Late Edition October 30 2008 at 02:41 PM Chi-Chu Tschang and Harry Maurer
The U.S. Economy Is Shrinking
U.S. gross domestic product shrank in the third quarter at a 0.3% annual rate, the Commerce Dept. reported. That's a smaller dip than economists had predicted but still further indication that the economy has entered a recession. Most observers expect a sharper contraction in the fourth quarter.
One particularly worrisome aspect of the report is that consumer spending dropped at a 3.1% annual rate, the largest drop since the second quarter of 1980. Businesses also cut spending on equipment and software at a 5.5% annual pace. In hopes of offsetting the downturn, exacerbated by the financial crisis, Congress is holding hearings aimed at passing another economic stimulus package that may include aid to states and extended unemployment benefits.
Source: USA Today
ExxonMobil's Record Profit
One company that isn't hurting: ExxonMobil, which reported third-quarter earnings of $14.83 billion, shattering its own record for the biggest quarterly profit ever. The third-quarter number was 58% higher than that for the corresponding period last year and handily beat analysts' expectations, but it was boosted by a $1.62 billion profit on the sale of a natural-gas business in Germany. The company's stock fell in early trading, down more than 3% around midday.
Source: Associated Press
Major Layoffs at AmEx
The largest U.S. credit-card company by volume of purchases will slash 10% of its workforce, or 7,000 workers, and will take a charge of up to $290 million in the fourth quarter because of the cuts. American Express will also freeze new hires and management raises and cut spending on technology and marketing, hoping to save $1.8 billion in 2009. The company has lost about half its market value in the past year as default rates rise on its cards.
Source: Bloomberg
Red Ink at Motorola
Traders drove down Motorola stock in morning trading after the company announced a third-quarter loss and trimmed its forecast for the year as sales continue to slump. The company lost $390 million in the quarter, compared with a profit of $60 million in the same period last year. Sales fell 15%, to $7.48 billion, below analysts' expectations. The new chief of Motorola's troubled handset division, Sanjay Jha, said he's forging ahead with his restructuring plan but that the unit won't be ready for spinoff in early 2009, as previously promised.
Source: Wall Street Journal
Much Bailout Money Will Go to Dividends
U.S. banks are receiving more than $163 billion from the Treasury Dept. under terms of the rescue plan. But they are also expected to dole out more than half of that sum to their shareholders, with government permission, over the next three years. The government said it was giving banks more money so they could make more loans. That's at odds with banks' plans to reward their shareholders, but Treasury officials say that suspending quarterly dividend payments would have deterred banks from participating in the voluntary program. Economists and members of Congress criticized banks for spending the money on dividends.
Source: Washington Post
Fed Assists South Korea, Brazil, Mexico with Dollar-based Fundraising
The Federal Reserve agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time. The Fed set up ``liquidity swap facilities with the central banks of these four large systemically important economies'' effective until April 30, the central bank said yesterday in a statement. The arrangements aim ``to mitigate the spread of difficulties in obtaining U.S. dollar funding." Some analysts said it could have a more significant impact than the Fed's move on Wednesday to cut short-term U.S. interest rates. Markets in Asia posted gains on the news.
Source: Bloomberg
In U.S. Election, Gap Narrows in Key States
New polling suggests the presidential race is a close one in the battleground states of Ohio and Florida, though not in Pennsylvania, where Sen. John McCain hopes to snag a key swing state. Sen. McCain is narrowing the gap in Florida, where Sen. Barack Obama leads 47% to 45%, a new poll by the Quinnipiac University Polling Institute finds. Less than a week ago, Sen. Obama led by five percentage points there. In Ohio, considered a Republican must-win, Sen. Obama still has a comfortable lead of 51% to 42%, Quinnipiac found. Last week, Sen. Obama led by 14 points.
Source: Wall Street Journal
Foreclosures: Feds to the Rescue?
