NOT long ago, a woman in California called me for advice. She is divorced, with two children, and has a series of interlocking financial problems.
She lives in a lovely home in a stylish inland enclave. It has an interest-only mortgage of about $2.2 million that requires a payment of $12,000 a month, very roughly. It was last appraised at $2.7 million, but who knows if it’s now worth anything remotely close to that price.
The woman, whom I’ve known since she was a teenager, has no job or other remunerative employment. She has a former husband, an entrepreneur whose business has suffered recently. He pays her $20,000 a month, of which roughly half is alimony and half child support. The alimony is scheduled to stop this summer.
She has a wealthy beau who pays her credit card bills and other incidentals, but she is thinking of telling him she is through with him. She has no savings and has refinanced her home repeatedly, always adding to indebtedness and then putting the money into a shop she owns that has never come close to earning a dime. Now she is up all night worrying about money. “Terrified,” as she put it. She wanted me to tell her what to do.
What could I say? I did the best I could, but I had to tell her that she was on very thin ice.
Ever since, I’ve been thinking of the troubles of this sweet woman, consumed with worry about money.
These gloomy thoughts have been compounded by the holiday newsletters I have been getting from old pals and classmates. I have been getting them for about 45 years. This season, for the first time I can recall, the talk in the newsletters is not the usual tales of world-beating triumph by genius children, but of jobs lost, homes in jeopardy, children whose jobs have vanished and who are on the road looking for work.
And all of this is compounded again because my handsome son, age 21, a student, has just married a lovely young woman, 20. You may have seen on television the pudgy, aging face of their sole means of support.
I have been pondering what advice to give them about money. What I keep coming up with is this: Do not act like typical Americans. Do not fail to save. Do not get yourself in debt up to your eyeballs. Work and take pride and honor from your work. Learn a useful skill that Americans really need, like law or plumbing or medicine or nursing. Do not expect your old Ma and Pa to always be there to take care of you. I absolutely guarantee that we will not be. Learn to be self-sufficient through your own contributions, as the saying goes.
This advice has served me well. It was propounded to me by my late father, who often said, “Be prudent.”
MY work as a freelance writer in Hollywood some time ago prepared me for extreme uncertainty. This is the most insecure existence imaginable. It mandates saving, ingenuity and nonstop work and creativity. Freelancers never have a day off. Never. They know that they can go months without a check. They absolutely have to save. They have to have five different levels of fall-back plans and financial escape hatches.
I am well past that now. Decades past. (I hope.) But the habits of thought linger, at least a bit.
I wish I could teach that work ethic to those close to me. I wish I could teach them that money is a scarce good, worth fighting for and protecting. But I very much fear that my son, more up-to-date than I am in almost every way, is more of a modern-day American than I am. To hustle and scuffle for a deal is something he cannot even imagine. To not be able to eat at any restaurant he feels like eating at is just not on his wavelength. Of course, that’s my fault. (I have learned that everything bad that happens anywhere is my fault.) And I hope to be able to leave him well enough provided for to ease his eventual transition into some form of self-sufficiency.
But I keep thinking of my friend in California, and what a perfect specimen of what we have become that she has become. I keep lecturing my son, as Pop lectured me, to learn prudence. I keep lecturing myself to learn it; I am far from a small player in the extravagance game.
Maybe, upon second thought, I did not learn well about prudence. Then I think that maybe it’s too late for far too many of us. The age when money was a free good, available in unlimited quantities just for signing a note, may well be over. What the heck will we do when we have to start acting like mature adults? How will we cope with limits? With reality?
America, a nation of free-spending Peter Pans. Where are our moms and dads when we need them? It’s their fault.
Friday, January 30, 2009
JPMorgan Exited Madoff-Linked Funds Last FallJPMorgan Exited Madoff-Linked Funds Last Fall
JPMorgan Chase says that its potential losses related to Bernard L. Madoff, the man accused of engineering an immense global Ponzi scheme, are “pretty close to zero.” But what some angry European investors want to know is when the bank cut its exposure to Mr. Madoff — and why.
