Financial News

WASHINGTON — The Obama administration hopes to restore confidence in the nation’s ailing financial sector by subjecting 19 of the largest banks to "stress tests" that will gauge whether each institution has adequate capital to survive another severe downturn.

Banks that are determined by the tests to need more funding will be given six months to obtain it from the private sector or, failing that, from the federal government’s $700 billion bank rescue program, the Treasury Department said Wednesday.

Treasury officials said the new support will be provided through the government’s purchase of preferred shares of the bank stock that are convertible into common shares at a 10 percent discount to their price before Feb. 9.

The preferred shares will carry a 9 percent dividend and be convertible at the bank’s option, but subject to regulatory approval.

The option to convert the preferred shares into common shares is a change in the rescue program designed to give the government greater flexibility in managing its assistance.

Common shares absorb losses before preferred shares do, which means that under a stock conversion plan, taxpayers would be on the hook if banks keep writing down billions of dollars’ worth of rotten assets, such as dodgy mortgages, as many analysts expect they will.

However, common stock in banks is incredibly cheap, and taxpayers would reap gains if the banks come back to health and the stock price rises.

The Treasury Department also provided details of how a new stress test will ensure banks have enough capital to survive a downturn even more severe than the current recession. The tests will be conducted by bank regulators, including the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Office of Thrift Supervision.

Administration officials did not say whether they expect to request more taxpayer money to fund the next round of investments in banks beyond general statements that they would provide the capital that banks need payday loans online.

But in his speech to Congress Tuesday

evening, President Barack Obama said more money beyond the $700 billion committed last year would be needed. Saying he understands bank bailouts are unpopular, he insisted it was the only way to get credit moving again to households and businesses. He also called on Congress to move quickly on legislation to overhaul regulations on the nation’s financial markets.

On Wednesday, the president urged key members of Congress to write tough new financial industry regulations to prevent crises and protect consumers.

Obama called for new accountability, transparency and trust in the financial markets. Among his main principles for the legislation, he said, is that government better monitor the scale and scope of risks that institutions take.

The president made his remarks Wednesday after meeting with the top Democrats and Republicans from the two House and Senate committees that will take the lead in writing the legislation.

Central to the new regulatory effort is reining in unregulated esoteric financial instruments blamed for Wall Street’s free-fall last year.

Meanwhile, Federal Reserve Chairman Ben Bernanke on Wednesday again spurned speculation that the government may nationalize Citigroup Inc. or other large financial institutions.

During an appearance before the House Financial Services Committee, Bernanke said nationalization "is when the government seizes the bank and zeros out the shareholders and begins to manage and run the bank. And we don’t plan anything like that."

But the Fed chief said it is possible the government could end up with a much bigger ownership stake in Citigroup or other banks. In the case of Citigroup, Bernanke said "we’ll see how their test works out and what evolves."

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New York — Stocks advanced the most in a month Tuesday, halting a six-day decline, after Federal Reserve Chairman Ben Bernanke’s statement that banks need not be nationalized helped lift equities.

Citigroup Inc. and Bank of America Corp. rose more than 20 percent, sending financial shares in the Standard & Poor’s 500 index to the first advance in eight days, as Federal Deposit Insurance Corp. Chairman Sheila Bair said large U.S. banks have enough capital. Home Depot Inc., Macys Inc. and Nordstrom Inc. climbed at least 10 percent after the retailers reported profit that topped estimates. All 24 S&P 500 industries advanced as the index rebounded from a 12-year low.

"There’s overwhelming value in this market," said Randy Bateman, who oversees $15 billion as chief investment officer of the asset management unit of Huntington Bancshares Inc. in Columbus, Ohio. "If there’s any kind of momentum in the market, people want to jump on board."

The S&P 500 added 4 percent to 773.14. The Dow Jones industrial average increased 236.16 points, or 3.3 percent, to 7,350.94.

Elliott Wave International Inc.’s Robert Prechter, who advised shorting U.S. stocks three months before the bear market began, said investors should end that bet. He warned of a sharp and scary rebound for anyone still wagering on a retreat, according to this month’s Elliott Wave Theorist.

Citigroup gained for a second day, adding 22 percent to $2.60. Bank of America increased 21 percent to $4.73.

JPMorgan rose 7.7 percent to $21.02. The second-largest U.S. bank slashed its dividend by 87 percent to save $5 billion a year.

Home Depot climbed 10 percent to $20 short term personal loans.67. Macy’s added 12 percent to $8.29. Nordstrom increased 21 percent to $13.69.

