Archive for January, 2010

JAL lenders to cave in to bankruptcy plan-sources (Reuters)

Saturday, January 9th, 2010 | Finance News

TOKYO (Reuters) –
The main lenders to Japan Airlines plan to accept a restructuring package that would require the carrier to file for bankruptcy, sources said, increasing the likelihood of a state bailout this month.

A state-backed turnaround fund plans to establish a credit line of more than 600 billion yen ($6.5 billion) along with a state-owned bank to ensure JAL can keep flying once a bankruptcy is announced, a source with the knowledge of the matter said.

Reflecting growing concerns over the potential fallout from a bankruptcy, the Yomiuri newspaper said the government plans to tap diplomatic channels to reassure the 35 or so countries to which JAL flies that it would support the carrier.

JAL, weighed down by $16 billion in debt and mired in losses, applied in late October to the Enterprise Turnaround Initiative Corp of Japan, a body of restructuring specialists that can tap state-backed funding to bail out ailing companies.

The ETIC has proposed putting about 300 billion yen in fresh capital into JAL, provided it file for bankruptcy and creditors agree to waive around 350 billion yen in debts, sources told Reuters earlier this week.

JAL's main creditors, which include Mitsubishi UFJ Financial Group (8306.T), Mizuho Financial Group (8411.T), and Sumitomo Mitsui Financial Group (8316.T), countered with a proposal that would avoid bankruptcy, eager to limit their own losses.

But with the ETIC holding firm that bankruptcy is the most transparent way to deal with JAL's problems, the banks will almost certainly agree to the ETIC's plan, three people with knowledge of talks between the banks, government and ETIC said.

"JAL needs 300 billion yen and the ETIC is the only one that can provide it. If the ETIC is pushing for a court-led restructuring, then we have to accept it. Otherwise JAL will collapse," said one of the sources, adding that banks had been given a deadline of January 15 to agree to the plan.

A bankruptcy could complicate talks with Delta Air Lines (DAL.N) and American Airlines (AMR.N), which are courting JAL with rival offers of financial aid, eyeing a stronger foothold in Japan and close ties on overseas routes.

Both American, which partners with JAL in the Oneworld alliance, and Delta, which is trying to get it to defect to the SkyTeam group, have said they would invest in JAL whether it goes through bankruptcy proceedings or not.

JAL spokeswoman Sze Hunn Yap and the ETIC declined to comment. No one at the state-owned Development Bank of Japan or the three private lenders could be reached for comment.

TIMING

The ETIC is eyeing some time between January 19 and 22 for JAL to file for bankruptcy and for the ETIC to officially announce its plan to support the carrier, sources have said.

The ETIC is keen to have its restructuring plan in place at that time so as to minimize potential disruptions to air travel during the college entrance exam season, which runs from the second half of January through March.

The timing also coincides with the start of the next parliament session on January 18.

Dealing with JAL is one of a long list of problems facing the Democratic Party of Japan, which took power in September after beating the long-ruling conservative rival on a platform that promised to focus on the interests of consumers and workers.

Prime Minister Yukio Hatoyama declined to comment on Friday about when the government would make a decision on JAL, but stressed that it would work to prevent disruption to flights. JAL accounts for the bulk of air traffic in Japan.

"We need to think about customers," Hatoyama told reporters. "We have worked so far to avoid disruptions to flights as much as possible and we will continue to try to do so."

Underscoring the depth of JAL's problems, the ETIC has estimated JAL could post a net loss of 1.23 trillion yen this financial year due to restructuring, leaving it with a negative net worth of some 840 billion yen, a source said.

During the three-year timeframe set for rebuilding the carrier, the ETIC has proposed cutting about 13,000 jobs and slashing more domestic and overseas routes, a source said.

The ETIC is planning to have JAL file for protection under the Corporate Rehabilitation Law, a process similar to Chapter 11 in the United States. Normally this would lead to a complete reduction in capital, rendering JAL shares worthless.

But the ETIC is considering a plan to keep JAL's shares listed on the Tokyo Stock Exchange, a source said, news that has helped support JAL's stock. The carrier still has a market value of around $2 billion.

(Additional reporting by Taro Fuse, Yoshifumi Takemoto and Yoko Kubota in TOKYO and Archana Shankar in BANGALORE; Editing by Nick Macfie)

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Lawmakers press for Geithner AIG testimony (Reuters)

Friday, January 8th, 2010 | Finance News

WASHINGTON (Reuters) –
U.S. lawmakers on Friday pressed for Treasury Secretary Timothy Geithner to testify on whether the New York Federal Reserve Bank improperly pressured AIG to withhold information on payments it made to banks after its government bailout.

The requests came even as the Obama administration and the New York Fed rushed to say that Geithner, who headed the reserve bank at the time of the AIG rescue, was unaware of any emailed advice by Fed lawyers to limit disclosures.

Edolphus Towns, chairman of the House of Representatives Oversight and Government reform committee, said he asked Geithner to testify on the matter the week of January 18 at a hearing to examine emails between New York Fed and AIG lawyers that show AIG was advised to withhold "key details" of the bailout terms from the public.

Announcement of the hearing, requested by Republicans and one Democrat on the panel, kept on the boil the latest controversy surrounding the $180 billion AIG bailout, which has dogged Geithner since he took office nearly a year ago.

The use of government bailout funds by financial firms and banks to pay each other off in full during the crisis has caused public outrage.

