The dollar turned higher this week as jittery investors flocked to the greenback for its safe-haven appeal amid fears of a global economic slowdown.
For weeks, the dollar had been slipping as investors focused on weak U.S. economic news and improvements abroad. It is now making a comeback as disappointing news out of other regions join center stage.
Bleak outlooks from central banks in Europe, as well as signs of slower growth out of China, have rattled investors and boosted their demand for low-risk investments, including the dollar.
Softer risk appetite has pushed dollar up to a three-week high against the euro — below $1.28 — and the highest level this month against the pound. The dollar index, which tracks the buck against several major rivals, has climbed 3% this week.
Against the yen, also a low-risk currency, the dollar hit a 15-year low.
"It’s come to the market’s attention that the problems for recovery aren’t just in the United States," said Kathy Lien, director of currency research at Global Forex Trading. "Everything is congealing at the same time."
Following the Federal Reserve’s most bearish outlook for the U.S. economy in more than a year, the Bank of England and the European Central Bank also said recovery in the the United Kingdom and through Europe is also losing steam.
China reported industrial output slowed for the fifth consecutive month in July, signaling that growth in the world’s third largest economy is continuing to ease.
"The United States and China, two of the largest contributors of economic growth, are slowing at the same time, and that could sap the global recovery over the next quarter," Lien said.
Though the dollar will push higher in the near term, Lien said it will resume a decline as fears abate.
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Yahoo Japan Corp. said on Tuesday that it will begin to switch over to Google Inc.'s search and advertising technology in the future.
The move is expected to give Google and the Japanese company that is 35 percent owned by Yahoo Inc. (NASDAQ:YHOO) a near monopoly on search in Japan. Microsoft Corp. (NASDAQ:MSFT) has only about 3 percent of the search market in the world's second largest economy, with Yahoo Japan ( 57 percent) and Google (38 percent) making up the rest.
The Japanese telecom company Softbank Corp. owns 40 percent of Yahoo Japan.
Company officials said they began to contemplate a switch to Google (NASDAQ:GOOG) last year after Yahoo announced a partnership with Microsoft in which it is switching to the software giant's Bing search technology Low fee payday loans.
"We looked at this from many angles, but in the end we determined that Google was the better choice," Yahoo Japan CWO Masahiro Inoue said at a briefing in Tokyo.
Yahoo Japan also announced earnings, saying its net income rose 12.6 percent to $248 million in the three months ended June 30.
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General Motors is paying $3.5 billion in cash to buy subprime auto lender AmeriCredit, a move that will once again give the automaker its own finance arm.
It is the first major acquisition for GM since it emerged from bankruptcy a year ago with the help of a $50 billion bailout by U.S. taxpayers.
GM will pay $24.50 a share for AmeriCredit (ACF), which represents a 24% premium over Wednesday’s closing price. The Fort Worth, Texas-based finance company typically finances low-mileage, late-model used cars to customers without good credit.
Shares of AmeriCredit shot up 22% in Thursday trading following the announcement.
Treasury owns 61% of the company. While GM completed repayment of a $7 billion loan from Treasury in April, recouping most of the bailout dollars will depend on the value of the company when it once again starts selling shares to the public.
GM is expected to go public again later this year or early in 2011.
An official with Treasury said that while the department was notified of the acquisition decision, GM is not required to seek the government’s approval for any investments, and that Treasury was not involved in negotiations. Treasury did not have any comment on the deal.
GM used to have its own finance arm, GMAC, which in addition to making auto loans and providing finance to its dealers was a major subprime mortgage lender. But it sold a majority stake in GMAC in 2006, partly because GM’s junk bond rating from credit agencies made it expensive for the finance firm to raise necessary capital.
GMAC’s problems with both auto finance and subprime mortgages ended up necessitating its own $17 billion bailout from the Treasury, which now owns 56% of its common stock as well as $10.1 billion in preferred shares.
GMAC, which recently changed its name to Ally Financial, makes loans to both customers and dealers of GM as well as Chrysler Group. But its own need to improve the quality of its loan portfolio has limited its willingness to make subprime auto loans and leases to car buyers of the two companies.
Tough market
The difficulty that potential car buyers with bad credit have getting loans is one of the factors that has kept auto sales depressed. Customers who want to use leasing to lower their payments have also had difficulties arranging that form of financing, since leasing requires the finance company to assume risks about the future value of the vehicle.