As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Mr. Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds.
But the bank suddenly began pulling its millions out of those funds in early autumn, months before Mr. Madoff was arrested, according to accounts from Europe and New York that were subsequently confirmed by the bank. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.
A spokeswoman, Kristin Lemkau, said the bank withdrew from the Madoff-linked funds last fall after “a wide-ranging review of our hedge fund exposure.” Ms. Lemkau acknowledged, however, that the bank also “became concerned about the lack of transparency to some questions we posed as part of our review.”
Investors were not alerted to the move because, under sales agreements, the issues did not meet the threshold necessary to permit the bank to restructure the notes, she said. Under those circumstances, she added, “we did not have the right to disclose our concerns.”
That doesn’t satisfy some investors. As they see it, they were the first people who should have been alerted to the bank’s concerns. “Instead, we continued to pay our fees to the bank and remained the only ones exposed to the risks that JPMorgan did not want to assume,” said the chief asset manager of an Italian investment firm, who declined to be identified because of potential litigation.
The tale began several years ago when a unit of JPMorgan Chase in London issued a series of complex derivatives that gave investors a way to triple their bets on the Fairfield funds, whose solid consistency mirrored the track record that had quietly — and ruinously — drawn investors to Mr. Madoff for decades.
Leveraged notes issued by big banks like JPMorgan Chase and Nomura became conduits through which fresh money flowed from institutional investors into the Fairfield Sentry and the euro-based Fairfield Sigma funds, both run by the Fairfield Greenwich Group — and, in turn, into Mr. Madoff’s hands.
The arrangement worked like this: Investors put up cash to buy the notes from the bank. In return, the bank promised to pay them up to three times the future earnings of the Fairfield funds. When the notes matured in five years, assuming the funds did well, these investors would get more than if they had invested in the funds directly. The bank collected just under 2 percent in fees, investors said.
And because the bank had to hedge its entire risk, it put up to three times the face amount of the notes into the Fairfield funds. Thus, Fairfield Greenwich got more cash to manage than it otherwise would have, increasing its own fee income. To reward note-holders for making that possible, Fairfield paid them a so-called rebate of a fifth to a third of a percentage point a year, according to documentation of those transactions.
The first sign of trouble came in early October, when Fairfield Greenwich notified investors that it would no longer pay them rebates.
The reason, according to the Italian asset manager, was that JPMorgan Chase had “suddenly cashed out” of the Fairfield funds. “The official explanation was that there had been a strategic decision to get out of all hedge funds,” the asset manager said. “The Fairfield official was quite upset.”
Several other European money managers said they were told the same thing.
A spokesman for Fairfield Greenwich declined to comment on the bank’s actions last fall, citing restrictions imposed by the beleaguered firm’s lawyers.
Given the turbulent times, the Italian asset manager said he thought the bank urgently needed to raise cash. That seemed the only way to explain why the bank would pull out of a fund that was up 5 percent when other major market indexes were down 30 percent, he added.
A source close to JPMorgan Chase, however, recalled bank officials saying that the bank’s “due-diligence people had too many doubts” about the performance of the underlying funds.
As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Mr. Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds.
But the bank suddenly began pulling its millions out of those funds in early autumn, months before Mr. Madoff was arrested, according to accounts from Europe and New York that were subsequently confirmed by the bank. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.
A spokeswoman, Kristin Lemkau, said the bank withdrew from the Madoff-linked funds last fall after “a wide-ranging review of our hedge fund exposure.” Ms. Lemkau acknowledged, however, that the bank also “became concerned about the lack of transparency to some questions we posed as part of our review.”
Investors were not alerted to the move because, under sales agreements, the issues did not meet the threshold necessary to permit the bank to restructure the notes, she said. Under those circumstances, she added, “we did not have the right to disclose our concerns.”
That doesn’t satisfy some investors. As they see it, they were the first people who should have been alerted to the bank’s concerns. “Instead, we continued to pay our fees to the bank and remained the only ones exposed to the risks that JPMorgan did not want to assume,” said the chief asset manager of an Italian investment firm, who declined to be identified because of potential litigation.
