Financial News

South Korea’s industrial production declined by the most on record in December, the latest sign the nation may join Japan, Europe and the U.S. in a recession.

Output tumbled 18.6 percent from a year earlier after a 14 percent plunge in November that was the second-biggest drop since the series began in 1970, the statistics office said today in Gwacheon. That was more than median estimate of a 16.8 percent decrease in a Bloomberg News survey of 12 economists.

The report, coupled with data that showed Japan’s production fell an unprecedented 9.6 percent last month, signal a deepening slump in Asia’s export-dependent nations. South Korea’s economy contracted last quarter by the most since 1998 as exporters Hyundai Motor Co., Hynix Semiconductor Inc. and LG Display Co. cut output to cope with sagging demand.

“Output may fall for quite some time because of the gloomy global outlook,” said Lim Ji Won, an economist at JPMorgan Chase & Co. in Seoul. “The question is how much further the recession will deepen.”

The economy shrank 5.6 percent in the fourth quarter from the previous three months as the deepening global slump sapped demand at home and abroad, the government said last week.

Industrial production declined 9.6 percent from November, today’s report showed.

Samsung Electronics Co., the world’s largest maker of memory chips, liquid-crystal displays and televisions, last week reported its first quarterly loss as the global recession drove down prices instant payday loan.

Stocks Decline

Korea’s won fell 0.3 percent to 1,383.35 per dollar at 2:30 p.m. in Seoul. The Kospi stock index lost 0.5 percent to 1,160.76, led by shares in exporters.

Confidence among South Korean manufacturers remained close to a record low, a central bank survey showed this week. Exports, which make up about half of the economy, probably plunged by a record 29.1 percent in January, economists forecast ahead of a Feb. 2 report.

President Lee Myung Bak has allocated 51 trillion won ($36.9 billion) in tax cuts and stimulus spending and the central bank slashed the key interest rate to a record low of 2.5 percent this month.

The global economy will slow close to a halt this year as more than $2 trillion of bad assets from the U.S. help sink economies from Russia to the U.K., the International Monetary Fund said this week.

South Korean sales of consumer goods fell 1.8 percent in December from November and dropped 7 percent from a year earlier, today’s report showed. Construction orders plunged 33.5 percent from a year earlier and investment in factories decreased 24.1 percent.

A leading index of economic indicators, which forecasts business activity, fell 3.2 percent last month from a year earlier after declining 2.6 percent in November.

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Ford Motor Co has enough liquidity to fund its restructuring plan and despite the deep downturn in auto sales still sees no need to ask for government loans, chief executive Alan Mulally said Saturday.

"We don’t want to borrow any more money. We have sufficient liquidity to fund our transformation plan, which means our business is in a relatively good shape," Mulally told reporters on the sidelines of the National Automobile Dealers Association convention.

Ford’s U.S. rivals, General Motors Corp (GM, Fortune 500) and Chrysler LLC, won approval in December for $17.4 billion of government loans to avert collapse. Ford has asked for access to a $9 billion credit line from the U.S. government but has not sought loans. Washington has not yet responded to Ford’s request.

Mulally said Ford was in a better situation than its rivals because it borrowed more than $23 billion in 2006, using most of the company’s assets as security, including its well-known blue oval logo payday loans.

Mulally said U.S. industry-wide sales in January had been similar to those in December, when they fell about 36% from a year earlier to 10.3 million units on an annualized basis.

Ford expects an economic stimulus package being pushed by new President Barack Obama to drive a recovery in auto sales starting in the second half of the year and maintains its forecast of U.S. auto sales at 12 million to 12.5 million units, he added.

The forecast represents the high end of prevailing expectations. Analysts have forecast U.S. sales in a range between 10.1 million and 12.5 million units for 2009.

"Right now, I think with everything planned in the fiscal and monetary policy, I am very comfortable that we are going to start to turn things around through the second half of the year," Mulally said. 

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St. Louis — The recession has driven consumers to cut back on their spending, but there has been no shortage of patrons where Abbe Sudvarg works.

Instead there have been more — thousands more — who want to purchase the services offered at Family Care Health Centers, where Sudvarg is a family practice physician. And the flood of patrons is more than the clinic, which specializes in low-cost health care, can handle.

