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TOKYO– Sony Corp. is slashing 4 per cent of its worldwide workforce, reining in spending and shutting plants as it tries to ride out a looming worldwide recession that is battering Japan’s export-reliant manufacturers.

Tokyo-based Sony, which is cutting 8,000 of its 185,000 jobs, said yesterday it will shut five or six plants – about 10 per cent of its 57 factories.

Sony also plans to reduce its electronics investments by about one-third by the end of March 2010, although it did not give specific numbers. Sony will also cut at least 8,000 temporary jobs.

The job cuts are the most drastic here since the U compare car insurance prices.S. credit crunch hit over the summer.

Sony has been recovering from internal problems in recent years under cost-cutting reforms led by chief executive Howard Stringer.

Sony said the moves will deliver $1 billion (U.S.) in savings a year by March 2010.

As well, Sony will trim spending in semiconductors and will outsource output planned for image sensors for mobile phones.

Associated Press

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TD Bank Financial Group has reported fourth-quarter net income of $1.01 billion, down from $1.09 billion a year ago, but stressed Thursday it is still providing ample credit to Canadians.

TD said revenue was $3.64 billion in the three months ended Oct. 31, up from $3.55 billion a year earlier but down from $4.04 billion in the third quarter of this year.

Adjusted earnings fell to $665 million, compared with $1.02 billion a year ago.

Earnings per share were $1.22, down by 19 per cent from $1.50 a year ago, and EPS adjusted for one-time items slumped 44 per cent to 79 cents.

The quarterly results "reflected solid earnings contributions from TDBFG’s retail businesses in both Canada and the United States, while illiquid and volatile markets affected the performance of wholesale banking," the bank stated.

TD benefited from non-recurring items during the quarter, including a positive adjustment of $323 million after tax as the bank reversed much of reserves previously set aside for Enron litigation, a gain of $118 million on changes in fair values of hedging derivatives, and a $59-million gain on credit default swaps. These were partly offset by $126 million in amortization of intangibles and $25 million in restructuring and integration items.

Provision for credit losses more than doubled to $288 million from $139 million fast cash advance.

Full-year revenue was $14.67 billion, up from $14.28 billion, with reported net income of $3.83 billion, down from just under $4 billion.

Return on equity for the year fell to 14.4 per cent from 19.3 per cent.

"On the whole, we’re proud of what we’ve accomplished in 2008," stated TD chief executive Ed Clark.

"Our retail businesses are performing very well and, even though TD Securities had a tough year and a particularly tough fourth quarter, we’re pleased that its strategic positioning has protected our investors from the worst of the current turmoil."

Clark added: "As the economy slows, understandably there’s concern from governments and the public that banks may restrict credit. What’s clear from our reporting today is that TD continues to supply credit to its customers and clients."

He said TD’s personal and commercial lending in Canada has continued to grow at an accelerating rate through 2008, despite a general slowdown in credit expansion.

"While the lack of visibility on the economic environment calls for caution, we have a strategy and competitive position that will help us weather the storm," he added.

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General Motors shook an already embattled auto industry Friday as it reported a huge quarterly loss that was much worse than expected and warned it is in danger of running out of cash in the coming months.

The nation’s largest automaker reported that it lost $4.2 billion, or $7.35 a share, excluding special items. That’s up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share.

But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.

In addition, the company said that in the first half of next year its "estimated liquidity will fall significantly short" of what it needs to continue operating. It said the only thing that would save it would be a significant improvement in economic and automotive industry conditions, help from the federal government, better access to capital markets or some combination of those options.

The report was by far the most grim assessment by a company that has insisted it is not considering filing for bankruptcy court protection. While the release did not mention the threat of bankruptcy, the outlook appeared to raise the possibility of such a dramatic step.

In response to questions on a conference call after the report, CEO Rick Wagoner said he would not speculate on whether GM would need to file for bankruptcy protections.

"We’re convinced the consequences of bankruptcy would be dire and extend far beyond General Motors," Wagoner said. "We need to find a way to get through this and that’s our focus."

