News You Need to Know
Can Detroit Get Out of This Ditch?Economic doldrums and pricey gasoline are forcing carmakers to take more desperate measures. On June23, General Motors (GM) said it would slow seven plants that produce pickups and SUVs, cutting second-half production by 170,000. It's also offering buyers 0% financing or rebates of up to $7,000 on many models. The news came three days after Ford (F) said it, too, would hit the brakes on truck production. It also forecast that it won't reach breakeven by 2009 after all. J.D. Power (MHP) says that through mid-June, the industry was on pace to sell just 12.5 million vehicles in the U.S. this year, way down from the 16.1 million in 2007. Wall Street dumped the stocks, sending GM down 6% and Ford down 9% by June 25. PAGE 028, "Kerkorian May Fill Ford's Tank"Depressed ShoppersAmericans are mired in a funk: The Conference Board announced on June 24 that its index of consumer confidence for the month sagged to a 16-year low. For an explanation, see the usual suspects—scarce jobs, sky-high gas prices, sinking home values. The Standard & Poor's/Case-Shiller 20-City house price index fell 15% in April from a year earlier, S&P said on June 24. The Fed stood pat on June 25, noting higher inflation but not signaling plans to raise rates.Reforms from the SECThe SEC had a busy day on June25. First, to trim the hegemony of bond ratings agencies, it proposed revisions of nearly four dozen rules. Money market mutual funds, for example, would be allowed to buy more securities from issuers that have not obtained top ratings from agencies such as Standard & Poor's, which like BusinessWeek is owned by The McGraw-Hill Companies (MHP). The changes aim to prod investors to question ratings and to push the agencies to earn respect from the markets on their own. The SEC also moved to spur truly globalized stock trading. One proposed change would allow more institutional investors to trade stocks directly in foreign markets without going through U.S. brokers. Another would make it easier for overseas brokers to pitch securities listed abroad to U.S. buyers.A Boost for Barclay'sThe latest big Western bank to shore up its balance sheet with cash from the Mideast and Far East: Britain's Barclays (BCS), which announced an $8.9 billion share issue on June 25. The investors include Japan's Sumitomo Mitsui Banking, Singapore's Temasek, China Development Bank, and two Qatar-based groups. The infusion will be used to fortify capital reserves and fund investments.
"Barclays Announces $8.9 billion Share Issue"Suing CountrywideWho's to blame for the flood of foreclosures? Among the culprits is Countrywide Financial (CFC), claim the attorneys general of California and Illinois. On June25 the two states sued the former No.1 mortgage lender and its chairman and CEO, Angelo Mozilo, charging that the firm pushed applicants into taking out loans even if they had no way to repay the money. Illinois Attorney General Lisa Madigan wants Countrywide to rescind or fix all its "unfair" mortgages. The lender is also under investigation by the SEC, the FBI, and the FTC and faces shareholder lawsuits. On June25 its legal woes became Bank of America's (BAC), as shareholders O.K.'d Countrywide's sale to the bank.Cuts on the Street…The sound of investment bankers pounding the pavement is getting louder. On June 23, The Wall Street Journal said that Citigroup (C) will chop 10% of its investment banking division, roughly 6,500 jobs, and the Financial Times said Goldman Sachs (GS) also will axe 10% of its investment bankers. Citi CEO Vikram Pandit has pledged to prune the bank's entire operation to bounce back from more than $15 billion in losses over the past two quarters. But the pain apparently isn't over: Citi CFO Gary Crittenden warned of "substantial" writedowns in the coming quarter.…And More AheadFinancial houses have chopped some 83,000 jobs since last July, but they're just getting started. By this time next year, head count could be down by as much as 175,000. New York City expects to lose 33,000 jobs, London more than 19,000. Add it all up, and the carnage will be worse than the bloodletting after the tech bust.
BloombergFacing More Charges?Former hedge fund managers Ralph Cioffi and Matthew Tannin, indicted on June 18 on charges they lied to investors in the once-giant Bear Stearns (BSC) funds, may be hit with new accusations. BusinessWeek has learned that federal prosecutors in Brooklyn, N.Y., are focusing on misleading comments the duo may have made to banks that either loaned money to the funds or were trading partners. Cioffi and Tannin have pleaded not guilty to the original charges.
