Democrats proposed a $15 billion bailout package for the troubled US auto industry Monday in a compromise that sources say may still not gain approval from the White House.
The proposal offers less than half of the $34 billion General Motors, Chrysler and Ford said they would need to stave off a “catastrophic collapse” of the nation’s automotive industry.
The low-cost, government-backed loans are intended to sustain them through March, which will give president-elect Barack Obama time to address the problem after he takes office on 20 January.
“Fifteen billion is the maximum that’s available, given the president’s threat to veto anything else,” said US Representative Barney Frank, one of the lawmakers spearheading talks on the rescue plan.
Officials close to the talks said earlier Monday that the US legislature could authorize the rescue package, which calls for massive restructuring and tough government oversight, by mid-week.
But a senior Bush administration official who requested anonymity said a deal on Monday was unlikely because the White House and the Democrats who control the US Congress were at odds on the issue of the long-term viability of the Big Three US automakers.
US President George W. Bush said that “the definition of viability is open to discussion,” and that “viability means that all aspects of the companies need to be re-examined to make sure that they can survive in the long term.”
White House spokeswoman Dana Perino, who earlier had said a deal was “likely” on Monday, responded to the proposed bill by saying the administration was “reviewing draft legislation we received this afternoon and are continuing our discussions with Congress.”
The proposal calls for a presidential designee, or “car czar” to oversee the restructuring of the Big Three US automakers, distribute the funds and report to Congress on their progress in achieving “long-term viability,” according to a copy of the bill obtained by AFP.
Automakers will have to continue to improve the fuel-efficiency of their fleets and also look into using their excess capacity to build bus and rail cars for public transit.
The bill also requires the automakers to sell their private jets and places strict limits on executive compensation.
Senate Majority Leader Harry Reid said the blueprint aimed to “give the automakers the chance to clean house and return to a responsible path toward profitability.”
“The jobs of millions of American workers are at stake, along with the financial security of millions of families. So while we take no satisfaction in loaning taxpayer money to these companies, we know it must be done,” he said.
General Motors, which had warned it could run out of cash as early as January, urged swift passage of the bill and vowed it will “abide by the conditions proposed in the bill and will continue our restructuring with great urgency.”
Chrysler said it was “pleased that progress is being made” and that it looked forward to working with lawmakers and “to completing our restructuring in an orderly fashion.”
Ford, which has said it has enough cash on hand to weather the current downturn but requested a $9 billion line of credit to hedge against worsening conditions or the bankruptcy of one of its competitors, said it would not “not be seeking a short term bridge loan” under the bill.
Obama has called a collapse of the auto industry “unacceptable,” and said Sunday he wanted a supervisory process that would keep the companies’ “feet to the fire.”
Tuesday, December 9, 2008
Oil steady near $44 as investors eye Opec cuts
Oil prices were steady near $44 a barrel Tuesday in Asia as investors anticipated that Opec will announce a big production cut next week to stabilize crude prices that have fallen about 70% in five months.
Light, sweet crude for January delivery was up 19 cents to $43.90 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell overnight $2.90 to settle at $43.71.
Prices fell last week to an intraday low of $40.50, the lowest since December 2004.
“Oil should find support around $40 a barrel and should form a bottom there,” said Aaron Smith, who helps manage about $1.7 billion as managing director at Superfund Financial in Singapore.
Smith, who uses technical analysis to help guide his investment decisions, has recently reduced bets that the price of oil will go down, known as shorting.
Investors are watching for signs of how much the Organization of Petroleum Exporting Countries may reduce output quotas at the group’s meeting next week in Algeria.
Opec President Chakib Khelil said on Saturday the group could announce a “severe” production cut and suggested the cartel could seek to surprise the market with the size of the reduction in a bid to bolster prices.
Opec, which controls about 40% of world crude supplies, announced a production cut of 1.5 million barrels a day in October and 500,000 barrels in September, moves investors brushed off as a global economic slowdown worsened.
Opec will have to adhere to any promised output cut if it hopes to help reverse the fall in oil prices, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Investors were also encouraged by news that President-elect Barack Obama plans to implement a major infrastructure program to help boost employment in the weakening US economy.
Light, sweet crude for January delivery was up 19 cents to $43.90 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell overnight $2.90 to settle at $43.71.
Prices fell last week to an intraday low of $40.50, the lowest since December 2004.
“Oil should find support around $40 a barrel and should form a bottom there,” said Aaron Smith, who helps manage about $1.7 billion as managing director at Superfund Financial in Singapore.
Smith, who uses technical analysis to help guide his investment decisions, has recently reduced bets that the price of oil will go down, known as shorting.
Investors are watching for signs of how much the Organization of Petroleum Exporting Countries may reduce output quotas at the group’s meeting next week in Algeria.
Opec President Chakib Khelil said on Saturday the group could announce a “severe” production cut and suggested the cartel could seek to surprise the market with the size of the reduction in a bid to bolster prices.
Opec, which controls about 40% of world crude supplies, announced a production cut of 1.5 million barrels a day in October and 500,000 barrels in September, moves investors brushed off as a global economic slowdown worsened.
Opec will have to adhere to any promised output cut if it hopes to help reverse the fall in oil prices, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Investors were also encouraged by news that President-elect Barack Obama plans to implement a major infrastructure program to help boost employment in the weakening US economy.
