Archive for January, 2009

Caterpillar to slash 20,000 jobs as profit falls (Reuters)

Monday, January 26th, 2009 | Finance News

CHICAGO (Reuters) –
Caterpillar Inc announced it would cut nearly 20,000 jobs and warned of a tough year ahead as a downturn that began in the United States metastasized into a full-blown global recession, gutting orders for earth-moving equipment.

The world's largest maker of construction and mining machines, which also reported lower-than-expected fourth-quarter earnings, said on Monday it was laying off 17,000 workers, and buying out 2,500 others, to reduce costs in the face of what it predicted would be the weakest year since the end of World War Two.

The company slashed its outlook for 2009 and seemed to raise the possibility that it would report a loss in the current quarter -- its first since 1992.

"We pretty much hit a wall in December," Jim Owens, the company's chief executive, said in call with investors.

The news sent Caterpillar shares skidding as much as 10 percent on the New York Stock Exchange.

Owens said the company had been "whipsawed" by a rapidly deteriorating global economy and plunging commodity prices.

He said Caterpillar had reacted by encouraging dealers to align their inventory levels with falling volume and "they responded with significant order cancellations, particularly in December."

The layoffs and buyouts, to hit one in every 10 regular workers and idle 8,000 contract workers, represent the biggest wave of job cuts at Caterpillar since the early 1980s, when the company was losing about $1 million a day.

The company also said it was freezing salaries of most employees, significantly reducing the total compensation of executives and senior managers, putting several facilities on shortened workweeks, and subjecting thousands of employees to temporary layoffs.

The company reported a fourth-quarter profit of $661 million, or $1.08 a share, compared with $975 million, or $1.50 a share, a year ago.

Sales rose 6 percent to $12.92 billion.

The company attributed the drop in profitability to significantly higher operating costs in its manufacturing operations as capacity utilization plunged. It also blamed a sharp decline in profit in its captive finance unit.

Analysts on average expected the company to report a profit of $1.28 a share on sales of $11.97 billion.

Looking forward, Caterpillar slashed its outlook for 2009, saying sales could tumble as much as 32 percent to $40 billion. It also said full-year earnings per share before costs associated with the job cuts could fall to just $2.50, compared with last year's $5.66. During the conference call, Owens said Caterpillar was bracing for what he characterized as a "seismic" change in sales and revenue in the coming year.

"If this comes to fruition, it says a lot of bad things not just for Caterpillar but for the economy as a whole," said Morningstar analyst John Kearney.

During the call, Mike DeWitt, the company's head of investor relations, warned that Caterpillar might even post a loss in the first quarter -- its first in 17 years.

"December was absolutely atrocious," said Kearney. "It looks like that is definitely going to spread into the first quarter and maybe get even worse. It's certainly an ugly outlook for at least the first half of 2009."

After shrugging off the downturn in U.S. housing that sparked the worldwide crisis, Caterpillar and other makers of bulldozers, dump trucks and excavators have suddenly faced a world of challenges, including a drop in spending by their well-heeled energy and mining customers.

"We knew Caterpillar was going to be a disaster." said Eli Lustgarten, an analyst at Longbow Research. "We just didn't know the magnitude of it. And it's ugly."

Caterpillar shares were down $3.46 or 9.7 percent at $32.20 in early afternoon trading, off an earlier low of $31.92.

(Additional reporting by Leah Schnurr in New York, editing by Steve Orlofsky and Matthew Lewis)

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Geithner seen winning Treasury job despite tax woes (Reuters)

Monday, January 26th, 2009 | Finance News

WASHINGTON (Reuters) –
Senators were expected to set aside their misgivings about Timothy Geithner's past income tax errors and confirm the 47-year-old New York Federal Reserve Bank chief as Treasury secretary on Monday night.

With the economy in full-blown crisis, Geithner's experience in dealing with the past year's rapid-fire rescue efforts of key financial firms will trump the taint from his late payment of $34,000 in self-employment taxes to the Internal Revenue Service that he will command.

Geithner will be President Barack Obama's top economic official for a crisis-management team that is already deeply involved in pushing a big package of spending and tax-cuts through Congress to lift the recession-mired economy.

He also will immediately face the question of whether the new administration should go back to Congress to seek money beyond the Treasury-run $700 billion financial rescue package to sop up bad assets sitting on bank balance sheets, perhaps in a government-run "bad bank."

