Archive for July, 2009

California legislature to take up tax changes (Reuters)

Wednesday, July 29th, 2009 | Finance News

SAN FRANCISCO (Reuters) –
California Govenor Arnold Schwarzenegger will call lawmakers into a special session to overhaul the state's tax system, which relies heavily on personal income taxes that are at the root of its budget crisis.

The Republican governor signed a bill into law on Tuesday that closed a more than $24 billion budget gap opened by a steep drop in revenues, especially revenues from personal income taxes.

No new taxes were included in the budget plan, which Schwarzenegger and the Democrat-led legislature balanced largely by slashing education, health and human services spending.

California's collections from personal income taxes have been posting their worst fall since the Great Depression. Analysts expect the most populous U.S. state's revenues, ravaged by the recession, to remain weak and again throw its budget off balance.

A 14-member, bipartisan commission is reviewing California's tax laws to draft recommendations for laws to help the state government avoid feast-or-famine revenue cycles.

"For too long our broken tax system has taken Californians on an unwelcome rollercoaster ride," Schwarzenegger said in a statement on Wednesday. "This commission will help change that ... I assure all Californians that I will call on the full legislative body to immediately consider the commission's recommendations as soon as they are submitted."

Schwarzenegger said he also had approved a request by the commission to extend the deadline for its recommendation report until September 20. The special legislative session in the Democrat-controlled legislature would follow.

The commission has been looking at various tax ideas, including substituting a net receipts tax on businesses for sales and corporate income taxes, extending the state's sales tax to services and new taxes on oil extraction, fuel commercial real estate. It is also looking at a flat personal income tax.

Commission Chairman Gerald Parsky, a partner at Aurora Capital Group in Los Angeles, said commission members agree on the need to broaden California's tax base to bring greater predictability to gauging its revenues.

The state's revenues have boomed in fat years for stocks and housing, but have plunged amid the housing, mortgage and financial-sector meltdowns.

California's 11.6 percent unemployment rate also is slashing at personal income tax revenues.

Commission members are also interested in bringing California's tax system in line with changes in the state's economy.

"The economy of California has moved rather extensively toward the service sector and the service sector is not included in the tax base," Parsky told Reuters in a telephone interview. "There is at least interest on the part of the commissioners to see how the service sector could be brought into the tax base."

(Reporting by Jim Christie; Editing by Diane Craft, Leslie Gevirtz)

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Wall St sags on China-driven economy fear, Visa off (Reuters)

Wednesday, July 29th, 2009 | Finance News

NEW YORK (Reuters) –
U.S. stocks fell on Wednesday as investors worried that China might be ready to hit the brakes on lending, a move that could curb demand and hinder the global economic recovery.

Concerns about China hurt commodity prices and hit shares in the energy and raw materials sectors, while a steep drop in U.S. durable goods orders in June fed fears of more economic weakness.

Oil futures fell $3.88, or 5.8 percent, to settle at $63.35 per barrel after U.S. government data showed a surprisingly large increase in crude inventories last week. Shares of energy companies also slid, with Chevron Corp (CVX.N) down 1.8 percent at $67.12. The S&P energy index (.GSPE) dropped 2.1 percent.

"China has been a big driver of part of the global recovery. Their stimulus is direct and quick," said Bobby Harrington, managing director of trading for UBS in Boston.

Slower growth in China's economy "could limit upside and create downward momentum" in the U.S. stock market, he said.

China's two biggest state-owned commercial banks have put a lid on their 2009 lending targets, according to domestic media reports, a move that will significantly slow overall Chinese credit growth in the year's second half.

The Shanghai Composite Index (.SSEC) sank 5 percent on Wednesday -- its biggest daily decline in eight months, but it is still up about 80 percent for 2009.

Further weighing down stocks, yields of shorter-dated U.S. Treasuries briefly hit five-week highs after the week's second poor auction, increasing concern of a possible spike in borrowing costs.

The Dow Jones industrial average (.DJI) dropped 26 points, or 0.29 percent, to close at 9,070.72. The Standard & Poor's 500 Index (.SPX) fell 4.47 points, or 0.46 percent, to 975.15. The Nasdaq Composite Index (.IXIC) lost 7.75 points, or 0.39 percent, to 1,967.76.

Each of the three major U.S. stock indexes gained 11 percent in the previous two weeks as upbeat corporate earnings gave a second wind to a rally that drove the S&P 500 up 40 percent from a 12-year closing low hit in early March.

VISA FALLS LATE

After the closing bell, Visa Inc (V.N) reported

better-than-expected quarterly earnings after the closing bell. But its stock fell 1.2 percent, or 78 cents, to $66. During the regular session, Visa's stock rose 48 cents, or 0.7 percent, to close at $66.78 on the New York Stock Exchange ahead of the earnings.

In Wednesday's regular session, the S&P 500's only positive sectors were telecommunication services, healthcare and consumer staples, the ones seen as able to better weather economic downturns.

"After the big run-up, people get a bit more defensive," UBS's Harrington said.

The Commerce Department said June U.S. durable goods orders fell 2.5 percent, the largest drop since January, after rising by a downwardly revised 1.3 percent in May. Durable goods are manufactured goods such as washing machines, refrigerators and cars, intended to last three years or more.

CATERPILLAR SLIPS, YAHOO SINKS

Natural resources stocks tracked commodity prices down, with miner Freeport-McMoRan Copper & Gold Inc (FCX.N) down 5.2 percent at $55.51. The S&P materials index (.GSPM) fell 2.1 percent.

Caterpillar Inc (CAT.N), a maker of bulldozers and excavators, shed 2.5 percent to $41.83 and was a top drag on the Dow industrials.