US job cuts mount as economy worsens
The United States suffered a grim roll call of job losses on Monday as a number of major manufacturing and service companies said they would slash costs to cope with the deepening economic crisis.
The cuts come three days after government figures showed that US employers axed 533,000 jobs from payrolls in November, the most in 34 years, and that the nation’s unemployment rate hit 6.7%, the highest since 1993.
Economists expect the unemployment rate to rise to as much as 8% by late next year.
Jobs data for December looks to be bleak as Dow Chemical Co , the largest US chemical maker, said it would close 20 facilities, divest several businesses, and cut 5,000 jobs. Dow said it was planning to drop the number of outside contractors by 6,000 and temporarily idle 180 plants.
Hotels and timeshare company Wyndham Worldwide Corp said it would cut 4,000 jobs as it shrinks its timeshare business.
Others taking the scythe to their workforces included diversified manufacturer 3M Co, which said it would cut a total of 2,300 jobs in the fourth quarter. The company said it had already cut 1,800 of those positions and that it would cut another 500 in the fourth quarter. The job losses will occur mainly in the United States, Western Europe and Japan.
The world’s largest brewer, Anheuser-Busch InBev, said it was cutting 1,400 jobs, or 6% of its workforce in the United States. InBev acquired Anheuser-Busch earlier this year.
In the telecom sector, Level 3 Communications Inc said it would cut about 450 jobs, or 8% of its workforce, in North America and Sprint Nextel Corp said it planned to cut costs and warned that could include layoffs.
Danaher Corp, a US conglomerate whose products include Craftsmen tools and dental equipment, said it was eliminating 1,700 jobs, shuttering 13 facilities and freezing salaries.
Tribune Co, the privately held publisher of newspapers including the Los Angeles Times and the Chicago Tribune, filed for Chapter 11 bankruptcy protection as it struggles with its debt load and large losses, including a $124 million third quarter loss posted in November.
The move is expected to lead to job cuts at the media company.
Job losses in November were the steepest since December 1974, when 602,000 jobs were shed, and much worse than the consensus on Wall Street for a 340,000 reduction.
The cuts come three days after government figures showed that US employers axed 533,000 jobs from payrolls in November, the most in 34 years, and that the nation’s unemployment rate hit 6.7%, the highest since 1993.
Economists expect the unemployment rate to rise to as much as 8% by late next year.
Jobs data for December looks to be bleak as Dow Chemical Co , the largest US chemical maker, said it would close 20 facilities, divest several businesses, and cut 5,000 jobs. Dow said it was planning to drop the number of outside contractors by 6,000 and temporarily idle 180 plants.
Hotels and timeshare company Wyndham Worldwide Corp said it would cut 4,000 jobs as it shrinks its timeshare business.
Others taking the scythe to their workforces included diversified manufacturer 3M Co, which said it would cut a total of 2,300 jobs in the fourth quarter. The company said it had already cut 1,800 of those positions and that it would cut another 500 in the fourth quarter. The job losses will occur mainly in the United States, Western Europe and Japan.
The world’s largest brewer, Anheuser-Busch InBev, said it was cutting 1,400 jobs, or 6% of its workforce in the United States. InBev acquired Anheuser-Busch earlier this year.
In the telecom sector, Level 3 Communications Inc said it would cut about 450 jobs, or 8% of its workforce, in North America and Sprint Nextel Corp said it planned to cut costs and warned that could include layoffs.
Danaher Corp, a US conglomerate whose products include Craftsmen tools and dental equipment, said it was eliminating 1,700 jobs, shuttering 13 facilities and freezing salaries.
Tribune Co, the privately held publisher of newspapers including the Los Angeles Times and the Chicago Tribune, filed for Chapter 11 bankruptcy protection as it struggles with its debt load and large losses, including a $124 million third quarter loss posted in November.
The move is expected to lead to job cuts at the media company.
Job losses in November were the steepest since December 1974, when 602,000 jobs were shed, and much worse than the consensus on Wall Street for a 340,000 reduction.
Sony to cut 8,000 jobs amid global downturn
Sony is slashing 8,000 jobs, or 5% of its global electronics work force, aiming to cut costs by $1.1 billion a year as a global downturn batters profits.
Sony Corp. has said that it will cut the jobs from its electronics operations, which employ about 160,000 workers, by the end of March, 2010. It did not give a country breakdown for the layoffs.
Sony has already cut production and lowered inventories, but tough times demand more drastic efforts, the company said in a statement.
The electronics industry has been hurt by plunging prices, currency fluctuations, intense competition and a global slowdown in consumer spending.
Sony will end production at some plants, including one in France that makes tape and other recording media, and will continue moving electronics production to lower-cost areas. Manufacturing sites will be reduced by about 10% from 57%, it said.
These initiatives are in response to the sudden and rapid changes in the global economic environment, Sony said.
The new business plan will deliver more than ¥100 billion ($1.1. billion) in cost savings a year by March 2010, according to Sony.
The company will also postpone a planned investment to boost production of liquid crystal display TVs in Slovakia because of a plunge in European demand for flat-panel TVs.
The company will trim spending in semiconductors, and will outsource a portion of the production it had planned for image sensors for mobile phones.
Sony Corp. has said that it will cut the jobs from its electronics operations, which employ about 160,000 workers, by the end of March, 2010. It did not give a country breakdown for the layoffs.
Sony has already cut production and lowered inventories, but tough times demand more drastic efforts, the company said in a statement.
