US credit card companies have little to celebrate as many analysts brace for 2009 to be one of the worst years on record for consumer credit. Losses for the industry could top $70 billion, but it is hard to predict how bad the pain will be.
US consumers have never before been so deeply in debt. There was nearly $1 trillion of credit and charge card debt outstanding as of October, up more than 25 percent since 2003, according to the US Federal Reserve. That is in addition to $10.54 trillion in mortgage debt.
Unemployment, already at 15-year highs, is expected to rise to its highest levels since the early 1980s, when credit cards were not nearly as widespread. In short, there's more debt than ever and fewer people are able to pay it. "In many ways, we're in uncharted territory," said John Williams, an analyst at Macquarie Research.
Major credit losses are big trouble for Citigroup Inc, Bank of America, and other card issuers such as American Express Co and Discover Financial Services, which have seen their shares lose up to 80 percent of their value in 2008. The United States is not standing idly by.
Citigroup received $45 billion of taxpayers' money in October and November. Bank of America has received $25 billion. American Express, which became a bank holding company, got approval last week to receive $3.4 billion from the taxpayer-funded Troubled Asset Relief Program.
Lenders, seeing potential big losses, are trying to protect themselves by tightening credit availability, which leaves consumers with fewer options. This year's holiday shopping season was the worst since at least 1970, according to a report from the International Council of Shopping Centers. "It is hard to see the light at the end of the tunnel," Williams said.
Nowhere to hide
No credit card company is safe. According to Citigroup analysts, more than one-fourth of the credit card portfolios of Citibank, Bank of America Corp, Capital One Corp, and Discover are subprime, which could lead to further losses.
Meanwhile, American Express is heavily exposed to troubled markets with high default rates such as Florida and California, and JPMorgan Chase & Co has to digest the portfolio of failed savings and loans company Washington Mutual. Together, these six companies hold around 90 percent of the total US outstanding credit card debt.
Citigroup and American Express have said they are tightening lending to mitigate their losses. JP Morgan and Bank of America declined to comment, while Capital One did not return calls seeking comment. Credit card companies have reported increased losses.
Discover, the No 4 US credit card network, posted worse-than-expected results in its fourth fiscal quarter, the first sign of the harsh deterioration of the industry, when the economic downturn picked up steam in October and November. Discover almost doubled the money it set aside to cover credit losses. Analysts said its competitors would likely do the same in coming quarters, leading to lower earnings.
"Things have changed pretty rapidly in the last two months. I'm hopeful that we will see the worst in 2009, but I don't know yet," David Nelms, chief executive of Discover, told media in a recent interview.
Many analysts and credit card executives look at 2009 and remember the beginning of the mortgage crisis in early 2007, when lenders consistently underestimated what was coming up. Said Chris Brendler, analyst at Stifel Nicolaus, "The risk is that things get much worse than expected."
Source: Agencies
Thursday, January 1, 2009
General Motors gets first tranche of US loan
General Motors Corp received its first multibillion dollar loan installment from the US Treasury Department Wednesday night, right in time to avert a financial disaster in which the struggling automaker may have been unable to sustain operations and pay suppliers.
``Treasury today finalized the loan transaction for GM and funded the first tranche of $4 billion,'' said Treasury spokeswoman Brookly McLaughlin in a written statement. The funds are the first portion of $9.4 billion in low-cost loans that GM is expected to receive from the government.
The Detroit automaker had been working feverishly with Treasury officials to close on the first loan installment. The money will be available for GM to use almost immediately. The cash-strapped Detroit company plans to use the money for continuing its operations.
GM is obligated to a make a large payment to a major supplier in early January, but has declined to offer details on the amount of money it owes or to which supplier.
``We appreciate the Administration extending a financial bridge to GM at this critical time for the US auto industry,'' said GM in a written statement shortly after the Treasury announcement. ``We are committed to successfully executing the viability plan we submitted on December 2 and remain confident in the future of General Motors.''
The loans come from the $700 billion bank rescue plan, approved by Congress in September. President George W Bush said earlier this month that the ailing automakers could tap part of those funds in the form of low-interest loans.
GM is burning through approximately $33 million a day, based on spending $1 billion per month during the third quarter. That daily amount is likely lower for the fourth quarter as GM has reduced spending on operations, sponsorships, utilities and even office supplies.
GM previously said it might not make it through the end of the year before running out of cash without government aid.