Shares of GM (GM, Fortune 500) fell 9% Friday to $4.36, a nearly 60-year low.

Industry experts said the incredibly weak October U.S. auto sales that GM and the rest of the industry reported Monday, coupled with Friday’s report, mean that bankruptcy for GM is a very real risk.

"I think we should be worried [about a bankruptcy] right now," said Robert Schulz, Standard & Poor’s senior auto credit analyst. "We were worried before and the relative level of worry is now heightened."

S&P cut GM’s credit rating deeper into junk bond status to a rating of CCC+ Friday afternoon, not far above the D rating that indicates default by a company.

Shelly Lombard, senior high yield analyst at Gimme Credit, an independent research firm, estimates that GM will need to get between $10 billion and $15 billion in federal assistance in order to avoid bankruptcy by 2010 and that the chance of bankruptcy without help is probably 80% to 90%.

"They didn’t want to speak the B word. It doesn’t sound like they have a lot of options if the government doesn’t step forward," she said, adding that aid for the auto industry that has already been approved by Congress amounted to "bringing a Band-Aid to a train wreck."

Both Schulz and Lombard also said that not even a federal bailout may be able to save either GM or Ford in the long-term considering the problems facing the industry.

"To the extent that they do receive some assistance, it’s more buying time rather than a fundamental solution," said Schulz.

Still, experts agreed Congress will need to take swift action to make any difference for the embattled industry.

"This is not something that can go on and be dealt with in the next year, it needs to be dealt with in the next few weeks," said Dave Cole, chairman of Michigan think-tank the Center for Automotive Research. "When your cash is gone, you’re gone."

One possible endgame scenario reported recently involved a corporate tie-up between GM and Chrysler. Wagoner, without mentioning Chrysler by name, said that GM had ended talks about a possible merger with a Detroit rival to concentrate on the cash crisis it now faces.

"While it’s fair to say we conclude this acquisition could have provided significant benefits, we’ve concluded at this particular time that it’s important we put 100% of our efforts on the immediate liquidity challenges," said Wagoner.

Chrysler issued a statement of its own after GM’s report. CEO Robert Nardelli didn’t comment about the merger talks but said Chrysler would keep looking at various options to end its ongoing losses cash advance loans.

"As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability," he said.

GM announced a series of steps Friday designed to help it improve its cash reserves by $5 billion. Those steps included cutting another 10% of salaried employment costs, on top of the 20% cut in those costs already planned. In addition to expected staffing reductions, those white collar workers will not get their typical incentive pay next year.

The company will also cut capital spending plans by $2.4 billion in 2009, pushing back development plans for some new models. But it warned that even those steps would not be enough unless conditions improve. It did not announce any plans for additional plant closings or hourly staff cuts in its statement, however.

The company is clearly pinning much of its hopes of weathering the current downturn on an industry bailout from Washington.

"The company has engaged in discussions with various U.S. federal government agencies and congressional leaders about the … the need for immediate government funding support given the economic and credit crisis and its impact on the industry, including consumers, dealers, suppliers and manufacturers," according to a company announcement.

Wagoner joined the chief executives of Ford Motor (F, Fortune 500), privately-held Chrysler LLC, as well as the president of the United Auto Workers union Thursday afternoon in meetings with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., to seek support for a wide-ranging bailout package. Both congressional leaders voiced support for additional help for the sector following their meetings.

Among the topics discussed were a $25 billion loan to fund union-controlled trust funds that would be set up in the coming year to cover the health care costs of retirees and their family members. Shifting about $100 billion of those costs from the automakers’ balance sheet to the trust funds was a key concession the companies won from the UAW in the 2007 labor deals.

The discussions also touched on whether the government would allow the automakers to tap the $700 billion bailout of Wall Street firms and banks that was enacted last month. Treasury has so far rejected auto industry inquiries about accessing that pool of money.

The automakers also renewed their pre-election request to double the $25 billion low-interest loan program approved by Congress to help automakers convert operations to make more fuel-efficient vehicles and meet the demands of car buyers and new federal rules.