"We cannot expand to fit the need," said Sudvarg, who works at the center’s 401 Holly Hills Avenue location.

Area community health centers, a large chunk of the health care safety net that serves the uninsured and underinsured, have been strained by a major boost in business during the past year. The uptick comes as jobless rates spike and more people lose their employer-based health insurance.

In 2007, more than 215,000 St. Louis area residents used local safety net providers, which include county health care centers, clinics based in hospitals and medical schools, "free standing" public health clinics and federally qualified health centers such as Family Care. There are 23 sites in St. Louis and St. Louis County.

Family Care’s list of patients grew in 2008 by 14 percent, or about 2,500 patients. Robert Fruend, CEO of the St. Louis Regional Health Commission, which works with the area’s community health centers, said nearly all the region’s clinics have seen significant increases recently. The Southern Illinois Health Care Foundation also reported a patient increase at 26 clinics in the Metro East area, including a 24 percent jump, or 8,006 people, in the number of uninsured patients.

Alan Freeman, the president and CEO of Grace Hill Neighborhood Health Centers in St. Louis, said patients’ stories have become more desperate. The numbers of homeless and newly unemployed patients at Grace Hill have risen dramatically in the past 18 months, he said.

"The bottom line is there is a greater number of uninsured patients, and it’s increasing," Freeman said.

For the growing group that depends on the health centers for anything from eye care to podiatry, officials said, the increased demand could mean longer waits to get appointments. Fruend said the financial strain could reverse some of the recent progress at St. Louis area sites toward keeping wait times down, especially for meetings with specialists.

"If it’s your wife with the lump in her breast and she’s getting in in a timely fashion rather than waiting months, it’s huge," Fruend said.

At Family Care, Sudvarg said, it is becoming more difficult to take new patients. The center doesn’t want to sacrifice quality by accepting more patients than they can handle, she said.

"Everyone’s priority here is to make sure we do it right," she said. "Unfortunately, that means we would rather turn people away than start doing it wrong payday loan lenders."

Connie Hodges, who visited Family Care’s location on Holly Hills last week, said she and her son, James, have depended on the center for 15 years. Hodges, 48, of St. Louis, said she has never been able to afford health insurance for an extended period of time, and a community health center was her only option besides avoiding treatment.

"I didn’t have to make a choice between feeding James and taking my medicine," she said.

The price charged to Hodges, who joined the center’s governing board as a "consumer" member three years ago, is based on her income. She has always paid much less than she would at other providers, but the board, faced with serious budget problems, recently voted to raise its prices.

"(The minimum charge) is going up from $15 to $20" a visit, she said. "That’s going to affect me."

At these centers, more patients don’t mean more money. Treating uninsured patients, which make up the bulk of the new clientele, is costly because the patient fees are usually far less than the cost of their care.

Grants and government funding subsidize most centers, but local and national health care officials say revenue hasn’t increased to meet the rising need. State governments and grant-giving foundations also are seeing shrinking budgets because of the economic downturn, and some are cutting back on support for the health centers, said Georges Benjamin, executive director of the American Public Health Association.

"Just when we need the safety net, the resources that fund the safety net are getting cut," Benjamin said.

There is some hope that help could come from the federal government. Barack Obama’s nominee for secretary of the Health & Human Services Department, Tom Daschle, has said he supports increasing federal funding for the centers to $8 billion from $2 billion. Senate Democrats also have advocated including money for the centers in the economic stimulus package that Congress is considering.

But to deal with the current strain, some clinics are cutting staff or employing other tactics to improve efficiency.

Family Care has frozen the salaries of its employees for the upcoming fiscal year, and director Bob Massie said budget issues kept the center from adding another physician to the staff, even though there was more than enough demand to justify the hire.

In an attempt to make all the city’s clinics more efficient, Fruend said, the Regional Health Commission has been working to streamline the exchange of information between centers, find inexpensive supplies for the office and reduce "back office" staff, which do jobs such as billing.

But while he said he’s been pleased with the efforts to make the safety net more efficient, Fruend said there is not much more that can be done without affecting access to care.

"It’s getting tight out there."

jcrawford@post-dispatch.com | 314-340-8349

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Toyota Motor Corp () on Tuesday named Akio Toyoda, grandson of the company’s founder, to head the world’s biggest automaker and lead it through the global crisis that has slashed demand for cars worldwide.

