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Oct 31, 2009

Nine US banks seized in largest one-day haul

US authorities seized nine failed banks yesterday, the most in a single day since the financial crisis began and the latest stark sign that substantial parts of the nation’s banking industry are being crippled by bad loans.
The move brought the total number of failed banks in 2009 to 115 — their highest annual level since 1992 — with analysts expecting more to come. Among the lenders seized yesterday was Los Angeles-based California National Bank, in what was the fourth-largest US bank failure this year.

The largest institution to fail in the current financial crisis was Washington Mutual, which boasted US$307 billion (1,044 billion) in assets when it was shuttered in September 2008.

US Bancorp yesterday acquired the nine banks that had been held by FBOP Corp, picking up US$18.4 billion in assets and US$15.4 billion of deposits.

Visibly worried employees lined up to file into Cal National’s head offices in the heart of a deserted downtown Los Angeles on a chilly Friday evening, where they had their employers’ fate explained to them, regulators said.

“We’re getting ready to turn everything over to US Bank,” said Roberta Valdez, a spokeswoman for the Federal Deposit Insurance Corp, which helped supervise the transfer of FBOP’s assets. “They will continue to operate as normal in the interim,” she added, referring to lenders acquired from FBOP.

US Bancorp — which has been buying up distressed assets this year — is picking up the lenders once owned by FBOP, a private Illinois group with over US$18 billion in assets that owned banks in Texas, Illinois, Arizona and California.

Cal National is FBOP’s largest bank by branches. Others that will now go under the US Bancorp umbrella included BankUSA, Citizens National Bank, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and the Community Bank of Lemont.
“This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions,” said Rick Hartnack, vice chairman of consumer banking for US Bancorp.

“This transaction adds scale to our current California, Illinois and Arizona footprints.”
In the “near future”, all nine lenders’ branches will be re-branded US Bank, which is the California-focused unit of US Bancorp’s that operates a network of more than 770 branches across Illinois, Arizona and California.

US Bancorp did not specify what would happen to the new employees it inherits.
Cal National operates 68 branches across Southern California with more than US$7 billion in assets. As of June 30, the lender maintained five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier, according to the Los Angeles Times, which first reported news of its evening takeover yesterday.

Cal National lost about US$500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, the newspaper added, referring to securities rendered nearly worthless by the government takeover of the mortgage firms last year.

According to FDIC data, Cal National was the fourth biggest bank failure this year in terms of assets, just edging out Corus Bank, seized Sept 11 with a flat US$7 billion of assets.
A bank official who answered the main number at Cal National’s headquarters said they could not talk at the time.

Banks are still cleaning up their balance sheets from the recent credit boom that fuelled banks’ appetite to extend loans, many with poor underwriting and triggers that caused borrowers’ payments to spike to unaffordable levels.

More lenders are expected to go under this year as the industry tries to get a handle on commercial real estate loans that will continue to worsen, as more strip malls go vacant and residential developments stall.
Banks held about US$1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 per cent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks were better diversified.

Banks that analysts say could risk big losses include Salt Lake City’s Zions Bancorp, Columbus, Georgia’s Synovus Financial Corp and Dallas-based Comerica Inc.

Before FBOP, US Bancorp bought Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those thrifts failed last November, the newspaper said. Just this month, US Bancorp bought 20 Nevada branches from BB&T Corp, which had acquired them as part of its deal to buy Colonial BancGroup Inc, it added

Source : TMI
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Oct 29, 2009

Time Inc. to cut US$100 m, and extensive layoffs expected

Signalling that worse times are ahead for magazines, Time Inc. is expected to announce next week that it will cut US$100 million (RM340 million) from costs, including another big round of layoffs.

Time Inc., the publisher of magazines like Time, Fortune, and People, has already cut costs drastically: a year ago, it announced it was dismissing 6 per cent of its work force, or about 600 people. The timing is coordinated with the third-quarter earnings announcement from its parent company, Time Warner, sources said. That is scheduled for Wednesday morning.