But Wagoner said just doubling the money available under that program won’t solve the immediate cash crisis facing the industry. And for the first time, he put a dollar amount on the cash that automakers are looking for from the federal government right now.

"In the meeting yesterday we talked near-term liquidity support for the industry in the range of $25 billion," he said. "No one said yes or no to that number."

The company’s problems have been building for many years. It has not made money on its core North American auto operations since 2004, and since that time it has run up $72 billion in net losses, including this latest period.

The company did see a one-time $1.7 billion gain from a change in accounting for its obligation to pay for health care for retirees and their family. That allowed it to post a net loss of $2.5 billion, or $4.45 a share, an improvement from the net loss of $42.5 billion, or $75.12 a share a year ago when it was hit by huge special charges.

Much of the net losses in recent years have been due to non-cash charges, such as the ones a year ago. But even excluding those kinds of special charges, GM’s core auto operations in North America have lost nearly $18 billion over the course of the last 15 quarters.

GM’s announcement came on the same day that Ford Motor reported a $3 billion loss in the period, excluding special items. Even Japanese rival Toyota Motor (TM), which has a much better cash position coming into this crisis, announced Thursday that its third quarter earnings had plunged nearly 70%, as it slashed its full fiscal-year outlook by 50%. 

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WASHINGTON–Google Inc. and Yahoo Inc. have scrapped their Internet advertising partnership, abandoning attempts to overcome the objections of antitrust regulators and customers who believed the alliance would give Google too much power over online commerce.

The retreat announced Wednesday represented another setback for Yahoo, which had been counting on the Google deal to boost its annual revenue by $800 million and placate shareholders still incensed by management's decision to reject a $47.5 billion takeover bid from Microsoft Corp. nearly six months ago.

Without Google's help, Yahoo now may feel more pressure to renew talks with Microsoft and ultimately sell for a price well below the $33 per share that Microsoft offered in May. Yahoo shares traded Wednesday morning at just $13.67, up 2.4 percent on the day.

Surrendering the chance to sell ads on Yahoo's popular Web site won't be a significant financial blow for Google, which already runs the Internet's largest and most prosperous advertising network.

But the capitulation marks a rare comedown for Google, which had been insisting for more than four months that the Internet would be a better place to do business if it were allowed to work with Yahoo.

"We're of course disappointed that this deal won't be moving ahead," David Drummond, Google's chief legal officer, wrote on a company blog. "But we're not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on.''

Google's management took a strategic risk by agreeing to the Yahoo partnership in June, knowing the move would increase the government's scrutiny of Google's market power. Even though it is now walking away empty-handed, Google figures to remain in regulators' sights as it tries to expand.

"For the first time, Google has run into real opposition to its marketplace goals," said Jeff Chester, executive director of the Center for Digital Democracy, a consumer advocacy group. "Google is aware that its aggressive moves in the online advertising business are potentially contributing to damaging its brand. The perception of Google has changed.''

The collapse of the Google-Yahoo alliance shapes up as a potential coup for Microsoft.

Although it has publicly said it's no longer interested in buying Yahoo, Microsoft spent a lot of time and money trying to keep Google and Yahoo from coming together.

The world's largest software maker provided evidence that helped persuade regulators the partnership would diminish competition. Microsoft also helped orchestrate the campaign that prompted major advertisers to lodge formal complaints against the proposed partnership.

The Justice Department signaled it was considering a legal challenge to the deal in September when it hired veteran antitrust lawyer Sanford Litvack to review the case.

The Wall Street Journal reported Monday that Google and Yahoo had proposed restrictions on the deal – capping the amount of search ads Yahoo could outsource to Google – in a late bid to win favor no fax pay day loan. Google's statement Wednesday indicated the idea didn't fly.

"After four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement," Drummond wrote. "Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long term interests of Google or our users, so we have decided to end the agreement.''

Now that Google is out of the picture, Yahoo co-founder Jerry Yang will have to come up with another way to accelerate his company's revenue growth and boost a stock price that has lost more than half its value since he became chief executive in June 2007.

