Regulators supply credit union aid

Regulators supply credit union aid

A government plan makes $40 billion available to credit unions hit by losses on mortgage securities. Struggling home owners get another $2 billion.

WASHINGTON (AP) -- Federal regulators said Tuesday they are making more than $40 billion available to support several credit unions that suffered losses from mortgage securities, and will provide another $2 billion to help struggling homeowners.

National Credit Union Administration Chairman Michael Fryzel said the credit unions should "use these programs constructively as they work through these difficult times."

The new borrowing from the Treasury Department will be available under a special facility that Congress approved in September for the agency, which oversees some 8,100 federally insured credit unions.

The new lending facility will provide aid for some credit unions, known as corporate credit unions, that furnish wholesale financing and investment services to the greater population of retail credit unions.

Some of the 28 corporate credit unions in the United States have sustained steep losses on paper from the depressed value of the mortgage-backed securities they hold.

The majority of credit unions, which are cooperatives owned by their members, are financially strong.

The other program will involve up to $2 billion in low-cost loans to retail credit unions to be used for reducing mortgage rates for delinquent and strapped low- and moderate-income homeowners who are their members. Credit unions will have six months to modify home loans under the program. more

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Have degree - and pink slip

Have degree - and pink slip

NEW YORK (CNNMoney.com) -- There are currently a record number of unemployed college graduates seeking work. So many, in fact, that they outnumber high school dropouts on the job hunt.

In November the number of people with a higher degree who were out of work rose to 1.413 million from 1.411 million in the previous month, according to the Bureau of Labor Statistics. Comparatively, there were 1.282 million unemployed high school dropouts, up slightly from 1.273 million in October.

"College graduates are not going to get away unscathed," said Dean Baker, director of the Center for Economic and Policy Research in Washington, DC, "everyone is being hit by this."

While the manufacturing and construction industries were hardest hit by layoffs last month - 85,000 and 82,000 jobs lost, respectively, according to the Labor Department - it is the professional and business services category that many economists view as a barometer for overall economic activity.

In its November jobs report, the Labor Department said that firms in the business and professional services category cut 136,000 jobs, the largest one-month drop on record. Additionally, financial services jobs fell by 32,000, another record decline.

Those job cuts are hitting college educated workers the hardest, according to Dr. Reena Aggarwal, a professor of finance at Georgetown University's McDonough School of Business.

"A lot of the job losses are the more higher paying jobs and it's just going to mean far fewer dollars flowing into the economy," she said.
A glass half full

But even though business and professional services saw significant layoffs, the unemployment rate among those with a higher degree held steady at 3.1% in November. The overall unemployment rate rose to 6.7% from 6.5% in October.

"You're still less than half as likely to be unemployed if you have a college degree," Baker said.

"The numbers say, despite these conditions, we still have a strong job market within the professional skills category, nearly 97% of college-educated workers are employed," said Janette Marx, senior vice president of Ajilon Global, professional staffing firm. more

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Toyota Suffers First Credit Rating Cut in 10 Years

Toyota Suffers First Credit Rating Cut in 10 Years

Toyota Motor Corp.'s debt rating was cut by Fitch Ratings, the automaker's first downgrade in 10 years, as the slump in U.S. car sales drags down earnings at the company with the industry's best credit.

By Makiko Kitamura and Tetsuya Komatsu

Nov. 26 (Bloomberg) -- Toyota Motor Corp.'s debt rating was cut by Fitch Ratings, the automaker's first downgrade in 10 years, as the slump in U.S. car sales drags down earnings at the company with the industry's best credit.

Fitch cut Toyota's senior unsecured debt rating two levels to AA from AAA with a negative outlook on the company, it said in a report today. The shares dropped 4.6 percent, the most in two weeks, to close at 2,985 yen on the Tokyo Stock Exchange.

A lower debt rating raises borrowing costs for Toyota, potentially hindering its ability to offer interest-free loans to boost sales in the U.S. Toyota, set to topple General Motors Corp.'s 77-year reign as the world's largest automaker this year, may also have its worst share performance since at least 1975.