"On the challenges, they are monumental and extraordinary. But this is going to be more than a one-man show, this is going to be a whole team effort by Treasury and by the administration," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities.

At a congressional hearing on his nomination last week, Geithner pledged an overhaul of the government's crisis response that would aim to ease the housing crisis, aid consumer credit markets and shore up the banking system.

He also vowed a greater effort to track what banks are doing with the taxpayer-supplied funds that are being bundled out by Treasury. Many lawmakers have complained that banks have not used the funds to increase their lending.

HOLES TO FILL

Geithner's route to Treasury secretary initially appeared all smooth sailing until revelations that he had underpaid taxes for several years while he worked for the International Monetary Fund earlier in the decade.

He apologized for the errors, calling them "careless" but taking some stripes for it from some lawmakers. In the end, the Senate Finance Committee voted 18-5 to recommend the full Senate approve his nomination. A vote is scheduled for 6 p.m. (2300 GMT).

As late as Monday morning, at least some Republican lawmakers were still signaling reserve about Geithner. But even his critics said they were rooting for him to come up with answers to keep recession from spiraling into something worse.

"I am rooting like the devil for him but I don't think he's the right person for the job," Republican Sen. Jim Bunning of Kentucky said on CNBC television.

Geithner has a long-standing familiarity with Treasury. His service there dates back to 1988 when he began a climb upward to under secretary for international affairs from 1998 to 2001 under former Treasury Secretaries Robert Rubin and Lawrence Summers during the Clinton administration.

After stints at the Council on Foreign Relations and the International Monetary Fund, Geithner was named president of the New York Fed in November 2003.

As the head of the New York Fed, Geithner served as vice chairman and a permanent voting member of the U.S. central bank's policy-setting committee. He also had his hand in a series of emergency actions by the Treasury and Fed to rescue failing financial firms.

(Editing by Andrea Ricci)

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Thain says hid nothing from BofA, to repay costs (Reuters)

Monday, January 26th, 2009 | Finance News

NEW YORK (Reuters) –
Former Merrill Lynch Chief Executive John Thain defended the acquisition of the brokerage by Bank of America Corp (BAC.N) and said the bank knew of Merrill's losses and bonuses before the merger closed.

In a memo to Merrill employees, Thain also said he plans to reimburse Bank of America for $1.2 million spent to renovate his office a year ago, calling the expense "a mistake in the light of the world we live in today."

The renovation expenses, including a reported $35,115 commode and a $1,405 trash can, have become became the latest symbols of corporate excess. News of the expenses surfaced on January 22, the same day Thain was ousted as Bank of America's head of global banking, securities and wealth management, and just three weeks after the $19.4 billion merger closed.

Still, Thain's insistence that Bank of America knew the extent of Merrill's condition put added pressure on Bank of America CEO Kenneth Lewis, who has been criticized over the bank's falling share price, and increasing speculation about his future as chairman and CEO.

Bank of America has been hit with several lawsuits over its failure in December to disclose Merrill losses and talks with the U.S. Treasury Department, which led to a $20 billion capital infusion from the government.

The Charlotte, North Carolina-based bank said on January 16 that Merrill lost $15.31 billion in the fourth quarter. Shares were down 82 percent from September 15, when the merger was announced, through Friday.

Bank of America's board of directors is scheduled to meet on Wednesday.

In the memo, which was posted on several news Web sites, Thain said Merrill's fourth-quarter losses stemmed almost entirely from positions taken on by his predecessor, Stanley O'Neal, who was ousted in October 2007.

"We were completely transparent with Bank of America," Thain said. "They learned about these losses when we did."

Thain also challenged reports that Bank of America was critical of $4 billion in bonuses that Merrill awarded a few days before the merger closed, and earlier than in past years.

He said Merrill's discretionary bonuses were down 41 percent from a year earlier, and that the size, composition and timing of payments "were all determined together with Bank of America."

Bank of America spokesman Scott Silvestri declined to discuss the board meeting, or Thain's memo, apart from bonuses.

"John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation," he said. "We had no legal right to challenge it."

Bank of America shares rose 52 cents to $6.76 on the New York Stock Exchange.

(Reporting by Jonathan Stempel; editing by John Wallace and Jeffrey Benkoe)

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