Industrywide sales in the first half of this year were up about 17% from a year ago, but they are still down 32% from the first half of 2008 — a period when sales were already being hit by the start of the recession and record high gasoline prices.
Just as easy financing created a bubble in home purchases, it led to a boom in car sales. But car sales are not likely to return to the peaks of the last decade any time soon no fax payday loans.
There has been talk in the industry that the lack of a private finance arm has put GM and Chrysler at a competitive disadvantage with Ford Motor (F, Fortune 500) and Toyota Motor (TM), which both still own and operate finance arms.
"Not having an in-house finance arm hurt our ability to finance certain loans and leases, which in turn hurt our sales," said GM Chairman and CEO Ed Whitacre in a conference call Thursday.
GM estimates that about 4% of its retail U.S. sales have been subprime loans, and 7% have been leases. Industrywide, roughly 7% of new car sales are through subprime loans and 21% are lease, according to figures from sales tracker Edmunds.com.
But there are risks involved with GM getting into the business of again making its own loans to less creditworthy buyers — especially since the market for investors buying those loans is still a fraction of what it was before the late 2008 crisis in financial markets.
Bill Visnic, senior editor for Edmunds, said that while there’s clearly a potential for increased sales for GM in subprime loans and leases, it shouldn’t be assumed that there will be an immediate spike in sales, especially since approval rates for subprime loans are still only a fraction of what they used to be.
"It’s wise to proceed with a little caution. We can’t all just declare this tight credit situation is over," he said. "Auto sales are still in sputtering stage."
Chris Whalen of Institutional Risk Analytics said in a note to clients Thursday that he saw the deal as a positive for GM but a negative for Ally.
"The GM business was not viable witthout a captive finance unit," he wrote. "Unfortunately for GMAC/Ally, GM has chosen to work with another credit provider. This suggests to us that GMAC will become just another provider of consumer credit in an already overbanked market."
Ally will continue to provide most of the auto loans to GM buyers with good credit, as well as the financing for its dealers, said GM spokeswoman Reneé Rashid-Merem. She said the AmeriCredit deal is designed to give GM additional financing offers for potential customers.
GM said its purchase of AmeriCredit "establishes the core of a new GM captive financing arm that will enable GM to provide customers with a more complete range of financing options." It pointed to the need to make loans to car buyers with subprime credit scores as well as offering leasing options.
The automaker’s balance sheet was greatly improved by the bankruptcy process it went through a year ago, leaving it with $23.5 billion in cash and only $5.3 billion of long-term debt.
Citigroup posted second-quarter earnings of $2.7 billion Friday, marking its second consecutive profit and beating Wall Street expectations, thanks to improving credit trends.
But the stock fell along with other banks as worries about the broader economy and financial reform continued to plague the markets.
Earnings for the banking giant came in at 9 cents per share. Analysts polled by Thomson Reuters expected the company to earn 5 cents for the quarter.
Citigroup (C, Fortune 500) shares slipped 4% Friday, however. Despite beating estimates, profits were 37% lower than the second quarter of 2009.
Revenue from the bank was weaker than expected, falling 33% to $22.1 billion. That was driven by a 26% decline in revenues from its securities and banking unit, which was widely expected as a result of increased market volatility.
During a conference call with analysts. Citigroup CEO Vikram Pandit said he isn’t too concerned about the sweeping Wall Street reform, which is expected to be signed into law by President Obama next week.
"I’ve been an advocate since the start of regulatory reform and am quite pleased we’re moving forward," he said. "The ultimate impact won’t be clear until we know all of the details, but we have been managing the business and selling assets in line with the principles of reform."
He added that the bill, which calls for most derivatives to be bought and sold on clearinghouses and exchanges, won’t have a major impact on much of its derivatives business.
Beyond the Wall Street side of Citigroup’s operations, the bank’s consumer businesses delivered strong performances during the quarter. Credit losses decreased by $422 million, or 5%, to $8 billion as fewer loans failed.
In a statement, Pandit noted that "credit improved for the fourth consecutive quarter" and that the bank was also helped by international growth in Latin America and Asia.
"In terms of credit quality, everything is moving in the right direction," said Amanda Larsen, analyst at Raymond James, highlighting that reserves for credit losses fell to the lowest level since the third quarter of 2007 and delinquencies on Citi-branded cards also edged lower.
"The market has been freaking out about the health of the consumer as of late, and bank earnings are giving us solace that it’s not as bad as the market is making it out to be," Larsen added.
