Finance topics

President-elect Barack Obama’s economic stimulus package will include hundreds of billions of dollars worth of tax breaks for individuals and businesses, according to a transition official and Democratic aides.

Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say. The measure may be worth as much as $775 billion, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation.

The dollar today rose to the highest level in almost three weeks against the euro and also surged against the yen on speculation that the Obama plan would help the U.S. economy recover from recession.

Making tax cuts such a large part of the stimulus may help win support from congressional Republicans. Senate Minority Leader Mitch McConnell, a Kentucky Republican, said his party would support an immediate middle-class tax cut as part of any stimulus package.

“Republicans, by and large, think tax relief is a great way to get money to people immediately,” McConnell said yesterday on ABC’s “This Week.”

The plan would attempt to boost consumer demand by spending $140 billion on tax breaks worth $500 for individuals and $1,000 for couples, according to a House Democratic aide. The change would come by altering tax-withholding rules, rather than through a rebate check as with the previous stimulus plan enacted last year, so that workers would see an immediate increase in their take-home pay.

The $500 tax credit would apply to the first $8,100 of wages, meaning a worker who earns $24,400 a year and is paid twice a month would get about $60 extra per paycheck for four months.

Business Tax Breaks

For businesses, the aide said, lawmakers will use similar measures they’ve employed in past stimulus bills, such as allowing companies to get refunds for taxes paid in any or all of the past five years by deducting losses they’ve incurred now; those losses can currently only be carried back two years.

Congress is also likely to include incentives such as accelerated depreciation to encourage companies to buy equipment now rather than defer such investments. The plan also attempts to combat joblessness by offering companies tax breaks for hiring more workers, the aide said cash advance no fax.

The tax provisions are also likely to repeal the alternative minimum tax on municipal bonds issued to build airport runways, sewer systems and other privately run facilities that benefit the population at large, another aide said. Congress is unlikely to enact a new round of incentives for U.S.-based multinational corporations to repatriate foreign earnings at a discounted tax rate as urged by business groups such as the Chamber of Commerce, that aide said.

Accelerated Tax Breaks

Many of the business tax incentives would be accelerated so that any dollar written off now would not be able to be claimed in future years, the aide said. That would reduce the long-term impact of the tax cuts on the federal budget deficit.

Obama is slated to meet today with congressional leaders from both parties to discuss the plan. Democrats said Congress probably won’t be able to complete work on the plan by January 20, the day of the inauguration, as some had hoped.

“It’s going to be very difficult to get a package put together that early,” said House Majority Leader Steny Hoyer in an interview on “Fox News Sunday.” “We want to do this right.” He said he expects the House to pass the bill by the end of the month and get the legislation through the Senate and signed into law in February.

Urgency

Senate Majority Leader Harry Reid, in an interview yesterday on NBC’s “Meet the Press,” downplayed the importance of what he called a “false” deadline. “The urgency of this, everyone knows about — but I’m not going to have some false deadline,” Reid said. “It’ll take as much time as it needs to get done.”

Obama has called on lawmakers to quickly pass legislation to prop up the economy, which is in its worst slump in decades and could deteriorate further without significant fiscal stimulus. Economists surveyed by Bloomberg last month projected gross domestic product would shrink in the fourth quarter by 4.3 percent, the biggest decline since 1982.

Source

OTTAWA–In a precedent-setting judgment, the Supreme Court of Canada has written that executives who run a company have a primary duty to do what is best for the corporation, not necessarily its shareholders or its bondholders.

Canada’s top court has ruled against the idea that the interests of shareholders supersede other stakeholders in a corporation, such as investors who have bought bonds.

The clarifications governing corporate law in Canada come from a 76-page written judgment on a decision the court made in June, when it gave the go-ahead on the planned privatization of BCE Inc., owner of Bell Canada.

Both the written reasons – and the original ruling – were unanimous, giving greater clarity to the rights of directors and stakeholders of corporations.

The court noted that, in most cases, the interests of the corporation and its investors and creditors were identical, but as was the case with BCE’s proposed acquisition by a group of investors headed by the Ontario Teachers’ Pension Plan, sometimes conflicts arise.

"Directors may find themselves in a situation where it is impossible to please all stakeholders," the court said.

"In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations, including, but not confined to, the need to treat affected shareholders in a fair manner."

The written ruling will bring no comfort to BCE, or shareholders who stood to benefit from the $42.75 per share sale price. It comes just over a week after the $52 billion leveraged buyout collapsed because of volatile credit markets and the impact of the North American recession.