The tale began several years ago when a unit of JPMorgan Chase in London issued a series of complex derivatives that gave investors a way to triple their bets on the Fairfield funds, whose solid consistency mirrored the track record that had quietly — and ruinously — drawn investors to Mr. Madoff for decades.
Leveraged notes issued by big banks like JPMorgan Chase and Nomura became conduits through which fresh money flowed from institutional investors into the Fairfield Sentry and the euro-based Fairfield Sigma funds, both run by the Fairfield Greenwich Group — and, in turn, into Mr. Madoff’s hands.
The arrangement worked like this: Investors put up cash to buy the notes from the bank. In return, the bank promised to pay them up to three times the future earnings of the Fairfield funds. When the notes matured in five years, assuming the funds did well, these investors would get more than if they had invested in the funds directly. The bank collected just under 2 percent in fees, investors said.
And because the bank had to hedge its entire risk, it put up to three times the face amount of the notes into the Fairfield funds. Thus, Fairfield Greenwich got more cash to manage than it otherwise would have, increasing its own fee income. To reward note-holders for making that possible, Fairfield paid them a so-called rebate of a fifth to a third of a percentage point a year, according to documentation of those transactions.
The first sign of trouble came in early October, when Fairfield Greenwich notified investors that it would no longer pay them rebates.
The reason, according to the Italian asset manager, was that JPMorgan Chase had “suddenly cashed out” of the Fairfield funds. “The official explanation was that there had been a strategic decision to get out of all hedge funds,” the asset manager said. “The Fairfield official was quite upset.”
Several other European money managers said they were told the same thing.
A spokesman for Fairfield Greenwich declined to comment on the bank’s actions last fall, citing restrictions imposed by the beleaguered firm’s lawyers.
Given the turbulent times, the Italian asset manager said he thought the bank urgently needed to raise cash. That seemed the only way to explain why the bank would pull out of a fund that was up 5 percent when other major market indexes were down 30 percent, he added.
A source close to JPMorgan Chase, however, recalled bank officials saying that the bank’s “due-diligence people had too many doubts” about the performance of the underlying funds.
What Red Ink? Wall Street Paid Hefty Bonuses
By almost any measure, 2008 was a complete disaster for Wall Street — except, that is, when the bonuses arrived.
Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year.
That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.
While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.
Some bankers took home millions last year even as their employers lost billions.
The comptroller’s estimate, a closely watched guidepost of the annual December-January bonus season, is based largely on personal income tax collections. It excludes stock option awards that could push the figures even higher.
The state comptroller, Thomas P. DiNapoli, said it was unclear if banks had used taxpayer money for the bonuses, a possibility that strikes corporate governance experts, and indeed many ordinary Americans, as outrageous. He urged the Obama administration to examine the issue closely.
“The issue of transparency is a significant one, and there needs to be an accounting about whether there was any taxpayer money used to pay bonuses or to pay for corporate jets or dividends or anything else,” Mr. DiNapoli said in an interview.
Granted, New York’s bankers and brokers are far poorer than they were in 2006, when record deals, and the record profits they generated, ushered in an era of Wall Street hyperwealth. All told, bonuses fell 44 percent last year, from $32.9 billion in 2007, the largest decline in dollar terms on record.
But the size of that downturn partly reflected the lofty heights to which bonuses had soared during the bull market. At many banks, those payouts were based on profits that turned out to be ephemeral. Throughout the financial industry, years of earnings have vanished in the flames of the credit crisis.
According to Mr. DiNapoli, the brokerage units of New York financial companies lost more than $35 billion in 2008, triple their losses in 2007. The pain is unlikely to end there, and Wall Street is betting that the Obama administration will move swiftly to buy some of banks’ troubled assets to encourage reluctant banks to make loans.
