U.S. Treasury Secretary Henry Paulson, battling the deepest credit crisis in decades, will lose another domestic finance aide this week as the Bush administration approaches the end of its term.
Matthew Abbott, the deputy assistant secretary for federal finance, will serve his last day on Aug. 20, Treasury spokeswoman Jennifer Zuccarelli told Bloomberg News today. Abbott is leaving for a job in the private sector, she said, without being more specific.
Abbott oversaw the Office of Federal Finance, which develops, analyzes and coordinates policies on debt management and financial-market regulation. He “recused himself and followed ethics guidelines'' when pursuing the post outside government, Zuccarelli said.
His departure will create another gap in Treasury's domestic finance team as it tries to cushion the economy from the collapse of the mortgage market and $503 billion in losses at major financial institutions since the beginning of 2007. Paulson lost his senior domestic finance adviser last month, when Robert Steel stepped down to become chief executive officer of Wachovia Corp.
Steel, a former undersecretary, was vice chairman of Goldman Sachs Group Inc. from 2002 until 2004. Assistant secretary Anthony Ryan now holds Steel's Treasury post in an acting capacity.
Even after the departures, Zuccarelli said the Treasury isn't concerned about a staffing shortage before January 2009, when the next administration will take office.
`Until the End'
“Secretary Paulson has built a strong team of professionals at Treasury who plan to stay with him until the end,'' she said.
This month Paulson, former chief executive officer at Goldman Sachs, recruited as a Treasury adviser Kendrick Wilson, a former Goldman Sachs executive who spent more than two decades counseling U.S. banks. He is serving as a Treasury contractor.
Abbott has held his current position since November 2006. He previously served as a senior adviser to the undersecretary for domestic finance. He worked in the fixed income division of Credit Suisse First Boston from 1999 to 2004, according to his official Treasury biography.
Abbott earned his undergraduate degree from the College of the Holy Cross in 1993, followed by a master's in business administration from Northwestern University's Kellogg School of Management in 1999. Before entering graduate school, he served in the airborne 10th Special Forces Group, Treasury said.
Advanced Micro Devices Inc’s (AMD.N: Quote, Profile, Research, Stock Buzz)future depends on still-murky details of a plan to overhaul its manufacturing, and Wall Street is impatient.
AMD now lags far-larger rival Intel Corp (INTC.O: Quote, Profile, Research, Stock Buzz) in chipmaking technology and could be about nine months behind Intel when it introduces chips with elements as small as 45 nanometers in the second half of this year.
The company has also reported seven straight quarterly net losses in a row, and it’s hard-pressed to afford building a new, next-generation chip plant, which can cost $3.5 billion, with $5.6 billion in long-term debt on its books.
Together, Intel and AMD control virtually the entire market for microprocessors, the electronic brains of personal computers and server computers that comprise corporate networks.
AMD’s future hinges on what it calls Asset-Smart strategy: whether it adds capacity by striking a deal to use foundries of an Asian contract chipmaker such as Taiwan Semiconductor Manufacturing Co Ltd (2330.TW: Quote, Profile, Research, Stock Buzz), or perhaps signing an agreement with longtime partner International Business Machines Corp
(IBM.N: Quote, Profile, Research, Stock Buzz).
“I don’t know what Asset-Smart looks like, but anything is better than today. Anything is better than going out of business because you run out of money” said Stifel Nicolaus analyst Cody Acree. “It might be a partnership with IBM or TSMC or it might be an outright sale of their manufacturing.”
Executive Chairman Hector Ruiz, who led AMD as its CEO for more than six years and stepped aside in mid-July to hand the reins to Dirk Meyer, is driving the plan to completion and has repeatedly promised answers by the end of the year.
Food distributor Sysco Corp. said Monday its fourth-quarter profit jumped 10%, helped by managing costs and a boost in sales.
For the quarter ended June 28, net income rose to $334.1 million, or 55 cents per share, from $303.4 million, or 49 cents per share in the prior year quarter.
Analysts polled by Thomson Financial expected profit of 52 cents per share.