The written reasons, nevertheless, were called important by Michael Gans, a partner with Blake, Cassels & Graydon LLP, for clarifying points of confusion that arose from an earlier decision the Quebec Court of Appeal cited to rule against the acquisition bad credit pay day loans.

In that case, the Quebec court found BCE’s directors did not give adequate consideration to how the deal would impact bondholders. Bondholders had argued that BCE would be crippled by taking on $34 billion in debt and that the value of their bonds would be diminished.

Gans said the Supreme Court found BCE had considered the effect on bondholders but decided the directors were acting in the best interest of the corporation.

"If you are a director of a Canadian corporation, you can feel good about this judgment, because it gives you significant leeway to do your job as long as you do so in a reasonable and informed manner," he said.

Gans said the top court made clear Canadian law differs from the U.S., where judgments have placed shareholders at the top of the totem pole in a contest of interests.

"There is no principle that one set of interests – for example the interests of shareholders – should prevail over another set of interests," the court wrote.

"Everything depends on the particular situation faced by the directors and whether … they exercised business judgment in a responsible way."

The ruling will likely be used to clarify the relationships of corporate executives, shareholders and bondholders in future mergers, bankruptcies or hostile takeovers when stakeholder interests collide.

In June, the Supreme Court had approved the "plan of arrangement" – dismissing a challenge from bondholders that their interests had not been protected – but given the time constraints issued no reasons for its decision.

That ruling appeared to clear the last hurdle to the world’s largest leveraged buyout … until the size of the debt proved a bridge too far.

Source

European services shrank at a record pace in November, increasing pressure on the European Central Bank to cut interest rates further this week.

Royal Bank of Scotland Group Plc’s services index dropped to 42.5 from 45.8 in October, remaining below the expansion- threshold of 50 for a sixth straight month. The final reading is the lowest in the survey’s 10-year history and falls short of an initial estimate of 43.3 published Nov. 21. Economists forecast a decline to 43.3, according to the median of 31 estimates in a Bloomberg survey. The index is based on a survey of purchasing managers by Markit Economics in London.

Europe’s economy fell into its first recession in 15 years in the third quarter after the worst financial crisis since the Great Depression pushed up borrowing costs, eroded confidence and hurt demand for exports. Slowing inflation is giving the ECB room to cut rates further as policy makers across the globe seek to limit the economic damage from the financial turmoil online payday loans.

“The extremely weak November service-sector purchasing managers’ survey exerts significant extra late pressure on the ECB to deliver a deep interest-rate cut on Thursday,” said Howard Archer, chief European economist at IHS Global Insight in London.

The ECB has cut its benchmark rate by 100 basis points, or a full percentage point, to 3.25 percent since early October and signaled more reductions are ahead. The central bank will probably cut its key rate by half a percentage point this week, a survey of economists shows. That would be the third reduction since early October.

Source

Call them resigned or defeatist, but two leading risk managers are already sure of one lesson from the crisis ravaging the global financial system: in one way or another, it’s happened before and it’ll happen again.

“For at least 10 to 15 years, people will remember this very painful experience, take it to heart and balance risk versus return more realistically,” said John Rowe, London-based executive vice president for SunGard, a financial software maker.

“But I say to my younger colleagues: don’t assume this is the last one. If you’re young enough you’ll see the next one,” said Rowe, who used to oversee market risk at Bank of America.

Leaders of the Group of 20 developed and emerging economies have ordered financial supervisors to conduct a root-and-branch review of the shortcomings in regulation and oversight that spawned the credit crisis and still-deepening global slump.

Speaking on a recent visit to Beijing, Rowe saw no need for supervisors to become heavy-handed. But, he said, they should require banks to demonstrate they have the capacity to process their trades from start to finish and value them daily.

“And they should say ‘if you can’t show us, we’ll get real tough’,” he said. “It would slow the pace of innovation to some significant extent, but it wouldn’t completely handcuff the process.”

Even then, Rowe said the best pricing and risk management tools struggle to capture “tail risk” — statistically improbable confluences of events that have materialized with alarming frequency during the crisis, bringing many banks to their knees free credit report.

“People have been too inclined to put complete faith in the scientific certainty of the numbers that come out of all these complicated systems and abandon a certain amount of common sense.

“Part of the problem is not derivatives or risk systems. It’s human psychology at fault here. We’ve met the enemy and it’s us.”