The electronics industry has been hurt by plunging prices, currency fluctuations, intense competition and a global slowdown in consumer spending.
Sony will end production at some plants, including one in France that makes tape and other recording media, and will continue moving electronics production to lower-cost areas. Manufacturing sites will be reduced by about 10% from 57%, it said.
These initiatives are in response to the sudden and rapid changes in the global economic environment, Sony said.
The new business plan will deliver more than ¥100 billion ($1.1. billion) in cost savings a year by March 2010, according to Sony.
The company will also postpone a planned investment to boost production of liquid crystal display TVs in Slovakia because of a plunge in European demand for flat-panel TVs.
The company will trim spending in semiconductors, and will outsource a portion of the production it had planned for image sensors for mobile phones.
Japan sinks deeper into recession in 3Q
Japan fell into a deeper recession in the third quarter than first thought, the government said on Tuesday, as exports weakened, domestic demand fell and companies bracing for a prolonged downturn pared inventories.
The Cabinet Office said that Japan’s economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction.
The figure was much worse than market expectations for a 0.9% decline in gross domestic product, underscoring the severity of the slump that the world’s second largest economy is mired in.
The data also confirms that Japan slipped into recession in the third quarter after GDP contracted an annualized 3.7 percent in the April-June period. A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say that the current downturn actually began in late 2007.
“The revision was large, but the implication is limited, as there is no need to change our assessment of the economy, which has been in recession since (the) end of last year,” said Masamichi Adachi, senior economist at JP Morgan Securities in Tokyo, in a report Tuesday.
With business conditions deteriorating, companies likely reduced their inventories to cut running costs, the Cabinet Office said, according to Kyodo news agency.
Overall weakness in the third quarter stemmed largely from a sharp pullback in corporate investment amid the unfolding global financial crisis. For export-reliant Japan, the deep slump in global demand for its cars and gadgets has taken a particularly heavy toll
A growing number of exporters big and small also hurt by a stronger yen are slashing their expectations for profit, sales and spending.
Toyota Motor Corp. has cut its full-year net profit forecast to $5.5 billion about a third of last year’s earnings.
Indeed, the worst may be yet to come, since the third-quarter data do not fully reflect the global reverberations from the collapse of US investment bank Lehman Brothers in mid-September.
The Bank of Japan recently slashed its projection for economic growth to just 0.1% for the year through March, compared with the 1.2% growth projected in July.
Economists expect the central bank’s closely watched “tankan” survey, due out Monday, to show a dramatic plunge in corporate confidence.
The Cabinet Office said that Japan’s economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction.
The figure was much worse than market expectations for a 0.9% decline in gross domestic product, underscoring the severity of the slump that the world’s second largest economy is mired in.
The data also confirms that Japan slipped into recession in the third quarter after GDP contracted an annualized 3.7 percent in the April-June period. A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say that the current downturn actually began in late 2007.
“The revision was large, but the implication is limited, as there is no need to change our assessment of the economy, which has been in recession since (the) end of last year,” said Masamichi Adachi, senior economist at JP Morgan Securities in Tokyo, in a report Tuesday.
With business conditions deteriorating, companies likely reduced their inventories to cut running costs, the Cabinet Office said, according to Kyodo news agency.
Overall weakness in the third quarter stemmed largely from a sharp pullback in corporate investment amid the unfolding global financial crisis. For export-reliant Japan, the deep slump in global demand for its cars and gadgets has taken a particularly heavy toll
A growing number of exporters big and small also hurt by a stronger yen are slashing their expectations for profit, sales and spending.
Toyota Motor Corp. has cut its full-year net profit forecast to $5.5 billion about a third of last year’s earnings.
Indeed, the worst may be yet to come, since the third-quarter data do not fully reflect the global reverberations from the collapse of US investment bank Lehman Brothers in mid-September.
The Bank of Japan recently slashed its projection for economic growth to just 0.1% for the year through March, compared with the 1.2% growth projected in July.
Economists expect the central bank’s closely watched “tankan” survey, due out Monday, to show a dramatic plunge in corporate confidence.
Morgan Stanley, Merrill chiefs give up bonuses
The chief executives of Morgan Stanley and Merrill Lynch & Co. are going without bonuses for a year that has seen Wall Street ravaged by staggering losses, mass layoffs and the collapse of storied firms.
Morgan Stanley’s CEO John J Mack is giving up a bonus for the second straight year, while Merrill Lynch & Co. said its CEO John Thain also asked to go without the extra compensation for 2008 after reports surfaced he had sought as much as $10 million.
Mack told employees Monday in a memo that he and the firm’s two presidents, James Gorman and Walid Chammah, informed the board’s compensation committee of their decision to forgo 2008 bonuses, and the committee accepted.
Mack who did not receive a bonus for 2007, either said the company is changing year-end compensation for other employees, too.
The executives, however, are still being paid. Last year, Mack earned a salary of $800,000 as well as nearly $400,000 in other compensation, including personal use of a corporate jet.
Compensation for the 14 members of the firm’s operating committee will be down an average of 75%, and down 65% for the 35 members of the management committee.
Morgan Stanley plans to tie compensation for all employees eligible for bonuses more closely to performance. It will also allow for “clawbacks” where the company could reclaim any bonus paid to an employee if his or her actions led to “the need for a restatement of results, a significant financial loss or other reputational harm,” the memo said.