If nothing else, Yang appears to have a bigger incentive to join forces with another tarnished Internet star, AOL. Yahoo has been discussing a possible acquisition with AOL's corporate parent, Time Warner Inc., for months. Google also owns a 5 per cent stake in AOL.

But many Yahoo shareholders, including new board member Carl Icahn, have indicated they think the Sunnyvale, Calif.-based company should try to lure Microsoft back to the negotiating table.

Most industry analysts still believe Microsoft will make another run at Yahoo, particularly now that the company can be bought at a fraction of the May offer. Instead of buying Yahoo in its entirety, Microsoft might just want Yahoo's search engine, which ranks a distant second in usage behind Google's. Microsoft attempted to buy Yahoo's search engine shortly before the Google partnership was reached.

Under the terms of the proposed partnership, Yahoo would have drawn on Google's superior technology for some of the ads shown alongside the search results on its Web site. Yahoo would have pocketed most of the revenue generated from Google's ads.

The concept didn't pan out because Google and Yahoo combined control more than 80 percent of the U.S. search advertising market. Microsoft and the Association of National Advertisers, among others, argued the arrangement would enable Google to gradually increase advertising prices and exert more control over the flow of e-commerce.

Google and Yahoo said the complaints were misguided because search advertising rates are set through an auction-style system. What's more, the partnership was supposed to be non-exclusive, leaving an opening for Microsoft and others to vie to sell ads on Yahoo's website.

But helping out Yahoo began to make less sense for Google as it became apparent how much the proposal was alienating the government and advertisers.

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The International Energy Agency warned last week that 50 per cent of global electricity supply will need to come from renewable energy sources by 2050 if we hope to "minimize significant and irreversible climate change impacts."

"Governments need to take urgent action," said Nobuo Tanak, executive director of the agency. "Governments need to do more. Setting a carbon price is not enough."

What’s interesting about this particular warning is that comes from an agency that, in the past, has been accused of paying only lip service to renewables as part of its broader energy mandate, which has traditionally been dominated by fossil fuels.

Indeed, the organization was founded during the early 1970s directly in response to the 1973 Arab oil embargo.

Here in Canada, Tanak’s "do more" message likely fell on deaf ears. The federal Conservative government is more focused on ways to clean up the image of the western oil sands so that development there can continue unabated. Provinces such as Ontario, Quebec and British Columbia have taken leadership, but at a federal level there’s no green vision for Canada — just a laundry list of half-measures aimed at creating a perception of action.

Given the Conservative lead in the polls, Canadians must be buying it. The only other explanation is that four in 10 voters don’t care about the environment, climate change or how we leave the world for future generations. Not enough, anyway, to sway them toward the Liberals, NDP or Green Party.

It gets worse.

The collapse of Wall Street has severely tightened lending markets. There’s a global credit crunch, and those looking to spend big bucks on wind, hydroelectric, solar and biomass projects will find it much more difficult — and expensive — to obtain debt financing.

The bottom line: the knee-jerk reaction to the financial crisis will lead to less, or slower action on the climate crisis.

"These are capital-intensive projects," says Tom Rand, director of Toronto-based VCi Green Funds Inc., a private-equity fund that invests in technologies that reduce greenhouse-gas emissions. "And we need renewable-energy production to step up tomorrow."

Rand has spent the past year promoting the creation of a government "green bond" that, during the current credit crunch, makes more sense than ever.

The idea is that Canadians could purchase tax-free green bonds in the same way they can purchase Canada Savings Bonds, earning about 4 per cent a year (fast cash). But the money, potentially billions of dollars, raised from the bond issue would be devoted to infrastructure projects that promote deployment of renewable energy.

"Renewables have to get built, that’s a priority, and our plan steps in to provide that liquidity, that cheap debt capital," explains Rand, adding that the bond money could also be used to backstop low-interest bank loans so homeowners have an affordable way to pay for energy retrofits.

"Canadians get a safe investment vehicle, and companies get guaranteed access to low-cost capital over a long period of time. They don’t have to worry about that credit crunch biting them in the ass. It’s the best of both worlds."