The U.S. stock market maintained its advance even after reports showed the housing slump and consumer confidence worsened and Bernanke told Congress a full economic recovery may take more than three years.

"We’re now in a phase where the market can stabilize and attempt a rally," said Liam Dalton, who oversees about $1.1 billion as chief executive of Axiom Capital Management.

Microsoft Corp. slumped 0.2 percent to $17.17 for the only drop in the Dow average. Chief Executive Steve Ballmer said the biggest software maker faces more competition from Google Inc. and Apple Inc. in the market for personal-computer software.

Developers Diversified Realty Corp. rallied 54 percent to $3.85 for the S&P 500’s biggest gain. The shopping-center owner that plunged 94 percent in the last 12 months agreed to sell 30 million shares to German mall operator Alexander Otto and members of his family, as well as warrants for 10 million more shares.

Rambus Inc. jumped 40 percent to $9.38. The designer of memory chips rallied after a judge said it can collect $133.4 million in damages from Hynix Semiconductor Inc. and is entitled to royalties.

AIG declined 23 percent to 41 cents. The company may scrap a plan to repay a $60 billion U.S. government loan by selling businesses, after failing to find enough promising bidders, said two people with knowledge of the matter.

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A survey of leading economists finds them now forecasting a far deeper and more painful recession ahead in the first half of the year, but a modest pickup in the second half of 2009, followed by a solid recovery in 2010.

"The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters," said Chris Varvares, the president of the National Association of Business Economics, which conducted the survey of 47 top forecasters in late January and early February.

"While a few reports offer some glimmer of hope, a meaningful recovery is not expected to take hold until next year," added Varvares, who is also president of the research firm Macroeconomic Advisors.

The forecasts hold little good news for the first half of this year. The economy is expected to decline at a 5% rate in the first quarter, even sharper than the 3.8% drop recorded in the fourth quarter of last year. And the group is forecasting another 1.7% drop in economic activity in the second quarter.

While the economists surveyed are forecasting a 1.6% gain in economic activity the second half of this year, that won’t be enough to overcome the first half weakness, which should result in a 0.9% full-year drop in U.S. economic activity when comparing the fourth quarter of this year to a year earlier. That would be the biggest drop on that basis since 1982, and far worse than the year-over-year decline of 0.2% recorded in the fourth quarter of 2008.

As recently as NABE’s November survey, the consensus of economists was that there would be 0.7% economic growth during the course of 2009. Last May’s survey found the group forecasting a healthy gain of 2.7% during the year.

But the outlook for this year has clearly gotten much worse since the earlier surveys in just about every measure. The economists are forecasting unemployment rising to 9% for the fourth quarter of 2009, up from their previous 7 cheapest personal loan rates.5% estimate.

They expect job losses for the year coming in roughly the same as the nearly 3 million jobs lost in 2008, which is nearly four times the job losses they were forecasting three months ago.

They also estimate corporate profits will slip 9% this year, while housing starts and auto sales continue to fall to levels not seen in decades. All those forecasts are significantly worse than estimates in the November survey.

The economists are forecasting a healthy recovery in stocks from current levels, estimating the Standard & Poor’s 500 will end the year a 975, which would be 26% above current levels and a gain of 8% from where it started the year. But in November the economists had forecast the S&P would end 2009 at 1,200.

Still, the optimism that the economists had back in November has been pushed back, rather than abandoned. They forecast that the economy will see healthy 3.1% growth during the course of 2010, as they expect unemployment to start to ease as employers add 1.3 million jobs during the year, and auto sales and housing starts at least make it back to 2008 levels. Even the five most pessimistic economists surveyed are forecasting economic growth during every quarter of 2010, although those pessimists expect job losses and the unemployment rate to continue throughout all of next year.

The United States is seen as the most likely major economy to emerge from the global recession first, according to the survey. The survey found 34% expect the U.S. back on its feet first, followed by 28% who believe China would be the first to recover and 13% who picked Canada. Less than 4% picked European economies as the most likely to lead the recovery. 

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Billionaire investor George Soros said the current economic crisis has its roots in the financial deregulation of the 1980s and marks the end of a free-market model that has since dominated capitalist countries.

Liberalization of the financial industry begun by the Reagan administration has led to a series of breakdowns forcing government intervention, Soros told economists and bankers last night at a private dinner at Columbia University in New York. The global recession, triggered by the collapse of the U.S. housing market, has “damaged the financial system itself,” he said.

Regulators are in part to blame because they “abrogated” their responsibilities, Soros, 78, said. The philosophy of “market-fundamentalism” was now under question as financial markets have proved to be inefficient and affected by biases rather than driven by all the available information, he said.