Many corporate governance experts, investors and lawmakers question why financial companies that have accepted taxpayer money paid any bonuses at all. Financial industry executives argue that they need to pay their best workers well in order to keep them, but with many banks cutting jobs, job options are dwindling, even for stars.
Lucian A. Bebchuk, a professor at Harvard Law School and expert on executive compensation, called the 2008 bonus figure “disconcerting.” Bonuses, he said, are meant to reward good performance and retain employees. But Wall Street disbursed billions despite staggering losses and a shrinking job market.
“This was neither the sixth-best year in terms of aggregate profits, nor was it the sixth-most-difficult year in terms of retaining employees,” Professor Bebchuk said.
Echoing Mr. DiNapoli, Professor Bebchuk said he was concerned that banks might be using taxpayer money to subsidize bonuses or dividends to stockholders. “What the government has been trying to do is shore up capital, and any diversion of capital out of banks, whether in the form of dividends or large payments to employees, really undermines what we are trying to do,” he said.
Jesse M. Brill, a lawyer and expert on executive compensation, said government bailout programs like the Troubled Asset Relief Program, or TARP, should be made more transparent.
“We are all flying in the dark,” Mr. Brill said. “Companies can simply say they are trying to do their best to comply with compensation limits without providing any of the details that the public is entitled to.”
Bonuses paid by one troubled Wall Street firm, Merrill Lynch, have come under particular scrutiny during the last week.
Andrew M. Cuomo, the New York attorney general, has issued subpoenas to John A. Thain, Merrill’s former chief executive, and to an executive at Bank of America, which recently acquired Merrill, asking for information about Merrill’s decision to pay $4 billion to $5 billion in bonuses despite new, gaping losses that forced Bank of America to seek a second financial lifeline from Washington.
A Treasury department official said that in the coming weeks, the department would take action to further ensure taxpayer money is not used to pay bonuses.
Even though Wall Street spent billions on bonuses, New York firms squeezed rank-and-file executives harder than many companies in other fields. Outside the financial industry, many corporate executives received fatter bonuses in 2008, even as the economy lost 2.6 million jobs. According to data from Equilar, a compensation research firm, the average performance-based bonuses for top executives, other than the chief executive, at 132 companies with revenues of more than $1 billion increased by 14 percent, to $265,594, in the 2008 fiscal year.
For New York State and New York City, however, the leaner times on Wall Street will hurt, Mr. DiNapoli said.
Mr. DiNapoli said the average Wall Street bonus declined 36.7 percent, to $112,000. That is smaller than the overall 44 percent decline because the money was spread among a smaller pool following thousands of job losses.
The comptroller said the reduction in bonuses would cost New York State nearly $1 billion in income tax revenue and cost New York City $275 million.
Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year.
That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.
While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.
Some bankers took home millions last year even as their employers lost billions.
The comptroller’s estimate, a closely watched guidepost of the annual December-January bonus season, is based largely on personal income tax collections. It excludes stock option awards that could push the figures even higher.
The state comptroller, Thomas P. DiNapoli, said it was unclear if banks had used taxpayer money for the bonuses, a possibility that strikes corporate governance experts, and indeed many ordinary Americans, as outrageous. He urged the Obama administration to examine the issue closely.
“The issue of transparency is a significant one, and there needs to be an accounting about whether there was any taxpayer money used to pay bonuses or to pay for corporate jets or dividends or anything else,” Mr. DiNapoli said in an interview.
Granted, New York’s bankers and brokers are far poorer than they were in 2006, when record deals, and the record profits they generated, ushered in an era of Wall Street hyperwealth. All told, bonuses fell 44 percent last year, from $32.9 billion in 2007, the largest decline in dollar terms on record.
But the size of that downturn partly reflected the lofty heights to which bonuses had soared during the bull market. At many banks, those payouts were based on profits that turned out to be ephemeral. Throughout the financial industry, years of earnings have vanished in the flames of the credit crisis.
According to Mr. DiNapoli, the brokerage units of New York financial companies lost more than $35 billion in 2008, triple their losses in 2007. The pain is unlikely to end there, and Wall Street is betting that the Obama administration will move swiftly to buy some of banks’ troubled assets to encourage reluctant banks to make loans.