Jobs get created. Clean energy capacity gets built. And Canadians who purchased the bonds get a safe return on their investment and a chance to boost — for themselves, and for their children — development of a green economy.

Liberal leader Stéphane Dion is a strong advocate of the green bond concept.

Last month, Dion said if elected he would create a federal infrastructure bank that would use money raised from green bonds to provide low-cost financing for major clean-energy projects.

A week earlier, NDP leader Jack Layton announced similar plans for a climate-change bond.

The Conservatives, initially receptive to the idea, ended up backing away.

"Mainly because I don’t think they want to engage Canadians on climate-change issues," Rand says. "Because once Canadians are engaged and they have something at stake, their psychology changes and suddenly people want real action."

Europe introduced green bonds last year and within three months about $1.5 billion was raised.

The public appetite is enormous for this kind of investment vehicle, says Rand, who plans to shift gears if the Conservatives get re-elected and start pitching the idea to the provinces.

Why wait? Ontario should be looking into the green bond approach today. If Energy and Infrastructure Minister George Smitherman is serious about increasing the province’s targets for renewables, then reaching those targets in an environment of tight credit will require some creative financing.

A green bond could fit that bill.

Tyler Hamilton’s Clean Break appears Mondays. Email thamilton@thestar.ca

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The Canadian dollar suffered its biggest weekly decline in at least 38 years against its U.S. counterpart this week as the passage by Congress of the $700 billion (U.S.) rescue package failed to persuade investors that the worst of the financial crisis was over.

Canadian bond prices rose and yields fell as fears of a global recession had many in the market betting that central banks would soon be cutting interest rates to spur growth.

The loonie closed at $1.0815 to the U.S. dollar, or 92.46, (U.S.) down from $1.0799 to the greenback, or 92.60 at Thursday’s close.

Canada’s currency ended the week down 4.5 per cent against the U.S. dollar, its biggest one-week drop since at least 1970. Early in the session it touched a 13-month low, but regained some ground after the passage of the rescue package for the besieged U.S. financial sector.

As financial institutions in the United States and Europe have collapsed in response to bursting real estate bubbles and murky assets, lenders have responded by hoarding cash and U.S. dollars have become scarce, driving up their value.

Once the U.S. economic rescue package was passed, traders focused their attention back on world economies.

"We’re getting economic numbers in the U.S. which are dismal, and that, I think, removes any debate about whether there will be a recession in the U.S … and there’s a significant risk of a global recession," said David Watt, senior currency strategist at RBC Capital Markets.

U.S. payrolls plunged in September at the steepest rate in five years as employers cut 159,000 non-farm jobs from their payrolls, the U.S. Labor Department said yesterday. Analysts had expected a loss of 100,000 jobs.

Weakening commodity prices have also weighed heavily on Canada’s dollar, with around half of Canadian exports made up of natural resources (instant payday loans).

"Commodity price measures are not just back to levels of a year ago, but all the way back to levels prevailing in late 2005, and the sell-off is taking no prisoners," said Doug Porter, deputy chief economist at BMO Capital Markets. "

"A darkening global growth outlook and a rejuvenated U.S. dollar – which had its best week in years – have both pounded on resource prices."

Carlos Leitao, chief economist at Laurentian Bank of Canada, said the market expects central banks, the U.S. Federal Reserve and the Bank of Canada included, will start cutting rates in the near term to try to spur growth. Bond yields, which move inversely to prices, fell to reflect those expectations of lower rates.

Early in the session, the Bank of Canada moved to increase confidence in the Canadian markets by upping the amount it plans to inject into markets through Purchase and Resale Agreements to $20 billion from a previously announced $8 billion to help improve liquidity in the financial system.

The two-year bond rose 20 cents to $100.52 (Canadian) to yield 2.500 per cent. The 10-year bond gained 50 cents to $105.40 to yield 3.582 per cent.

