Archive for February, 2010

Wall Street bonuses shoot up 17 percent in 2009 (AP)

Tuesday, February 23rd, 2010 | Finance News

NEW YORK – Wall Street bonuses climbed 17 percent in 2009 to $20.3 billion as many of the investment banks that were bailed out at taxpayer expense reported blowout profits.

The announcement Tuesday by New York Comptroller Thomas DiNapoli was likely to outrage many Americans who are barely getting by. And it happened on the same day that private economists reported a plunge in consumer confidence — a blow to hopes that spending by shoppers would help speed up an economic recovery.

"Wall Street is vital to New York's economy, and the dollars generated by the industry help the state's bottom line," DiNapoli said. "But for most Americans, these huge bonuses are a bitter pill and hard to comprehend. ... Taxpayers bailed them out, and now they're back making money while many New York families are still struggling to make ends meet."

The reason for the surge in bonuses was simple: Wall Street firms had a great year.

Broker-dealer operations associated with the New York Stock Exchange earned a record $49.9 billion through the year's first three quarters. The firms probably closed out the year $55 billion in the black, DiNapoli's office said.

The 2009 bonuses were actually modest compared to the bonanzas Wall Street workers enjoyed between 2005 and 2007. The annual payout in those gilded days averaged $31 billion, or around $173,000 per worker.

The average bonus in 2009 was $124,850, according to the comptroller's projections, although that number was likely skewed by high bonuses among top earners at the largest firms.

In 2008, Wall Street firms gave out $17.4 billion in bonuses, even though the year was one of their worst.

Critics of Wall Street pay said the fact that bonuses are rising even as consumers grow more despondent reflects a growing class divide in the wake of the recession.

"It's exposing a deep rift in American society," said Chuck Collins, a senior scholar at the Institute for Policy Studies, a liberal Washington think tank. "This isn't the rising tide lifting all boats. This is the rising tide lifting a few yachts, while other people's boats sink further underwater."

News of the windfall came amid fresh signs that the public's mood was darkening. A monthly poll gauging consumers' confidence unexpectedly fell to a 10-month low in February as Americans worried more about jobs, the Conference Board said Tuesday.

The pessimism cast doubt on hopes that shoppers would begin spending more and accelerate a recovery. Economists watch the confidence data closely because consumer spending accounts for about 70 percent of U.S. economic activity.

At the White House, press secretary Robert Gibbs said President Barack Obama believed that some progress had been made toward curbing executive compensation. But "I think it's fair to say the president remains frustrated and believes that the compensation practices of Wall Street have a long way to go."

Public anger over Wall Street's surprisingly quick return to profitability probably had a role in keeping bonuses lower, said Joe Sorrentino, managing director of the compensation consulting firm Steven Hall & Partners.

He noted that Goldman Sachs CEO Lloyd Blankfein took a bonus of only $9 million last year, compared to $68 million he received in 2007.

Goldman employees alone received $16.2 billion in salaries and bonuses for 2009, or about $500,000 for each of the bank's 31,700 employees.

The comptroller's figures were based on an examination of the 164,000 financial sector workers who live in New York City. The state does not get income data on workers who commute from Connecticut, Long Island and New Jersey.

The banks paid out a huge portion of 2009 bonuses in restricted stock awards that cannot be cashed in for several years. The so-called deferred compensation is not included in the comptroller's figures. It could allow Wall Street employees to walk away with even bigger paydays if banking stocks continue to rebound from last year's market lows.

Scrutiny of high pay for Wall Street executives is likely to continue in the coming months.

New York Attorney General Andrew Cuomo has sought to determine how the size of the bonus pool at the nation's eight biggest banks would have been affected if the banks had not received a taxpayer rescue at the height of the financial crisis in late 2008.

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Gormley reported from Albany, N.Y. Associated Press writers Stevenson Jacobs in New York City, Ben Dobbin in Brighton, N.Y., and Darlene Superville in Washington, D.C., also contributed to this report.

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Flagging confidence intensifies economic fears (AP)

Tuesday, February 23rd, 2010 | Finance News

NEW YORK – Americans' confidence in the economy has suffered a sudden relapse, dimming hopes that they will start spending — and spurring job growth — any time soon.

The Consumer Confidence Index figures released Tuesday were much worse than analysts had expected and showed that Americans are morose about the job market and their economic prospects. That bodes ill for the sort of uptick in consumer spending that normally powers economic recovery, and could raise pressure on the Obama administration and Congress to create jobs themselves.

The index fell almost 11 points to 46 in February, down from a revised 56.5 in January and the lowest level since a 40.8 reading in April 2009. It erased three consecutive months of improvement, according to the Conference Board, the research group that releases the monthly index.

Analysts were expecting only a slight decrease to 55. Economists watch the confidence numbers closely because consumer spending accounts for about 70 percent of U.S. economic activity.

Outside of the Great Recession, the index hasn't been this low since December 1974.

"It still feels like a recession" to consumers, said Lynn Franco, director of the Conference Board Consumer Research Center.