BE HUMBLE

Nikolaus von Bomhard, the chief executive of Munich Re (MUVGn.DE: Quote, Profile, Research, Stock Buzz), the world’s largest reinsurer, thinks he may have already spotted the next market land mine: before long, the availability of too much cheap cash will once more cause risk to be underpriced.

The appetite for risk may have faded for now, but von Bomhard said he suspected this was just a fad.

“Excess liquidity will sooner or later become an issue again,” he said in an interview at the weekend.

“One or two years out, it will take a lot of discipline to take the liquidity out and not fall into the trap again of chasing yield and disregarding risk.”

As for the claims side of Munich Re’s business, von Bomhard agreed with Rowe that managing risk is as much about trying to understand human nature and technological change as it is about analyzing actuarial tables. 

Read more

Thomson Reuters Corp (TRIL.L: Quote, Profile, Research, Stock Buzz) (TRI.TO: Quote, Profile, Research, Stock Buzz) reported stronger-than-expected quarterly results as gains in its professional division more than offset slowing growth in the business that serves financial institutions, sending its shares up as much as 5.5 percent.

The news and information publisher, which was formed by Thomson Corp’s purchase of Reuters Group Plc in April, did not provide financial forecasts for 2009, but affirmed its 2008 outlook for revenue and operating profit margin.

“If you look at our average monthly net sales, they’re positive again through October and positive in the third quarter,” Chief Executive Thomas Glocer said in a phone interview. “If you want to start thinking about growth for next year, that’s a good thing.”

The company’s London shares were up 3.72 percent at 1,117 pence in late trading after trading as high as 1,135 pence.

The London shares are down nearly 30 percent since the stock began trading in April.

Third-quarter net income was $380 million, or 46 cents a share, compared with $2.97 billion or $4.61 per share a year ago. Excluding nonrecurring items, discontinued operations and other items, profit was 48 cents a share, beating the average analyst forecast of 34 cents, according to Reuters Estimates.

Pro forma revenue rose 8 percent to $3.33 billion, topping Wall Street forecasts of $3 short-term cash loans.24 billion. Pro forma figures assume the Thomson Reuters deal had closed on January 1, 2007.

“The numbers look slightly ahead,” said Alex DeGroote, a media analyst at Panmure Gordon in London, adding that Thomson Reuters was “not too bearish on ‘09 markets growth potential.”

Thomson Reuters stood by its forecast for 2008 revenue growth of 6 to 8 percent excluding currency effects, and affirmed its forecast for an underlying operating profit margin of between 19 and 21 percent.

“NOT DISCRETIONARY GOODS”

The company raised its forecast for 2008 free cashflow margin to between 13 percent and 15 percent of revenue, excluding synergy and integration costs.

“We went out in February and said, in a company where there were a million moving pieces moving into an awful market, we would do 6-8 percent growth,” Glocer said.

“The fact that we don’t have to change that is a very good thing. Ditto the margin,” he said.

“Our products are not discretionary goods,” he added on a conference call, reiterating that the markets division, which serves financial institutions, could see positive growth in 2009.

Organic revenue growth at the markets division was 5 percent in the third quarter, slowing from 7 percent in the second quarter. 

Read more

China’s listed companies, after delivering robust earnings growth every quarter for two years, are seeing profits start to shrink as the global financial crisis hits more severely than many had expected.

Slumping demand and falling prices have hit Chinese industries from steel to automobiles to airlines, and the highly profitable financial sector, while largely insulated from the worst of the global credit crisis, will see its bottom line eroded by a slowing economy and a deflating property market.

“The impact of the global financial crisis on China’s real economy and corporate operations has just begun to make itself clear,” said Zheng Weigang, head of research at Shanghai Securities.

“Many industries, such as steel and chemicals, have seen their sales prices nearing their cost points,” he said.

“November and December will see several major sectors fall into losses, boding ill for corporate earnings growth in the fourth quarter and next year.”

In the third-quarter earnings reporting season that ended on Friday, the 1,600-plus firms listed on the Shanghai and Shenzhen stock exchanges posted a 20 percent drop in net profit from the second quarter, according to calculations by state media. Year-on-year comparisons for the quarter were not available.

For the first nine months of the year, net profit was up 7.1 percent year-on-year at 782 billion yuan ($114 billion), slowing sharply from 16 percent growth in the first half, the calculations showed.

Worse news lies ahead.

SHRINKING MARGINS

Analysts estimate that more than half of China’s listed firms have already seen their profit margins drop in the third quarter from the same period of last year creditreports.