Auburn Hills, Michigan-based Chrysler LLC is expecting $4 billion in cash as well, but the Treasury has yet to announce the closing of the first round of loan money.
``We're working expeditiously with Chrysler to finalize that transaction and we remain committed to closing it on a timeline that will meet near term funding needs,'' McLaughlin said.
Chrysler is nearing the minimum level of cash, $2.5 billion, it needs to operate. Chrysler is already fending off angry parts suppliers and other vendors demanding cash payments on delivery. It generally pays suppliers $7 billion every 45 days.
Chrysler issued a statement Wednesday night, updating the status of its talks with the Treasury.
``We recognize the magnitude of the effort by the Treasury Department to complete these multiple financial arrangements quickly and sequentially,'' the company wrote in a press release. ``The discussions relating to Chrysler have been positive and productive, and we look forward to finalizing the details of our financial assistance in the immediate future.''
Dearborn, Michigan-based Ford Motor Co. said it does not intend to use government money to fund operations, as it is in a better financial position than its competitors. The Detroit automakers are trying to weather the biggest auto sales slump in more than 26 years.
Shares of GM fell 15.8 percent Wednesday, or 60 cents to $3.20, before the Treasury's announcement. Shares of Ford closed unchanged at $2.29.
Earlier this week, GM's financial arm, GMAC Financial Services, received $5 billion in aid from the Treasury Department. In addition, the Treasury said it would lend up to $1 billion to GM so that the automaker would be able to buy more equity from GMAC. Those purchases are expected to raise more capital for GMAC, and separate from the $4 billion received from the Treasury Wednesday.
Source: Agencies
``Treasury today finalized the loan transaction for GM and funded the first tranche of $4 billion,'' said Treasury spokeswoman Brookly McLaughlin in a written statement. The funds are the first portion of $9.4 billion in low-cost loans that GM is expected to receive from the government.
The Detroit automaker had been working feverishly with Treasury officials to close on the first loan installment. The money will be available for GM to use almost immediately. The cash-strapped Detroit company plans to use the money for continuing its operations.
GM is obligated to a make a large payment to a major supplier in early January, but has declined to offer details on the amount of money it owes or to which supplier.
``We appreciate the Administration extending a financial bridge to GM at this critical time for the US auto industry,'' said GM in a written statement shortly after the Treasury announcement. ``We are committed to successfully executing the viability plan we submitted on December 2 and remain confident in the future of General Motors.''
The loans come from the $700 billion bank rescue plan, approved by Congress in September. President George W Bush said earlier this month that the ailing automakers could tap part of those funds in the form of low-interest loans.
GM is burning through approximately $33 million a day, based on spending $1 billion per month during the third quarter. That daily amount is likely lower for the fourth quarter as GM has reduced spending on operations, sponsorships, utilities and even office supplies.
GM previously said it might not make it through the end of the year before running out of cash without government aid.
Auburn Hills, Michigan-based Chrysler LLC is expecting $4 billion in cash as well, but the Treasury has yet to announce the closing of the first round of loan money.
``We're working expeditiously with Chrysler to finalize that transaction and we remain committed to closing it on a timeline that will meet near term funding needs,'' McLaughlin said.
Chrysler is nearing the minimum level of cash, $2.5 billion, it needs to operate. Chrysler is already fending off angry parts suppliers and other vendors demanding cash payments on delivery. It generally pays suppliers $7 billion every 45 days.
Chrysler issued a statement Wednesday night, updating the status of its talks with the Treasury.
``We recognize the magnitude of the effort by the Treasury Department to complete these multiple financial arrangements quickly and sequentially,'' the company wrote in a press release. ``The discussions relating to Chrysler have been positive and productive, and we look forward to finalizing the details of our financial assistance in the immediate future.''
Dearborn, Michigan-based Ford Motor Co. said it does not intend to use government money to fund operations, as it is in a better financial position than its competitors. The Detroit automakers are trying to weather the biggest auto sales slump in more than 26 years.
Shares of GM fell 15.8 percent Wednesday, or 60 cents to $3.20, before the Treasury's announcement. Shares of Ford closed unchanged at $2.29.
Earlier this week, GM's financial arm, GMAC Financial Services, received $5 billion in aid from the Treasury Department. In addition, the Treasury said it would lend up to $1 billion to GM so that the automaker would be able to buy more equity from GMAC. Those purchases are expected to raise more capital for GMAC, and separate from the $4 billion received from the Treasury Wednesday.