The yield spread between the two-year and the 10-year bond rose to 115 basis points from 105 basis points. The 30-year bond added 85 cents to $115.15 for a yield of 4.095 per cent. In the United States, the 30-year Treasury yielded 4.094 per cent

Reuters News Agency

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Canada’s big banks largely shrugged off the weekend bankruptcy filing of Lehman Brothers Holdings, but the third-largest Canadian life insurance company said Monday it will take an unspecified hit to third-quarter earnings because of its Lehman bond holdings.

Canadian bank and insurance stocks fell after a dramatic weekend during which Lehman Brothers sought bankruptcy protection, Merrill Lynch agreed to be bought by Bank of America and insurance giant American International Group was waging a fight for survival.

The S&P/TSX financial index fell 1.9 per cent Monday, while the broader benchmark, the S&P/TSX composite, tumbled 4 per cent.

Sun Life said it holds &334 million par value of Lehman bond securities and about C$15 million net value of Lehman derivative instruments.

Most of its Lehman exposure is held in segments backing liabilities, the company said, which means it will need to strengthen reserves and take a charge to income.

Shares of Sun Life fell 3 per cent to close at $39.31 on the Toronto Stock Exchange.

It was not known whether Canada’s other large life insurance companies, Manulife Financial and Great-West Lifeco, expect to take similar charges. Calls to those companies were not immediately returned.

A spokeswoman for the country’s biggest bank, Royal Bank of Canada, said that it had been working over the past several months to reduce risk related to Lehman.

Lehman is one of RBC’s trading and transactional counterparties, particularly in securities financing activities and derivatives, RBC spokeswoman Beja Rodeck said in an e-mail.

"We are well within our single name limits and are well-collateralized," Rodeck said.

Shares of RBC fell 2.2 per cent to $48.10.

Toronto-Dominion Bank spokesman Simon Townsend said that the Lehman situation has "no material impact" on TD’s overall operations.

Within its TD Securities unit, the risk involves replacing transactions in which Lehman acted as counterparty with acceptable counterparties, he said.

"Assuming markets remain liquid, we consider this risk to be manageable," Townsend said in an e-mail.

Shares of TD dropped 1.6 per cent to close at $61.30.

CIBC executives, speaking at an investor forum on their bank’s operations, said that CIBC’s mark-to-market loss on various Lehman-related positions was about $25 million as of Friday.

"We do not have large exposures," CIBC Chief Executive Gerry McCaughey said.

The positions in which Lehman is a counterparty are being re-hedged, and there could be a cost to that, said Richard Nesbitt, chairman and chief executive of CIBC World Markets, the bank’s corporate and investment banking unit.

Shares of CIBC fell to $61.11, down 4.8 per cent.

Bank of Montreal spokesman Ralph Marranca said the bank’s exposure to Lehman is "not significant." BMO shares slid 1.6 per cent to $48.34.

A Bank of Nova Scotia representative could not immediately be reached for comment us fast cash. Scotiabank shares dropped 2.4 per cent to close at $46.60.

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As the U.S. economy teeters on the brink of recession the credit-card asset-backed market is showing signs of stress as rising unemployment squeezes consumers further, forcing defaults on credit card payments.

Delinquencies on credit cards are rising, investors are demanding higher yield spreads for credit card-backed securities, and issuance is down as the sector’s largest buyers retreat.

“This is typical borrower performance as we enter a recession. This is not a replay of the subprime mortgage disaster but the market is pricing it in that way,” said Glenn Schultz, analyst at Wachovia Securities. “Underwriting in the credit card segment was much better than subprime.”

Fears that the problems in the subprime mortgage market would spread to the ABS market saw spreads widen in the last year or so. Spreads rated “AAA” on three-year credit cards reached 110 basis points over the London interbank offered rate in March, after trading close to Libor a year earlier, said Schultz credit report.

Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), one of the banks hardest hit in the year-long global credit crisis, last week posted a quarterly net loss of $176 million from securitization of credit cards, compared with a year-ago $243 million profit.

Delinquencies and chargeoffs, or balances written off as uncollectable, have both risen past historical norms.

May’s charge-off rate rose to 6.41 percent from 4.68 percent a year earlier, according to Moody’s Investors Service.

After the last two economic contractions, in 1991 and 2001, charge-off rates peaked at just over 7.0 percent, it said, versus an historical average of 6.0 percent. 