"More than one year after the first Federal bailout of AIG, the American people continue to question where their tax dollars were really sent when the government rescued this company," Towns, a New York Democrat, said in a statement.

A Treasury spokesman declined comment on whether Geithner would agree to the request.

The emails, released by Republican Rep. Darrell Issa, showed that outside attorneys for the New York Fed recommended that specific payments to individual banks be excluded from a December 2008 Securities and Exchange Commission filing and an explicit reference to their receiving 100 cents on the dollar to liquidate credit default swaps was deleted.

A total of $62 billion in payments to specific counterparties was later disclosed in March 2009.

Geithner was president of the New York Fed at the time of the September 2008 bailout and when the email traffic started in late November 2008.

Republicans took advantage of the emails to bash Geithner's handling of the bailout, which has stoked rage over billions of dollars paid to banks and millions in bonuses paid to AIG executives after the insurer's near collapse.

"After a year of hearings and investigations, it is past time for this Committee to hold Secretary Geithner accountable for his decisions that have affected the lives of millions of Americans," said Issa and fellow Republican Rep. Patrick McHenry said in a statement.

Spencer Bachus, the ranking Republican on the House Financial Services Committee, asked the panel's chairman, Democrat Barney Frank, to hold a similar hearing on the AIG emails, citing a "calculated attempt to withhold important information from the public and market participants."

Frank told Reuters he had not decided whether to hold a hearing, and said he believed Republicans were making a "partisan attack" on Geithner by requesting his testimony and not that of two other key figures in the AIG bailout, Fed Chairman Ben Bernanke and former Treasury Secretary Henry Paulson. Both Paulson and Bernanke were appointed by the Bush administration.

Frank also reaffirmed his confidence in Geithner, adding "I think that Geither and Bernanke have done a good job of helping us get out from under this crisis."

White House spokesman Robert Gibbs, asked by reporters whether Geithner still had President Barack Obama's full confidence, said, "of course."

"Secretary Geithner was not involved in any of these e-mails," Gibbs said, confirming a statement on Thursday by a Treasury spokeswoman. "These decisions did not raise to his level at the Fed. These are e-mails and decisions made by officials at an independent regulatory agency."

Thomas Baxter, the New York Fed's general counsel, said on Friday matters of securities law involving AIG disclosures were not brought to Geithner's attention. He has maintained that the disclosures were accurate and did not mislead the public.

The calls for Geithner to testify were joined by one Democrat on Friday. Elijah Cummings, a Maryland Democrat who has been critical of the AIG bailout, called for a full investigation into the matter.

"It is critical that we understand if the FRBNY did request the withholding of information and what the extent and nature of the pressure exerted by the FRBNY on AIG may have been," Cummings wrote in a letter to Towns requesting a hearing.

"If evidence indicates that the FRBNY did indeed ask that AIG withhold information from its SEC filings, I believe the Committee should examine the specific nature of the information that the FRBNY allegedly asked AIG to withhold as well as the relevant statutory and regulatory disclosure requirements that applied to AIG at that time," wrote Cummings, of Maryland.

(Reporting by David Lawder; Editing by Andrew Hay)

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Consumer borrowing falls sharply in November (AP)

Friday, January 8th, 2010 | Finance News

WASHINGTON – Americans borrowed less for a 10th consecutive month in November with total credit and borrowing on credit cards falling by the largest amounts on records going back nearly seven decades.

The dramatic declines raised new worries about whether consumers will cut back further on spending, making it harder for the economy to mount a sustained rebound.

The Federal Reserve said Friday that total borrowing dropped by $17.5 billion in November, a much bigger decline than the $5 billion decrease economists had expected.

Americans are borrowing less for a number of reasons. They remain fearful about their job prospects and they are also trying to replenish depleted investments. The government reported Friday that employers cut an additional 85,000 jobs in December, bringing total job losses to 7.2 million since the recession began in December 2007.

Even consumers who would like to increase their borrowing are finding it hard to get credit at banks. Many banks, hit by the worst financial crisis since the 1930s, have tightened lending standards. While economists have worried for years about the low rate of U.S. savings, the concern now is that consumers could derail the recovery if they start saving too much of their incomes. Consumer spending accounts for 70 percent of total economic activity.

"With consumers facing difficult labor market conditions and tight credit conditions, downward pressures on credit are likely to remain strong and improvements will be very gradual," Gregory Daco, an economist at IHS Global Insight, wrote in a research note.

November's $17.5 billion drop in total credit was the biggest amount in dollars terms since records began in 1943. That represents an 8.5 percent fall from the October borrowing level. That was the biggest percentage drop since total credit declined 9 percent in May 1980.

The borrowing category that includes credit cards fell by $13.7 billion, an all-time record decline in dollar terms. The drop was 18.5 percent from November, the biggest decline in percentage terms since a 29.6 percent plunge in December 1974.

The Fed's credit report excludes home loans and home equity mortgages, only covering borrowing that is not secured by real estate.

The drop in overall credit for 10 straight months was a record in terms of consecutive declines, surpassing the old mark of seven straight declines set in 1943 and again in 1991.

Borrowing in the category that includes credit cards has fallen for 14 straight months, also a record.

With the string of declines, overall consumer borrowing by the Fed measure has fallen to $2.46 trillion.

(This version CORRECTS jobs loss during recession to 7.2 million)

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