The CEO compensation debate comes as global banks have lost billions of dollars amid a credit crisis that still has yet to be contained. In the last few months, major US banks have taken advantage of a $700 billion government bailout program to help them avoid fates similar to that of investment bank Lehman Brothers Holdings Inc., which declared Chapter 11 bankruptcy in October.
Goldman Sachs CEO Lloyd Blankfein _ and six of his top lieutenants _ announced last month that they won’t take cash or stock bonuses for 2008.
Merrill Lynch said Thain and four other top executives President and COO Greg Fleming, Chief Financial Officer Nelson Chai, President of Global Wealth Management Robert McCann, and General Counsel Rosemary Berkery have all requested that they do not receive bonuses for 2008. According to a statement by the bank, the executives cited “current economic and market conditions” for their request. Directors at the regularly scheduled board meeting Monday accepted the offer.
The Wall Street Journal reported that Thain previously sought a multimillion dollar bonus, which raised the ire of some regulators.
New York State Attorney General Andrew Cuomo, who is conducting an ongoing inquiry into executive compensation at Wall Street firms, has been asking firms to scrap their bonuses this year.
Merrill Lynch shareholders on Friday approved the brokerage’s acquisition by Bank of America Corp., creating the largest US financial services company. Thain ushered through the combination in September at fire sale prices to avoid a collapse similar to that of Lehman Brothers.
Morgan Stanley’s CEO John J Mack is giving up a bonus for the second straight year, while Merrill Lynch & Co. said its CEO John Thain also asked to go without the extra compensation for 2008 after reports surfaced he had sought as much as $10 million.
Mack told employees Monday in a memo that he and the firm’s two presidents, James Gorman and Walid Chammah, informed the board’s compensation committee of their decision to forgo 2008 bonuses, and the committee accepted.
Mack who did not receive a bonus for 2007, either said the company is changing year-end compensation for other employees, too.
The executives, however, are still being paid. Last year, Mack earned a salary of $800,000 as well as nearly $400,000 in other compensation, including personal use of a corporate jet.
Compensation for the 14 members of the firm’s operating committee will be down an average of 75%, and down 65% for the 35 members of the management committee.
Morgan Stanley plans to tie compensation for all employees eligible for bonuses more closely to performance. It will also allow for “clawbacks” where the company could reclaim any bonus paid to an employee if his or her actions led to “the need for a restatement of results, a significant financial loss or other reputational harm,” the memo said.
The CEO compensation debate comes as global banks have lost billions of dollars amid a credit crisis that still has yet to be contained. In the last few months, major US banks have taken advantage of a $700 billion government bailout program to help them avoid fates similar to that of investment bank Lehman Brothers Holdings Inc., which declared Chapter 11 bankruptcy in October.
Goldman Sachs CEO Lloyd Blankfein _ and six of his top lieutenants _ announced last month that they won’t take cash or stock bonuses for 2008.
Merrill Lynch said Thain and four other top executives President and COO Greg Fleming, Chief Financial Officer Nelson Chai, President of Global Wealth Management Robert McCann, and General Counsel Rosemary Berkery have all requested that they do not receive bonuses for 2008. According to a statement by the bank, the executives cited “current economic and market conditions” for their request. Directors at the regularly scheduled board meeting Monday accepted the offer.
The Wall Street Journal reported that Thain previously sought a multimillion dollar bonus, which raised the ire of some regulators.
New York State Attorney General Andrew Cuomo, who is conducting an ongoing inquiry into executive compensation at Wall Street firms, has been asking firms to scrap their bonuses this year.
Merrill Lynch shareholders on Friday approved the brokerage’s acquisition by Bank of America Corp., creating the largest US financial services company. Thain ushered through the combination in September at fire sale prices to avoid a collapse similar to that of Lehman Brothers.
Cognizant posts good results, but weak forecast
Technology and outsourcing services company, Cognizant Technology Solutions Corp., reported good results for the September quarter, with revenues increasing by 7.2% compared with the previous three months, and operating profit rising by as much as 19.2%.
The growth in profit was aided by a favourable foreign exchange movement and sharp increase in employee utilization. But that doesn’t take away from the fact that underlying business growth has also been decent. Much has been said about the company’s high exposure (46%) to banking and financial services, but this segment continues to grow at a rate that’s higher than the company average.
But the good news stops with the September quarter results. The guidance for the December quarter, in fact, has been lowered.
Based on the forecast three months ago, the company had estimated revenues of $723 million (Rs3,449 crore today) in the September quarter and $758.5 million in the December quarter.
While it easily beat its guidance for the September quarter by reporting revenues of $734.7 million, the target for the December quarter has been lowered to $746.7 million.
The management told analysts in a conference call that “we want to maintain some caution on expectations for growth next quarter”.
While the current economic environment is the main reason for caution, the company is also facing other headwinds such as adverse currency movements relating to revenues it earns in Europe. Because of the sharp fall of European currencies, revenues from this region get impacted when converted into dollars, the functional currency for the US-headquartered company.
Still, some analysts tracking the firm are worried about the low growth guidance for the December quarter. The forecast assumes year-on-year revenue growth rate of just 24.4%, the lowest since the second quarter of fiscal year 2001-02, or the worst since the technology bust.
The company has also said clients’ budget-making process should get postponed by two-three months, and the pick-up in spending it normally sees during the December quarter is not expected to happen this time around.
