Financial News

The U.S. job market strengthened in September for the first time since January of last year, suggesting a slow and rough road to recovery, a research group said on Monday.

The Conference Board, a private research group, said its Employment Trends Index edged up to 88.5 in September from an upwardly revised 88.2 in August, originally reported at 88.1.

The index is now down 15.6 percent from one year ago, the group said.

“While the employment numbers reported by the government last Friday were certainly disappointing, The Conference Board Employment Trends Index suggests that the trend of declining job losses will continue,” said Gad Levanon, senior economist at The Conference Board.

“But the road to recovery is definitely going to be bumpy and may last unusually long, given the depth of the recession we have experienced.”

Government data on Friday showed that U.S. employers shed a larger-than-expected 263,000 jobs in September, sending the unemployment rate to its highest level since 1983.

(Reporting by Camille Drummond; editing by James Dalgleish)

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In the 1980s, when stocks mostly surged, a few mutual fund managers became the equivalent of rock stars.

Tops among them: Peter Lynch, who racked up average annual returns of a remarkable 29 percent over a 13-year run.

Lynch did it at Fidelity Magellan, which continued to grow after he left in 1990. What once was the world’s largest fund swelled from $13 billion to nearly $110 billion a decade later. Assets peaked three years after the fund shut its doors to new investors because it became so big it was hard to manage effectively.

So where is Magellan now? It’s at $24 billion, and struggling to draw investors who fled in droves after years of mediocre performance. Magellan is still big by any standard, but it’s merely Fidelity’s fourth-largest stock fund.
"I don’t worry about too many assets now," says current manager Harry Lange, who took over in late 2005.

Magellan reopened to new investors early last year, but those who gave it a try were disappointed. The fund’s 2008 plunge? Forty-nine percent — steeper than the market’s nearly 39 percent decline. Blame bad bets on dogs like AIG and Wachovia — financial companies that Lange held on to for too long.

But Lange is turning things around, thanks to a sharp departure from his predecessor’s style. Where Robert Stansky was criticized for too closely mirroring broader markets, Lange has tilted the fund heavily in favor of growth stocks — companies whose comparatively steep share prices are backed by expectations that earnings will keep growing rapidly. He’s eased out of cheaper value stocks with steadier earnings, and takes a go-anywhere approach in keeping with the fund’s namesake 16th century explorer. Nearly one-quarter of Magellan’s holdings are international stocks.

Many of the same bets on riskier stocks that weighed Magellan down last year are lifting it in 2009. It’s up 35.6 percent, easily topping the nearly 17 percent gain for its benchmark, the Standard & Poor’s 500, and beating nearly nine of 10 of its peer funds.

So is it time to climb back aboard Magellan? Only if you’re willing to commit to a fund whose penchant for racy stocks makes it unusually volatile.

This year, the fund expanded its already substantial stake in recently hot technology stocks — its second- and third-largest holdings are specialty glass maker Corning Inc. (up 62 percent this year) and semiconductor maker Applied Material (up 34 percent). It’s also favored hard-hit fare like home builder Toll Brothers (down 8 fast pay day loans.8 percent) and big banks — Magellan’s most recent list of top 10 holdings included Bank of America, J.P. Morgan Chase, Wells Fargo and Goldman Sachs.

Lange has turned Magellan into "a fund for optimists," according to Morningstar’s lead Fidelity analyst, Christopher Davis.

"If you look at its portfolio, it’s positioned for an economy that’s improving," Davis says, noting an absence of such defensive favorites as Wal-Mart and Procter & Gamble.

Lange says this year he’s slightly eased off his leaning toward growth stocks but still heavily favors the category. Though value stocks outperformed growth for an eight-year run after the dot-com bubble deflated early this decade, the pendulum swung back to growth last year — financial stocks that were hit so hard last year are mostly in the value category. Growth’s ranks include plenty of tech names that have recently fared well.

Lange still likes tech because of its big stake in emerging markets, where consumers in countries like China and India continue to drive growing demand for gadgets including mobile phones from makers like Nokia, Magellan’s top holding. He figures that trend will continue giving growth an edge over value. "I’m pretty confident that growth will be as strong in the next six to 12 months," Lange says. "There are a lot of people out there who think after that, it will be a sluggish recovery. I’m more bullish than that."

As for his fund’s choppiness, Lange acknowledges that with his growth-oriented style, "it’s pretty tough not to have volatility in these unusual times."