Confidence has been recovering fitfully since hitting a historic low of 25.3 in February 2009. Many economists believe it will remain well below healthy levels for at least another year or two. A reading above 90 indicates an economy is on solid footing. Above 100 signals strong growth.

Dana Huskey of Chattanooga, Tenn., said she's being very cautious with her spending — limiting her trips out to eat and her drives around town. The 26-year-old lost her job at Ann Taylor in July and has lined up a job at a yarn store, but it won't open until this summer. Her family has been helping her since then.

"I try not to go out to eat unless I have to," said Huskey. "I got a subscription to the local paper for the weekend edition, to do coupons."

Some economists say Americans won't start to feel better and spend more until they see clear evidence of sizable job growth. In past recessions, however, the employment picture didn't improve dramatically until after a recovery in consumer spending and confidence.

Many economists say business investments and exports can help drive the nascent turnaround in the short term, but a rise in consumer spending is essential to keep it going.

"Without a sustained acceleration in consumption growth, this recovery will eventually fade," said Paul Ashworth, senior U.S. economist at Capital Economics Ltd.

The consumer confidence report put a scare into the stock market, overshadowing retailers' reports that showed stronger holiday profits but also offered cautious sales outlooks. There were also signs that the U.S. housing market is continuing its bumpy recovery: A key index showed home prices rose for the seventh straight month in December.

Executives at discount chain Target Corp. said they expect the recovery to continue — slowly — as shoppers grapple with high rates of unemployment and pay down debt.

"I think we're going to see two steps forward, one step back," said Gregg Steinhafel, Target's chairman, president and CEO, in a conference call with investors Tuesday.

The Dow Jones industrials were off 100 points. Interest rates also fell as investors moved money out of stocks and into the safety of Treasury bonds.

The confidence index is based on a sample of 5,000 U.S. households surveyed between Feb. 1 and Feb. 17.

A surprising aspect of the report was that the index's key gauge — consumers' expectations over the next six months — took a big hit. The gauge had been on the rise since last October. Consumers' assessment of the current economy slipped to a 27-year low.

Several factors may have aggravated the decline. Heavy snowstorms in many areas of the country may have dampened confidence as they shut down businesses and thwarted job searches. Worries about Greece's national debt hammered the U.S. stock market.

The unemployment picture has become a full-time preoccupation in Congress. The Senate cleared a key hurdle Monday on its way to passing a $15 billion package that includes tax breaks to encourage hiring. Final passage on that measure is scheduled for Wednesday. The measure, however, is likely to boost hiring only modestly.

A second measure for broader and longer-term assistance was under discussion as well. Such a package could include a full-year extension of unemployment insurance and a 65 percent health insurance subsidy for the unemployed through the federal COBRA program. States could also get direct assistance to help them with their straining Medicaid budget.

The overall economy expanded at an annual rate of 5.7 percent in the fourth quarter, but only about one-fourth of that growth came from consumers. Most of the growth came from companies replenishing low inventories.

For those out of work, the economy's recent improvement has been invisible.

"The jobs aren't coming fast enough," said Jim Fox, who was laid off from a steel mill in Sharon, Pa., last August. "The jobs that I do see pay less than what I was making."

Many economists expect new jobs to be created in coming months. Unemployment fell to 9.7 percent in January from 10 percent in December, and employers shed 20,000 jobs. Economists believe the unemployment rate fell because many unemployed people gave up on their job searches, and worry that it will climb back up by summer as those without jobs start trying again.

Gary Thayer, chief economist at Wells Fargo Advisors, believes big improvements in jobs, confidence and spending will be "marching together."

"This is going to be a year when people are waiting to see what happens rather than assuming the best going forward," he said.

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AP Economics Writer Chris Rugaber, AP Retail Writer Emily Fredrix and AP Real Estate Writer Adrian Sainz contributed to this report.

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Toyota: Recalls won’t totally fix gas pedal issues (AP)

Tuesday, February 23rd, 2010 | Finance News

WASHINGTON – The president of Toyota's U.S. operations acknowledged to skeptical lawmakers on Tuesday that the company's recalls of millions of its cars may "not totally" solve the problem of sudden and dangerous acceleration.

"We are vigilant and we continue to look for potential causes," Toyota's James Lentz told a congressional panel. However, he repeated his company's position that unexpected acceleration in some of the company's most popular cars and trucks was caused by one of two problems — misplaced floor mats and sticking accelerator pedals.

He insisted electronic systems connected to the gas pedal and fuel line did not contribute to the problem, drawing sharp criticism from lawmakers who said such a possibility should be further explored — and from a tearful woman driver who could not stop her runaway Lexus.

"Shame on you, Toyota," Rhonda Smith, of Sevierville, Tenn., said at a congressional hearing. Then she added a second "shame on you" directed at federal highway safety regulators.

Texas Republican Rep. Joe Barton cautioned his colleagues early in the hearing against conducting a "witch hunt" and said "We don't want to just assume automatically that Toyota has done something wrong and has tried to cover it up." But midway through Lentz's testimony, Barton said of Toyota's investigation of the problems: "In my opinion, it's a sham."