“We’re in a crisis I think that’s really the most serious since the 1930s and is different from all the other crises we have experienced in our lifetime,” Soros said payday loan in advance.

Soros, founder of New York-based hedge-fund firm Soros Fund Management LLC, said last month at the World Economic Forum in Davos, Switzerland, that the Obama administration’s plan to buy toxic assets from U.S. banks won’t be enough to get financial institutions to start lending again.

A more effective approach for restarting the economy would be to inject capital directly into the banks and cut minimum capital requirements, Soros, whose firm oversees $21 billion, has said.

Soros’s Quantum Endowment Fund returned 8 percent last year. That compared with an average loss of 18 percent by hedge funds, according to data compiled by Hedge Fund Research Inc. of Chicago.

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Federal agents entered the Houston office of Stanford Financial Group on Tuesday, according to a Reuters eyewitness on the scene.

About 15 people, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford’s office in the Houston Galleria area, the eyewitness said.

Houston-based Stanford Financial Group, which says it oversees more than $50 billion of assets, is being investigated by U.S. regulators, according to a person familiar with the matter 30 day payday loans.

The New York Times reported that U.S. securities regulators had accused three top Stanford executives, including Robert Allen Stanford, of fraud.

The Houston office of the U.S. Marshals Service had no immediate comment. A Stanford spokesman was not immediately available to comment.

(Reporting by Anna Driver; editing by John Wallace)

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Egypt’s central bank cut its benchmark interest rate for the first time since April 2006 as inflation and economic growth slowed in the Arab world’s most populous nation.

The overnight deposit rate was lowered 100 basis points to 10.5 percent, while the lending rate was cut by the same amount to 12.5 percent, the Cairo-based central bank said on its Web site today. The cut was the biggest since at least 2005.

“The decision is in line with the general expectation,” said Reham El-Desoki, an economist at Cairo-based investment bank Beltone Financial. “We expect the monetary loosening cycle to continue with further cuts throughout 2009, with cumulative cuts of around 300 basis points.”

Central banks worldwide have reduced interest rates as the worst financial crisis since the Great Depression cuts commodity prices and economic growth. Wheat, of which Egypt is the world’s largest importer, has declined 57 percent since March, helping to push the urban inflation rate to an 11-month low of 14.3 percent in January.

The rate reduction won’t be sufficient to revive consumer spending and investment and the government will probably need to announce further spending increases, El-Desoki said. The government will double its economic stimulus plan to 30 billion Egyptian pounds ($5.4 billion), Finance Minister Youssef Boutros-Ghali said Feb. 5.

Inflation Outlook

Countrywide inflation, which eased to 14 percent in January from 18.7 percent the previous month, is expected to slow to 9 percent at the end of the first quarter, Trade and Industry Minister Rachid Mohamed Rachid said Jan low cost payday loans. 28.

“The risks to the domestic inflation outlook are lower in light of the deteriorating prospects for global growth,” Rania Al-Mashat, division chief of the central bank’s monetary policy unit, said in a statement. The monetary policy committee “will continue to contain the adverse effects of the global economic turmoil on the domestic economy.”

Egypt’s central bank last year raised the key rate six times by a total of 2 3/4 percentage points to damp inflation, which it targets at a range of between 6 percent and 8 percent.

Growth in the economy, which depends on tourism, tolls from the Suez Canal and worker remittances, will probably ease to 3.5 percent in 2009 from 7 percent during the past two years, Standard Chartered said in a report on Feb. 12.

Slowing Down

Economic expansion slowed to an annual 4.1 percent in the last quarter of 2008 as revenue growth from the Suez Canal declined as a result of the global financial crisis.

Widespread labor strikes over state-asset sales, job cuts and high food prices have closed government-run factories off and on during the past two years and forced the Mubarak government to raise state wages in May 2008.

Egypt’s budget deficit was 6.9 percent of gross domestic product for the fiscal year through June. The government has said it expects the deficit to remain the same this year and widen to 9.5 percent in June 2010.

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China may use foreign-exchange policy and interest rates to reduce the amount people save and help boost domestic consumption, central bank Governor Zhou Xiaochuan said.

“We need a comprehensive package to do the task of lowering the savings rate, including exchange and interest rates,” Zhou told a conference of central bankers in Kuala Lumpur today. “We need to emphasize internal demand, that is domestic consumption especially in rural areas no faxing payday loan. We need to change the consumption pattern.”

China also needs to further develop its financial and capital markets as part of the package, Zhou said.

