Archive for November, 2008

GM and Ford investors brace for deep quarterly losses (Reuters)

Tuesday, November 4th, 2008 | Finance News

DETROIT (Reuters) –
General Motors Corp (GM.N) and Ford Motor Co (F.N) posted more than $27 billion of net losses in the first half of 2008 -- and that was before a deepening economic slowdown pushed industry sales to 25-year lows.

What either automaker will report for an encore in the third quarter could be overwhelmed by the potential merger of Chrysler LLC into GM or various other scenarios of some or all of the Auburn Hills, Michigan automaker being sold.

Both are expected to post dismal third-quarter results on Friday, capping off a disastrous week that started with reports that U.S. auto sales plunged to the lowest annualized rate in a quarter century in the first month of the fourth quarter.

Analysts on average expect GM and Ford to post losses of roughly $2 billion each for the third quarter excluding one time items, according to Reuters Estimates.

Cash flow remains key to investors, who saw GM stock fall to a 58-year low and Ford stock to a more than quarter-century low in October, as does U.S. consumer confidence, which fell to a record low in October.

A deal to unite GM and Chrysler hit a wall after the Bush administration ruled out funding it last week, leaving any merger between the companies contingent on federal aid under the next administration, people familiar with the talks said.

October sales fell from bad to worse amid the financial sector failures that forced a $700 billion bailout plan in the United States and numerous props for banks in other countries.

"Auto companies just don't make money in a recession," Morgan Stanley analyst Adam Jonas said in an October note to clients referencing the slowdown in European automaker results that were just as relevant for U.S. companies.

While the talks between GM and Chrysler-owner Cerberus Capital Management LP have taken most of the spotlight, Ford also has had discussions with policymakers about the challenges facing the industry and the automaker.

"We just want to make sure we continue that ongoing dialogue and make sure that whatever happens there is a degree of parity," Mark Fields, Ford's president of the Americas, told reporters last week.

Ford earlier in 2008 said it would accelerate plans to bring European-designed cars to North America and convert some pickup truck plants to car production. It is expected to provide a business plan update on Friday.

WHERE THE RUBBER HITS THE ROAD

GM's U.S. sales were down more than 20 percent in 2008 through October, while Ford sales were down 18 percent in its core brands. Both lagged the 15 percent industry decline.

In recent years, special charges have been hard to predict for Ford and GM due to massive North American restructurings that have failed to keep pace with eroding markets. They combined for $17.1 billion of charges in the second quarter.

Charges could include costs for white collar job cuts and buyouts of unionized hourly workers. Ford cut white collar expenses in the summer and told the United Auto Workers union in September that it had about 4,000 more hourly workers than it needed.

GM also has accelerated planned plant closings and cut production of slower-selling vehicles to control inventory.

GM had about $21 billion of cash and $5 billion of undrawn credit at the end of the second quarter. It burned through $3.6 billion in the quarter, while Ford spent $2.1 billion.

In July, GM laid plans to boost liquidity by $15 billion by the end of 2009 using cost cuts, asset sales and new borrowing. That plan was constructed before the deepest part of the auto industry downturn, which has spread beyond North America.

In October, Standard & Poor's said GM and Ford have adequate liquidity through the rest of 2008, but 2009 could be challenging given the rapid weakening in most global auto markets and the tough capital market conditions.

Analysts on average expect GM to post a $3.51 per share third-quarter loss before charges. The largest U.S. automaker lost $51 billion from 2005 through 2007, and posted losses of more than $18.7 billion in the first half of 2008.

Analysts expect Ford to post a third-quarter loss before charges of 93 cents per share. Ford posted a $100 million first-quarter profit, but later abandoned its goal of a 2009 profit and posted an $8.7 billion second-quarter net loss.

Analysts will also watch to see if GM and Ford cut production. Automakers book revenue when they ship vehicles to dealers, so production cuts have a direct impact on the bottom line and both have cut production to control inventory.

(Additional reporting by Poornima Gupta, editing by Leslie Gevirtz)

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Analyst in trading ring case may have fled: SEC (Reuters)

Tuesday, November 4th, 2008 | Finance News

NEW YORK (Reuters) –
A former Goldman Sachs Group Inc analyst who was in custody for more than two years for leading an insider-trading ring that netted more than $6.7 million is in violation of his probation and may have left the country, according to a court filing.

David Pajcin, a former fixed-income analyst at the investment bank, is "in violation of his probation" according to information supplied by federal prosecutors, U.S. Securities and Exchange Commission lawyer Scott Block wrote in the filing.

The SEC letter, filed late on Monday in U.S. District Court in New York, said both the U.S. Attorney's Office in Manhattan and Pajcin's criminal defense lawyer "have informed us that they believe he is no longer in the country."

Pajcin was arrested in November 2005 and pleaded guilty in April 2006 to charges including conspiracy and insider trading. The SEC brought a separate civil case against him and other defendants.

He was held in custody following his arrest and cooperated with prosecutors investigating the trading ring. At his sentencing in January, a judge said he did not have to serve further prison time, but sentenced him to three years of supervised release and ordered him to forfeit $6.7 million.

The case began when U.S. authorities grew suspicious of trading in options of sports gear maker Reebok International ahead of its merger with Adidas AG in an account in the name of a retired Croatian seamstress, who was Pajcin's aunt.