``Toyota is suffering severely from the ongoing turmoil in the global automotive sector,'' said Tatsuya Mizuno, director at Fitch Ratings, in the report. ``The negative developments in the industry are so substantial and fundamental that even the strongest player -- Toyota -- can no longer support a `AAA' rating.''

The rating cut is the company's first since Moody's Investors Service reduced its long-term debt rating from Aaa to Aa1 in 1998. Moody's raised the company back up to Aaa in 2003. Standard & Poor's has rated the carmaker AAA since 1985.

``We are closely monitoring Toyota and especially the U.S. market,'' Moody's analyst Junichi Yamaki said. He declined to say whether the rating may be revised. S & P analyst Osamu Kobayashi couldn't be reached at his office.

Cash on Hand

Toyota had 1.85 trillion yen ($19.5 billion) in cash and near cash as of Sept. 30 and earned 169.5 billion yen ($1.79 billion) in operating profit in the three months ended Sept. 30. That compares with a $4.2 billion operating loss for GM, which said it may run out of cash by the end of the year.

``Toyota's financial foundation is solid, and I don't think there has been such a drastic change to warrant a two-level downgrade,'' said Yasuhiro Matsumoto, senior credit analyst at Shinsei Securities Co. in Tokyo. ``I don't see an impact on the company's new bond issues.''

Toyota has 289 billion yen in debt coming due this year, and owes 2.52 trillion yen next year, according to Bloomberg data.

Toyota's 150 billion yen 1.33 percent bonds maturing in 2012 traded at 28 basis points above Japanese government debt yesterday, up from 20 basis points at the beginning of 2008, data compiled by Bloomberg show.

Share Performance

Toyota's stock has dropped 51 percent this year, set for the worst annual performance since at least 1975. The company is still valued at 18 times GM and Ford Motor Co. combined. Toyota spokesman Hideaki Homma declined to comment on the rating change. more

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Japan, Thai Stocks Lead Asian Declines; Banks Buoy South Korea

Japan, Thai Stocks Lead Asian Declines; Banks Buoy South Korea

Japanese and Thai stocks fell in Asia after Toyota Motor Corp.'s debt rating was cut and anti- government protesters shut Bangkok's main airport. South Korean banks gained after regulators said risks are being controlled.

By Patrick Rial and Shani Raja

Nov. 26 (Bloomberg) -- Japanese and Thai stocks fell in Asia after Toyota Motor Corp.'s debt rating was cut and anti- government protesters shut Bangkok's main airport. South Korean banks gained after regulators said risks are being controlled.

Toyota dropped 4.6 percent after Fitch Ratings lowered the world's second-largest automaker's debt to AA. Thai Airways International PCL sank 5.8 percent. Rio Tinto Group slumped 34 percent, leading Australian shares lower, after BHP Billiton Ltd. dropped its takeover bid for the rival miner. Woori Finance Holdings Co. surged 15 percent in Seoul.

``Companies that have kept their balance sheets in order and have stronger business models will get through this better,'' said Hugh Dive, Who helps manage about $3 billion at Sydney-based Investors Mutual Ltd.

The MSCI Asia Pacific Index lost 0.3 percent to 79.77 at 3:58 p.m. in Tokyo. About eight stocks fell for every seven that gained. The measure surged 4.1 percent yesterday, the biggest in three weeks, fueled by a surge in commodity prices and the U.S. government's rescue of Citigroup Inc.

Japan's Nikkei 225 Stock Average dropped 1.3 percent to 8,213.22 on the lightest trading day of the year for Japan in terms of value. Other Asian benchmark indexes were mixed.

U.S. stocks advanced for a third day yesterday as the Federal Reserve committed an additional $800 billion to unlocking credit markets. The Standard & Poor's 500 Index swung between gains and losses more than 20 times before closing 0.7 percent higher. Futures on the index lost 0.4 percent in trading today.

Fed Assistance

The Fed said yesterday it will purchase as much as $600 billion of debt issued or backed by government-chartered housing- finance companies and establish a $200 billion program to shore up consumer and small-business loans.

More than half of stocks in Asia have sunk below their book value as the collapse of the U.S. housing market curbed consumer spending on Asian-made goods and reduced demand for fuel and other commodities. MSCI's Asian index has tumbled by 49 percent this year as the global economy slipped into recession.

