Archive for April, 2009

GM bondholders to present alternate plan: source (Reuters)

Wednesday, April 29th, 2009 | Finance News

DETROIT (Reuters) –
Bondholders will present an alternative to General Motors Corp's (GM.N) just-launched debt-for-equity exchange in a deal that would swap a 51-percent stake in a restructured company for $27 billion in debt, according to a person with knowledge of the plan.

The new plan would give the United Auto Workers union 41-percent in a new GM while the U.S. government would not receive an equity stake, according to the person who asked not to be named because the offer had not yet been submitted.

A committee representing GM bondholders will present the alternative plan to the White House task force overseeing the restructuring of GM and Chrysler on Thursday, the person said.

GM said this week it was moving ahead with a plan to offer existing bondholders a 10-percent ownership of the restructured automaker. Under the GM plan, the US government would own a combined 89-percent of the new company.

GM Chief Executive Fritz Henderson said on Monday the automaker would file for bankruptcy if bondholders did not swap out of 90-percent of the $27 billion they are owed.

(Reporting by Kevin Krolicki; Editing by Anshuman Daga)

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BofA’s Lewis ousted as board chairman, stays as CEO (Reuters)

Wednesday, April 29th, 2009 | Finance News

CHARLOTTE, North Carolina (Reuters) –
Bank of America Corp (BAC.N) shareholders voted to oust embattled Chief Executive Kenneth Lewis as chairman of the board on Wednesday in what could be a precursor to his eventual replacement as CEO as well.

The bank's board "unanimously" expressed support for Lewis to stay in the CEO post despite the fact that shareholders "narrowly" approved a proposal to require an independent chairman.

Lewis, who will remain chief executive, will be replaced in the chairman post by Walter Massey, 71, a director of the bank's board since 1998 and also a director of McDonald's (MCD.N).

"We knew that it was going to be close, but this is an unambiguous vote of no confidence," said Campbell Harvey, professor of finance at Duke University.

"Whether he chooses to remain as CEO or not, the dominant influence that he had at Bank of America is now a thing of the past," he added.

Similar moves last year foreshadowed the ouster of the chief executives of two large, troubled banks -- Ken Thompson at Wachovia Corp and Kerry Killinger at Washington Mutual Inc (WAMUQ.PK). Wachovia was later bought by Wells Fargo, while Washington Mutual failed.

"It's kind of the first step toward the end for Lewis," said Ralph Cole, portfolio manager, at Ferguson Wellman Capital Management in Portland, Oregon. "It shows there's at least some constituency that's not happy with his performance. I just don't think he's going to last," he added.

Massey has also served on the boards of Delta Air Lines Inc, Motorola and BP. He is president emeritus at Morehouse College in Atlanta, where he served as president until 2007. The former director of the National Science Foundation becomes one of the few African Americans chairing a major U.S. company.

Some shareholders expressed consternation that Massey, as long-time board member, does not represent a big enough change in leadership for the board.

"We are disappointed that the board apparently did not consider looking outside the current directors for a truly independent chairman," said Jerry Finger, who in 1996 sold his Charter Bancshares Inc of Houston to a Bank of America predecessor, and his son Jonathan in an e-mailed statement. The Finger family campaigned against Lewis' re-election.

SHAREHOLDER FRUSTRATION

All 18 directors were elected to the board by "comfortable margins," the bank said in a statement, although several major shareholder groups including The California State Teachers' Retirement System and the California Public Employees' Retirement System had said they would withhold their votes for the entire board. Spokesmen for both pension funds declined comment after the vote.

About 2,000 people attended the annual meeting, more than triple the year-earlier number. The 62-year-old Lewis listened to dozens of attacks from shareholders over his leadership, and in particular the bank's controversial purchase of Merrill Lynch & Co, but also got substantial praise.

He fielded many complaints over the bank's failure to quickly disclose huge losses that Merrill was amassing, as it was paying out billions of dollars of bonuses to employees. Bank of America's shares have fallen by about three-fourths since the merger was announced in September.

"You knew what was going on with Merrill Lynch, you kept it from us. You're still keeping it from us," said Judy Koenick, who said she lost $27,000 on the bank's stock. She wore a shirt saying "Fire them all!!! Kenneth Lewis, & the board of directors, make a clean sweep."

Lewis stood patiently behind a podium on a stage for much of the meeting, often twiddling his thumbs or biting his lip as shareholders vented their frustration.

Others were more supportive. A 92-year-old man who said he owned a half million shares, said that in buying Merrill and the troubled mortgage lender Countrywide Financial Corp, Lewis "believed he was doing something good for America." The man added: "If we don't have Ken, who do we have?"

LEWIS DEFENDS MERRILL PURCHASE

In a speech, Lewis defended buying Merrill for $29.1 billion of common and preferred stock, saying that it was "good value" and that abandoning the deal would have caused "serious harm" to Bank of America and other banks. He also said he saw no need for Bank of America to make further acquisitions.

Bank of America needed a $20 billion federal bailout to absorb Merrill. Lewis has indicated that regulators pushed him to keep quiet about Merrill's losses and not to back out of the merger. He told shareholders that "as a legal matter, there was no duty" to disclose the bank's talks with the government.