That means the only way they could sustain earnings growth is by selling more products — a tough task as global recession crimps exports and China’s slowing economic growth dampens domestic demand.

Among 10 analysts, economists and fund managers polled by Reuters this week, all but one forecast flat to weaker earnings for listed firms in the current quarter compared with a year earlier, while for next year they projected declines ranging from 2 to 10 percent.

“Earnings growth is certain to be negative in 2009, but the extent of the decline should still be in single digits, with the first half expected to be worse than the second half,” said Wu Haijun, Shanghai principal at Power Pacific Corp of Canada, a foreign investor in Chinese stocks.

Earnings at financial firms, the primary engine of China’s profit growth accounting for some 40 percent of the total at all listed companies, slowed significantly after powering total increases of 43 percent in 2007 and 67 percent in 2006.

The country’s biggest insurer, China Life (601628.SS: Quote, Profile, Research, Stock Buzz) (2628.HK: Quote, Profile, Research, Stock Buzz), posted a drop of more than 70 percent in third-quarter net profit, as its investment income sank with the stock market. China’s benchmark Shanghai Composite Index .SSEC has dropped more than 70 percent over the past year. 

Read more

ALBANY, N.Y. — Financially troubled American International Group, now supported by a federal bailout, has agreed to freeze millions of dollars in compensation and bonuses for former executives.

In a letter Wednesday to AIG’s new chairman, Edward Liddy, New York Attorney General Andrew Cuomo wrote that after his office’s review of company documents, the insurance and finance giant agreed to stop payments under former chief executive Martin Sullivan’s $19 million pay package.

AIG also confirmed that no payments will be made from the $600 million compensation and bonus pools of its Financial Products subsidiary, including $69 million the former head of the subsidiary, Joseph Casano, could have been paid and about $93 million that five other top executives might have been eligible to receive.

"The Financial Products subsidiary was largely responsible for AIG’s collapse, and Casano has been terminated," Cuomo wrote. Taxpayers’ financial interests should take priority over those managers, he said.

Company spokesman Joe Norton said Cuomo’s letter was consistent with AIG’s actions and discussions with the attorney general internet pay day loan. After a meeting last week, Liddy and Cuomo issued a joint statement that payments to outgoing chief financial officer Steven Bensinger were stopped and the company would help Cuomo recover any illegal expenditures.

Cuomo said Wednesday that the next step for his office will be investigating how to recoup executive bonuses paid previously, saying a fraud law could apply depending on timing, circumstances and contracts. Handling AIG’s case should be regarded as a template for other companies that require government help, he said.

"Taxpayers are, in many ways, now like shareholders of your company, and the new AIG has a responsibility to them in the first instance," Cuomo wrote Liddy, noting the $120 billion bailout will leave the U.S. Treasury with AIG stock.

Source

3M Co (MMM.N: Quote, Profile, Research, Stock Buzz) reported a 10 percent rise in quarterly earnings on Tuesday, a pleasant surprise, sending shares as much as 7 percent higher compared with a decline in the broader market.

3M’s broad lineup of businesses — from high-tech industrial products such as chemicals used in aircraft maintenance to basic consumer goods like Post-It notes — make it a bellwether of the U.S. economy. With U.S. demand slowing, 3M has been relying on foreign markets for growth.

“They’re definitely benefiting from the fact that they make things that everybody needs,” said Sterne Agee analyst Nick Heymann, noting that international markets generated 62 percent of the company’s sales.

The company, which makes products ranging from Scotch tape to optical films for liquid crystal displays, posted third-quarter net income of $991 million, or $1.41 per share, compared with $960 million, or $1.32 per share, a year earlier.

Factoring out special items, the St payday advance lender. Paul, Minnesota-based company posted earnings of $1.42 per share, which compares with analysts’ estimates of $1.38 per share, according to Reuters Estimates.

Revenue rose 6.2 percent to $6.56 billion, a bit short of analysts’ estimates of $6.67 billion.

The company lowered its outlook slightly, predicting 2008 earnings in the range of $5.40 per share to $5.48 per share, an 8 percent to 10 percent increase, instead of the minimum 10 percent increase it had previously predicted. Analysts see 2008 EPS of $5.45, according to Reuters Estimates.

But even the reduction translated into a positive against reduced expectations, as the outlook was “far from the disaster many have come to expect,” wrote J.P. Morgan analyst C. Stephen Tusa Jr, who rates 3M shares “overweight.” 