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New York state Attorney General Andrew Cuomo said Friday that his office intends to file charges against Citigroup for the alleged fraudulent marketing and sale of troubled auction-rate securities to everyday investors.

Cuomo outlined his intentions in a letter to Citigroup’s general counsel dated Friday, saying that charges were imminent.

In the letter, the New York Attorney General’s office alleged that the nation’s largest bank "has repeatedly and persistently committed fraud by material misrepresentations and omissions" in the underwriting, distribution and sale of auction rate securities, touting them as safe, cash-equivalent investments.

Cuomo’s office claimed that the sale of these securities had "a severe detrimental impact" on tens of thousands of Citigroup customers.

The AG also claimed that Citigroup "destroyed recordings of telephone conversations" related to the marketing and sale of auction-rate securities.

In a statement, Citigroup said it was working with market participants and regulators to find an industry-wide solution to auction rate security issues, adding it was cooperating with regulators in all aspects of the investigation.

"Citi has acted in good faith and in the best interests of our clients both before and since auctions began to fail, and there is simply no basis for claims to the contrary," the company said.

Citigroup added that it is the company’s "practice to recycle tapes" and that "the recycling of the tape in question was inadvertent."

Cuomo’s letter comes just a week after he brought a multi-billion dollar civil lawsuit against the Swiss banking giant UBS (UBS) for its role in selling auction-rate securities to its customers at a time when the market for these securities was under severe strain.

Auction-rate securities are long-term bonds that hospitals, cities and corporations sell at weekly or monthly auctions, which many investors, until now, had treated like cash investments get a free credit report. The market for these investments is worth about $330 billion.

The auction-rate security market began to fail in February as the credit crisis took a turn for the worse, effectively locking up the market for these securities.

Earlier Friday, Citigroup revealed in a quarterly filing that the Securities and Exchange Commission had initiated a formal probe into whether it violated various federal securities laws in connection with the sale of auction-rate securities.

The company also said it was responding to subpoenas from state agencies in Texas, New York and Massachusetts over the sales.

Other securities firms have been targeted by state regulators in the ever-widening auction rate security scandal.

In June, Massachusetts state securities regulators filed a civil suit against UBS. Earlier this week, Massachusetts charged Merrill Lynch (MER, Fortune 500) with fraud for promoting auction-rate securities.

And a little over two weeks ago, Missouri state securities regulators inspected the offices of Wachovia Securities in St. Louis seeking documents related to the sales of auction-rate securities. Wachovia Securities is a subsidiary of Wachovia (WB, Fortune 500), the nation’s fourth-largest bank.

Cuomo’s office said it was seeking a settlement with Citigroup in which the bank buys back the securities from investors at face value, reimburse investors for any damages they have suffered and pay a penalty for misconduct during the investigation.

Citigroup (C, Fortune 500) shares finished 1% higher in Friday trading. 

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The Toronto stock market gave up ground for a second session today as energy and other commodity stocks backtracked during the afternoon after a strong start early in the day.

Support came from Canadian bank stocks and a strong earnings report from Bombardier Inc. (TSX: BBD.B).

New York markets had strengthened during the morning on lower oil prices and an economic report which showed the U.S. service sector is expanding but turned mixed during the afternoon on more concerns about the financial sector and inflation.

Toronto's S&P/TSX composite index declined 38.15 points to 14,690.46.

Bombardier Inc. shares continued to set six-year highs, gaining 74 cents to $8.90 after the aircraft and train maker reported a near-tripling of first-quarter profit to US$226 million as revenue increased 21 per cent from a year ago to $4.8 billion. Bombardier also resumed paying a dividend, after suspending payouts in April 2005.

The TSX Venture Exchange moved up 2.47 points to 2,642.57.

Two days of sharp price declines in the price of oil helped send the Canadian dollar down 0.95 cent at 98.2 cents US.

New York's Dow Jones industrial average fell 12.37 points to 12,390.48.