Some analysts have lowered forecasts for the next year based on these statements and the negative news on the economic environment. They are now talking of a revenue growth rate of about 15% for next year. Bank of America Securities, for instance, has lowered revenue growth estimate for 2009 to 15.8%, from 25.8% earlier.
In the past few years, Cognizant has been growing at a rate that’s about 10 percentage points higher than the industry. Even this year, while the industry is expected to grow by about 20%, Cognizant is all set to achieve a growth of 32%.
The moot question is if Cognizant grows at just 15% next year, as some US analysts are now predicting, how low could other Indian IT players go?
The growth in profit was aided by a favourable foreign exchange movement and sharp increase in employee utilization. But that doesn’t take away from the fact that underlying business growth has also been decent. Much has been said about the company’s high exposure (46%) to banking and financial services, but this segment continues to grow at a rate that’s higher than the company average.
But the good news stops with the September quarter results. The guidance for the December quarter, in fact, has been lowered.
Based on the forecast three months ago, the company had estimated revenues of $723 million (Rs3,449 crore today) in the September quarter and $758.5 million in the December quarter.
While it easily beat its guidance for the September quarter by reporting revenues of $734.7 million, the target for the December quarter has been lowered to $746.7 million.
The management told analysts in a conference call that “we want to maintain some caution on expectations for growth next quarter”.
While the current economic environment is the main reason for caution, the company is also facing other headwinds such as adverse currency movements relating to revenues it earns in Europe. Because of the sharp fall of European currencies, revenues from this region get impacted when converted into dollars, the functional currency for the US-headquartered company.
Still, some analysts tracking the firm are worried about the low growth guidance for the December quarter. The forecast assumes year-on-year revenue growth rate of just 24.4%, the lowest since the second quarter of fiscal year 2001-02, or the worst since the technology bust.
The company has also said clients’ budget-making process should get postponed by two-three months, and the pick-up in spending it normally sees during the December quarter is not expected to happen this time around.
Some analysts have lowered forecasts for the next year based on these statements and the negative news on the economic environment. They are now talking of a revenue growth rate of about 15% for next year. Bank of America Securities, for instance, has lowered revenue growth estimate for 2009 to 15.8%, from 25.8% earlier.
In the past few years, Cognizant has been growing at a rate that’s about 10 percentage points higher than the industry. Even this year, while the industry is expected to grow by about 20%, Cognizant is all set to achieve a growth of 32%.
The moot question is if Cognizant grows at just 15% next year, as some US analysts are now predicting, how low could other Indian IT players go?
Home loans to be locked in at 9.5% for first 5 years
Public sector banks (PSBs) are set to offer home loans of up to Rs20 lakh at a concessional rate of 9.5% for a period of five years as part of the government’s fiscal stimulus package announced on Sunday to spur spending and bolster sagging economic growth.
All new home loans advanced by state-owned banks until 30 June will come at the 9.5% rate, which will be reset five years later depending on the prevailing trend, according to two senior bankers involved in devising the package who didn’t want to be named.
A formal announcement of the scheme will be made soon by public sector banks. Two officials at two different ministries, who also didn’t want to be named, confirmed the plan.
Housing is one of the key areas on which the government is focusing to lift economic growth that’s slowing from an average annual pace of 8.9% in the past four years. Lower interest rates prop up the demand for homes, which in turn, creates demand for steel and cement and generates jobs in the construction sector.
Banks and housing finance firms are now charging between 12% and 14% for fixed-rate home loans and offering floating-rate mortgages at between 9.5% and 11.75%.
Because the cost of funds for banks currently is higher than the rate at which they will offer loans under the new scheme, the government may work out an arrangement to compensate the lenders, analysts say.
It is not clear what will be the nature of the arrangement but “certainly not subvention”, said one banker. The government offers 3% subvention—or interest subsidy—on small agricultural loans, which are given at a concessional rate of 7%.
The Reserve Bank of India’s (RBI) decision on Saturday to include home loans of up to Rs20 lakh in so-called priority sector lending—targeted at segments such as agriculture, small industry and education—will come in handy for banks to offer mortgages at a concessional rate.
Under banking industry guidelines, 40% of advances are meant to be channelled to the priority sector. Banks that are not able to meet the target are required to park the shortfall with the National Bank for Agriculture and Rural Development at a low interest rate. The money is used for rural infrastructure projects. Analysts say the five-year fixed rate of 9.5% will dent banks’ profitability if the government doesn’t offer a support plan for lenders in case interest rates remain at this level or rise further. But if interest rates drop, consumers will lose out on the benefit of falling rates.
“If interest rates fall and home loan rates come down below 9.5%, we will have to watch what exit options this package would provide. Many questions of potential borrowers might have to be answered before they go ahead and avail of such loans,” said Ravi Sankar, a banking analyst at Antique Stock Broking Ltd, a Mumbai-based brokerage.
The asset quality of banks might be compromised if they try to push the scheme aggressively, Sankar said.
“This rate is quite attractive for borrowers at the moment,” said Hatim Brochwala, an analyst at Khandwala Securities Ltd, another domestic brokerage. “However, if interest rates fall and home loan rates become cheaper, borrowers might start complaining. So, the banks will have to chalk out an exit plan. Converting fixed rate into floating rate (loans) may not be a good option as the penalty is heavy.”
Analysts are betting that interest rates will come down by 300 basis points in two years and home loan rates will be cheaper than 9.5%. One basis point is one-hundredth of a percentage point.