Source: Agencies
Wednesday, December 31, 2008
Motorola to layoff another 400 employees
Mobile phone maker Motorola Inc said it will lay off 400 more employees in the fourth-quarter than it originally planned, resulting in additional charges.
In October, Motorola announced a cost-reduction plan that included cutting a total of 3,000 jobs, with 1,500 coming in the fourth quarter. The change means 1,900 will be in the fourth quarter although the overall total will not change.
The plan is intended to save the company $800 million in 2009. The fourth-quarter job cuts, primarily from the mobile devices segment, were expected to result in charges totaling $104 million.
In a filing with the US Securities and Exchange Commission, the company said it has since approved plans to cut another 400 jobs in the quarter. Motorola now expects $189 million in charges in the period related to its cost-cutting initiative.
In the filing, Motorola said "all of the company's business segments, as well as various corporate functions, are impacted by these plans."
Earlier this month, Motorola said it would suspend contributions to its 401(k) worker retirement plan, freeze its pension plan, stop some pay increases and cut the salaries of its two top executives.
Shares of Schaumburg, Illinois-based Motorola closed up 11 cents at $4.16.
Source: Agencies
In October, Motorola announced a cost-reduction plan that included cutting a total of 3,000 jobs, with 1,500 coming in the fourth quarter. The change means 1,900 will be in the fourth quarter although the overall total will not change.
The plan is intended to save the company $800 million in 2009. The fourth-quarter job cuts, primarily from the mobile devices segment, were expected to result in charges totaling $104 million.
In a filing with the US Securities and Exchange Commission, the company said it has since approved plans to cut another 400 jobs in the quarter. Motorola now expects $189 million in charges in the period related to its cost-cutting initiative.
In the filing, Motorola said "all of the company's business segments, as well as various corporate functions, are impacted by these plans."
Earlier this month, Motorola said it would suspend contributions to its 401(k) worker retirement plan, freeze its pension plan, stop some pay increases and cut the salaries of its two top executives.
Shares of Schaumburg, Illinois-based Motorola closed up 11 cents at $4.16.
Source: Agencies
Dell preparing for changes in senior management
Dell Inc's president of global operations, Michael Cannon, and chief marketing officer, Mark Jarvis will leave their roles in moves expected to be announced soon, the Wall Street Journal said, citing people briefed on the matter.
The people told the paper that they expect Jarvis to leave Dell, while Cannon will likely stay on in a different capacity.
Other changes are expected to focus on cutting costs and gaining tighter control over the company's global operations.
Two people with knowledge of the situation told the paper that Dell may also make cuts to its lower executive ranks.
The impending changes are intended to make managing Dell's world-wide business more efficient, people briefed on the matter said.
Operations now divided by geography will be consolidated into international business units, a shift Dell made earlier this year with its consumer division.
A Dell spokesman declined to comment to the paper on any changes, but said Dell has "been in a two-year process of positioning the company best for customers and long-term growth."
Dell could not be immediately reached for comment.
Source: Agencies
The people told the paper that they expect Jarvis to leave Dell, while Cannon will likely stay on in a different capacity.
Other changes are expected to focus on cutting costs and gaining tighter control over the company's global operations.
Two people with knowledge of the situation told the paper that Dell may also make cuts to its lower executive ranks.
The impending changes are intended to make managing Dell's world-wide business more efficient, people briefed on the matter said.
Operations now divided by geography will be consolidated into international business units, a shift Dell made earlier this year with its consumer division.
A Dell spokesman declined to comment to the paper on any changes, but said Dell has "been in a two-year process of positioning the company best for customers and long-term growth."
Dell could not be immediately reached for comment.
Source: Agencies
Air India announces fare cut up to 82pc
A day after Jet Airways reduced fares on domestic routes, state-owned operator Air India on Tuesday announced fare cut up to 82 percent in at least 20 sectors, mostly on metro routes, a senior airline official said.
"The new fare cut comes into effect today (Tuesday). We have cut fares on 20 sectors by up to 82 per cent. This will largely benefit passengers on metro routes," an airline spokesperson told reporters.
India's leading private air carrier Jet Airways Monday reduced fares on its domestic routes by up to 40 percent with immediate effect.
Another leading carrier, Kingfisher Airlines, Sunday announced fare cut from Jan 1. However, it has not announced the quantum of fare cut.
Low cost carriers are also expected to follow suit, said an industry official. The fare cuts comes in the wake of slackening demand in the post-peak season and continued decline in fuel prices.