Among the Nasdaq's major decliners, Yahoo Inc (YHOO.O) shares tumbled after the Internet media company announced an advertising deal with Microsoft Corp (MSFT.O).

Yahoo's stock plunged 12.1 percent to $15.14 as some investors were disappointed by the deal's scope. In contrast, Microsoft shares rose 1.4 percent to $23.80.

Shares of Google Inc (GOOG.O), a direct competitor of the new partnership, fell 0.8 percent to $436.24.

In earnings-related news, shares of Sprint Nextel Corp (S.N) sank 11.8 percent to $4.05 after the No. 3 U.S. cellphone service posted a wider quarterly loss than it did a year ago and revenue fell 10 percent.

Volume was light on the New York Stock Exchange, where about 1.25 billion shares changed hands, less than last year's estimated daily average of 1.49 billion. On the Nasdaq, about 2.11 billion shares traded, less than last year's daily average of 2.28 billion.

Decliners outnumbered advancers on the NYSE by a ratio of about 3 to 2. On the Nasdaq, eight stocks fell for every five that rose.

(Editing by Jan Paschal)

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Microsoft, Yahoo in 10-year Web search partnership (Reuters)

Wednesday, July 29th, 2009 | Finance News

SAN FRANCISCO/SEATTLE (Reuters) –
Microsoft Corp and Yahoo Inc have launched a 10-year Web search deal to challenge market leader Google but stopped short of combining other advertising businesses or suggesting any deeper ties.

The long-expected deal means Microsoft's new Bing search engine will be combined with Yahoo's experience attracting advertisers in the first serious threat to Google Inc -- if the companies get regulatory approval and can make the partnership work.

Yahoo shares fell 12 percent as some investors were disappointed by the limited scope of the deal, which did not include up-front payments for Yahoo. Some investors had expected up to $3 billion up-front, according to a Bernstein report.

"I would have preferred more money," said Ryan Jacob, chief investment officer of Jacob Asset Management, pointing to the lack of an upfront payment, as well as revenue-sharing and cost-savings terms that were not as high as he expected.

"There are risks on both sides. Big deals like this tend not to work out. It's a long-term deal that's going to take a long time to implement," said Jacob, whose $40 million fund holds some Yahoo shares. "It's better than no deal."

Microsoft shares closed up 1.4 percent, while Google shares fell 0.8 percent.

Yahoo estimated the deal would boost its annual operating income by about $500 million and yield capital expenditure savings of $200 million. Yahoo also expects the deal to boost annual operating cash flow by about $275 million.

ANTITRUST OBSTACLE

Under the deal announced on Wednesday, Microsoft's Bing search engine will power search queries on Yahoo's sites. Yahoo's sales force will be responsible for selling premium search ads to big buyers for both companies.

The partnership poses only a theoretical challenge to Google at present. It could take two-and-a-half years to get approval and be fully implemented, according to Yahoo Chief Executive Carol Bartz, which would mean the partnership would not be fully effective until early 2012.

Microsoft and Yahoo still face antitrust and privacy issues. Google dropped a planned search partnership with Yahoo last year under pressure from the U.S. Justice Department.

But experts said the deal would likely get the go-ahead after examination by Obama administration antitrust officials since it would create a stronger rival to market leader Google.

Google said only that it was "interested" in the deal, while the chairman of the U.S. Senate antitrust panel said it warrants "careful scrutiny."

Microsoft and Yahoo expected the deal to be "closely reviewed" by regulators, but they were "hopeful" it could close in early 2010.

The deal concludes a lengthy, and at times contentious, dance between the two companies. They have been in on-again, off-again talks since Yahoo rebuffed Microsoft's $47.5 billion takeover bid last year.

Microsoft CEO Steve Ballmer clashed last year with former Yahoo CEO Jerry Yang, who was strongly opposed to an all-out acquisition. Relations between the two companies improved under new Yahoo CEO Bartz, who took the reins in January and started to shake up Yahoo's management.

Ballmer and Bartz met "three or four times" over the past six months as they hammered out a deal, according to Ballmer.

HOW THE DEAL WORKS

While Bartz had previously said any deal would require a partner with "boatloads of money," she said on Wednesday the agreement provided "boatloads of value," adding the revenue- share agreement in the Microsoft deal was more valuable to Yahoo than a one-time payment.

"Having a big up-front cash payment doesn't really help us from an operating standpoint," Bartz said.

Microsoft's AdCenter technology will serve the standard sponsored links that appear alongside search results. Microsoft will pay Yahoo an initial rate of 88 percent of search revenue generated on Yahoo sites in the first five years.

That means Yahoo can concentrate on selling ads on its websites, while still generating revenue from search ads without the expense of maintaining its own search engine.

Bartz said the deal will result in "redundancies" in Yahoo's staff, although she declined to be specific. She stressed any changes would not occur until after full implementation of the partnership.

According to comScore, Google has a 65 percent share of the U.S. search market, compared with Yahoo's 19.6 percent and Microsoft's 8.4 percent.

"Microsoft will be able to report a greater share in terms of search ... And Yahoo doesn't have to spend any more money on search," said Barry Diller, CEO of IAC/InterActiveCorp, which owns rival search engine Ask.com.

Yahoo shares closed down $2.08 at $15.14 on Nasdaq, while Microsoft closed up 33 cents at $23.80 and Google shares closed down $3.61 at $436.24.

(Additional reporting by Tiffany Wu, Paul Thomasch, Robert MacMillan and Diane Bartz; editing by Derek Caney and Andre Grenon)

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