The company said it was able to grow its profit because it effectively managed costs in the quarter.
Revenue rose 5% to $9.73 billion from $9.23 billion in the fourth quarter of 2007. Analysts predicted revenue of $9.87 billion.
For the year, net income climbed nearly 11% to $1.11 billion, or $1.81 per share, from $1 billion, or $1.60 per share in 2007.
Revenue jumped 7% to $37.52 billion from $35.04 billion.
Sysco (SYY, Fortune 500) sells and distributes food products to restaurants, health care facilities, schools and hotels. The company also distributes equipment and supplies.
When Merrill Lynch announced last month that it would sell back its long-held stake in financial data provider Bloomberg L.P., chief executive John Thain was praised for moving aggressively to restore the firm’s capital position and slim its bloated balance sheet.
But a look at new Merrill (MER, Fortune 500) SEC filings suggests that enthusiasm for the $4.43 billion deal is misplaced, as the transaction adds virtually no cash to Merrill’s depleted pocketbook.
According to Merrill’s quarterly earnings report, filed Tuesday, the giant brokerage received just $110 million in cash in the sale of its 20% stake in Bloomberg back to its parent company, which is owned by New York City mayor Michael Bloomberg.
That means Merrill is getting less than 3% of the value of its Bloomberg stake in cash, despite the widely-held belief on Wall Street that the investment was increasingly profitable and - unlike so many assets on Merrill’s balance sheet - posed little risk to the firm.
In addition to the paltry cash payment, Merrill will receive $4.3 billion in 10-year and 15-year notes. Thain had indicated on Merrill’s quarterly earnings conference call last month that Merrill would be financing the sale of the Bloomberg stake, though he didn’t describe the terms.
Merrill has been under intense pressure since last fall’s disclosure that the firm stood to take huge losses on its holdings of collateralized debt obligations, which are risky debt tied in many cases to the imploding U.S. mortgage market.
Since then, Merrill has raised some $30 billion in new capital to fill holes created by more than $40 billion in writedowns. Share issuances tied to various capital-raising moves have diluted the stake of existing shareholders by more than 30%.
The disclosure of the Bloomberg financing terms comes as the market continues to puzzle over another deal Merrill struck last month to reduce its CDO exposure. The company sold securities once valued at $30.6 billion to Lone Star Funds for $6.7 billion, or 22 cents on the dollar.
Merrill agreed to finance 75% of that transaction, meaning it got $1.7 billion in cash while extending $5 billion in loans to Dallas-based Lone Star.
While some investors have criticized Merrill for agreeing to finance the sale of the CDO portfolio - they argue the deal’s structure essentially gives Lone Star the upside on a recovery in the CDO market, while potentially saddling Merrill with any losses beyond the cash payment - it’s striking that the broker is receiving more cash upfront in its CDO distress sale than it is in the sale of an appreciating, safe asset.
Why Merrill agreed to finance so much of the Bloomberg deal isn’t immediately apparent. A Merrill spokeswoman declined comment, and a Bloomberg representative didn’t return an e-mail seeking comment.
Merrill purchased a 30% stake in Bloomberg in 1985 for just $30 million, then later sold a third of that back to Bloomberg at a substantial premium. Since then, Bloomberg has become the leading provider of financial data to Wall Street and has branched into television and magazine publishing.
One common criticism of Merrill’s asset transactions - that because of Merrill’s financing involvement, the deals don’t effectively insulate the firm from losses and therefore aren’t truly sales - doesn’t seem to hold water.
Merrill "relinquished control of the assets to the buyer, who now bears the risk of loss and who has the right to pledge or re-sell the assets as they wish," notes accounting consultant Robert Willens. Accounting rules, he adds, "don’t say this has to be a good deal for the seller."
