Archive for December, 2009

Japan mulls merging JAL’s int’l service into ANA’s: report (Reuters)

Wednesday, December 30th, 2009 | Finance News

TOKYO (Reuters) –
Several cabinet members of the Japanese government want Japan Airlines Corp (9205.T) to withdraw completely from its international flights business and consolidate it with that of All Nippon Airways Co (9202.T), the Mainichi Shimbun newspaper reported on Thursday.

The cabinet members met on Wednesday and appeared to have floated the idea in order to improve JAL's financial condition, Mainichi reported, without citing any sources.

But Transport Minister Seiji Maehara was opposed to the plan of having only one international flight service airline from Japan, the newspaper said.

Mainichi said the discussions of the cabinet members were based on the assumption that JAL will be restructured under a court-led process.

The idea was raised as JAL's international flights business has been a huge burden for its overall operation, with a government-backed turnaround fund requiring JAL to revitalize within three years.

JAL has announced it will terminate flights on 30 routes, including 13 international, by June.

On Wednesday, JAL shares tumbled as much as 32 percent to a record low on growing expectations the struggling carrier was headed for bankruptcy under a state restructuring plan.

Tokyo financial markets are closed for a public holiday on Thursday.

The chances of bankruptcy appeared to increase last week when Finance Minister Hirohisa Fujii said the government would not back any more loans to JAL. Private banks are unlikely to extend loans without guarantees against future losses.

(Reporting by Chikafumi Hodo; Editing by Muralikumar Anantharaman)


AIG executive resigns over pay limits (Reuters)

Wednesday, December 30th, 2009 | Finance News

NEW YORK (Reuters) –
A top executive at American International Group Inc has resigned because of pay curbs imposed by the Obama Administration's pay czar, the insurer said on Wednesday.

Anastasia Kelly, AIG's vice chairman for legal, human resources, corporate affairs and corporate communications, resigned effective December 30 for "good reason" and is eligible for severance pay under the terms of the company's executive severance plan, the insurer said.

Kelly stands to be paid about $2.8 million in severance, according to a source familiar with the matter.

Kelly's resignation comes after Kenneth Feinberg, who is charged with monitoring pay levels at companies that received taxpayer funds, imposed pay caps for AIG's top executives.

Earlier this month, Feinberg set the compensation structures for the 26th through 100th highest-paid employees at four firms, including AIG, limiting most cash salaries to $500,000.

Feinberg also granted less than a dozen special exemptions from the cash salary cap, including several AIG executives, after being urged to do so by Federal Reserve and Treasury officials.

Kelly met frequently with Feinberg to discuss pay issues as he prepared to rule on compensation at companies that received extraordinary taxpayer bailouts.

She was among five executives reported by The Wall Street Journal to have notified the insurer that they were prepared to resign and collect severance benefits if their pay was cut sharply by Feinberg. Chief Executive Robert Benmosche separately also had considered quitting because of the pay constraints, the Journal has reported.

Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, said no AIG employee was irreplaceable.

"We have been duped into thinking that these AIG employees have some kind of secret code that no other employee could discover if they were hired to replace them and therefore they are able to basically hold the company ransom," Hurley said.

AIG had to be propped up with some $180 billion in taxpayer support after its near collapse in September 2008. The U.S. government now owns nearly 80 percent of the company, once the world's largest insurer by market value.

The government stepped in to rescue AIG after it ran short of funds to meet collateral demands from global banks that had bought credit protection from an AIG financial products unit. The government saw the company's possible collapse as a systemic risk.

AIG angered many Americans earlier this year when it paid million-dollar retention bonuses -- payments simply for staying in their jobs -- to executives at a financial products unit that was responsible for its financial implosion.

The insurer also said on Wednesday that Suzanne Folsom, chief compliance and regulatory officer, has left to pursue other opportunities. It was unclear if her departure was related to the pay issue.

It said it is looking for successors for both officials.

(Reporting by Steve Eder and Paritosh Bansal; Editing by Gary Hill, Robert MacMillan, Leslie Gevirtz)


Treasury to dole out $3.8 billion to GMAC, raise stake (Reuters)

Wednesday, December 30th, 2009 | Finance News

WASHINGTON (Reuters) –
The U.S. is injecting another $3.8 billion into GMAC Financial Services to help cover mortgage losses, in a bailout that makes the government the majority owner of the auto and home finance company.

GMAC said after the capital infusion it does not expect to record more major losses from its mortgage lending unit, which should help stabilize results.

The company is one of the largest car loan makers in the United States, and earning profit will give it more capacity to make loans and eventually pay back the government.

Many analysts see GMAC's mortgage assets, which make up about a third of the company's $178.2 billion balance sheet, as the main obstacle to the lender reaching profitability.

Those assets have already forced GMAC to seek new funds. Before Wednesday's capital infusion, GMAC had already received $12.5 billion of aid from the United States.

A government test of the company's capital in May, known as the stress test, found that GMAC needed $11.5 billion of equity. About $9.1 billion of that equity had to be new capital, while the rest could come from converting existing capital into new instruments such as common equity.

GMAC has raised about $7.3 billion of that $9.1 billion of new capital from the United States. The government decided that the company has raised enough because the bankruptcy of General Motors , which once owned all of GMAC, had less of an impact on the finance company than previously expected.


Questions still remain for GMAC, though. The extent of future losses from its mortgage assets is not yet clear, a bondholder said.

He added that the best route for GMAC to follow now would be to sell off GMAC's mortgage servicing business, which collects payments from borrowers and is worth more than $3 billion on the company's books.

The bondholder, who requested anonymity because he is not authorized to speak to the media, said the company could continue to make new home loans through its Ally Bank unit.

GMAC's remaining mortgage loans could be used to pay off coming debt obligations linked to its Residential Capital unit, the investor added. If the assets don't perform well enough, that unit could go into bankruptcy, he added.

GMAC said in its statement that its board of directors reviewed Residential Capital's options and decided unanimously to take the steps announced on Wednesday.

GM sold a 51 percent stake in GMAC to private equity firm Cerberus in 2006, but held onto 49 percent of the company. Over time, GM's stake has been whittled down to 16.6 percent, including a trust managed for GM's benefit. Cerberus' stake is now 14.9 percent. The U.S. now holds 56.3 percent, with the rest of the company being held by Cerberus investors.

The government previously held about 35 percent of the company's common stock.

GMAC's mortgage business lost nearly $600 million in the third quarter, but its auto finance operations were profitable, earning about $164 million after taxes.

In November, GMAC Chief Executive Al de Molina resigned and was replaced by Michael Carpenter, a board member and former Citigroup executive.

On news reports of the planned capital infusion, the cost to insure GMAC's debt against default in the credit derivatives market fell to around 4.4 percentage points, or $440,000 a year for five years, from 4.66 percentage points at Tuesday's close, according to market data company Markit.

(Additional reporting by Corbett B. Daly and Tim Ahmann in Washington, and Dan Wilchins and Karen Brettell in New York; Editing by Derek Caney, Dave Zimmerman and Steve Orlofsky)