A criminal defense lawyer for Pajcin, Jesse Siegel, told Reuters on Tuesday he had "no idea" where the former analyst was. He said he had not told the SEC that he believed Pajcin was out of the country, but that "it wouldn't be hard for me to believe that he would have left the country."

"I was contacted quite awhile back by his probation officer that he had not been reporting for supervised release. I hadn't had any contact with him for awhile."

(Editing by Andre Grenon)

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Record Election Day rally for stocks, credit thaws (Reuters)

Tuesday, November 4th, 2008 | Finance News

NEW YORK (Reuters) –
U.S. stocks had their biggest Election Day rally ever on Tuesday as investors looked forward to the end of the uncertainty surrounding the long fight for the White House, while global credit markets showed more signs of a thaw.

U.S. voters went to the polls to decide who will face the challenge of leading the world's largest economy out of its worst financial crisis in 80 years.

Polls close in parts of Indiana and Kentucky at 6 p.m. EST and over the following six hours in the other 48 states and the District of Columbia. [ID:nN04356344]

In the United States, the benchmark S&P 500 stock index rose 4.1 percent, to a four week closing high..

Europe's FTSEurofirst 300 stock index climbed 4.3 percent, and Japan's Nikkei rose 6.3 percent to a two-week high.

Global stocks, as measured by the MSCI World index, have risen 21.8 percent from their 5-1/2 year lows hit in late October.

Interbank lending rates fell to their lowest in five months as the sector tried to put the worst of the credit crisis behind it, but overnight deposits at the European Central Bank hit a record high, showing banks are still hoarding their cash.

The global credit crunch, which stemmed from a collapse in the U.S. housing market, has prompted banks to pull back lending to each other and to businesses and households for over a year now.

There were other mixed signals emerging about financing conditions, with issuance of commercial paper down for a third consecutive day on Monday. Companies use this short-term debt to fund their operations.

On Monday, the Federal Reserve said most U.S. and foreign banks had tightened lending standards across the board in the last three months.

Synchronized rate cuts by central banks and emergency government packages worth some $4 trillion may have prevented a banking sector meltdown, but the world economy is in poor shape.

New orders received by U.S. factories took a surprisingly steep tumble for a second month in a row during September, according to the U.S. Commerce Department on Tuesday.

In an attempt to deal with the economic slowdown, Australia cut interest rates sharply. Australia's bigger-than-expected 75-basis-point rate cut followed cuts in the United States, China and Japan last week. Britain and the euro zone are expected to follow suit on Thursday with half-point reductions.

"Each of the big developed economies now is either in a severe recession or well on the way," said Rory Robertson, interest rate strategist at Macquarie in Sydney.

Australia's central bank said there was significant weakness in major economies in explaining why it cut rates to 5.25 percent, the lowest since March 2005.

Similarly, the German economy will go through a weak spot in coming quarters, Bundesbank President Axel Weber said, before showing signs of brightening toward the end of 2009.

ELECTION STIMULUS

The banking crisis and global economic slowdown present a huge challenge for either presidential candidate in the U.S. elections on Tuesday.

Democrat Barack Obama leads Republican John McCain in five of eight closely fought states as polls opened, according to a series of Reuters/Zogby polls released on Tuesday.

Obama advocates a second economic stimulus package to revive the U.S. economy. Valued at $175 billion, the plan would include funding for infrastructure and a round of tax rebates.

McCain wants a $300 billion housing plan that would use some of the funds from the recent $700 billion Wall Street bailout package to buy up troubled mortgages.

The United States needs a new fiscal policy boost to complement aggressive steps taken by the Federal Reserve to shield the economy from a global credit crisis, one of its top policymakers said.

"There are limits to what the central bank can do. Our efforts must be complemented by fiscal policy," Dallas Federal Reserve President Richard Fisher told the Texas Cattle Feeders Association in prepared remarks.

EU PRESSES FOR REFORM

Meanwhile, EU leaders continued to press for an overhaul of financial market rules that were seen lacking as the current banking crisis spread around the globe, and German Chancellor Angela Merkel demanded world leaders agree quickly on a new framework.

"It mustn't take years, it must be done in months," Merkel said in Berlin.

On Tuesday European Union finance ministers backed proposals for a reform of the G8 club of major industrial nations and an end to the self-regulation in global financial markets that critics say caused the credit crisis.

British Prime Minister Gordon Brown and French President Nicolas Sarkozy want a "Bretton Woods"-style reworking of supervision of global capital markets.

Bretton Woods, a meeting of allied nations in July 1944, established a framework for regulating global money and finance after World War II.

Underscoring the widening effects of the credit crisis, German luxury car maker BMW abandoned its 2008 earnings forecast and cut production after a 60 percent plunge in quarterly profit.

On Monday, automakers reported that sales in the United States, BMW's biggest market, fell nearly 32 percent in October, to their lowest in more than 25 years.

European banks and insurers warned of tough times ahead.

UBS, Royal Bank of Scotland and reinsurer Swiss Re all said they face more writedowns of toxic assets or other losses because of accounting rules in the current quarter, and showed the financial crisis is causing more pain for consumers and businesses.

(Additional reporting by Reuters bureaus worldwide);

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