Shake-Ups at Two Big Banks
As the housing collapse widens, more homeowners are suffering foreclosure—and more financial honchos are falling. On June 2, Wahchovia's board pushed out CEO Ken Thompson a little more than two years after he engineered a hasty deal to acquire Golden West Financial for $24 billion. With Golden West's mortgage portfolio unraveling, Wachovia's board went one step beyond its plan to strip Thompson of the chairmanship and booted him as CEO as well. That may not bode well for Kerry Killinger, who on June 2 lost his job as chairman of Washington Mutual, though he remains CEO.
The greenback edged higher on June 3 after Fed Chairman Ben Bernanke said the central bank is "attentive" to the inflationary risks of a fall in the U.S. currency—and made clear that no more rate cuts are imminent. In a speech, Bernanke opined: "For now, policy seems well positioned to promote moderate growth and price stability over time." The dollar fell 7% this year through mid-April but has since risen 3% through June 4 against a basket of six major currencies.
See "Bernanke Puts the Dollar on Fed Radar"
Yahoo! Under the Gun
The pressure is rising on Yahoo CEO Jerry Yang to cozy up with Microsoft (MSFT). On June 2 a Delaware judge unsealed portions of a shareholder lawsuit revealing details of an expensive severance plan for all Yahoo employees that would be triggered in the event of a takeover. That info spurred Carl Icahn to call for Yang's ouster. The financier has been fighting to replace Yahoo's board in hopes of spurring Microsoft to renew a takeover bid it yanked on May 3. Many investors, now including hedge funds hungry for a quick exit, appear to be betting on at least a limited deal centered on Yahoo's search operation.
See "Why Yahoo's Yang Is Holding Out"
As he crisscrossed the country in his bid for the Democratic nomination—which he seemed to have nailed down on June 4—Senator Barack Obama pledged to pay for new programs and middle-class tax cuts by raising rates only on the wealthy. But how rich is "rich"? He's targeting married couples making $250,000 or more, but that sum goes a lot further in small Southern or Midwestern cities than it does in pricey locales like Manhattan or Silicon Valley. And many folks on that threshold see themselves as stretched members of the middle class as well.
Beleaguered bond-rating agencies may emerge from under the microscope with their businesses intact though shrunken by the credit crunch. The agencies are negotiating a settlement with New York Attorney General Andrew Cuomo under which they would change the way they charge bond issuers. The reforms would aim to block opportunities for issuers to shop for better ratings. Shares of Moody's (MCO) and The McGraw-Hill Companies (MHP), owner of Standard & Poor's and BusinessWeek, jumped more than 5% on June 3-4 after The Wall Street Journal reported a possible deal.
"We're not Bear Stearns (BSC)." No executive at Lehman Brothers (LEH) uttered those words this past week, at least publicly, but CEO Richard Fuld may wish he could. Once again the investment bank was besieged by speculation that it's facing a liquidity squeeze similar to the one that brought down Bear. On June 3 shares of Lehman plunged to nearly their lowest point in five years, after The Wall Street Journal reported that the firm may need to raise as much as $4 billion in capital. But the next day, the stock rallied sharply on news that Lehman was out in the market buying back shares—not something a company ordinarily does when it's facing a cash crunch.
See "Lehman Takes a Licking"
GM Slims Down
The days of SUVs ruling America's roads are on the wane, and General Motors (GM) is racing to get in sync with the market. Chairman and CEO G. Richard Wagoner told shareholders on June 4 that he will shutter four truck plants and add shifts at two car factories as gas-guzzler sales fade. The company may off-load the supermacho Hummer brand and will launch a couple of small cars and the Chevrolet Volt electric car around 2010. GM sales fell 30% in May, partly because of a strike at a supplier. Ford (F) and Chrysler sales slid 19% and 28%, respectively. Meanwhile, most European brands aren't cashing in because the weak U.S. dollar is making smaller cars a money-losing proposition for them.
See "GM: Small is the New Big"
Clampdown in the Pits
Are speculators manipulating the commodities markets, helping to send food prices sky-high? Federal regulators aim to cool things down and shine more light on the secretive arena. The Commodity Futures Trading Commission on June 3 shelved plans to hike the level of speculative positions allowable on some agricultural futures contracts. It said it would be "cautious and guarded" about granting exemptions on limits imposed on index trading. And it will let exchanges such as the Chicago Merc handle agricultural "swaps," contracts that now trade privately in the over-the-counter market. The CME is all for that, saying it would bring greater transparency by making prices public.
Play Fantasy Ball!
On June 2 the Supreme Court threw out Major League Baseball at the plate. The Justices declined to hear an appeal of a ruling that allows fantasy leagues to use player statistics without ponying up license fees. Fantasy baseball has blossomed into a $1.5 billion business on the Web, and MLB, which represents players and owners, sought a piece by claiming ownership of player names and stats. A lower court tossed that argument, saying fantasy players have free-speech rights to use the widely publicized data.
Tough times are heating up the urge to merge in many industries, including airlines, candy, books, and beer. That would argue for new rigor on the part of U.S. antitrust regulators, right? Not necessarily. Trustbusters today are far more modest in their aims, citing data showing that consumers generally have not been harmed by narrowing competition. Some 97% of the 37,201 M&A deals filed from 1991 to 2004 sailed through with lean scrutiny.
See "Antitrust: A Not-So-Rough Ride"
Work Abroad? No Thanks
For all the talk of globalization, there appears to be a shortage of worldly wise executives. A McKinsey survey of 450 managers at multinational companies revealed that there is surprisingly little movement of employees between countries. One big reason: Managers fear that relocating will damage their career prospects. Yet the consulting giant found that companies skilled at managing global workforces turn out better financial results. (The McKinsey Quarterly)
Birth of a Behemoth?
Verizon Wireless (VZ) may place a $28 billion call to Alltel. CNBC reported on June 4 that the companies are talking about a takeover that could value Alltel around that price. Such a deal would create a cell-phone giant with 80 million subscribers, knocking AT&T (T) from its perch as No. 1 in the nation, with 71.4 million. Verizon Wireless has long had a hankering for Alltel and would cut costs through staff reductions and by eliminating the roaming fees Alltel collects when Verizon customers place out-of network calls, according to a person familiar with the matter.
Dow: Told You So
Turns out Dow Chemical (DOW)was right all along when it said it had been wronged by two top executives trying to secretly sell the company. On June 2 the nation's top chemical maker reported that former CFO J. Pedro Reinhard and Romeo Kreinberg, previously a senior vice-president, admitted they had schemed to find investors who they hoped would undertake an LBO. Dow summarily axed the pair in April, 2007, after its stock jumped on rumors of a deal. In addition to fessing up, the fired bosses dropped lawsuits seeking damages.
The WTO Whacks the U.S.
Just a month after Congress left intact a $3 billion annual subsidy for cotton growers, it appears those payments may cost the country plenty more. On June 2, Washington lost its final appeal before the WTO in a case brought by Brazil challenging the subsidies. The three-judge panel ruled that the U.S. hadn't made enough changes to bring the payments in line with global trade rules. Brazil may now stick up to $4 billion worth of sanctions on U.S.-made imports.
China's Car Culture
The Chinese love cars. In just eight years, auto production and sales quadrupled to 8.8 million units in 2007. And with per-capita car ownership a fraction of that in the U.S., the revolution is still picking up speed. In the cover story of its June issue, BusinessWeek China profiles eight key figures who are shaping the auto culture, including the general manager of Beijing's most popular driving school, the head of the China Automobile Assn., and the CEO of the top SUV maker, Great Wall Motor.