Even with this year’s strong results, winning back investors who fled Magellan has proved tough. Lange is still trying to shake the cumulative record of the last 10 years, a period when Magellan posted an average annual loss of 1.2 percent, slightly worse than most of its peers.

"This is not your grandfather’s Magellan fund," says Jim Lowell, a former Fidelity employee who runs an independent newsletter, FidelityInvestor.com, that evaluates the company’s funds.

Lowell currently recommends Magellan but says it’s no longer appropriate as a core retirement holding for investors who are looking for the broad exposure it once offered. Instead, Magellan is geared toward those seeking more growth exposure in an otherwise diversified portfolio.

Source

Federal Reserve Chairman Ben S. Bernanke, who yesterday said the recession has likely ended, may have to accept a slow recovery and high unemployment as the price for defending his inflation-fighting credentials.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said in response to questions after a speech at the Brookings Institution in Washington. “That’s a challenge for us and all policy makers going forward.”

Policy makers predicted in June that the unemployment rate will remain above 9 percent through the end of next year, while inflation will stay below their preferred range. That hasn’t stopped them from starting to unwind their extraordinary monetary stimulus as investors express concern that the expansion of the Fed’s balance sheet to $2.1 trillion will ignite inflation when the economy recovers.

“The Fed is in an odd situation here,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Both aspects of their dual mandate for growth and inflation will have suboptimal outcomes, but they can’t do anything to speed things up because of concerns about inflation credibility.”

The Federal Open Market Committee may extend the end-date of its $1.45 trillion program to buy housing agency and mortgage-backed securities at its next meeting Sept. 22-23. There is little chance that it will expand the program after deciding in August to end purchases of $300 billion in Treasury debt next month.

Rate Pledge

Central bankers have pledged to keep the benchmark lending rate in a range of zero to 0.25 percent “for an extended period.” If unemployment lingers at high levels, officials could face questions on whether they have done enough to push the economy to a faster rate of growth, economists say.

“At the end of 2010, the story may not be whether they exited correctly, but how did they allow this outcome to occur,” said Laurence Meyer, a former Fed governor and vice chairman of Macroeconomic Advisers LLC. in Washington. “The definitive marker of the end of easing was the decision at the August FOMC meeting to allow Treasury purchases to expire.”

The FOMC’s June forecasts show unemployment above 8 percent in the final three months of 2011. A majority of FOMC members also forecast inflation will be below their long-run preferred range of 1.7 to 2 percent next year, Fed minutes show.

‘Moderate Growth’

“If we do in fact see moderate growth, but not growth much more than the underlying potential growth rate, then unfortunately unemployment will be slow to come down,” Bernanke said yesterday, noting that the economy faces “headwinds” such as tight credit. “It will come down, but it will take some time.”

At the same time, the Fed could startle markets if it decided to buy up more government debt, expanding the balance sheet even further. Gold futures reached an 18-month high of $1,013.70 an ounce on Sept. 11, as the U.S. Dollar Index, which values the greenback against six other currencies, dropped to its lowest level in almost a year.

“Those buying gold believe the Fed is going to be accepting inflation if not even promoting it,” said Axel Merk, whose $370 million Hard Currency Fund is up 11.3 percent year to date on investments in precious metals and foreign currencies.

Yields on the 10-year Treasury note rose for a second day yesterday after a report from the Commerce Department showed that retail sales surged in August by the most in three years, adding to evidence the economy is recovering. The yield on the 10-year note rose to 3.46 percent at 5:32 p.m. in New York from 3.42 percent the day before.

Outlook for Prices

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, widened to 1.84 percentage points from 1.66 percentage points two weeks ago. It has averaged 2.19 percentage points over the past five years.

A government report today may show consumer prices fell 1.7 percent in August from the previous year, according to a Bloomberg New survey of economists. Prices probably rose 0.3 percent in August from a month before, following no change in July.

Regional Fed bank presidents Jeffrey Lacker of Richmond and James Bullard of St. Louis have said the central bank may not even need to complete its purchases of $1.45 trillion in mortgage-backed and housing agency securities.

Bank Reserves

“With the economy leveling out and beginning to grow again later this year, and with bank reserve demand ebbing as financial conditions improve, I will be evaluating carefully whether we need or want the additional stimulus,” Lacker said Aug. 28 in a speech in Danville, Virginia.