"They should have disclosed it," said Ed Morais, a financial adviser and shareholder from Charlotte attending his first annual meeting. "It seems like he chose to put Merrill Lynch shareholders ahead of Bank of America shareholders." He spoke before the meeting.

The Merrill deal and bonus payments are the subject of shareholder lawsuits and investigations by members of the U.S. Congress as well as regulators including the U.S. Securities and Exchange Commission and New York Attorney General Andrew Cuomo.

"Lewis may have a lot of litigation ahead of him," said Jeffrey Sonnenfeld, professor and head of Yale's Chief Executive Leadership Institute.

Bank of America has received a total of $45 billion in taxpayer funds and may need more after results of government "stress tests" are released, probably next week. The tests gauge banks' ability to weather a deep recession.

Lewis declined to discuss details of talks with regulators about the tests, including whether the bank might need to issue more common stock to bolster capital.

Shares of Bank of America rose 53 cents, or 6.5 percent to close at $8.68 on the New York Stock Exchange.

(Reporting by Jonathan Stempel; additional reporting by Elinor Comlay, Paritosh Bansal, Phil Wahba and Dan Wilchins; editing by John Wallace, Gerald E. McCormickand Bernard Orr)

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Fed says U.S. recession appears to be easing (Reuters)

Wednesday, April 29th, 2009 | Finance News

WASHINGTON (Reuters) –
The Federal Reserve said on Wednesday the outlook for the U.S. economy had improved a bit in recent weeks but that low interest rates would be needed for some time to ensure it recovers from its deep recession.

Wrapping up a two-day policy meeting, the U.S. central bank said it had decided to hold benchmark overnight interest rates in the range of zero to 0.25 percent reached in December even as officials took stock of some recent hopeful economic signs.

"Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time," the Fed said in a statement.

"The economy has continued to contract, though the pace of contraction appears to be somewhat slower," it said.

Stocks shot higher and government bond prices sank as the Fed's announcement added to a sense of light at the end of the tunnel. The dollar rose against the yen but lost ground to the euro as investors' appetite for risk increased, easing demand for both the dollar and the yen as a safe haven.

"The economy has gone from being in a freefall and is now on the road to recovery," said Mark Vitner, an economist for Wachovia Securities in Charlotte, North Carolina.

After their last meeting on March 17-18, Fed officials had offered no hint the recession was abating and they announced plans to pump an additional $1.15 trillion into the economy.

On Wednesday, no new actions were announced, although the central bank repeated its pledge to use all available tools to promote recovery and reiterated a vow to keep rates low for an extended period.

A leading bond fund executive cautioned that the Fed runs the risk of a Japanese-style scenario of prolonged weak growth and deflation if policy-makers pull back from efforts to support the struggling economy prematurely.

"Today's statement suggests that policy-makers are now comfortable with partially taking their foot off the accelerator," Mohamed El-Erian, chief executive of Pacific Investment Management Co, told Reuters.

The United States appears to be moving through its economic crisis ahead of other major economies.

The European Central Bank looks set to cut rates to an historic low of 1 percent on May 7 and is considering other steps it can take to prop up a weak euro-zone economy.

In Japan, the central bank is expected to cut its forecast for the Japanese economy at a meeting on Thursday.

"GREEN SHOOTS" APPEAR

Fed officials are trying to pull the economy out of a deep recession that next month will become the longest since the Great Depression. They warned on Wednesday that with job losses mounting, households pinched by diminished wealth and credit still hard to get, consumers were still under pressure.

Underscoring the economy's perilous state, a Commerce Department report showed on Wednesday that U.S. gross domestic product shrank by a larger-than-expected 6.1 percent annual rate in the first quarter, following a 6.3 percent decline in the fourth quarter of 2008.

The recession has already cost the economy 5.1 million jobs, driving the unemployment rate to a 25-year high of 8.5 percent in March. Economists expect the jobless rate to rise further.

Still, some data have supported Fed Chairman Ben Bernanke's mid-March suggestion that that some "green shoots" could be seen emerging from the economic wreckage -- even if only showing that the pace of contraction is slowing.

For example, first-time claims for unemployment aid have been running below the 26-1/2 year high touched in late March.

Similarly, while sales of previously owned homes fell in March, inventories of homes available for sale also fell, and some analysts saw the decimated housing sector, which is at the heart of the U.S. economic breakdown, as stabilizing.

The Fed's Beige Book of anecdotal reports from across the nation issued on April 15 said five of the U.S. central bank's 12 districts saw the pace of decline in the economy slowing.

Even the report on first-quarter GDP offered some hopeful signs. Consumer spending turned up and business inventories fell sharply, which could pave the way for future production.

At their last meeting, policy-makers reacted to a sense that the economy was deteriorating quickly with a massive expansion of their credit-easing efforts.

The Fed announced it would buy $300 billion in long-term U.S. government debt and increase purchases of debt and securities issued by government-supported mortgage agencies by $850 billion in a bid to lower mortgage and other interest rates.

Policy-makers said on Wednesday they would adjust purchases in response to the changing economic outlook and developments in financial markets.

(Editing by Tim Ahmann, Dan Grebler and Jan Paschal)

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