s biggest mining company, climbed 8.1 percent. Inpex Corp., Japan’s largest oil explorer, jumped 5.6 percent after oil prices rose to a seven-month high. Mazda Motor Corp. climbed 8.4 percent as Nikko Citigroup Ltd. raised its stock forecast.
“Investors are looking for a reason to stay positive and the Rio and BHP news provides that,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “The bull market for resources stocks continues today.”
The MSCI Asia Pacific Index added 0.3 percent to 103.49 as of 1:07 p.m. in Tokyo. The gauge has climbed 1.4 percent this week as a Chinese purchasing manager’s index and better-than- expected Australian gross domestic product figures fueled optimism that the global economy is recovering. The measure climbed 47 percent from a more than five-year low on March 9.
Japan’s Nikkei 225 Stock Average gained 0.5 percent as a weaker yen boosted the earnings prospects for companies reliant on overseas sales. Australia’s S&P/ASX 200 Index rose 1.1 percent. New Zealand’s NZX 50 Index added 0.5 percent.
Futures on the U.S. Standard & Poor’s 500 Index added 0.1 percent. The gauge climbed 1.2 percent after analysts recommended buying bank shares. Keycorp surged 20 percent after RBC Capital Markets named the bank a “top pick,” while Goldman Sachs Group Inc. rose 5.2 percent as Sanford C. Bernstein & Co. raised the shares to “outperform.”
Rio Share Sale
Rio Tinto, the world’s third-largest mining company, surged 9.9 percent to A$73.50. Today’s transactions allow Rio to reduce $38.9 billion in debt without selling stakes in its largest mines to Aluminum Corp., which investors said favored the Chinese company. Chinalco, as Aluminum Corp. is known, is China’s largest producer of the material.
“The Chinalco deal was wrong in a strategic sense,” said Prasad Patkar, who helps manage close to $1 billion at Platypus Asset Management in Sydney. “The market was right in marking the management and board down for trying to jam it down shareholders’ throats.”
Investors will be offered 21 new shares in Rio for every 40 they hold at 1,400 pence each, 49 percent below yesterday’s close in London, the company said. BHP, which agreed to pay Rio $5.8 billion to form an Australian iron ore joint venture, climbed 8.1 percent to A$37.96.
Best Performers
Mining and energy companies are the best performers of the MSCI Asia Pacific Index’s 10 industry group in the past month as prospects of a global recovery fueled optimism that demand for commodities will increase.
The Bank of Japan may upgrade its economic assessment of the country for a second straight month at the conclusion of a policy meeting beginning June 15, the Mainichi newspaper reported. Australia’s statistics office said this week gross domestic product gained 0.4 percent in the first quarter from the previous three months, compared with economist forecasts for a 0.2 percent contraction.
“The better-than-expected economic data is convincing people the worst is over,” said Will Seddon, who helps manage $250 million at White Funds Management Pty. in Sydney. “People who are underweight or short don’t want to get left out of the rally.”
Stock gains since March have driven the average valuation of companies on MSCI’s Asian index to 1.5 times the book value of assets, the highest level since Oct. 1.
Oil Prices
Inpex climbed 5.6 percent to 835,000 yen. Santos Ltd., Australia’s third-largest oil company, gained 3.6 percent to A$14.99.
Crude oil rose after Goldman Sachs said prices may reach $85 a barrel by the end of the year as world demand recovers and supplies shrink. Oil climbed 4.1 percent to $68.81 a barrel in New York, the highest settlement since Nov. 4 after the bank increased its year-end forecast from $65 and withdrew a prediction that prices will dip prior to a rally.
Mazda, which makes 28 percent of its revenue in North America, climbed 8.4 percent to 272 yen. Nikko Citigroup raised its target price to 350 yen from 257 yen, citing expectations for an earnings recovery in the second half of the business year.
Mazda shares also rose after the yen declined yesterday versus 15 of the 16 most-traded currencies on speculation Japanese investors are sending funds overseas to buy higher- yielding assets. The yen traded at 96.56 per dollar in Tokyo, after declining 0.6 percent yesterday to its lowest since May 29.
A weaker yen boosts the value of Japanese companies’ dollar-denominated sales. Sony Corp., which gets 24 percent of its revenue from the U.S., climbed 2.1 percent to 2,695 yen.