His concern is that the Fed will so over-supply demand for bank reserves that it will suppress money-market rates even when the central bank is trying to raise them.

That increase could come as soon as “the first part of next year” if inflation picks up, Stanford University economist John Taylor told Bloomberg Television last week.

The risk is that credit conditions remain tight, consumers keep a lid on spending, and the expansion never gets to a rate that will cause employers to hire, say economists including Richard Berner, co-head of global economics at Morgan Stanley in New York.

“While markets have improved and the cost of credit has declined dramatically, the capacity and willingness to lend are still somewhat impaired,” said Berner, a former researcher at the Fed. “That restraint is the key reason why we expect a moderate, rather than a V-shaped recovery.”

David Simon, chairman and chief executive of Simon Property Group Inc., the largest U.S. shopping mall owner, said “It’s too early for us to declare the recession over.”

“Ultimately, what’s important to retail and real estate is the health of the consumer, the job outlook and so on,” Simon said in an interview, when asked to respond to Bernanke’s comments on the recession. “I still think the consumer’s under pressure.”

Source

A big chunk of downtown real estate disappeared Monday from Pyramid Construction Co.’s portfolio, when a bank took back the vacant Jefferson Arms building that was once slated for a $75 million overhaul.

Overwhelming debt crushed Pyramid last year. Many of its uncompleted projects — including the Dillard’s, Arcade and St. Louis Centre renovations — went back to lenders or to other owners.

Citicorp foreclosed Monday on the Jefferson Arms after Pyramid failed to keep up on a $16 million loan to buy the 496-unit apartment building in 2006.

Thomas Vandiver, the Sonnenshein Nath & Rosenthal lawyer who handled the foreclosure for Citicorp, said accumulated interest had pushed the amount owed to $19 million. A Citicorp affiliate got the Jefferson Arms with the auction’s only bid: $5.5 million.

Vandiver said Citicorp hopes to find a buyer, noting that roof repairs at Jefferson Arms are nearly complete.

"There were some problems of water damage in the last year, year and a half," he said. "Unfortunately, Pyramid emptied the building and boarded it up."

The building, originally the Jefferson Hotel, has been vacant since shortly after Pyramid bought the structure and required the residents, most of them people over age 55, to move payday loans.

Built in the early 20th century and named for President Thomas Jefferson, the hotel was designed, Beaux Arts style, by the Barnett, Haynes & Barnett firm, with 500 rooms. The hotel was expanded in 1928. Later alterations reconfigured the building with studio, one-bedroom and two-bedroom apartments.

Pyramid had planned to convert the building to condos, retail space and a banquet facility.

Vandiver said Citicorp is in talks with developers to buy the apartment building. Among them is Sherman Associates, based in Minneapolis, which took part in the renovation of the Syndicate Trust building downtown as apartments and condos.

Rocko Bratic, owner of the Shell Building, at 1221 Locust Street, just west of the Jefferson Arms, said he had sought to buy the empty apartment building’s parking garage. Bratic said he already leases the 260-car garage for tenants of his building and loft dwellers in the neighborhood.

Vandiver said Citicorp had no interest in selling the Jefferson Arms property piecemeal.

Source

Registered unemployment in Spain, which has the highest jobless rate in the European Union, fell for a third month in July as government stimulus programs put builders to work on public works projects.

The number of people registering for unemployment benefits fell 0.58 percent, or by 20,794 people, from the previous month to 3.54 million, the Labor Ministry said in an e-mailed statement from Madrid today. It was the first time in two years that there have been three straight monthly declines. From a year earlier, unemployment increased 46 percent.

Spain’s Socialist government plans to inject the equivalent of 2.3 percent of gross domestic product into the economy this year in tax cuts and state-funded projects that have put people to work building cycle tracks and pedestrian zones in Madrid. Evidence is mounting that the worst of the recession may be over as consumer confidence rose for a fifth month in July and the Bank of Spain estimates the economy contracted in the second quarter at less than half the pace of the previous three months free business card.

Even with the biggest stimulus program in Europe, the Organization for Economic Cooperation and Development forecasts Spain’s unemployment rate will increase to almost 20 percent next year, the highest in the 30-nation organization. The figure rose to 18.1 percent in June, more than twice the EU average of 8.9 percent, and Spain accounts for about half of the past year’s increase in euro-area unemployment, Eurostat data show.