Read more

Nokia, the world’s top mobile phone maker, launched its free music package on Thursday, issuing a challenge to Apple Inc’s dominance of the digital music market.

The Finnish firm also launched its first touch-screen phone 5800 Xpressmusic to rival Apple’s popular iPhone.

Nokia said at an analyst and media event in London it would start selling the phone shortly, pricing it at 279 euros ($395) excluding subsidies and taxes, which it said was roughly half the price of the other main touch-screen phones on the market.

The price means consumers on many large markets will get the phone for free from operators when signing up for contract.

“The price and positioning of the product may result in substantial demand and will undoubtedly put some pressure on Apple,” said Ben Wood, research head at CCS Insight.

Nokia said all major music labels and most independent labels will offer their tracks as part of Nokia’s ‘free’ music bundle “Comes with Music.”

“Comes with Music” and similar products from other hardware vendors could help the music industry make up for falling CD sales and cut illegal downloads.

The battle for mobile music is increasingly crowded cash advance usa. Sony Ericsson launched its music package this month in Sweden, and South Korea’s LG Electronics plans a service similar to Nokia’s. 

Read more

Mark Carney on Thursday found himself back in the glass-faced tower at University and King where he used to chase business deals as a managing director with Goldman Sachs.

But this time he had a decidedly different job description.

For the past eight months the Bank of Canada governor has largely been kept out of the headlines generated by the growing chaos in the global financial system.

But this week, Carney’s role as steward of the central bank took on a more urgent profile as he quickly assembled the country’s top bankers at the Bank of Canada regional office on the 20th floor of 150 King St. W. The meeting took place the same day Canada, along with major central banks around the world, joined to orchestrate a $180 billion (U.S.) injection of desperately needed capital into the world’s wobbling money market.

The Bank of Canada’s contribution of a $10 billion backstop to the banking system was a relatively small but important vote of confidence at a time when investors worldwide were hitting the panic button. Inside the 20th-floor meeting, Carney was bound to be mapping out further action plans with bankers should the need arise. But Bank of Canada officials were divulging little of what went on, secretly ushering officials out of the building.

Those in the Canadian banking industry say they’re relieved to have the Oxford-educated banker at the helm of Canada’s central bank during these tumultuous times.

Upon his appointment last October, Carney was described by Finance Minister Jim Flaherty as "a steady hand" whose international experience and understanding of high finance would "help maintain the stability of Canada’s monetary system."

Who exactly is this steady hand?

When it came time to replace David Dodge as governor of the bank last fall, Carney – the senior bureaucrat in the country’s finance department at the time – was not a gambling man’s choice for the job. Most predicted Dodge’s deputy, Paul Jenkins, would take over as Canada’s top banker, but it was Carney’s experience as a global financier that pushed him to the top.

"He has very impressive credentials, and he has the sort of optimal combination of private- and public- sector experience, which allow him to be a very strong governor," Charmaine Buskas, TD Securities senior economic strategist, said then.

Louis Gagnon, a former Bay Street banker and current professor of finance at Queen’s University, likens Carney to the second coming of his predecessor, Dodge, and says he is a sharp mind in a central bank known for a measured approach to monetary policy.

"Mark Carney is from a very pragmatic school of thought," Gagnon says payday loans. "He has a cool head … and an understanding of the world."

The son of a high school principal, the banker was born in late winter 1965 in a small village in the Northwest Territories.

An academic and an athlete, Carney was a star goaltender with his high school hockey team and valedictorian of his graduating class before leaving Canada to study economics at Harvard. He later earned a PhD at Oxford University. It was there that he met his British-born philanthropic wife, Diana.

From Oxford, he moved to London and to Goldman Sachs, one of the world’s largest financial firms, where, for 13 years, he trotted around the globe, banking in the world’s major markets – London, New York, Tokyo and Toronto – where he earned his "whiz kid" moniker, a title which, as the second youngest Bank of Canada governor and the youngest central banker in the G8, continues to stick.

Those who knew him when he worked at Goldman Sachs remember him as a "high flyer."

He left that post and its undoubtedly rich pay in August 2003 to join the civil service. After a brief stint with the Bank of Canada in 2003-2004, Carney moved to the Ministry of Finance.

Since moving to Ottawa, the banker, his wife, and their four children have lived in a $1.3 million home in Ottawa’s exclusive Rockliffe Park. And it’s from from his current fourth-floor office overlooking Parliament Hill that he now monitors the global markets, leading Canada’s effort to bring calm to a financial panic not seen in most investors’ memory.

Source