Oil Speculators BewareAs oil prices flirt with $140 per barrel, Congress is hunting speculators. On June 23 and 24 legislators grilled officials of the commodities exchanges, and on June 24, Senator Byron Dorgan (D-N.D.) added to the list of bills to beef up oversight of the pits. Business is certainly feeling the pain: Citing fuel prices, UPS (UPS) on June 24 chopped its second-quarter earnings forecast, and Dow Chemical said it will jack up prices by as much as 25%, having already hiked them by 20% on June 1.Everglades Bonanza?Greens could hardly believe their ears on June 24 when the state of Florida announced an agreement with U.S. Sugar under which the biggest cane grower in the nation will sell 187,000 acres—nearly 300 square miles—to the state for $1.75 billion and will phase itself out of business within six years. Florida has long been trying to buy the land to spur the recovery plan for Everglades National Park, and environmentalists have attacked U.S. Sugar for, among other alleged sins, polluting the waters running through the River of Grass.Samueli's Guilty PleaThe owner of the Anaheim Ducks hockey team has landed himself in the penalty box. Broadcom (BRCM) co-founder Henry Samueli pleaded guilty to one charge of lying to federal investigators on June 23, the latest twist in the options back-dating scandal at the tech giant. Broadcom has written off $2.2 billion in profits as a result of the revelations. If the judge approves Samueli's plea agreement in August, he'll pay $12 million in penalties and be subject to five years of probation. The NHL suspended him indefinitely from any involvement with the Ducks. In other legal news on June 25, the Supreme Court slashed damages in the Exxon Valdez case from $2.5 billion to about $500 million, and a New York appeals court upheld the dismissal of the bulk of the state's case against former NYSE Chairman Richard Grasso.Better Ad Targeting?Google's (GOOG) march on Madison Avenue is picking up speed. On June 24 the search king introduced Ad Planner, a free online service that lets media buyers plug in chosen demographics and Web sites where their ads have been successful and get reports on other sites with similar audiences. Google aims to enable more precise targeting by marshaling its vast data on people's online activities. Ad Planner presents an alternative to the current online measurement leaders, Nielsen//NetRatings and comScore Networks (SCOR). ComScore's stock plunged almost 23% on the news.
"Google's Search for Ad Dominance"AmEx Lands $1.8 BillionNow that's a monster credit-card bill. MasterCard (MA) on June 25 agreed to pony up $1.8 billion to American Express (AXP) to settle an anti-trust suit. Filed back in 2004, the suit alleged that Visa, MasterCard, and other banks blocked major financial institutions from issuing cards through AmEx. Visa already agreed to pay $2.25billion.The Big Board TravelsNYSE Euronext (NYX), the transcontinental owner of the Big Board, is opening yet another front by buying 25% of Qatar's Doha Securities Market. The $250 million deal, announced on June24, reflects intense interest in petrodollar-rich Mideast markets. NYSE is also shopping elsewhere. In February it paid $55 million for 5% of Indian commodities exchange MCX and, last year, $115 million for 5% of India's National Stock Exchange.Farm Belt BuyoutWhen prices in an industry heat up, the deal pot starts to boil. Food conglomerate Bunge (BG) on June 23 announced it's buying Corn Products International (CPO) for $4.4 billion in stock, thus widening Bunge's business to include higher-margin sweeteners and starches and a new set of customers.
"A New Crop of Ag-Stock Deals?" B-School ScandalMore than 1,000 prospective MBA students who used a Web site to get a leg up on the Graduate Management Admission Test may find their paths to B-school interrupted. The publisher of the exam won a $2.3 million judgment against the operators of the site, Scoretop.com, after alleging that it released "live" test questions to the public. The publisher is planning to cancel all the tainted scores and notify the schools that received them. Applicants may be rejected, current students may be thrown out, and graduates may face sanctions.
"Shutting Down a GMAT Cheat Sheet"Stars in IndonesiaCarrefour, Citibank (C), DHL, Toyota (TM), Unilever--they're among the multinationals high on the list of Indonesia's most admired companies in 2008, according to a survey published in the June 18 edition of BusinessWeek Indonesia. Some home-grown champions made the list, including Indofood, famed for its noodles, and phone carrier Telekomunikasi Indonesia (TLK). The study also reveals that Indonesian consumers are waking up to corporate responsibility: Companies that are making an effort to improve social conditions and those that look after the environment won more of the top marks.