Following is a summary of the Aug. 2 initial jobless claims report from the Labor Department. ======================================================================== Week Ending Aug. 2 July 26 July 19 Prior Year ======================================================================== Initial Claims (SA) 455,000 448,000 403,000 318,000
Change 7,000 45,000 31,000 137,000
Percent change 1.6% 11.2% 8.3% 43.1% 4-Wk moving average 419,500 392,750 381,750 312,000 ———————————————————————— Initial Claims (NSA) 381,529 375,150 411,408 270,563
Change 6,379 -36,258 -72,573 110,966
Percent change 1.7% -8.8% -15.0% 41.0% ======================================================================== Week Ending July 26 July 19 July 12 Prior Year ======================================================================== Continuing claims (SA) 3,311,000 3,280,000 3,097,000 2,553,000
Change 31,000 183,000 -19,000 758,000
Percent change 0.9% 5.9% -0.6% 29.7% ======================================================================== Week Ending July 26 July 19 July 12 Prior Year ======================================================================== 4-Wk Moving average (SA) 3,201,000 3,174,000 3,131,750 2,549,750 ———————————————————————— Ins. Unemployment Rate (SA) 2.5% 2.5% 2.3% 1.9% Ins. Unemployment Rate (NSA) 2.4% 2.4% 2.4% 1.9% ———————————————————————— Continuing claims (NSA) 3,175,663 3,211,067 3,164,970 2,445,524
Change -35,404 46,097 46,246 730,139
Percent change -1.1% 1.5% 1.5% 29.9% ========================================================================
July 19 July 12 July 5 Prior Year ======================================================================== Extended benefits (NSA) 1,483 1,777 1,298 0
Change -294 479 -428 1,483 ======================================================================== (SA) = Seasonally adjusted figures. (NSA) = Not seasonally adjusted.
The Bank of Korea may keep interest rates unchanged tomorrow after the economy grew at the slowest pace in more than a year and oil retreated to a three-month low.
Governor Lee Seong Tae and his six colleagues will leave the seven-day repurchase rate at a seven-year high of 5 percent tomorrow, according to 13 of 19 economists surveyed by Bloomberg News. Six expect a quarter-point increase.
Lee must balance signs of a slowdown in domestic demand against his objective of controlling inflation that is running at the fastest pace in a decade. Ssangyong Motor Co. and Hyundai Motor Co. are among companies that have reported declining sales as Korean consumers rein in discretionary spending because of a surge in fuel and food costs.
“The central bank still faces a big dilemma between growth and inflation,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “A rate hike seems unlikely this year as oil prices fall and domestic demand weakens.''
Oil has lost more than $28 since touching a record of $147.27 a barrel in New York on July 11.
The Federal Reserve yesterday kept its benchmark rate at 2 percent and signaled that weak employment and financial instability will delay any increase in borrowing costs. The European Central Bank and Bank of England, also beset by faster inflation and slower growth, are forecast by economists to stand pat this week.
The won rose 0.2 percent to 1,016.10 won versus the dollar at 9:30 a.m. in Seoul. The five-year government bond yield declined 5 basis points to 5.75 percent. The Kospi stock index climbed 2.2 percent to 1,568.66.
Economy Weakens
South Korea's economy grew 4.8 percent last quarter from a year earlier, the weakest pace in more than a year. Spending by households, which are burdened with record debt, fell 0.1 percent in the quarter, the first decline in four years.
Reports since the Bank of Korea's July meeting have provided more evidence of a slowdown. Households were at their most pessimistic in almost four years in June and manufacturers' confidence for August sank to the lowest in three years.
Factory output advanced 6.7 percent in June from a year earlier, the smallest gain in nine months. A leading index of economic indicators, a gauge of future business activity, rose 1.2 percent, the least in five years.
Ssangyong Motor, the South Korean unit of China's biggest automaker, reported that domestic sales slumped 67 percent in June from a year earlier. Local sales at Hyundai Motor, the nation's largest car producer, slipped 0.6 percent in the second quarter.
Increase Expected
Still, six of the 19 economists surveyed expect the Bank of Korea to raise interest rates tomorrow to keep inflation expectations in check.