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Ferguson-based Emerson plans as many as 14,000 job cuts this year, after already slashing 7,000 positions since October amid lower demand.

The company expects to shrink its work force to as little as 120,000 by the Sept. 30 end of its fiscal year, spokesman Mark Polzin said Friday. The company has 134,000 workers globally, already down from about 141,000 workers it had on Oct cash advance america. 1.

Polzin declined to say if any of the cuts would happen in the St. Louis area, and he could not give a number of local workers.

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Japan’s Panasonic Corp, the world’s No.1 plasma TV maker, warned it would post an annual loss of $4.2 billion and said it would cut about 15,000 jobs as it grapples with a stronger yen and slowing demand.

The maker of Viera flat TVs and Lumix digital cameras joins a growing list of electronics makers stepping up restructuring in the face of a global slump that is shaping up to be nastier than the last major downturn in 2001 after the IT bubble.

Sony Corp, Toshiba Corp and Hitachi Ltd are all facing multibillion dollar losses, crippled by the double whammy of falling sales and a strong Japanese currency that eats into overseas profits when repatriated.

The yen’s surge to a 13-year high against the dollar has also made Japanese electronics less competitive than goods from South Korean rivals such as Samsung Electronics, which are benefiting from a softer won.

“The market had high hopes for the flat TV business, but it now has no competitive edge overseas due to the strong yen and is contributing in a big way to the slump,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Panasonic, which ranks ahead of Samsung and LG Electronics Inc in the plasma TV market, cut its forecast for the year ending March 31 to a net loss of 380 billion yen ($4.2 billion) from previous guidance for a 30 billion yen profit.

The new forecast, which is slightly bigger than media reports earlier this week predicting a loss of 350 billion yen, reflects 345 billion yen in restructuring charges and a 9 percent cut in its sales estimate to 7 quick cash advance.75 trillion yen.

Panasonic cut its annual dividend forecast by one-third to 30 yen per share.

JOB CUTS

The company, formerly known as Matsushita Electric, posted a net loss of 63.1 billion yen for the October-December quarter versus a year-earlier profit of 115.2 billion yen.

Quarterly operating profit tumbled 84 percent to 26.4 billion yen. For a graphic on Panasonic’s historical quarterly operating profit, click here

“Sales fell in all our business segments in the third quarter. We expect sharper sales declines in this quarter, and profits are likely to shrink in every segment,” Panasonic director Makoto Uenoyama told a news conference.

Panasonic said it would close 27 manufacturing sites in the current year to March, and carry out another round of plant closures of a similar scale in the next business year.

It also plans to cut around 15,000 jobs, including both full-time regular employees and contract workers. Half the cuts will be in Japan and half overseas. It has a global workforce of about 300,000 regular workers.

On top of dwindling sales of consumer gadgets, Panasonic’s factory automation equipment operations have come under pressure as companies worldwide cut production and spending on manufacturing tools. 

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Pharmaceutical giant Eli Lilly and Company pleaded guilty Friday to a misdemeanor charge of marketing one of its medicines for uses not approved by the Food and Drug Administration, authorities said.

The company was ordered to pay more than $1.4 billion as part of the plea agreement and a civil settlement. The sum includes a criminal fine of $515 million, which the Justice Department has said is the largest criminal fine for an individual corporation ever imposed in a U.S. criminal prosecution.

Eli Lilly (LLY, Fortune 500) will also pay $800 million as part of a civil settlement with states and the federal government, and forfeit $100 million in assets. The total penalty is $1.415 billion.

The punishment stems from what the Justice Department calls "off-label promotion" of the drug Zyprexa. The drug was approved by the FDA for treatment of schizophrenia and certain types of bipolar disorder.

But, according to federal prosecutors, Eli Lilly illegally marketed the drug as a treatment for sleep disorders and dementia in elderly patients and touted the drug’s known side effect of significant weight gain as a therapeutic benefit equifax free credit report online.

"Even though the company disagrees with and does not admit to the civil allegations, the company has agreed to settle the dispute," Eli Lilly said in a statement issued earlier this month, at the time the agreement was reached.

John Lechleiter, chairman, president and chief executive officer of Eli Lilly, said: "We deeply regret the past actions covered by the misdemeanor plea."

The government alleged that "Eli Lilly’s management created marketing materials promoting Zyprexa for off-label uses, trained its sales force to disregard the law and directed its sales personnel to promote Zyprexa for off-label uses," the Justice statement said.

Under the Food, Drug, and Cosmetic Act (FDCA), a company must specify the intended uses of a product in its new-drug application to the FDA. Once approved, the drug may not be marketed or promoted for other uses. 

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