Over the past four months, there has been a sharp decline in aviation fuel prices. While some air carriers earlier this month reduced the fuel surcharge on the ticket price by Rs 200 to Rs 400, they did not touch the base fare.
Oil companies have reduced aviation fuel prices seven times since September. The fuel is now sold at Rs 32,691.28 per kilolitre in Delhi after prices were slashed by Rs 4,208.37 in the first week of December.
Source: Airlines
"The new fare cut comes into effect today (Tuesday). We have cut fares on 20 sectors by up to 82 per cent. This will largely benefit passengers on metro routes," an airline spokesperson told reporters.
India's leading private air carrier Jet Airways Monday reduced fares on its domestic routes by up to 40 percent with immediate effect.
Another leading carrier, Kingfisher Airlines, Sunday announced fare cut from Jan 1. However, it has not announced the quantum of fare cut.
Low cost carriers are also expected to follow suit, said an industry official. The fare cuts comes in the wake of slackening demand in the post-peak season and continued decline in fuel prices.
Over the past four months, there has been a sharp decline in aviation fuel prices. While some air carriers earlier this month reduced the fuel surcharge on the ticket price by Rs 200 to Rs 400, they did not touch the base fare.
Oil companies have reduced aviation fuel prices seven times since September. The fuel is now sold at Rs 32,691.28 per kilolitre in Delhi after prices were slashed by Rs 4,208.37 in the first week of December.
Source: Airlines
GM cuts financing costs; GMAC expands lending
General Motors Corp and its financing affiliate GMAC on Tuesday announced programs to make it easier for car and truck buyers to get financing, a day after GMAC agreed to sell the government a $5 billion stake.
Through Jan. 5, GM will offer interest rates of zero percent to 4.9 percent on loans of up to five years on various 2008 model year vehicles, and 3.9 percent to 5.9 percent on some 2009 vehicles. Many of the vehicles also carry cash discounts of $500 to $4,250.
The move is a bid to capitalize on GMAC's separate plan to provide auto financing to more U.S. consumers. GMAC will extend loans to retail buyers with credit scores of 621 or higher. In October it had restricted loans to borrowers with scores of 700 or higher.
Many analysts consider borrowers with credit scores of 620 or lower to be "subprime." Dealer wholesale financing is unchanged, GMAC said.
GMAC is owned by GM and private equity firm Cerberus Capital Management LP [CBS.UL].
The changes may help bolster sales at GM, the nation's largest automaker, following a 41 percent plunge in November.
GMAC has traditionally provided the bulk of financing for GM's retail customers and the floorplan financing that dealers rely on to carry car and truck inventory.
Mark LaNeve, GM's sales and marketing chief, said the lower financing costs will encourage customers to "get back into the game."
Source: Agencies
Through Jan. 5, GM will offer interest rates of zero percent to 4.9 percent on loans of up to five years on various 2008 model year vehicles, and 3.9 percent to 5.9 percent on some 2009 vehicles. Many of the vehicles also carry cash discounts of $500 to $4,250.
The move is a bid to capitalize on GMAC's separate plan to provide auto financing to more U.S. consumers. GMAC will extend loans to retail buyers with credit scores of 621 or higher. In October it had restricted loans to borrowers with scores of 700 or higher.
Many analysts consider borrowers with credit scores of 620 or lower to be "subprime." Dealer wholesale financing is unchanged, GMAC said.
GMAC is owned by GM and private equity firm Cerberus Capital Management LP [CBS.UL].
The changes may help bolster sales at GM, the nation's largest automaker, following a 41 percent plunge in November.
GMAC has traditionally provided the bulk of financing for GM's retail customers and the floorplan financing that dealers rely on to carry car and truck inventory.
Mark LaNeve, GM's sales and marketing chief, said the lower financing costs will encourage customers to "get back into the game."
Source: Agencies
Tuesday, December 30, 2008
RCom plans to invest Rs 4,000 crore on 3G network
Reliance Communications is looking forward to participate in the 3G auction slated for next year, company chairman Anil Ambani said Tuesday.
The company has planned an investment of Rs 2,000 crore to Rs 4,000 crore on 3G services, he said.
Ambani also said the company would participate in the auction for spectrum on a nationwide basis and not restrict to a few circles.
The company has planned an investment of Rs 2,000 crore to Rs 4,000 crore on 3G services, he said.
Ambani also said the company would participate in the auction for spectrum on a nationwide basis and not restrict to a few circles.
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