Toyota slumped 4.6 percent to 2,985 yen. Fitch lowered its rating on the company and added that the weak auto market could trigger additional downgrades. The company has slashed production and sales forecasts in recent months to cope with a global recession that has eroded demand for expensive items such as cars.

Honda Motor Co. fell 1.9 percent to 2,050 yen. Denso Corp., the world's largest listed auto-parts maker, slumped 5.5 percent to 1,519 yen.

OECD Forecast

The Organization for Economic Cooperation and Development cut its 2009 growth forecast for its 30 members yesterday to a 0.4 percent contraction, from a previous estimat of 0.3 percent, and called on governments to use fiscal and monetary policy to ease the worst recession since the early 1980s. more

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en Rises on Concern a Global Recession Will Curb Carry Trades

Yen Rises on Concern a Global Recession Will Curb Carry Trades

The yen rose against the euro and the dollar as speculation a global recession will deepen prompted investors to pare holdings of higher-yielding assets funded in Japan.

By Ron Harui and Stanley White

Nov. 26 (Bloomberg) -- The yen rose against the euro and the dollar as speculation a global recession will deepen prompted investors to pare holdings of higher-yielding assets funded in Japan.

The currency also gained versus the Australian dollar and the British pound on concern the Federal Reserve's $800 billion plan to unfreeze credit markets will fail to prevent a protracted economic slump. The U.S. economy, the world's biggest, shrank in the third quarter as consumer spending plunged the most in almost three decades, government data showed yesterday.

``The yen should remain supported,'' said Osao Iizuka, head of foreign-exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``There was a bounce in sentiment after the Fed's announcement of its latest measures. This has faded because there are still a lot of problems to work out.''

The yen rose to 123.05 per euro as of 7:21 a.m. in London from 124.43 late yesterday in New York. It advanced to 94.84 versus the U.S. dollar from 95.22. The euro fell to $1.2977 from $1.3064. The pound declined to $1.5348 from $1.5472. The yen may rise to 94.80 per dollar today, Iizuka said.

Thailand's baht slid as low as 35.35 per dollar, the weakest level since February 2007, as anti-government protesters stormed the main terminal at Bangkok's international airport.

Australia's dollar fell to 61.35 yen from 61.82 yen in New York late yesterday. The pound dropped 0.9 percent to 145.99 yen. Japan's benchmark interest rate of 0.3 percent compares with 3 percent in the U.K. and 5.25 percent in Australia.

Higher Forecast

In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is currency market moves can erase those profits.

Bank of America Corp. raised its forecast for the yen against the dollar on expectations the Bank of Japan will delay cutting interest rates and Japanese investors may refrain from funneling funds into overseas assets offering higher returns.

``We have pushed back our BOJ rate-cut forecast from December to February and narrower interest-rate differentials should raise hurdles to Japanese investors' foreign asset investment over the next several months,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America in Tokyo, confirming a research note dated yesterday. ``We have revised down our dollar-yen forecasts over the next year.''

The yen will trade at 97 per dollar at year-end and 100 at the end of March, compared with previous forecasts of 101 and 105, respectively, Fujii said.

Fed Action

The Fed will buy as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the central bank said in statements yesterday in Washington.

The Organization for Economic Cooperation and Development cut its forecast for global growth in 2009. The economies of the organization's 30 members will contract 0.4 percent next year, after expanding 1.4 percent this year. Gross domestic product in the U.S. shrank at a 0.5 percent annual rate from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department in Washington. more

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Dividends Cut Fastest Since 1950s as Citigroup Conserves Cash

Dividends Cut Fastest Since 1950s as Citigroup Conserves Cash

Stock dividends are disappearing at the fastest rate in 50 years as the worsening recession forces U.S. companies to conserve cash.

By Lynn Thomasson and Eric Martin

Nov. 26 (Bloomberg) -- Stock dividends are disappearing at the fastest rate in 50 years as the worsening recession forces U.S. companies to conserve cash.

Citigroup Inc., Genworth Financial Inc. and New York Times Co. are leading 91 companies listed on the biggest U.S. exchanges in reducing or suspending payouts to shareholders this month, the most since May 1958, when 113 companies slashed dividends, according to data compiled by Standard & Poor’s. The reductions in November exceeded the 81 dividend cuts in October and 60 in September.