Ford Motor Co. said July 31 it plans to cut 600 jobs in Spain and ArcelorMittal, the world’s largest steelmaker, said on June 3 that it may reduce working hours at its Spanish unit by as much as 40 percent, idling part of the workforce for the rest of the year. Before the recession, about a third of Spain’s workforce was employed on temporary contracts, the highest ratio in the OECD, making it easier for firms to reduce payrolls when the crisis struck.

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The worst wave of the subprime mortgage crisis may be behind us.

But that doesn’t mean foreclosures are.

A still-weakening job market is dragging more families into mortgage trouble, experts say, and confounding efforts by the federal government to stem the problem.

This trend is fueling a stubborn, steady rise in the rate of foreclosure activity, which climbed 5 percent nationwide in June, according to data released today by tracking service RealtyTrac. The number of houses put up for sale or repossessed by banks in the St. Louis area fell 7 percent in June. But it’s up 15 percent from last year and still near all-time highs.
"The numbers have come down a little," said Chris Krehmeyer, president of Beyond Housing in St. Louis. "But they’re still at crisis proportions."

Yet the nature of the crisis is shifting, said Krehmeyer and other housing counselors. They’re seeing fewer people facing exploding interest rates on adjustable mortgages, and more who just can’t make the payments they agreed to because they lost a job or saw their hours cut.

A year ago at Justine Petersen, a St. Louis nonprofit that provides mortgage counseling, people came in for help with subprime loans at 10 or 11 percent interest, said Chief Executive Rob Boyle. Now, they’re coming for trouble with loans at 7 percent, even 6.

"It’s more systemic to the economy now than to a specific type of loan," he said.

Indeed, the delinquency rate for standard "prime" mortgages is climbing. A year ago, in the St. Louis area, one in every 125 prime borrowers was at least three months past due, according to First American Core Logic. In May, that number was one in 90.

And in some ways, those prime borrowers who have lost jobs are harder to help.

The government has poured billions of dollars into programs to encourage banks to refinance risky loans into lower interest rates to put troubled borrowers on a payment plan they can afford health insurance. That’s having an effect, area counselors say; more banks are making those modifications.

But a new payment plan works only if the borrower has money to pay.

"Without income, modifying the loan is impossible," said Karen Wallensak, director of the Catholic Charities Housing Resource Center in St. Louis. "Three of every four people who call us are turned away because they simply don’t have the income to be able to afford their mortgage."

Some banks are open to forbearance agreements — lower payments for a few months with the difference tacked back on later — said Dan Claggett, an attorney with Legal Services of Eastern Missouri. That can give someone time to find a job, he added. But with unemployment at 9 percent and rising, there aren’t many jobs out there to find.

The growing connection between joblessness and foreclosure has given heat to calls on Washington to help troubled borrowers directly, not just through their banks.

Last week, Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, proposed a $2 billion fund for short-term loans to help unemployed people stay in their homes. He would use money repaid by banks from last fall’s Troubled Assets Relief Program. And, according to reports earlier this week, the administration of President Barack Obama is considering plans that would allow foreclosed borrowers to stay in their homes as renters, instead of being evicted.

Whatever the answer is, Krehmeyer said, it needs to be something bigger, and more direct, than the current programs.

"We’re trying to eat the elephant one small bite at a time," he said. "We need to take bigger bites, because there are more people losing their homes than we can keep up with."

Source

It’s pretty simple, as Joni Mitchell made clear in "Big Yellow Taxi," to pave paradise and put up a parking lot. And with their streamers and fluttering flags, no lot stands out more than a car dealer’s.

But now, with nearly half the country’s car dealerships closing as the result of the greatest reorganization of the auto business in North American history, what’s to become of the dealers’ vast parking lots? Or the empty buildings they may leave behind?

While no one has any clear idea – most dealers aren’t talking – some, including local architects and urban planners, are drooling over the possibilities of turning parking lots back into paradise.

"For planners, car dealerships are always opportunity sites," says Jennifer Keesmaat, of the Office for Urbanism, an urban planning and design firm, working on large-scale planning projects across Canada.

Community markets. Community gardens. A place for local festivals and celebrations.

And, of course, development – condos and other buildings are already slated for some former dealerships, including the Addison Cadillac dealership on Bay St. and the Old Mill Pontiac Buick site at Jane and Bloor Sts. – Old Mill is about to move a few blocks to a new site under construction.