On Saturday, the RBI announced a special refinancing package of Rs4,000 crore to the National Housing Bank, which regulates housing finance firms, to help prop up the home loan market. Analysts say the refinancing facility is too small.
Housing Development Finance Corp. Ltd (HDFC), India’s oldest mortgage firm, has a disbursal target of about Rs45,000 crore this year. While HDFC accounts for at least 40% of the housing loan market, public sector banks make up about 20%, limiting the scope of the stimulus package, analysts say. ICICI Bank Ltd, India’s largest private sector bank, is a prominent lender in the mortgage market.
All new home loans advanced by state-owned banks until 30 June will come at the 9.5% rate, which will be reset five years later depending on the prevailing trend, according to two senior bankers involved in devising the package who didn’t want to be named.
A formal announcement of the scheme will be made soon by public sector banks. Two officials at two different ministries, who also didn’t want to be named, confirmed the plan.
Housing is one of the key areas on which the government is focusing to lift economic growth that’s slowing from an average annual pace of 8.9% in the past four years. Lower interest rates prop up the demand for homes, which in turn, creates demand for steel and cement and generates jobs in the construction sector.
Banks and housing finance firms are now charging between 12% and 14% for fixed-rate home loans and offering floating-rate mortgages at between 9.5% and 11.75%.
Because the cost of funds for banks currently is higher than the rate at which they will offer loans under the new scheme, the government may work out an arrangement to compensate the lenders, analysts say.
It is not clear what will be the nature of the arrangement but “certainly not subvention”, said one banker. The government offers 3% subvention—or interest subsidy—on small agricultural loans, which are given at a concessional rate of 7%.
The Reserve Bank of India’s (RBI) decision on Saturday to include home loans of up to Rs20 lakh in so-called priority sector lending—targeted at segments such as agriculture, small industry and education—will come in handy for banks to offer mortgages at a concessional rate.
Under banking industry guidelines, 40% of advances are meant to be channelled to the priority sector. Banks that are not able to meet the target are required to park the shortfall with the National Bank for Agriculture and Rural Development at a low interest rate. The money is used for rural infrastructure projects. Analysts say the five-year fixed rate of 9.5% will dent banks’ profitability if the government doesn’t offer a support plan for lenders in case interest rates remain at this level or rise further. But if interest rates drop, consumers will lose out on the benefit of falling rates.
“If interest rates fall and home loan rates come down below 9.5%, we will have to watch what exit options this package would provide. Many questions of potential borrowers might have to be answered before they go ahead and avail of such loans,” said Ravi Sankar, a banking analyst at Antique Stock Broking Ltd, a Mumbai-based brokerage.
The asset quality of banks might be compromised if they try to push the scheme aggressively, Sankar said.
“This rate is quite attractive for borrowers at the moment,” said Hatim Brochwala, an analyst at Khandwala Securities Ltd, another domestic brokerage. “However, if interest rates fall and home loan rates become cheaper, borrowers might start complaining. So, the banks will have to chalk out an exit plan. Converting fixed rate into floating rate (loans) may not be a good option as the penalty is heavy.”
Analysts are betting that interest rates will come down by 300 basis points in two years and home loan rates will be cheaper than 9.5%. One basis point is one-hundredth of a percentage point.
On Saturday, the RBI announced a special refinancing package of Rs4,000 crore to the National Housing Bank, which regulates housing finance firms, to help prop up the home loan market. Analysts say the refinancing facility is too small.
Housing Development Finance Corp. Ltd (HDFC), India’s oldest mortgage firm, has a disbursal target of about Rs45,000 crore this year. While HDFC accounts for at least 40% of the housing loan market, public sector banks make up about 20%, limiting the scope of the stimulus package, analysts say. ICICI Bank Ltd, India’s largest private sector bank, is a prominent lender in the mortgage market.
US media giant Tribune files for bankruptcy
The Tribune Co., owner of the Los Angeles Times, The Chicago Tribune and other dailies, filed for bankruptcy on Monday, in the latest blow to a newspaper industry reeling from a drop in advertising and the rise of online media.
The Chicago-based company said it was forced to seek bankruptcy protection because of a sharp drop in revenue and a $13 billion debt load but has enough cash to sustain operations while it restructures.
It said the Chicago Cubs baseball franchise and its iconic stadium, Wrigley Field, were not included in the Chapter 11 bankruptcy filing, which protects the company from its creditors while it restructures, and the Tribune would continue to try to find a buyer for the team.
The Tribune’s eight newspapers, 23 television stations and interactive properties will continue to operate during the reorganization, the company stressed, adding that it “has sufficient cash to do so.”
“This restructuring focuses on our debt, not on our operations,” said Tribune chairman and chief executive Sam Zell, the Chicago real-estate titan who led the 2007 private equity buyout of the Tribune Co.
Tribune is the second-largest US newspaper publisher in terms of revenue and the third in terms of circulation.
Besides the Los Angeles Times, which has slashed its editorial staff from 1,200 in 2001 to 660 today, it owns the Chicago Tribune, Baltimore Sun, Orlando Sentinel, Hartford Courant and several other papers.
According to US media reports, its cash flow is not enough to cover one billion dollars in interest payments due this year and a $512 million debt payment due in June.
The Tribune said that in the year since it went private it has repaid approximately $1 billion of its senior credit facility and has been “rewriting the business model for its media assets.”
Like many US newspapers, the Tribune has been grappling with declining circulation, a loss of readership to online media, and a steep drop in print advertising revenue.