Lentz said the company had not completely ruled out an electronics malfunction and was still investigating causes of the sudden acceleration. Still, "We have not found a malfunction" in the electronics of any of the cars at issue, he said.

As to Smith's harrowing story, "I'm embarrassed for what happened," Lentz said. "I want her and her husband to feel safe about driving our products," Lentz said.

Three congressional panels are investigating Toyota's problems, which affect a huge number of Americans. Toyota has recalled some 8.5 million vehicles worldwide — more than 6 million in the United States — since last fall because of unintended acceleration problems in multiple models and braking issues in the Prius hybrid. It is also investigating steering concerns in Corollas. People with Toyotas have complained of their vehicles speeding out of control despite efforts to slow down, sometimes resulting in deadly crashes. The government has received complaints of 34 deaths linked to sudden acceleration of Toyota vehicles since 2000.

Lentz, who choked up while discussing the death of his own brother more than 20 years ago in a car accident, said he understood the pain.

"I know what those families go through," he said.

Lentz has said in the past that he was confident Toyota's fixes on the recalled vehicles would correct the problems.

But when pressed by Energy and Commerce Committee Chairman Henry Waxman, D-Calif., on whether the two recalls Toyota put in place to deal with the issue would completely solve it, Lentz replied: "Not totally."

Still, he said chances of unintended accelerations were "very, very slim" once the recall was complete. Lentz also said Toyota was putting in new brakes that can override the gas pedal on almost all of its new vehicles and a majority of its vehicles already on the road.

Meanwhile, Toyota president Akio Toyoda, who will testify before a separate panel on Wednesday, said he took "full responsibility" for the uncertainty felt by Toyota owners and offered his condolences to a San Diego, Calif., family who were killed in late August, reigniting interest in the problems.

"I will do everything in my power to ensure that such a tragedy never happens again," Toyoda said in prepared testimony for Wednesday's hearing to the House Government Oversight Committee. "My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers."

Lawmakers heard a brief, but riveting, description from Smith, the Tennessee woman whose Toyota-made Lexus suddenly zoomed to 100 miles per hour as she tried to get it to stop — shifting to neutral, trying to throw the car into reverse and hitting the emergency brake. Finally, her car slowed enough that she was able to pull it off the road onto the median and turn off the engine.

Fighting back tears, she described her nightmare ride of October 2006, calling it "a near death experience."

"After six miles, God intervened" and slowed the car, she said. She added that it took a long time for Toyota to respond to her complaints.

In an often contentious full day of testimony, lawmakers returned again and again to the question of whether electronic malfunctions may have contributed to the speeding cars.

"We are confident that no problems exist with the electric throttle control system in our vehicles," Lentz said. He cited "fail-safe mechanisms" in the cars that were designed to shut off or reduce engine power "in the event of a system failure."

Transportation Secretary Ray LaHood told the panel in prepared testimony that possible electronics problems were being looked into by his agency. He said the company's recalls were important steps but "we don't maintain that they answer every question."

Toyota hired a consulting firm to analyze whether electronic problems could cause unintended acceleration. The firm, Exponent Inc., found no link between the two. But committee investigators said the testing studied only a small number of vehicles

Tracking down an electrical problem can be far more difficult, expensive and time-consuming than finding a mechanical problem. Electrical problems can have more than one source, and they can come from inside or outside the car. Mechanical problems often leave clues such as physical damage, where electronic troubles can be hidden in software or leave no trace at all.

House investigators who reviewed Toyota's customer call database found that 70 percent of the complaints of sudden acceleration were for vehicles that are not subject to the recalls over floor mats or sticky pedals.

Rep. Bart Stupak, D-Mich., chairman of the subcommittee, said Toyota "misled the American public by saying that they and other independent sources had thoroughly analyzed the electronics systems and eliminated electronics as a possible cause of sudden unintended acceleration when, in fact, the only such review was a flawed study conducted by a company retained by Toyota's lawyers."

Lentz apologized anew for the company's slow handling of problems. "We have not lived up to the high standards our customers and the public have come to expect from Toyota," he said.

"Put simply, it has taken us too long to come to grips with a rare but serious set of safety issues, despite all of our good faith efforts," said Lentz, president and chief operating officer of Toyota Motor Sales USA. Inc.

Separately, among hundreds of Toyota dealers lobbying members of Congress Tuesday, there seemed to be widespread rancor toward a federal government they view as picking on the automaker, at least in part because of the government's investment of billions of dollars in General Motors and Chrysler.

"That's hard for me as a citizen to understand why my tax dollars are going in that direction," Paul Atkinson, a Houston-area Toyota dealer, said at a news conference that also served as a pep rally for the visiting dealers. "To compete with the government as an individual entrepreneur is pretty tough."

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Associated Press writers Alan Fram, Stephen Manning and Tom Raum in Washington and Tom Krisher in Detroit contributed to this story.

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