Of Canada’s 700 General Motors dealerships, between 240 and 280 will close in the next 18 months, half of them in the GTA. According to Toronto’s official plan, existing zoning allows for some redevelopment, depending on the location, says the city’s chief planner, Gary Wright. And many dealerships are on main streets and avenues, viewed by the city as spots for commercial and population growth.

"In a general context, there is a role for those properties to play," Wright says.

But don’t expect them all to become condos, says Michael McClelland, principal architect at ERA Architects. "Given the area some of them are in, there isn’t going to be an instant call for having high development potential."

Experts expect many dealers to try to hang on to the automotive industry by switching to used cars or another brand. But they say while that may work for some, it won’t work for all.

So how else to make use of these properties?

"The challenge typically associated with a car dealership is that it usually ain’t pretty," Keesmaat says, since the buildings are usually one storey and set back from the street.

But there are many uses that could be permanent or temporary without involving infrastructure investment. "Parking lots traditionally have been the birthplace of community gardens and community markets," she says cash til payday. "Those types of hard surfaces, when they’re in a community, are a great place for festivals and events."

In an area without a development market, five- or 10-year leases for artistic or community purposes could be successful, McClelland says. Better that than sitting empty. "Toronto hasn’t had a history of large vacancies," he says. "It’s a social issue."

There can be a cultural solution, too. Neighbourhoods with a higher percentage of certain ethnic groups could benefit from space for incubator markets. In a well-developed area, says planner Joe Berridge of Urban Strategies, those properties can be great assets, becoming mixed-use buildings, with space for commercial, residential and office use.

There will likely always be a need for dealerships, but some are moving from large lots into buildings with great success, Berridge says. "They are getting much more urban," he says.

A perfect example of that is the eye-catching BMW dealership visible from the Don Valley Parkway, done by Quadrangle Architects.

"Everyone knows the auto industry is going through a catastrophic change, but we’re not going to just overnight eliminate cars, so therefore we’re not going to eliminate dealerships," says Quadrangle’s Brian Curtner. The BMW dealership, a former office building, is an example of adaptive reuse, a concept that may apply to some of the closing dealerships if the structures have "good bones," he says. "Many of the suburban one-storey buildings are not that malleable."

Nowadays, a new car order can be created entirely online, but Curtner notes he recently purchased a new car and did all his research on-site. "At some point you need to go and make sure that what you were imagining online is actually the reality," he says.

McClelland recalls how different a drive up Yonge St. through the downtown core was 20 years ago, with gas stations on many corners. "Most of those gas stations have now been replaced by smaller commercial property," he says. "The same thing may happen here."

And though it’s impossible to predict the outcome, there will be a metamorphosis. "Land use sometimes changes overnight and it frees up the potential to think of other things," McClelland says.

Ultimately, each closing property will evolve into something that fills a need or complements the immediate surrounding area, Curtner says. "That’s where the creative part comes in."

Source

BERLIN–General Motors Corp., the German government and Canadian auto parts maker Magna International have agreed on the framework of a deal for Magna to take a majority stake in GM’s Opel unit, a person briefed on the negotiations said Friday.

Negotiators were working out the final details and an announcement could come within hours, said the person, who did not want to be identified because talks had not yet finished. It includes Magna International Inc. providing short-term financing to become the preferred negotiating partner for Opel.

The German government would put up a euro1.5 billion ($2.1 billion (U.S.)) bridge loan that would be repaid when the deal is closed.

There was no immediate comment from the German government.

Earlier Friday, Economy Minister Karl-Theodor zu Guttenberg said that GM and Magna were negotiating on "new ideas" from the bidder, which also were being examined by the German government.

The German government was to hold a second round of top-level negotiations on the future of Opel after talks snagged Thursday over new short-term funding needed to move Opel into an independent legal structure. The other suitor for Opel, Fiat Group SpA, stayed away from the talks, saying that it faced "unreasonable" funding demands – but CEO Sergio Marchionne stressed that Fiat was not withdrawing its bid.

Germany is looking for an agreement that will shield Opel – which employs 25,000 people in Germany, nearly half GM Europe’s work force – from a looming GM bankruptcy court filing in the U.S. and extensive restructuring.