Many advertisers have been shifting their dollars to the Web but gains in online advertising revenue have failed to keep pace with losses on the print side.
According to the Audit Bureau of Circulations, circulation for 507 daily US newspapers fell 4.64% in the six months to September.
US media company EW Scripps Co., which owns newspapers in 15 US markets and 10 television stations, announced 400 job cuts last month and has put one of its flagship papers, the Rocky Mountain News, up for sale.
Another debt-ridden major newspaper chain, McClatchy Co., has carried out a series of layoffs this year and, according to the New York Times, is seeking to sell one of its flagship newspapers, The Miami Herald.
Gannett Co., the largest US newspaper chain, publishing USA Today and 84 other newspapers, announced 1,000 job cuts in August and is currently laying off another 10% of its workforce.
The prestigious New York Times itself has not been immune to the crisis gripping the newspaper industry.
The paper reported Monday that the New York Times Co. plans to borrow up to $225 million against its mid-Manhattan headquarters building to ease a potential cash flow squeeze.
Tribune Co. reported a loss of $124 million in the third quarter, compared with a net profit of 84 million dollars a year earlier.
The company has undertaken a series of moves in a bid to ease its debt burden in addition to seeking a buyer for the Chicago Cubs.
In May, it sold its stake in the New York newspaper Newsday for $650 million and in October it said it had informed the Associated Press it plans to terminate its contract with the US news agency in two years.
The Chicago firm traces its history to 1847 with the birth of the Chicago Tribune. It became a publicly traded company only in 1983.
In 2000, the Tribune bought the Times-Mirror group, including the flagship Los Angeles Times, for $8.3 billion in what was then the largest acquisition ever in the US newspaper industry.
The Chicago-based company said it was forced to seek bankruptcy protection because of a sharp drop in revenue and a $13 billion debt load but has enough cash to sustain operations while it restructures.
It said the Chicago Cubs baseball franchise and its iconic stadium, Wrigley Field, were not included in the Chapter 11 bankruptcy filing, which protects the company from its creditors while it restructures, and the Tribune would continue to try to find a buyer for the team.
The Tribune’s eight newspapers, 23 television stations and interactive properties will continue to operate during the reorganization, the company stressed, adding that it “has sufficient cash to do so.”
“This restructuring focuses on our debt, not on our operations,” said Tribune chairman and chief executive Sam Zell, the Chicago real-estate titan who led the 2007 private equity buyout of the Tribune Co.
Tribune is the second-largest US newspaper publisher in terms of revenue and the third in terms of circulation.
Besides the Los Angeles Times, which has slashed its editorial staff from 1,200 in 2001 to 660 today, it owns the Chicago Tribune, Baltimore Sun, Orlando Sentinel, Hartford Courant and several other papers.
According to US media reports, its cash flow is not enough to cover one billion dollars in interest payments due this year and a $512 million debt payment due in June.
The Tribune said that in the year since it went private it has repaid approximately $1 billion of its senior credit facility and has been “rewriting the business model for its media assets.”
Like many US newspapers, the Tribune has been grappling with declining circulation, a loss of readership to online media, and a steep drop in print advertising revenue.
Many advertisers have been shifting their dollars to the Web but gains in online advertising revenue have failed to keep pace with losses on the print side.
According to the Audit Bureau of Circulations, circulation for 507 daily US newspapers fell 4.64% in the six months to September.
US media company EW Scripps Co., which owns newspapers in 15 US markets and 10 television stations, announced 400 job cuts last month and has put one of its flagship papers, the Rocky Mountain News, up for sale.
Another debt-ridden major newspaper chain, McClatchy Co., has carried out a series of layoffs this year and, according to the New York Times, is seeking to sell one of its flagship newspapers, The Miami Herald.
Gannett Co., the largest US newspaper chain, publishing USA Today and 84 other newspapers, announced 1,000 job cuts in August and is currently laying off another 10% of its workforce.
The prestigious New York Times itself has not been immune to the crisis gripping the newspaper industry.
The paper reported Monday that the New York Times Co. plans to borrow up to $225 million against its mid-Manhattan headquarters building to ease a potential cash flow squeeze.
Tribune Co. reported a loss of $124 million in the third quarter, compared with a net profit of 84 million dollars a year earlier.
The company has undertaken a series of moves in a bid to ease its debt burden in addition to seeking a buyer for the Chicago Cubs.
In May, it sold its stake in the New York newspaper Newsday for $650 million and in October it said it had informed the Associated Press it plans to terminate its contract with the US news agency in two years.
The Chicago firm traces its history to 1847 with the birth of the Chicago Tribune. It became a publicly traded company only in 1983.
In 2000, the Tribune bought the Times-Mirror group, including the flagship Los Angeles Times, for $8.3 billion in what was then the largest acquisition ever in the US newspaper industry.
Sunday, December 7, 2008
Govt unveils Rs 20,000 cr plan to boost economy
In a virtual mini-budget, the government on Sunday slashed Cenvat by
four per cent across the board to boost demand and announced Rs 20,000
crore additional non-plan expenditure as part of package to stimulate
the economy, hit hard by the global financial crisis.
The much anticipated package, set rolling by Prime Minister Manmohan
singh who is also the Finance Minister, targets to power exports,
housing, auto, small and medium industries and infrastructure sectors
through additional funding and guarantees that a total amount of about
Rs 35,000 crore.