Many corporate governance experts, investors and lawmakers question why financial companies that have accepted taxpayer money paid any bonuses at all. Financial industry executives argue that they need to pay their best workers well in order to keep them, but with many banks cutting jobs, job options are dwindling, even for stars.
Lucian A. Bebchuk, a professor at Harvard Law School and expert on executive compensation, called the 2008 bonus figure “disconcerting.” Bonuses, he said, are meant to reward good performance and retain employees. But Wall Street disbursed billions despite staggering losses and a shrinking job market.
“This was neither the sixth-best year in terms of aggregate profits, nor was it the sixth-most-difficult year in terms of retaining employees,” Professor Bebchuk said.
Echoing Mr. DiNapoli, Professor Bebchuk said he was concerned that banks might be using taxpayer money to subsidize bonuses or dividends to stockholders. “What the government has been trying to do is shore up capital, and any diversion of capital out of banks, whether in the form of dividends or large payments to employees, really undermines what we are trying to do,” he said.
Jesse M. Brill, a lawyer and expert on executive compensation, said government bailout programs like the Troubled Asset Relief Program, or TARP, should be made more transparent.
“We are all flying in the dark,” Mr. Brill said. “Companies can simply say they are trying to do their best to comply with compensation limits without providing any of the details that the public is entitled to.”
Bonuses paid by one troubled Wall Street firm, Merrill Lynch, have come under particular scrutiny during the last week.
Andrew M. Cuomo, the New York attorney general, has issued subpoenas to John A. Thain, Merrill’s former chief executive, and to an executive at Bank of America, which recently acquired Merrill, asking for information about Merrill’s decision to pay $4 billion to $5 billion in bonuses despite new, gaping losses that forced Bank of America to seek a second financial lifeline from Washington.
A Treasury department official said that in the coming weeks, the department would take action to further ensure taxpayer money is not used to pay bonuses.
Even though Wall Street spent billions on bonuses, New York firms squeezed rank-and-file executives harder than many companies in other fields. Outside the financial industry, many corporate executives received fatter bonuses in 2008, even as the economy lost 2.6 million jobs. According to data from Equilar, a compensation research firm, the average performance-based bonuses for top executives, other than the chief executive, at 132 companies with revenues of more than $1 billion increased by 14 percent, to $265,594, in the 2008 fiscal year.
For New York State and New York City, however, the leaner times on Wall Street will hurt, Mr. DiNapoli said.
Mr. DiNapoli said the average Wall Street bonus declined 36.7 percent, to $112,000. That is smaller than the overall 44 percent decline because the money was spread among a smaller pool following thousands of job losses.
The comptroller said the reduction in bonuses would cost New York State nearly $1 billion in income tax revenue and cost New York City $275 million.
3 Airlines End Tough Year With Deep Losses
Three big airlines — Continental, JetBlue and US Airways — each reported deeper fourth-quarter losses on Thursday amid pessimism over the near-term outlook for air travel.
The results essentially completed a dismal set of fourth-quarter reports for the industry, which has suffered whiplash in the last year, first from record fuel prices that peaked during the summer, then from the sour economy.
Airlines began cutting flights, routes and aircraft in the fourth quarter, in reaction to jet fuel prices that at one point in 2008 were nearly double what they paid in 2007. Carriers thought the retrenchment, which is expected to continue this year, would allow them to charge higher ticket prices.
But passengers balked at paying more, and companies pulled back on business travel in the wake of the economic slump. Now, lots of carriers are instituting fare sales in hopes of winning back travelers.
“You have an operating backdrop that rivals any we’ve seen in our industry for the past few years,” Lawrence W. Kellner, the chief executive of Continental Airlines, told analysts during a conference call.
Continental lost $266 million, or $2.33 a share, compared with $32 million, or 33 cents a share, in the 2007 quarter. The 2008 result included a one-time charge of $169 million to pay for retirement costs for pilots, and to reflect losses on fuel hedging contracts, an issue that also has affected other airlines.