The announcement ends years of speculation over when Toyoda, who turns 53 in May, would take the helm after he joined the board of directors in 2000 after 16 years with the company.

He faces a tough challenge. Toyota and its rivals are grappling with slumping sales in North America, Europe and Japan amid a spreading recession in rich countries, with sales also slowing in emerging markets such as China and Russia.

The sharp downturn in the United States has pushed rivals General Motors Corp () and Chrysler LLC CBS.UL to the brink of collapse.

Toyoda will be taking the wheel of an automaker in far better shape but hurting nonetheless, as it reported on Tuesday its first drop in annual sales in a decade.

“We face a crisis unprecedented in the past 100 years,” Toyoda, a motorsports enthusiast who holds a master’s degree from Babson College in the United States, told a news conference.

“I believe it is necessary to go back to the basics — of placing the customer first and going to the source of all issues — while at the same time taking bold action to overcome the difficulties we face,” he said.

Toyota, whose name is derived from the family name, is heading for its first-ever consolidated operating loss in the year to March 31, hit also by a stronger yen, after reporting record earnings last year instant payday advance.

Shares of Toyota rose 2.3 percent to close at 3,100 yen in Tokyo, boosted by Toyota’s announcement during trade that it would be unveiling a new management structure — which had been widely tipped to put Toyoda into the president’s chair.

The benchmark Nikkei average .N225 fell 2.3 percent.

Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, said Toyoda and his new team needed to act quickly to scale back investment and cut costs.

“Right now the important thing is to stop the bleeding,” he said. “Management of the business has not gone well over these past three years. They expanded too much.”

FLAG-BEARER?

Toyoda, currently executive vice president in charge of domestic and overseas operations, will replace 66-year-old Katsuaki Watanabe as president in June as part of a planned reshuffle of top management.

Watanabe will become vice chairman as Akio becomes the sixth Toyoda and youngest executive since the founder, Kiichiro, to head the company. Chairman Fujio Cho will stay in his post to support the new management structure. 

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World number three mobile phone maker Sony Ericsson posted a much bigger than expected quarterly loss and announced plans for further cost cuts, possibly including jobs, as it braced for even weaker demand.

President Dick Komiyama forecast global demand would shrink at least 5 percent this year, and said on Friday market share was less of a priority than preserving profitability.

While Sony Ericsson was the first of the big handset makers to release fourth-quarter earnings, it was only the third of the top four to react to crumbling sales in the past few days, after Motorola () and Samsung ().

The number one mobile phone maker, Nokia (), will report on January 22.

Sony Ericsson made a 261 million euros ($346 million) pretax loss in the three months to end-December, versus a mean forecast in a Reuters poll for a 77 million loss. A year earlier, the Ericsson () and Sony () venture made a 501 million profit.

Sales rose to 2.91 billion euros from 2.81 billion but gross margin halved to 15 percent from 32 percent due to impact from exchange rate fluctuations, restructuring charges and writeoffs.

The company said it was on track to deliver 300 million euros in annual savings, and had initiated more measures aimed at saving another 180 million from end-2009 faxless payday loan.

“We cannot exclude that it will also influence headcount at the company. But we have to come back to the details of that program, probably at the next report,” global sales chief Anders Runevad told Reuters in an interview.

Asked in a conference call about the prospects for profitability in 2009, Komiyama said: “Overall, it still probably will be (on the) negative side, but we plan to be positive in the second half.”

Ericsson shares were up 1.2 percent at 58.70 crowns by 1345 GMT, in line with the broader Stockholm market .

Richard Windsor, technology specialist at Nomura Securities, said the big question mark for the venture was in gross margins.

“How much have they had to discount high-end products in order to hang on to market share?” he said.

“If they can get back to (a margin) in the mid 20s (percent) and deliver on the cost savings the company should be able to get back to about break-even by the end of this year.”

LOWER DEMAND, INDUSTRY ASP IN ‘09

Sony Ericsson said it expected the market to worsen further in 2009, particularly in the first half. 

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Citigroup Inc.’s stock sank Monday to its lowest level since November as investors wondered how much more cash the troubled bank will need.