Consumer prices in South Korea surged 5.9 percent in July from a year earlier. That was the ninth consecutive breach of the central bank's target of keeping inflation between 2.5 percent and 3.5 percent, on average, for the three years to 2009.
Policy makers in India, Indonesia, Taiwan, the Philippines and Thailand have all raised interest rates this year even as the Asian region faces fallout from a global slowdown.
“We expect one token rate hike in August as a reaction to the massive inflation pressure in July,'' said Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul. “A further rate hike is unlikely as downside risks to the economy will be more severe going forward.''
Shipments to China, the Middle East and Latin America, buoyed in part by a weaker won, have helped South Korea weather the domestic slowdown and a U.S. economic slump. Exports surged 37.1 percent in July from a year earlier, the most in four years.
The won has fallen 8 percent this year against the dollar, helping Korea's exporters by making their products cheaper overseas.
The private sector gained 9,000 jobs in July, primarily among small businesses and the service sector, according to a report payroll manager ADP released Wednesday.
While job growth was modest, it was much better than forecasts. A consensus of economists surveyed by Briefing.com had expected a loss of 60,000 non-farm jobs.
The gain in jobs was driven by the addition of 74,000 jobs in the service sector. Growth was also helped by 50,000 jobs added by small businesses. By contrast, large businesses shed 32,000 positions.
The construction industry lost 16,000 jobs, marking the 20th consecutive month of declines for that sector. The construction industry has lost 350,000 jobs since August of 2006, according to ADP.
Meanwhile, the hard-hit financial sector gained 4,000 jobs in July, the report said.
The July report is a dramatic improvement from June, when the private sector shed a revised 79,000 jobs on a seasonally adjusted basis, according to ADP.
But the employment market is still weak, according to ADP’s three-month average for May, June and July, which shows a monthly decline of 14,000 private-sector jobs.
British Airways PLC and Spain’s Iberia SA said Tuesday they are in talks over a potential all-share combination.
BA and Iberia, which are long-term partners in the "oneworld" alliance, said that each would retain its branding under the tie-up.
The pair said the negotiations are supported unanimously by both boards, but did not disclose any financial details in a statement.
BA and Iberia have also been in discussions for several months with American Airlines to potentially form a trans-Atlantic joint venture, but they did not provide any immediate update on those talks.
BA Chief Executive Willie Walsh said airline consolidation is long overdue as the aviation landscape changes.
"The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment," Walsh said in a statement.
The pair said they expect it will take "several months" to reach agreement on the terms of the combination and to finalize a joint business and integration plan for the combined group.
They added they were confident of securing regulatory approval, noting that the European Union has already granted the two carriers approval to cooperate widely. The pair have been working closely as alliance partners for more than a decade.
Media reports earlier this month had suggested that BA, Iberia, and AMR Corp.’s (AMR, Fortune 500) American, the world’s largest carrier, were close to applying for U.S. antitrust immunity to form a trans-Atlantic joint venture.
BA and American have failed in the past to win an exemption from U.S. antitrust laws to work more closely together because of their dominance at London’s Heathrow Airport, where the pair have more than half the capacity to and from the U.S.
In the meantime, BA has steadily been increasing its shareholding in Iberia, from 9% in 1999 to 13.15% currently.
Iberia revealed Tuesday it has recently acquired a 2.99% direct shareholding in BA and financial exposure to a further 6.99% through "contracts for difference" linked to BA’s share price.
A contract for difference is an agreement to exchange the difference in a share’s value between the time a contract is opened and the time it is closed. Holders of CFDs are financially exposed to the share price but do not own the shares and therefore have no voting rights.
The pair said that the corresponding shareholdings "reflect the mutual interest of both companies in each other."
Japan's consumer prices rose at the fastest pace in a decade as food and gasoline costs climbed, squeezing household budgets and slowing economic growth.
Core prices, which exclude fruit, fish and vegetables, increased 1.9 percent from a year earlier after gaining 1.5 percent in May, the statistics bureau said today in Tokyo.
