10.1.14: SUVs Go Zoom, Zoom
Today and Tomorrow in Business
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U.S. auto sales jumped again in September, with General Motors Co., Chrysler Group LLC and Nissan Motor Co. all reporting 19 percent increases over August. Sales for the third quarter were the best in eight years. SUVs are winning the auto sweepstakes: Deliveries of Chrysler's Jeep climbed 47 percent while Nissan's Rogue increased 52 percent. GM's solid report came just in time for Chief Executive Officer Mary Barra, who wants to win back investors and turn the page on GM's ignition-switch scandal. She unveiled a plan to rapidly expand profit and release new models.
Bond Market Flaws
Bill Gross's surprise departure from Pacific Investment Management Co. sparked major selloffs in the $42 trillion bond market that could foreshadow trouble ahead, Bloomberg News reports. Debt still largely changes hands not on exchanges but through telephone calls and e-mails, and it's become increasingly difficult to buy and sell bonds as new regulations prompt Wall Street banks to curtail their holdings. Gross's exit shows just how little it takes to move the needle: The day he left Pimco, Mexican government bonds, inflation-protected U.S. bonds and debt of Verizon Communications Inc. all dropped at least 0.3 percent. Such price swings could worsen when the U.S. Federal Reserve ends its stimulus program later this month.
Reforming Executive Pay
Coca-Cola Co. is cutting back an executive-compensation plan that shareholders, including Warren Buffett, had criticized as excessive. Managers will get fewer equity shares and more cash bonuses. Stock options will also be replaced with performance-share units -- a form of stock in which individuals earn shares based on a certain performance measure. The International Monetary Fund, meanwhile, said banks should consider paying bonuses another way -- using debt, not equity -- and giving creditors a greater voice in the boardroom to keep risk-taking under control.
Vulture funds, 0; U.S. Treasury, 1
Fannie Mae and Freddie Mac investors saw the value of their preferred securities plummet by more than $6 billion and the value of their common stock lose about $2 billion today. A large dose of that had to be absorbed by mutual and hedge funds that had invested in hopes of winning breach-of-contract lawsuits against the U.S. -- and ultimately sharing in Fannie and Freddie profits that have been going entirely to the U.S. Treasury in return for its bailout. But the funds, led by Fairholme Capital Management LLC, lost their legal bid yesterday. More lawsuits are pending to restore shareholder rights and could go the other way.
Who's the Fairest of Them All?
Six years after the financial crisis, the New York and London financial districts are transformed, the FT reports. Banks on both sides of the Atlantic have taken risk off their balance sheets and are bouncing back. Regulators have toughened safety and soundness requirements and are on a mission to extract maximum penalties for misdeeds. Where does that leave the head-to-head battle between New York and London? New York is leaping ahead, it seems. Its banks are much larger and the city remains the undisputed king of equities. Its stock exchanges have held initial offerings that raised $77 billion this year, while London raised just over $25 billion. New York is also home to four out of every 10 hedge funds.
U.K. Prime Minister David Cameron's voice cracked with emotion Wednesday as he sought to rouse his Conservative Party to a victory in May by promising tax cuts, new starter homes for first-time buyers under age 40 and no spending reductions for the National Health Service. Plus a chicken in every pot.
U.S. Oil Exports Rise
They are officially banned, yet U.S. oil exports are poised to surpass a record set in 1957, the WSJ reports. Apparently traders are finding novel ways around the four-decade-old ban. Canada, which has an exemption, accounts for the vast bulk of the shipments. But Italy, Singapore and Switzerland also received some. And the U.S. is now letting ultralight crude go overseas, as well as crude from Alaska's North Slope. Still, oil exports are a hot issue in Congress as inventories build now that drillers are pulling record volumes of crude and natural gas out of shale formations using hydraulic fracturing.
And Don't Forget
- U.S. President Barack Obama travels to Northwestern University to speak on the economy.
- European Central Bank governing council meets in Naples, Italy, to decide on monetary policy. ECB President Mario Draghi holds a news conference at 8:30 New York time.
- Thursday's economic indicators include U.S. initial jobless claims; U.S. factory orders; and Brazil industrial production.
- IMF Managing Director Christine Lagarde speaks on the challenges facing the global economy ahead of the 2014 IMF/World Bank Annual meetings.
The New York Times said it would cut 100 jobs, a 7.5 percent reduction, from its newsroom and shut two digital apps, one for opinion and another for young readers that it had hoped would attract tens of thousands of new digital customers. The apps are closing for lack of interest. As ad revenue shrinks, digital revenue isn't growing fast enough to sustain the 1,330-person paper. So more layoffs and buyouts could be in the offing. If it had to become a digital-only newsroom, the NYT would be a $312 million business, about 20 percent of current sales, Re/Code's Edmund Lee wrote in August. That means headcount would have to shrink to (ouch) 200.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Paula Dwyer at firstname.lastname@example.org