Archive for September, 2010

AIG and government agree on plan to pay back taxpayers

Thursday, September 30th, 2010 | Finance News

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NEW YORK (Reuters) – American International Group Inc and the U.S. government agreed on a plan that would see the insurer repay taxpayers fully for bailing it out at the height of the financial crisis.

The plan would see the Federal Reserve Bank of New York getting paid and the U.S. Treasury Department convert $49.1 billion of preferred stock into 1.66 billion common shares, AIG said on Thursday.

The Treasury will sell its stake in AIG on the open market over time.

AIG will also issue up to 75 million warrants with a strike price of $45 per share to its existing common shareholders.

The conversion will increase the Treasury's stake in AIG to 92.1 percent, but the exchange will not be executed until the Fed's credit facility is repaid in full.

AIG expects to repay and end the Fed credit facility and complete the issuance of common stock to the U.S. Treasury before the end of the first quarter of 2011.

(Reporting by Paritosh Bansal; Editing by Derek Caney)

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Automakers go green, sleek at Paris car show

Thursday, September 30th, 2010 | Finance News

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PARIS – Sizzling, sleek designs for a carbon-conscious world headlined Thursday as global automakers rolled out their latest high-tech models at the Paris auto show, hoping for rebound in a struggling car market.

Hybrids and other fuel-efficient, lower-emission vehicles took front seat as CEOs and other top executives strolled out onto well-lit stages to trumpet their engineering innovations and strategies to tap hot markets like China.

Rebecca Lindland, an analyst at IHS Automotive, said the market looks optimistic after two "terrible years" since the last Paris show because of the global recession. Recovery is faster in some places than others, she said.

"The important thing is that manufacturers prepare because once that economy really starts clicking they've got to be able to offer consumers the best and the brightest of those vehicles," she told AP Television News.

The show focuses on the European market, but the continent's growth prospects are slim compared to burgeoning areas like Brazil and China, which has eclipsed the United States as the world's single-biggest car market.

Highly-touted innovations at the show including Renault SA's DeZir, a small, sporty concept car, and its Z.E. — for "zero emissions" — line, and the single-platform Ford Focus.

"I feel really good about where we are and where we are going and I'm so pleased that we chose to invest during the harshest of times," Ford's CEO Alan Mulally said.

Ford is making the Focus its world car, hoping to make some 2 million vehicles off the same platform by 2012 to reap economies of scale. Before, the U.S. giant had a strategy of one Focus platform for each major region.

Mulally said Ford has restructured, is operating profitably despite the lower demand and "actually accelerated" the development of its new vehicles "so we are right here, right now for the consumers as we come back."

But while the worst of the global recession is past, car makers are aware that their market has changed. Consumers remain cautious and environmental rules are more stringent — and the auto industry hopes hybrids and electrics will be a big part of the way forward.

Hundreds of thousands of visitors are expected at the two-week show, the oldest and one of the largest of its kind. It opens to the public Saturday, and the media were given a sneak preview Thursday.

Car makers have been flaunting technologies aimed at cutting or eliminating carbon dioxide emissions from their vehicles. But this time, more and more will be models headed for showrooms, not concept or idea cars.

"New energy technologies are a major theme of this show, and we are well positioned to take advantage of that," said Peugeot-Citroen CEO Philippe Varin.

In addition to the 3008 diesel hybrid, Peugeot is also to begin selling its iOn electric car. Other ready-to-roll green cars on show include Mitsubishi's i-MiEV and the Nissan Leaf.

China is also a focus for Peugeot, which will make one-third of its new 508 sedans in China, with targeted sales in its first year of 200,000, Varin said. The Chinese market soared 50 percent last year, he said.

Renault boss Carlos Ghosn said this show represents "the year that electric vehicles become a reality." The French carmaker relies on alliance partner Nissan for access to China, and Ghosn didn't say when Renault might take the plunge.

But "Renault intends to be present everywhere in the world," he said.

Global car production fell 17 percent over 2008 and 2009, dropping to 57 million vehicles last year. Scrapping schemes introduced after the crisis helped support European car makers and their suppliers, but now that they're being withdrawn growth is stalling in the region.