The Federal Deposit Insurance Corp. and the Treasury Dept. are working on a major program to prevent widespread foreclosures that would include government guarantees of home mortgages. The plan would use $50 billion from the recently passed bailout package to provide as much as $500 billion to $600 billion in government guarantees on up to 3 million at-risk mortgages. It might require banks and savings and loans to offer loans with lower interest rates for a five-year period, while shifting to the government any risk if the home doesn't recover its full mortgage value within that time. Without giving details, FDIC Chairman Sheila Bair discussed the program on Oct. 29 at an international deposit insurers' conference in Arlington, Va. She said the agency has developed "a federal program to help more borrowers avoid foreclosure..Such a framework is needed to modify loans on a scale large enough to have a major impact."
Source: BusinessWeek
U.S. Vote Watchdogs Warn of Election Day "Meltdown"
With a record-high turnout of voters expected on election day across the U.S., voting-rights watchdogs are sounding the alarm that a repeat of the Florida fiasco of 2000 could occur in any of a dozen battleground states. Lawsuits have been filed in many of these states, including Ohio, Georgia, Florida and Colorado.
Source: Los Angeles Times
GM's Latest Retooling: Merger with Chrysler
General Motors is getting closer to taking Chrysler off the hands of its owner, private equity giant Cerberus Capital Management. If GM can come up with funds--perhaps as much as $10 billion--from the government to solve its problems and help restructure the smallest of the Big Three, it could be a done deal. Assuming it happens, show 'em what they won, Vanna. It's an 83-year-old car company that's badly in need of restructuring. That's the problem. GM has been lousy at restructuring. GM's strategy all along has been to grab Chrysler and its $11 billion in cash and estimated $35 billion to $40 billion in yearly sales, and then slash overhead, dump unwanted products and plants, and remake the combined company into a profitable business. Industry sources say the two sides still have many issues to settle.
Source: BusinessWeek
Four Former Dell Executives Sue, Allege Sex Discrimination
Four women--all fired from top executive posts at Dell--have sued their former employer, the world's second-largest computer maker, alleging gender discrimination and seeking $500 million in damages. The Texas-based company, whose top 14 executives are male, unfairly laid off four former senior female employees in the job cuts earlier this year, said the suit seeking class action status and filed in a federal court in California on Wednesday. A Dell spokesman said the claims of the suit were "without merit."
Source: Reuters
Delta-Northwest Finalize Deal
Delta and Northwest announced late Wednesday that the two companies had officially merged, hours after the U.S. Justice Department announced that the deal to create the world's biggest airline did not violate antitrust laws. The new airline will be called Delta, with its headquarters in Atlanta. The process of combining operations at the two carriers is expected to take 14 to 16 months. The outlook for the industry appears to be mixed, with some early signs that the uncertain economic outlook has led some consumers and businesses to cut back on travel. Some labor groups have opposed the merger, fearing that a deal would result in lost jobs.
Source: Washington Post
Netflix and TiVo to Tie Up on Movies
Two Silicon Valley success stories, Netflix and TiVo, are expected to announce a long-awaited partnership on Thursday. Netflix will place its Watch Instantly streaming-movie service on TiVo's HD-compatible set-top boxes, giving a boost to the industry's goal of delivering television shows and movies over the Internet, instead of over traditional cable and satellite networks, to ordinary TVs. Netflix, based in Los Gatos, Calif., is more widely known for its DVD subscription service that mails discs in familiar red envelopes. But it has lately been expanding its digital offerings, and now has 12,000 movies and television shows that subscribers can view instantly over the Web on their PCs without charge. Netflix and TiVo said they would begin testing the service on Thursday and expected to make it available to all owners of TiVo set-top boxes in December.
Source: New York Times
Conversation of the Day: Can the Chevy Volt Save GM?
Reader Midwest writes: " I strongly believe the Volt is the last great hope for GM or any other American car maker. If, and only if, the domestic makers realize that LEADING this race will take them into the future, then they have a fighting chance. If they fold and give in to cheap gas, then they will lose."
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