“Until we start to see the economy turn around, you have to assume broadly that dividends could be at risk in many sectors of the economy, especially among financials,” said Fritz Meyer, the Denver-based senior market strategist at Invesco Aim Advisors Inc., which manages about $358 billion.

The recession and global credit crunch are reducing profits for the fifth straight quarter and leaving less spare cash for quarterly payments to shareholders. Curtailing dividends adds more injury to investors battered by this year’s 42 percent decline in the S&P 500 Index, the worst performance since 1931.

Financial companies accounted for six of the eight dividend cuts or suspensions in the S&P 500 this month through Nov. 24, based on data from S&P index analyst Howard Silverblatt. The industry has lost $972 billion worldwide from the subprime mortgage market collapse and raised $880 billion to replace it.

Higher Yield

Tumbling stock prices are also increasing the dividend yield for S&P 500 companies to the highest level in at least 15 years. The 3.8 percent yield, on a weekly basis, is greater than the 3.6 percent return from a 30-year U.S. Treasury.

Options prices, earnings growth and industry trends suggest that 83 companies may boost their dividend, according to data compiled by Bloomberg. 3M Co., Eli Lilly & Co. and Coca-Cola Co., each yielding more than 3.1 percent, have increased their payout for the past 25 years and likely will do so again, data from S&P and Bloomberg show.

“We’re looking for companies that have the balance sheet and cash flow in this environment to maintain their dividend,” said Brad Evans, a fund manager at Milwaukee-based Heartland Advisors Inc., which manages $2.5 billion. “When things settle down, the wheat will be separated from the chaff.”

Citigroup, which lost 69 percent of its market value in the past two months, said it would pay a quarterly dividend of no more than 1 cent a share over the next three years after receiving a $20 billion cash injection from the government this week. The New York-based lender, which paid 54 cents a share last year, has reduced its payment three times in 2008.

Suspending Payouts

Genworth, the insurer spun off by General Electric Co., suspended its 10-cent quarterly payout earlier this month. Shares of the Richmond, Virginia-based company plunged 43 percent in New York Stock Exchange composite trading a day after it reported a $258 million third-quarter loss. more

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Fed Risks ‘Spitting in the Wind’ With New $800 Billion Pledge

Fed Risks ‘Spitting in the Wind’ With New $800 Billion Pledge

The Federal Reserve’s new $800 billion effort to combat the financial crisis is designed to make credit more accessible to shaken consumers who aren’t sure they want more debt.

Nov. 26 (Bloomberg) -- The Federal Reserve’s new $800 billion effort to combat the financial crisis is designed to make credit more accessible to shaken consumers who aren’t sure they want more debt.

Households and lenders may not respond much because of the wealth destruction from plunging property and stock values, and the deepening economic slump, economists say. That means banks may end up returning the Fed’s new liquidity through deposits at the central bank.

“We are sort of spitting in the wind,” said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. “Banks won’t be throwing a lot of loans out there when they fear -- rationally -- those loans may not be paid back.”

Policy makers aim to kick-start markets for loans to students, car buyers, credit-card borrowers and small businesses with a new $200 billion program. Backed in part by the Treasury, the Fed will become a new buyer in the market for consumer loans at a time when many traditional holders of the assets, such as off-balance sheet bank units, have collapsed or been dissolved.

The announcement of the new efforts yesterday came amid rising criticism that officials were excessively focused on saving Wall Street firms, with the Citigroup Inc. rescue Nov. 23 the latest example. President-elect Barack Obama said repeatedly in the past two days he’ll compose a plan to help “Main Street” as well as the financial industry.

1966 Powers

Obama and congressional Democrats have also pushed for a stronger response to the housing crisis. The Fed responded yesterday, invoking authority first granted in 1966 to buy $500 billion of mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.

Along with a $100 billion plan to buy the corporate debt of Fannie, Freddie and federal home loan banks, the step marks the central bank’s biggest foray into a type of quantitative easing. That’s an unorthodox monetary policy tool that goes beyond setting short-term interest rates. The central bank has already cut its benchmark rate to 1 percent. more

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