The bank also continued to pare back its Citi Holdings division, which was created to house the firm’s so-called "troubled assets" and businesses it is looking to get rid of. Citi Holdings reduced its assets by $38 billion during the quarter, and those assets now represents less than quarter of Citigroup’s total.
Larsen said that at this pace, the bank is on track to shed a majority of its Citi Holdings over the next three years.
The latest results from New York City-based bank are further evidence that the bank is bouncing back after being one of the hardest hit institutions during the financial crisis. Last quarter, Citigroup reported $4.4 billion in earnings.
The Treasury Department, which took a sizeable stake in the bank as part of the government’s bailout of Citigroup, is continuing to trim its stake. Earlier this month, the government said it sold 1.1 billion shares of the bank and plans to unwind the remainder of its 5.1 billion shares by the end of the year.
Based on the average price of $4.03 that Treasury has been able to sell shares at, U.S. tax payers could make a profit of $2.03 billion from the controversial bailout.
Citigroup’s report also matches results from rivals JPMorgan Chase (JPM, Fortune 500), which raked in $4.8 billion last quarter, and Bank of America (BAC, Fortune 500), which earned $3.1 billion. Both banks beat forecasts and said that results were helped by improvement in consumer lending businesses.
But the report comes a day after the bank disclosed in an SEC filing how it made an accounting blunder that concealed billions of dollars in debt from investors by incorrectly identifying short-term trades as sales instead of borrowings.
"The impact of these transactions was never large enough to have a material impact on Citigroup’s financial statements or our published regulatory capital ratios, including our leverage ratios," Citigroup spokesman Jon Diat said.
The bank initially acknowledged the error in a filing in May.
For the fourth-straight week, gas price averages remained relatively flat, although different areas saw different price movement, according to the Automobile Club of Southern California’s Weekend Gas Watch.
According to the Auto Club, the average price of self-serve regular gasoline in the Los Angeles-Long Beach area is $3.113 per gallon, which is eight-tenths of a cent less than last week, six cents higher than last month, and 24 cents higher than last year.
On the Central Coast, the average price is $3.185, up one-tenth of a cent from last week, six cents higher than a month ago, and 23 cents above last year.
In the Inland Empire, the average per gallon price is $3 payday loan online.096, which is nine-tenths of a cent lower than last week, five cents higher than last month, and 23 cents more than last year.
"While the broader U.S. economic picture remains muddled, the past week showed a large crude oil inventory draw down which some analysts see as a hopeful sign for the economy. We’ll have to see if gas prices are affected in the coming weeks," Auto Club Spokesperson Jeffrey Spring said in a statement.
Results of a Field Poll that measured voter awareness and sentiment toward four of 10 propositions slated to appear on the state’s November general election ballot were released Friday.
Voters are opposing Proposition 23, the initiative to suspend AB 32, California’s greenhouse gas reduction law, and Proposition 19, the marijuana legalization initiative, and supporting Propositions 25 and 18, the Field Poll said.
Proposition 25 would require a majority vote to approve the state budget while retaining a two-thirds vote to increase taxes, while Proposition 18 is an $11.1 billion bond measure to fund water supply and protection facilities.
Voter awareness of the measures varied widely, according to the survey. More than three in four likely voters (77 percent) report some familiarity with Proposition 19, the marijuana legalization initiative. Most voters (56 percent) also had heard of Proposition 25, which would change vote requirements needed to pass the state budget.
Fewer potential voters (39 percent) had heard of Proposition 23, which would suspend AB 32, or water bond measure Proposition 18 (24 percent).
According to the Field Poll:
The poll has a sampling error rate of plus or minus 3.2 percentage points for likely voters and a higher margin for subgroups. Pollsters surveyed 1,005 people by telephone between June 22 and July 6.
As world leaders gather in Canada to discuss ways to strengthen the global economy, lawmakers in the United States finalized a bill Friday that would impose a $19 billion tax on financial institutions.
The tax, which is part of a sweeping overhaul of the U.S. financial system, comes after policymakers in the United Kingdom, France and Germany moved ahead with plans to impose new bank taxes this week.
Given those steps, analysts expect leaders to discuss bank taxes at the G-20 summit this weekend. In a Tuesday letter to fellow G-20 members, the leaders of France and Germany called for "an international agreement to introduce a levy or tax on financial institutions."
But plans to impose a global bank tax were scratched at the last G-20 meeting earlier this month in South Korea. Canada, Brazil and Japan opposed the idea, noting that banks in their countries did not require government aid during the financial crisis.