But that was apparently not enough to make up for revenue declines. The US$100 million in costs is expected to come largely from layoffs, said sources, who asked to remain anonymous as they were not authorised to discuss the matter.

Michael Nathanson, an analyst at Sanford C. Bernstein & Company, said that he expected third-quarter revenue at Time Inc. would fall about 19 per cent, to US$900 million.

“For the year, we’re at about US$3.7 billion, and this company had done almost US$5 billion as late as 2007,” Nathanson said.

Since 2004, Time Inc. has cut about US$800 million in costs, Nathanson said.

Over all, Nathanson said, he expects Time Warner to post earnings of 54 cents a share, well up from the 30 cents a share it posted in the third quarter of 2008.

Time Inc. has been cutting costs over the last several years. Since 2007, it has shut down magazines including Business 2.0, Cottage Living, Southern Accents and Life, which it had revived as a newspaper supplement. Last week, Fortune announced that it would no longer be published every other week, and would drop its frequency to 18 issues a year, from 25. A stricter expense-account policy has been in place for some time, and some magazines have decreased the weight of the paper they use.

A number of Time Inc. employees are covered by a union contract, which mandates severance in case of layoffs. Employees of Time, Sports Illustrated, People, Money, Fortune and Fortune Small Business are covered by agreements with the Newspaper Guild of America, said Bob Townsend, local representative for the guild.

Covered employees at those magazines are eligible for severance packages in a layoff, of two weeks’ pay for every year of employment, with a cap of 52 weeks’ pay. Longtime employees get a bonus, with 20-year veterans getting an additional eight weeks’ pay, and 25-year employees an additional 10.
Townsend said that the Guild was usually notified in advance of layoffs, but it had not heard anything yet. “We have not been told there are going to be any layoffs next week,” Townsend said.
Dawn Bridges, a Time Inc. spokeswoman, declined to comment.

The layoffs and cost-cutting follow moves at competitors. Forbes is in the midst of dismissing about 40 to 60 of its editorial staff, and most Condé Nast magazines are reducing their budgets by about 25 per cent, which has included handfuls of layoffs at many of its magazines.

Source : TMI
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Oct 13, 2009

China has 130 billionaires

China’s super-rich have bounced back from the financial crisis with a vengeance, and the country now has more known dollar billionaires than any other country except the United States, according to a new report.

The annual Hurun Report released yesterday said China has 130 known US dollar billionaires, up from 101 last year.

The number in the US is 359 while Russia has 32 and India 24, according to Forbes magazine.

A Warren Buffett-backed car entrepreneur worth US$5.1 billion (RM17.2 billion) has surpassed a disgraced appliance tycoon to become the richest person in China.

Huang Guangyu, the richest man in China last year, dropped to 17th on the list this year with a worth of US$3.4 billion, after he resigned as chairman of the country’s biggest appliance chain while under investigation for alleged economic crimes.

Car mogul Wang Chuanfu, as chairman of BYD Co, made big strides in the past year to become the first carmaker to launch the mass production of a plug-in hybrid electric vehicle.

The company also secured backing from US billionaire investor Buffett, whose MidAmerican Energy Holdings has a 9.9 per cent stake in the Hong Kong-traded company.

With help from a growing domestic car industry, Wang’s 27.8. per cent stake in BYD elevated him 102 places in Hurun Rich List’s 2009 rankings.

Second place went to Zhang Yin and family, owner of paper recycler Nine Dragons Paper, while in third place was Xu Rongmao and family, owner of Shimao Property Holdings.

China’s rich are also getting richer, with the average wealth on the list standing at US$571 million, up almost one-third from last year, said compiler Rupert Hoogewerf.

“With the greatest wealth destruction in the West of the last 70 years, we’ve seen China buck the trend and the wealth seems to be still growing,” Hoogewerf told Reuters on the sidelines of an event to unveil the 2009 rich list.