The 10-point package contains substantial incentives for the sectors
that have been hit by the global slowdown and recession in the west,
besides allowing India Infrastructure Finance Company Ltd to raise Rs
10,000 crore through tax free bonds by March as part of efforts to
support Rs 1,00,000 crore programme in the high-way sector.
"The government has been concerned about the impact of the global
financial crisis on the Indian economy and a number of steps have been
taken to deal with this problem," an official statement said in New
Delhi.
The steps taken by the RBI to pump sufficient liquidity in the
financial system are being "supplemented by fiscal measures designed
to stimulate the economy. In recognition of the need for a fiscal
stimulus the government had consciously allowed the fiscal deficit to
expand beyond the originally targeted level".
As part of steps to create demand in the economy that is expected to
grow by over seven per cent, "the total spending programme in the
balance four months of the current fiscal year, taking plan and non-
plan expenditure together is expected to be Rs 3,00,000 crore."
Reflecting high priority for the exports, which for the first time in
five years recorded a negative growth at 12 per cent, the government
provided Rs 1,450 crore toward refund of excise duty and incentives,
besides giving a guarantee of Rs 350 crore for difficult market and
product exports.
To bring down the cost of exports, hit by a sharp devaluation of rupee
in the recent months, the government also offered a two per cent
interest subsidy for labour intensive products like textiles, leather
and SMEs, subject to a minimum interest of seven per cent.
It said, "As an immediate measure to spur additional spending, an
across-the-board cut of four per cent in the ad-valorem Cenvat rate
will be effected for the balance part of the current fiscal on all
products other than petroleum and those where the current rate is less
four per cent."
The public sector banks will soon announce a package for borrowers of
home loans up to Rs five lakh and between Rs five lakhs to Rs 20
lakhs, the statement said adding that additional measures would be
taken as necessary to promote an accelerated growth trajectory in the
housing sector.
Stating that RBI has already announced a Rs 4,000 crore refinance
facility for the National Housing Bank, government said that the low
cost Indira Awas Yojna is another area where plan expenditure can be
increased easily.
Terming as "critical" the medium, small and micro enterprises (MSMEs)
for job creation, the government sought to boost the collateral-free
lending on loans from Rs fifty lakh to Rs one crore with guarantee
cover of 50 per cent.
Besides, the lock in period for loans under existing credit guarantee
scheme are being cut from 24 to 18 months, a move that would encourage
banks to give more loans to the sector, the government said, adding
that PSUs are being asked to ensure prompt payment of bills to MSMEs.
four per cent across the board to boost demand and announced Rs 20,000
crore additional non-plan expenditure as part of package to stimulate
the economy, hit hard by the global financial crisis.
The much anticipated package, set rolling by Prime Minister Manmohan
singh who is also the Finance Minister, targets to power exports,
housing, auto, small and medium industries and infrastructure sectors
through additional funding and guarantees that a total amount of about
Rs 35,000 crore.
The 10-point package contains substantial incentives for the sectors
that have been hit by the global slowdown and recession in the west,
besides allowing India Infrastructure Finance Company Ltd to raise Rs
10,000 crore through tax free bonds by March as part of efforts to
support Rs 1,00,000 crore programme in the high-way sector.
"The government has been concerned about the impact of the global
financial crisis on the Indian economy and a number of steps have been
taken to deal with this problem," an official statement said in New
Delhi.
The steps taken by the RBI to pump sufficient liquidity in the
financial system are being "supplemented by fiscal measures designed
to stimulate the economy. In recognition of the need for a fiscal
stimulus the government had consciously allowed the fiscal deficit to
expand beyond the originally targeted level".
As part of steps to create demand in the economy that is expected to
grow by over seven per cent, "the total spending programme in the
balance four months of the current fiscal year, taking plan and non-
plan expenditure together is expected to be Rs 3,00,000 crore."
Reflecting high priority for the exports, which for the first time in
five years recorded a negative growth at 12 per cent, the government
provided Rs 1,450 crore toward refund of excise duty and incentives,
besides giving a guarantee of Rs 350 crore for difficult market and
product exports.
To bring down the cost of exports, hit by a sharp devaluation of rupee
in the recent months, the government also offered a two per cent
interest subsidy for labour intensive products like textiles, leather
and SMEs, subject to a minimum interest of seven per cent.
It said, "As an immediate measure to spur additional spending, an
across-the-board cut of four per cent in the ad-valorem Cenvat rate
will be effected for the balance part of the current fiscal on all
products other than petroleum and those where the current rate is less
four per cent."
The public sector banks will soon announce a package for borrowers of
home loans up to Rs five lakh and between Rs five lakhs to Rs 20
lakhs, the statement said adding that additional measures would be
taken as necessary to promote an accelerated growth trajectory in the
housing sector.
Stating that RBI has already announced a Rs 4,000 crore refinance
facility for the National Housing Bank, government said that the low
cost Indira Awas Yojna is another area where plan expenditure can be
increased easily.
Terming as "critical" the medium, small and micro enterprises (MSMEs)
for job creation, the government sought to boost the collateral-free
lending on loans from Rs fifty lakh to Rs one crore with guarantee
cover of 50 per cent.
Besides, the lock in period for loans under existing credit guarantee
scheme are being cut from 24 to 18 months, a move that would encourage
banks to give more loans to the sector, the government said, adding
that PSUs are being asked to ensure prompt payment of bills to MSMEs.
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