Higher prices are forcing consumers and companies to cut spending, threatening the economy's longest postwar expansion. Bank of Japan board member Atsushi Mizuno said yesterday that the benchmark interest rate should stay at 0.5 percent for now because growth is slowing.
“The BOJ isn't concerned with the inflation rate itself, they're concerned about the impact of prices on growth,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo. “They're not going to raise rates. They're going to be patient and wait to see if global growth or wages pick up.''
The gain in core prices matched the median estimate of economists surveyed by Bloomberg News.
The yen traded at 107.14 per dollar as of 12:19 p.m. in Tokyo from 107.33 before the report. The yield on Japan's 10- year bond fell 7 basis points to 1.58 percent after slumping U.S. home sales and German business confidence intensified concern that global growth will falter.
Soaring Across Asia
Inflation is soaring across the Asia-Pacific region, reports showed this week, complicating policy for central banks as economic growth cools. Malaysia's consumer prices rose at the fastest pace in 26 years in June. In Australia, the inflation rate surged to a two-year high in the second quarter.
The Bank of Japan is unlikely to raise rates even if inflation exceeds 2 percent, the higher end of the policy board's range for price stability, said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. in Tokyo.
“Core prices will exceed the range's higher end soon,'' said Kanno, who used to work at the Bank of Japan. “Even so, there's little chance for the central bank to raise rates because wages are barely growing and price gains aren't spreading to the overall economy.''
Governor Masaaki Shirakawa and his colleagues will keep the key rate, the lowest among major economies, on hold at least for the rest of the year, according to 31 of 33 economists surveyed by Bloomberg this month.
“I'm concerned about the combination of slower growth and high prices,'' Economic and Fiscal Policy Minister Hiroko Ota said. “Consumers are increasingly conscious of inflation and we're concerned about the effect that's having on sentiment.''
Consumers Pessimistic
Consumer confidence fell in June to the lowest level in at least 26 years because prices of daily necessities are rising faster than wages. Goods purchased at least 15 times a year climbed 4.2 percent in June, almost twice the pace of the previous month. Wages rose 0.8 percent in May.
Household spending dropped 2.8 percent in June, a fourth monthly decline, economists estimate a government report to show next week. Weaker consumption and exports probably caused the economy to shrink last quarter, according to economists.
Core prices in Tokyo, a harbinger of nationwide inflation, advanced 1.6 percent in July from a year earlier, also the steepest gain in 10 years. Prices in the capital increased 1.3 percent in June.
Crude oil, corn and wheat all reached records this year. Japan imports more than 60 percent of its food requirements, the highest among developed countries. It imports almost all of oil. Gasoline prices surged to a record 181.5 yen a liter ($6.41 a gallon) earlier this month.
Corporate Service Prices
Prices companies pay for services such as transportation and rent climbed 1.2 percent in June from a year earlier, the central bank said today. That's the fastest pace this year.
Core consumer inflation will probably accelerate further in July as utilities and processed food makers raise retail prices.
Tokyo Electric Power Co. and nine other power companies increased charges on July 1, as did four gas providers including Tokyo Gas Co. Tokyo Electric also plans to adopt a new pricing system in September to better reflect higher fuel costs, a sign that electricity charges will climb further later this year.
Board member Mizuno said he expects core price gains to reach about 2.5 percent in “the autumn.'' Still, he added, inflation isn't spreading because wage growth is moderate.
Excluding food and energy, a measure of inflation similar to that used in the U.S., Japan's consumer prices rose 0.1 percent in June from a year earlier. That's only the second time in the past 10 years that they have increased. The U.S. equivalent climbed 2.4 percent in June.
Japan's core prices will probably climb 1.8 percent in the year ending March 2009 and ease to 1.1 percent next fiscal year, the central bank said last week.
Tax preparer H&R Block has named the former president of Europe as its new chief executive.
Russ Smyth takes over Aug. 1. He will also be president of H&R Block (HRB).
Smyth was with McDonald’s (MCD, Fortune 500) for 21 years. He also joins the company’s board of directors, as does his predecessor, former interim CEO Alan Bennett.
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