“They’ve put the credit crunch behind them,” he said. “The key driver has been urbanisation. You’ve got all these cities being built, and that requires property developers, iron and steel manufacturers. The latest thing is cars.”

Hoogewerf also said the actual number of billionaires could be higher than estimated.

“Either they are super-discreet, or perhaps they haven’t come to the surface,” he said. “Having said that, the transparency of wealth... is now very much in the open. There’re many more listed companies.”

He said that among the people who probably should have been listed are Liu Chuanzhi, chairman of the world’s No. 4 PC maker Lenovo, and Chen Feng, founder of Hainan Airlines.

They are not on the list because it is not known how rich they really are.

Source : TMI
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The Great Recession is Over

The worst US recession since the Great Depression has ended, but weak household spending as the labour market struggles to create jobs will slow the pace of the economy’s recovery, according to a survey released yesterday.

The survey of 44 professional forecasters released by the National Association for Business Economics, also known as the NABE, found that 80 per cent of the respondents believed the economy was growing again after four straight quarters of declines.

“The great recession is over,” NABE President-Elect Lynn Reaser said.

“The vast majority of business economists believe that the recession has ended, but that the economic recovery is likely to be more moderate than those typically experienced following steep declines.”

Recessions in the United States are dated by the National Bureau of Economic Research. The private-sector group, which does not define a recession as two consecutive quarters of decline in real gross domestic product, often takes months to make determinations.

The recession that started in December 2007 is the longest and deepest since the 1930s. It was triggered by the US housing market’s collapse and the ensuing global credit crisis.

While the economy is believed to have rebounded in the third quarter, analysts believe that ordinary Americans will probably not see much difference as unemployment will remain high well into 2010, restraining consumption.

“We don’t necessarily expect the US economy to fall into a double-dip recession. This time round, consumers will be reluctant to join the party,” said Paul Ashworth, senior US economist at Capital Economics in Toronto.

The NABE survey, conducted in September, predicted real GDP growth expanding at an annual pace of 2.9 per cent over the second half of this year. Output for all of 2009 is expected to contract 2.5 per cent and next year, rebound 2.6 per cent.

Much of the anticipated recovery was seen driven by businesses rebuilding their inventories after aggressively reducing unwanted stockpiles of unsold goods to match weak demand.


Investment in the residential market would also add to growth, with the majority of the survey’s respondents convinced that the housing market downturn, which has lasted more than three years, was close to coming to an end.

About two-thirds of respondents believed house prices will reach a bottom this year. The survey found that high house prices would not pose a threat to the sector’s recovery.

The survey predicted that the unemployment rate will rise to 10 per cent in the first quarter of 2010 and edge down to 9.5 per cent by the end of that year. The labour market was not expected to regain most of the jobs destroyed in the recession until 2012 or beyond.

The weak labour market will continue to weigh on consumer spending, slowing the recovery. The jobless rate climbed to 9.8 per cent in September — a 26-year high — from August’s 9.7 per cent.

Labour market slack, combined with weak wage growth, meant inflation would not be an obstacle to the economic recovery and the Federal Reserve will not be under pressure to raise interest rates, the survey found.

“With improving credit markets, the US economy can return to solid growth next year without worry about rising inflation,” Reaser said.

The US central bank was seen leaving its overnight benchmark lending rate near zero until late next spring, followed by measured increases that would take the rate to 1 per cent by the end of 2010, the survey showed.

Despite signs of improvement in the financial markets, most respondents believed that it would take some time for them to return to normal. Only 29 per cent believed this would happen in the second half of next year.

Respondents also expected the US dollar to weaken further this year and into 2010, but did not see this contributing to a narrowing of the country’s trade deficit as the economic revival stimulates demand for imports.

The dollar has lost about 5.8 per cent of its value against a basket of currencies so far this year, largely because of worries over the government’s growing budget deficit and expectations that the Fed will keep interest rates at super-low levels for a while.

Source : TMI
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