The government wants to make it legally independent under a trustee so that any taxpayer assistance does not go to the U.S., then would provide bridge financing while Opel looks for a new, permanent owner.

Aurora-based Magna International Inc. is leading a bid for a majority of Opel from a consortium that also includes Russian lender Sberbank.

Under an earlier offer, Magna, Canada’s largest auto parts maker, bid $1.1 billion (Canadian) to acquire a 20 per cent stake in Opel, with GM and a Russian bank each owning 35 per cent and Opel employees about 10 per cent.

Founded by Austrian-born Frank Stronach half a century ago, Magna, with 70,000 employees, already has a major presence in Europe and assembly operations in Austria through its Magna Styr division.

A takeover of Open would allow the Canadian company to rapidly expand its markets in Europe, particularly in Russia, where the market for new cars is potentially huge payday loans no faxing.

"I expect there to be a result today," said Juergen Ruettgers, the governor of North Rhine-Westphalia state – one of four in Germany that has Opel plants.

A government official, speaking on condition of anonymity because no official announcement had been made, said the meeting was expected to go ahead two hours later than originally expected. The reason for the delay was unclear, as was exactly who would attend.

GM Europe chief Carl-Peter Forster was seen going into the chancellery.

German officials blamed short-term financing needs they said were brought up by GM totaling euros300 million ($418 million (U.S.)) for preventing a decision earlier this week. The government has offered euros1.5 billion in bridge financing.

The government wanted bidders and GM to come up with an agreement on covering the short-term financial needs before Friday’s meeting.

While Magna has previously indicated it would be willing to provide the additional funding, Marchionne said Fiat had decided to pull out of the continuation of the talks Friday because of the requirement for the emergency funds

Marchionne said it was "unreasonable" to expect Fiat to provide such funding because it had not yet had full access to Opel’s financial records and could not determine "its precise financial condition and thus properly frame a merger proposal that would be fair" to both sides.

"The emergency nature of the situation cannot put Fiat in a position to take on extravagant risks," he said in a statement.

Taking over GM’s European operations, including Opel and Britain’s Vauxhall, is a key part of Marchionne’s strategy of creating a car company with the capacity to produce six million vehicles a year, the threshold he says is necessary for an automaker to survive.

Fiat is on the verge of taking control of a 20 per cent stake in Chrysler, pending the completion of restructuring in bankruptcy court in New York.

Separate to the Berlin talks, the European Commission was hosting talks among ministers to coordinate government efforts to save GM’s European operations.

Opel and sister brand Vauxhall also have operations in Belgium, Spain and Poland among other countries. GM officials will not be present.

Source

BERLIN–General Motors Corp., the German government and Canadian auto parts maker Magna International have agreed on the framework of a deal for Magna to take a majority stake in GM’s Opel unit, a person briefed on the negotiations said Friday.

Negotiators were working out the final details and an announcement could come within hours, said the person, who did not want to be identified because talks had not yet finished. It includes Magna International Inc. providing short-term financing to become the preferred negotiating partner for Opel.

The German government would put up a euro1.5 billion ($2.1 billion (U.S.)) bridge loan that would be repaid when the deal is closed.

There was no immediate comment from the German government.

Earlier Friday, Economy Minister Karl-Theodor zu Guttenberg said that GM and Magna were negotiating on "new ideas" from the bidder, which also were being examined by the German government.

The German government was to hold a second round of top-level negotiations on the future of Opel after talks snagged Thursday over new short-term funding needed to move Opel into an independent legal structure. The other suitor for Opel, Fiat Group SpA, stayed away from the talks, saying that it faced "unreasonable" funding demands – but CEO Sergio Marchionne stressed that Fiat was not withdrawing its bid.

Germany is looking for an agreement that will shield Opel – which employs 25,000 people in Germany, nearly half GM Europe’s work force – from a looming GM bankruptcy court filing in the U.S. and extensive restructuring.

The government wants to make it legally independent under a trustee so that any taxpayer assistance does not go to the U.S., then would provide bridge financing while Opel looks for a new, permanent owner.

Aurora-based Magna International Inc. is leading a bid for a majority of Opel from a consortium that also includes Russian lender Sberbank.

Under an earlier offer, Magna, Canada’s largest auto parts maker, bid $1.1 billion (Canadian) to acquire a 20 per cent stake in Opel, with GM and a Russian bank each owning 35 per cent and Opel employees about 10 per cent.