Citigroup Inc., in an effort to raise capital, is hammering out a deal to sell the bulk of its retail brokerage — Smith Barney — to Morgan Stanley. The joint venture is expected to be announced later this week and would lead to an after-tax gain for Citigroup of about $5 to $6 billion, a person close to the negotiations said Monday.

But maintaining cash levels that are high enough to make up for upcoming loan losses remains a big challenge for Citigroup.

"While we believe this deal will provide some near-term capital relief, more likely will be needed," Meredith Whitney, a financial analyst at Oppenheimer & Co., wrote in a note Monday.

Citigroup stock fell $1.15, or 17 percent, to $5.60 Monday — making it by far the steepest decliner among the 30 stocks that make up the Dow Jones industrial average — even though many industry analysts were positive about the deal. Lauren Smith at Keefe, Bruyette & Woods said in a note that the potential joint venture "seems like a win-win to us."

Citigroup lost more than $20 billion between October 2007 and October 2008, and is expected to post another deficit for the final quarter of last year when it reports those results next week. The government has already lent Citigroup $45 billion and agreed to absorb the losses on a huge pool of mortgages and other assets.

"We’ve seen various indications that Citibank’s problems run deep. The fact that the government came in and backstopped some of their assets was one signal of that fast payday loan. Citi’s selling the majority share of Smith Barney is probably another such signal," said Jim Wilcox, a professor at the Haas School of Business at the University of California-Berkeley.

Morgan Stanley — which got $10 billion in government financing — is likely to pay Citigroup between $2 billion and $3 billion in cash for a 51 percent stake in Citi’s brokerage, Smith Barney, the person close to the talks said. The person spoke on condition of anonymity because he was not authorized to discuss the ongoing talks.

In total, after accounting for the revaluation of Smith Barney, Citigroup would get a pretax gain of $10 billion, or $5 billion to $6 billion after taxes, the person said.

Morgan Stanley would then have the option to buy the rest of Smith Barney over the next three to five years, the person said. The joint venture between Smith Barney and Morgan Stanley’s retail brokerage, the former Dean Witter, would employ a team of more than 20,000 and rival Bank of America Corp.’s Merrill Lynch in size.

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Economic weakness in Europe worsened and disappointing sales from Wal-Mart, the world’s largest retailer, knocked financial markets lower on Thursday, strengthening the case for government stimulus and new rate cuts.

The Bank of England, which cut its key interest rate to a historic low of 1.5 percent, said the world economy appeared to be undergoing an unusually sharp and synchronized downturn.

“Measures of business and consumer confidence have fallen markedly. World trade growth this year is likely to be the weakest for some considerable time,” the British central bank said in a statement.

Wal-Mart Stores Inc, posted weak December same-store sales and cut its quarterly earnings forecast as other U.S. retailers also warned that earnings would be worse than expected in the current quarter, which includes the key 2008 holiday shopping season.

The European Commission earlier said that economic sentiment in the 15 countries using the euro plunged to an all-time low in December as unemployment rose and inflation expectations tumbled.

The euro zone economy is sinking deeper into its first recession, the victim of a credit crunch that slashed financing to companies and households, curbing demand and causing belt-tightening.

Policymakers worldwide are rushing to limit the damage from the economic crisis, the biggest since the 1930s.

U.S. President-elect Barack Obama warned that the United States’ economy could be mired in recession for years without bold action and called for the U cash loans.S. Congress to work “day and night” to quickly pass a fiscal stimulus package that could total nearly $800 billion.

“I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible,” he said in a speech in suburban Washington.

The U.S. budget deficit for the current fiscal year is expected to reach $1.2 trillion. At 8.3 percent of gross domestic product, it would be post-World War Two record.

GERMAN DATA BLEAK

Germany said manufacturing orders dropped by a much bigger-than-expected 6 percent in November, hit by collapsing demand at home and abroad. Exports fell by an unprecedented 10.6 percent in November as demand for cars and others mainstays of the manufacturing economy plummeted.

Europe’s biggest economy and the world’s largest exporter posted the biggest monthly drop in exports since reunification in 1990, sending the euro lower against the dollar.

The grim economic data reinforced expectations of a deep interest-rate cut by the European Central bank on January 15.

In Spain, unemployment topped 3 million people for the first time and is expected to worsen in 2009, according to the government. 