While the taxes vary from country to country, the reasoning behind them is basically the same: to ensure that banks are responsible for the risks they take and not taxpayers.
"The failures of the banks imposed a huge cost on the rest of society," said George Osborne, the U.K. Chancellor of the Exchequer. "I believe it is fair and it is right that in the future banks should make a more appropriate contribution, which reflects the many risks they generate."
Osborne made the remarks Tuesday in unveiling one of the most stringent budgets in decades lowest fee payday loans. The budget calls for a levy on bank liabilities that is expected to raise 2 billion British pounds annually.
In the United States, the proposed $19 billion tax would cover the cost of implementing financial reform. President Obama is expected to sign the bill in July.
The tax would apply to banks with more than $50 billion of assets and hedge funds with over $10 billion in assets. It would be assessed based on how much risk an institution takes and is expected to raise $4 billion a year over the next five years.
In addition, Congress is considering a $90 billion "financial crisis responsibility fee" as part of President Obama’s 2011 budget proposal. The so-called bailout tax would be paid largely by major financial institutions that contributed to the financial crisis, and were the biggest beneficiaries of extraordinary government actions.
While the banking industry supports some key principles of reform, bankers are concerned that certain regulations will hurt consumers, according to Edward Yingling, president of the American Bankers Association.
"The consequences involved are very real and will have a very negative impact on traditional banks, on consumers and on the broader economy," Yingling said in a statement.
Shareholders of Quad/Graphics Inc. and World Color Press Inc. have approved Quad's proposed acquisition of World Color Press and put the deal on track for a July 2 closing.
Shareholders of privately held Quad/Graphics of Sussex approved the transaction Thursday, while shareholders of Montreal printer World Color Press gave the deal the go-ahead Friday morning. The deal still requires the approval of the Quebec Superior Court, Commercial Division, and a deal on a final order is scheduled for June 28.
Quad/Graphics has been cleared to apply to list its class A common stock on the New York Stock Exchange under the stock symbol QUAD. Quad/Graphics anticipates the shares will begin trading July 6 or July 7, at which time the company will usher in a new era as a publicly traded company. It is expected that Joel Quadracci, Quad/Graphics chairman, president and CEO, will ring the opening bell July 7.
World Color shareholders will receive consideration of 40 percent of Quad/Graphics stock and a cash payment of up to $93.3 million. Existing Quad/Graphics shareholders will hold 60 percent of the company.
The merger, valued in media reports at $1.3 billion to $1.4 billion, not including any assumed debt, will create the second largest commercial printing operation in North America, trailing only industry leader R.R. Donnelley & Sons Co.
The state has approved plans by Erie County Medical Center for a new hyperbaric wound-care center.
State Health Department officials approved a plan in late May for an $850,000 centralized hyperbaric and wound care center in a 3,500-square-foot space on the hospital’s ground floor.
ECMC plans to partner with a Diversified Clinical Services Inc. of Jacksonville, Fla., the largest wound care company in the nation. The firm operates at more than 300 sites nationwide through collaborations with hospitals.
The therapy will complement services already offered in the hospital’s burn unit and rehab center.
The project includes the installation of two monoplace hyperbaric oxygen therapy chambers, which use pressurized oxygen to treat a variety of wounds, including burns, diabetes-related injuries and vascular wounds, where patients are slow to heal because of poor blood flow.
The new center is expected to start up this summer.
Matrix Packaging of Missouri Inc., a subsidiary of Sonoco Products Co., will receive $572,267 in state tax credits, the Missouri Department of Economic Development said Friday.
The Hazelwood business was approved for the credits under the Enhanced Enterprise Zone (EEZ) program to assist in the creation of new jobs and investment.
Matrix was approved for the tax credits, over a five-year period, for the creation of 90 jobs and investing $16.6 million for the expansion facility at 5801 N. Lindbergh Blvd. in Hazelwood.
The Hazelwood plant currently operates nine blow molding lines, producing plastic bottles for household, food, and health and beauty products.
The Enhanced Enterprise Zones are geographic areas designated by local governments and certified by the DED. Designation is based on certain demographic criteria, potential to create sustainable jobs in a targeted industry and demonstrated impact on local cluster development. The EEZ program began in 2004.
Hartsville, S.C.-based Sonoco Products Co. (NYSE: SON) is a $3.6 billion global manufacturer of consumer and industrial products, and provides packaging services. It has more than 300 operations in 35 countries.
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