Founded by Austrian-born Frank Stronach half a century ago, Magna, with 70,000 employees, already has a major presence in Europe and assembly operations in Austria through its Magna Styr division.

A takeover of Open would allow the Canadian company to rapidly expand its markets in Europe, particularly in Russia, where the market for new cars is potentially huge payday loans no faxing.

"I expect there to be a result today," said Juergen Ruettgers, the governor of North Rhine-Westphalia state – one of four in Germany that has Opel plants.

A government official, speaking on condition of anonymity because no official announcement had been made, said the meeting was expected to go ahead two hours later than originally expected. The reason for the delay was unclear, as was exactly who would attend.

GM Europe chief Carl-Peter Forster was seen going into the chancellery.

German officials blamed short-term financing needs they said were brought up by GM totaling euros300 million ($418 million (U.S.)) for preventing a decision earlier this week. The government has offered euros1.5 billion in bridge financing.

The government wanted bidders and GM to come up with an agreement on covering the short-term financial needs before Friday’s meeting.

While Magna has previously indicated it would be willing to provide the additional funding, Marchionne said Fiat had decided to pull out of the continuation of the talks Friday because of the requirement for the emergency funds

Marchionne said it was "unreasonable" to expect Fiat to provide such funding because it had not yet had full access to Opel’s financial records and could not determine "its precise financial condition and thus properly frame a merger proposal that would be fair" to both sides.

"The emergency nature of the situation cannot put Fiat in a position to take on extravagant risks," he said in a statement.

Taking over GM’s European operations, including Opel and Britain’s Vauxhall, is a key part of Marchionne’s strategy of creating a car company with the capacity to produce six million vehicles a year, the threshold he says is necessary for an automaker to survive.

Fiat is on the verge of taking control of a 20 per cent stake in Chrysler, pending the completion of restructuring in bankruptcy court in New York.

Separate to the Berlin talks, the European Commission was hosting talks among ministers to coordinate government efforts to save GM’s European operations.

Opel and sister brand Vauxhall also have operations in Belgium, Spain and Poland among other countries. GM officials will not be present.

Source

Stock markets closed sharply lower yesterday as prices for U.S. Treasury bonds slumped – putting upward pressure on interest rates – while the likelihood increased that General Motors will file for creditor protection.

GM said bondholders rejected its proposal to exchange $27 billion (U.S.) in debt for 10 per cent of the company’s stock, ahead of a Monday deadline for a government-ordered restructuring. GM shares tumbled 20 per cent to $1.15.

"I don’t know that anybody was really expecting something miraculous to happen here," said Jennifer Radman, associate portfolio manager at Caldwell Securities. "It was against the odds from the start."

Toronto’s S&P/TSX composite index slipped 143.74 points to 10,142.16, weighed down by falling financial stocks.

A surge in financials had generated a 216-point gain Tuesday following a well-received quarterly report from Bank of Montreal. BMO stock fell $1.92 (Canadian) to $41.79, wiping out most of Tuesday’s gain of $2.15.

The TSX Venture Exchange lost 4.17 points to 1,092.99. The Canadian dollar declined 0.13 of a cent to 89.33 cents (U.S.).

In New York, the Dow Jones industrial average dropped 173.47 points to 8,300.02.

The Nasdaq composite index declined 19.35 to 1,731 classic car insurance.08 while the S&P 500 index shed 17.27 to 893.06.

The slide accelerated as the benchmark 10-year U.S. Treasury note tumbled, pushing its yield up to 3.66 per cent, from 3.55 per cent Tuesday. The drop came after a Treasury auction of $35 billion in five-year notes, part of $101 billion in debt Washington is issuing this week.

"And you’re going to relate that to the stock market, where all of a sudden you’re going to look for higher yields in (bonds), which pushes stock prices down," said Fred Ketchen, manager of equity trading at Scotia Capital.

In addition to raising borrowing costs for the government, rising debt yields could hamper an economic recovery.

The Toronto financial sector stepped back 2.9 per cent ahead of earnings reports today from CIBC, Scotiabank, TD Bank and National Bank, and tomorrow from Royal Bank. Shares in those banks had gained at least 5 per cent Tuesday, but surrendered more than 2 per cent yesterday.

The Toronto energy sector was little changed as the July crude oil contract added $1 to $63.45 per barrel on the New York Mercantile Exchange.

The Canadian Press

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