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President-elect Barack Obama will meet with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid Monday to discuss his proposal for the new economic stimulus plan, which leaders are now referring to as an "economy recovery plan," a Senate Democratic leadership aide said Friday.

Obama, Pelosi and Reid are then hoping to meet with Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner, the aide told CNN.

The president-elect’s staff contacted McConnell’s office about meeting on Monday, but the time and location has not been buttoned down, said a Senate Republican leadership aide.

"It’s likely to happen but the details still need to be worked out," said the aide. Asked if Republicans are satisfied with what appears to be an effort by Obama to include them in discussions about the new economic stimulus package the GOP aide said, "It depends on what the meeting is - if it’s just a photo op or if they’re really reaching out."

The aides declined to be named because the meetings had not been publicly announced. Obama aides would not confirm any Monday meetings.

As House Democratic aides said Pelosi would like to move a stimulus bill through the House by the second week in January, McConnell and Boehner both expressed concerns this week about the size of the economic rescue effort and if oversight of the plan will suffer because of Democrats’ ambitious timeline no fax cash advance.

"We agree with President-elect Obama that taking action to turn the economy around is job one," McConnell said in a statement Friday. "We also agree, though, that every dollar needs to be spent wisely and not wasted in the rush to get it spent.

"And we believe that his admonition to ‘go through the federal budget-page by page, line by line-eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way’ should apply to this, potentially the largest spending bill ever considered by the Congress. And we hope that Democrats in Congress don’t attempt to shut the American taxpayer out of this process by trying to pass a bill that hasn’t been the subject of bipartisan review and that hasn’t been available for public inspection." 

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Hedge fund Pershing Square Capital Management, one of General Growth Properties Inc’s GGP.N biggest shareholders, is betting the No. 2 U.S. mall owner will file for bankruptcy — and equity investors will end up big winners, a person familiar with the firm’s thinking said.

Pershing Square declined to comment. General Growth, whose top properties include Fashion Show in Las Vegas and Faneuil Hall in Boston, declined to comment.

Bankruptcy usually leaves stock investors with plenty of nothing, but General Growth is an unusual case. It has almost $30 billion of assets on its books, and just about $27 billion of debt.

But most of the company’s real estate assets are recorded on its books at their historical value, and many were bought years ago, meaning their value now is likely substantially higher. The company’s problems are not with its assets, but with refinancing maturing debt in frozen markets.

Historically, companies whose assets are worth much more than their liabilities have gone through bankruptcy in a way that leaves shareholders intact, which is what Pershing Square is banking on, the person familiar with the firm’s thinking said.

It’s not the first time Pershing Square, led by activist investor William Ackman, has made a big bet on real estate linked to retail. He recently made headlines with a so-far unrealized plan to boost discount retailer Target Corp’s () stock price by forming a trust that owns the land under its stores and then spinning off part of the trust in a stock offering.

General Growth’s shares were down 4 cents, or 3.3 percent, at $1.17 in afternoon trading on Tuesday, down 98 percent from their peak in March 2007.

Pershing Square owns or has exposure to more than a quarter of General Growth’s shares quick cash advance.

MANAGEMENT TALENT

Elsewhere, the high-profile Ackman has reaped big returns on short positions in bond insurers. But he has also made some missteps, including investing in insurer American International Group Inc ().

General Growth’s book value, or accounting value, was about $1.8 billion as of the end of September. But the company’s market value before Lehman Brothers Holdings Inc () filed for bankruptcy in September was about four times that. That reflects the fact that its more than 200 malls, many which are high-end, have appreciated in value.

More than a month before Pershing announced it was buying General Growth shares, a report by Green Street Advisors said that the value of the company’s assets was high enough to leave shareholders with something after bankruptcy.

In real estate circles, Chicago-based General Growth is admired for its ability to manage its properties well, boosting their value in the process.

But the credit crisis has hit the company hard, sending its stock price down more than 97 percent, and leading to the firing of its chief financial officer. The company is trying to raise cash by selling off some malls but has yet to do so.

In Pershing Square’s estimation, General Growth’s real problem is its maturing debt, in particular two loans totaling $900 million. Those loans were set to mature at the beginning of December. Lenders extended that deadline to February, adding to the $2.49 billion of other debt due next year. 

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