The Nasdaq composite index moved up 22.66 points to 2,503.14 while the S&P 500 slipped 0.45 of a point to 1,377.2 as the Institute for Supply Management said its service sector index was 51.7 in May, better than the 50.3 reading that had been expected. An index above 50 indicates the sector is growing.

Inflation worries also occupied investor attention after U.S. Federal Reserve chairman Ben Bernanke said inflation is “significantly higher" than the central bank would like and that price stability is a top priority of the Fed.

The Toronto market's energy sector dipped almost one per cent as oil prices further deteriorated after the U.S. Department of Energy said crude inventories fell by 4.8 million barrels last week. But there were signs of lower demand as gasoline inventories increased by 2.9 million barrels and distillate inventories rose 2.7 million barrels. The July crude contract on the New York Mercantile Exchange moved $2.01 lower to US$122.30 a barrel after losing US$3.45 Tuesday.

A stronger U.S. dollar and worries about lower demand have helped take the price of crude down from its high of just over US$135 on May 22 but analysts think this retracement is likely temporary.

John Stephenson, portfolio manager First Asset Funds, said he thinks it's just a short-term pullback but in the long term the price for energy, especially oil, will go higher.

"Certainly the equity marekts don't believe US$130 oil is sustainable because it's not pricing that in – but the truth of the matter is, I don't see what your're going to replace oil with," Stephenson said.

On the TSX, EnCana Corp pay day loans. (TSX: ECA) fell $1.15 to $89.25 and Talisman Energy (TSX: TLM) retreated 36 cents to $22.51.

The TSX financial sector was ahead 0.35 per cent as Scotiabank (TSX: BNS) rose 57 cents to $51.41.

Sentiment improved after Merrill Lynch analyst Guy Moszkowski said he doesn't believe Lehman Bros. faces the same kind of path as Bear Stearns, which nearly collapsed when customers fled on fears it didn't have enough free cash to stay in business.

Lehman stock tumbled more than 15 per cent Tuesday on reports the fourth-largest U.S. investment bank may raise capital from an outside investor and allay market fears of a liquidity crisis. Today, its shares rose 79 cents to US$31.40.

However, Moody Investor Services said that it is reviewing the AAA insurance financial strength ratings for bond insurers Ambac and MBIA. Moody's said the "most likely" outcome of the review will be a downgrade. Ambac stock plunged 51 cents or 17 per cent to US$2.49 while MBIA shares fell $1.06 or 15.84 per cent to US$5.63.

Tech stocks supported the Toronto index as Research In Motion Ltd. (TSX: RIM) advanced $1.84 to $136.44 and Nortel Networks (TSX: NT) ran ahead 25 cents to $8.26.

The base metals sector eased 1.2 per cent with Teck Cominco (TSX: TCK.B) down $1.18 to $48.35.

The August bullion contract on the Nymex was down $1.70 to US$883.80 an ounce and the TSX gold sector gave back 0.65 per cent. Barrick Gold (TSX: ABX) faded 50 cents to $39.66

Clothing retailer Reitmans (Canada) Ltd. (TSX: RET.A) said its first-quarter profit moved up slightly to $18.4 million. But its shares dropped $1.27 to $16.99 as sales were down one per cent to $228.3 million on a 4.8 per cent declline in same-store business blamed on bad weather.

Liquidation World Inc. (TSX: LQW), the money-losing operator of 106 "asset recovery" stores, disclosed that its board has formed a special committee "to investigate and evaluate strategic alternatives" – an indication the company is for sale. Its shares rose 31 cents to $1.87 on slim volume, down from the $5 level a year ago.

In U.S. deal-making, J.M. Smucker Co. has agreed to acquire the Folgers coffee brand from Procter & Gamble in a US$2.95-billion stock deal.

Traders also considered a report from the Organization for Economic Co-operation and Development projecting slower than previously expected growth this year and next in most of its 30 member countries. The OECD cut its outlook for growth in its member countries to 1.8 per cent this year, down from a previous forecast of 2.3 per cent.

On the TSX, declines beat advances 865 to 705 with 233 unchanged as 375 million shares traded worth $6.3 billion.

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