Rio surged 9.9 percent in Sydney after saying it will sell shares and form a $5.8 billion venture with BHP Billiton Ltd. instead of pursuing Aluminum Corp. of China’s investment. BHP, the world’s biggest mining company, climbed 8.1 percent. Inpex Corp., Japan’s largest oil explorer, jumped 5.6 percent after oil prices rose to a seven-month high. Mazda Motor Corp. climbed 8.4 percent as Nikko Citigroup Ltd. raised its stock forecast.
“Investors are looking for a reason to stay positive and the Rio and BHP news provides that,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “The bull market for resources stocks continues today.”
The MSCI Asia Pacific Index added 0.3 percent to 103.49 as of 1:07 p.m. in Tokyo. The gauge has climbed 1.4 percent this week as a Chinese purchasing manager’s index and better-than- expected Australian gross domestic product figures fueled optimism that the global economy is recovering. The measure climbed 47 percent from a more than five-year low on March 9.
Japan’s Nikkei 225 Stock Average gained 0.5 percent as a weaker yen boosted the earnings prospects for companies reliant on overseas sales. Australia’s S&P/ASX 200 Index rose 1.1 percent. New Zealand’s NZX 50 Index added 0.5 percent.
Futures on the U.S. Standard & Poor’s 500 Index added 0.1 percent. The gauge climbed 1.2 percent after analysts recommended buying bank shares. Keycorp surged 20 percent after RBC Capital Markets named the bank a “top pick,” while Goldman Sachs Group Inc. rose 5.2 percent as Sanford C. Bernstein & Co. raised the shares to “outperform.”
Rio Share Sale
Rio Tinto, the world’s third-largest mining company, surged 9.9 percent to A$73.50. Today’s transactions allow Rio to reduce $38.9 billion in debt without selling stakes in its largest mines to Aluminum Corp., which investors said favored the Chinese company. Chinalco, as Aluminum Corp. is known, is China’s largest producer of the material.
“The Chinalco deal was wrong in a strategic sense,” said Prasad Patkar, who helps manage close to $1 billion at Platypus Asset Management in Sydney. “The market was right in marking the management and board down for trying to jam it down shareholders’ throats.”
Investors will be offered 21 new shares in Rio for every 40 they hold at 1,400 pence each, 49 percent below yesterday’s close in London, the company said. BHP, which agreed to pay Rio $5.8 billion to form an Australian iron ore joint venture, climbed 8.1 percent to A$37.96.
Best Performers
Mining and energy companies are the best performers of the MSCI Asia Pacific Index’s 10 industry group in the past month as prospects of a global recovery fueled optimism that demand for commodities will increase.
The Bank of Japan may upgrade its economic assessment of the country for a second straight month at the conclusion of a policy meeting beginning June 15, the Mainichi newspaper reported. Australia’s statistics office said this week gross domestic product gained 0.4 percent in the first quarter from the previous three months, compared with economist forecasts for a 0.2 percent contraction.
“The better-than-expected economic data is convincing people the worst is over,” said Will Seddon, who helps manage $250 million at White Funds Management Pty. in Sydney. “People who are underweight or short don’t want to get left out of the rally.”
Stock gains since March have driven the average valuation of companies on MSCI’s Asian index to 1.5 times the book value of assets, the highest level since Oct. 1.
Oil Prices
Inpex climbed 5.6 percent to 835,000 yen. Santos Ltd., Australia’s third-largest oil company, gained 3.6 percent to A$14.99.
Crude oil rose after Goldman Sachs said prices may reach $85 a barrel by the end of the year as world demand recovers and supplies shrink. Oil climbed 4.1 percent to $68.81 a barrel in New York, the highest settlement since Nov. 4 after the bank increased its year-end forecast from $65 and withdrew a prediction that prices will dip prior to a rally.
Mazda, which makes 28 percent of its revenue in North America, climbed 8.4 percent to 272 yen. Nikko Citigroup raised its target price to 350 yen from 257 yen, citing expectations for an earnings recovery in the second half of the business year.
Mazda shares also rose after the yen declined yesterday versus 15 of the 16 most-traded currencies on speculation Japanese investors are sending funds overseas to buy higher- yielding assets. The yen traded at 96.56 per dollar in Tokyo, after declining 0.6 percent yesterday to its lowest since May 29.
A weaker yen boosts the value of Japanese companies’ dollar-denominated sales. Sony Corp., which gets 24 percent of its revenue from the U.S., climbed 2.1 percent to 2,695 yen.
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