Car sales in Europe will drop to 17.7 million this year from 18.2 million in 2009, according to J.D. Power Automotive Forecasting, which expects sales to stagnate around that level next year as well.

Production will rebound to its pre-crisis level of 69 million vehicles this year, PricewaterhouseCooper's Autofacts consultancy predicts, but nearly all that growth will come from China and North America.

By 2020, electric vehicle production is likely to hit only 1.5 million units, Autofacts said, as the infrastructure to recharge the cars' batteries, as well as the batteries' costs and limits to their autonomy hold back wider adoption of the cars by consumers.

Hybrid technologies range from full hybrids, which alternate between gasoline and electric engines to achieve improved fuel economy, to so-called partial hybrids, or cars with such features as start-stop technology, which automatically shuts down and restarts an engine when stopped to reduce idling and reduce carbon emissions.

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As TARP ends, small banks struggle to repay

Thursday, September 30th, 2010 | Finance News

CHARLOTTE/WASHINGTON (Reuters) – The U.S. government's $700 billion bailout of the financial system has become a form of long-standing aid for many of the nation's small and regional banks, even as the program officially expires on Sunday.

The banks are eager to repay the taxpayer money, but the meek economic recovery has gotten in the way.

Analysts and attorneys that work with banks on capital issues said the institutions are feeling pressure to replace the government aid, facing the prospect of skyrocketing dividend payments on funds from the Troubled Asset Relief Program, or TARP.

This pressure is likely to compel small and regional banks to raise capital or sell themselves to rivals in the coming years, according to analysts.

"Pay days for a lot of banks got pushed out," said Jeff Davis, bank analyst with Guggenheim Securities. "We all expected much of this to be repaid by 2011, but the economy's not growing like we all thought."

Bigger banks have recovered more quickly from the 2007-2009 financial crisis and have been able to get out from under TARP while many small banks continue to struggle with their exposure to the residential and commercial real estate markets.

Smaller institutions also have fewer ways to drag in profits than their larger competitors.

"They don't participate in the kinds of activities where the big banks have made big profits," said Simon Johnson, a professor at the MIT Sloan School of Management. "A lot of it is around trading, including in derivatives and the big banks have huge market share in that now."

DIVIDENDS TO PRESSURE REPAYMENTS

In October 2008, the Treasury Department created as part of TARP the Capital Purchase Program to dole out funding to banks large and small to shore up their balance sheets and prod them into lending.

It has disbursed $205 billion to 707 institutions in chunks as large as $25 billion and as small as $301,000. As of August 2010, $140 billion had been repaid with 80 institutions giving back all they received, according to the Treasury.

The largest banks, like Bank of America Corp and Goldman Sachs, have repaid the billions they received. It has been harder, however, for smaller institutions like Regions Financial Corp and SunTrust Banks Inc.

The two U.S. Southeastern banks combined have $8.5 billion in TARP investments that have yet to be repaid. Executives for both banks have said they wish to repay the money as soon as possible, and are working with regulators.

A delay for any bank will have consequences.

The dividend payments for TARP banks rise from 5 percent to 9 percent on the 5-year anniversary of their receipt of the initial preferred stock investment. Many banks, and regulators, are hoping to avoid that.

"For some of them, the laggards, that's what is going to get them out of this -- the regulators," said Mark Calabria, a Republican aide on the Senate Banking Committee when TARP was created who is now with the libertarian Cato Institute.

That pressure, analysts said, could force a new round of industry mergers and acquisitions, or large amounts of banks trying to access the capital markets for funds to replace Uncle Sam's investment.

But for smaller banks, raising capital with a public offering may not be an option. Investors are still skittish about investing in such institutions even in the best of times, much less coming off the worst crisis in decades.

Banks will also be dealing with new, stronger capital requirement, which may force them to deal because of fewer options for what now counts as core capital.

Under the Dodd-Frank Act and pending Basel III rules, some of the securities and instruments that banks' relied on as core capital are now excluded, like trust-preferred securities.

"I don't know if anyone's fully thought through the affect this will have on raising capital to repay TARP," said Chip MacDonald, an Atlanta-based banking attorney with Jones Day. "I see the new regulations impeding some TARP refinancings."

"Everybody's worried," MacDonald said, about repayment.

(Reporting by Joe Rauch and Dave Clarke)

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