Many carriers lock in the price of fuel in advance, a strategy that can protect them when prices rise. But when the cost of jet fuel drops, airlines have to take charges to account for the difference between the hedge price and the going rate.
Revenue at Continental was $3.5 billion, down 1.5 percent.
Continental noted a significant shift in its international flights from first-class to coach travel. Several companies have banned first-class business travel as a cost-cutting move. “Our international business is pretty solid,” Mr. Kellner said. “It’s just not as profitable as it used to be.”
Continental shares dropped 10.6 percent, to $14.51.
US Airways, which was in the news earlier this month when one of its planes made an emergency landing in the Hudson River, said it lost $541 million, or $4.74 a share, compared with a $79 million loss, or 87 cents a share in the 2007 quarter.
Revenue at US Airways was $2.76 billion, essentially flat with 2007. The airline took a special charge of $234 million that included its impact from fuel hedging contracts.
US Airways shares fell 11.37 percent, to $6.47.
JetBlue Airways said it lost $49 million, before taxes, in the fourth quarter compared with a pretax loss of $3 million in 2007. The 2008 results included a one-time charge of $53 million to revalue auction-rate securities.
JetBlue said its results were preliminary and would be completed after it determined the tax implications of its special charge. Its revenue was $811 million, up nearly 10 percent.
It shares fell 2.74 percent, or 18 cents, to $6.38.
JetBlue, which has grown rapidly since it began flying in 2000, said it expected to reduce its flights by 2 percent in 2009. But the airline announced plans to start service from Kennedy International Airport to Los Angeles International Airport, and said it would add service to Jamaica.
David Barger, the chief executive of JetBlue, told analysts that voting among its pilots would end Tuesday on whether they would join a new union, the JetBlue Pilots Association.
The group is independent of the nation’s biggest pilots’ union, the Air Line Pilots Association.
The results essentially completed a dismal set of fourth-quarter reports for the industry, which has suffered whiplash in the last year, first from record fuel prices that peaked during the summer, then from the sour economy.
Airlines began cutting flights, routes and aircraft in the fourth quarter, in reaction to jet fuel prices that at one point in 2008 were nearly double what they paid in 2007. Carriers thought the retrenchment, which is expected to continue this year, would allow them to charge higher ticket prices.
But passengers balked at paying more, and companies pulled back on business travel in the wake of the economic slump. Now, lots of carriers are instituting fare sales in hopes of winning back travelers.
“You have an operating backdrop that rivals any we’ve seen in our industry for the past few years,” Lawrence W. Kellner, the chief executive of Continental Airlines, told analysts during a conference call.
Continental lost $266 million, or $2.33 a share, compared with $32 million, or 33 cents a share, in the 2007 quarter. The 2008 result included a one-time charge of $169 million to pay for retirement costs for pilots, and to reflect losses on fuel hedging contracts, an issue that also has affected other airlines.
Many carriers lock in the price of fuel in advance, a strategy that can protect them when prices rise. But when the cost of jet fuel drops, airlines have to take charges to account for the difference between the hedge price and the going rate.
Revenue at Continental was $3.5 billion, down 1.5 percent.
Continental noted a significant shift in its international flights from first-class to coach travel. Several companies have banned first-class business travel as a cost-cutting move. “Our international business is pretty solid,” Mr. Kellner said. “It’s just not as profitable as it used to be.”
Continental shares dropped 10.6 percent, to $14.51.
US Airways, which was in the news earlier this month when one of its planes made an emergency landing in the Hudson River, said it lost $541 million, or $4.74 a share, compared with a $79 million loss, or 87 cents a share in the 2007 quarter.
Revenue at US Airways was $2.76 billion, essentially flat with 2007. The airline took a special charge of $234 million that included its impact from fuel hedging contracts.
US Airways shares fell 11.37 percent, to $6.47.
JetBlue Airways said it lost $49 million, before taxes, in the fourth quarter compared with a pretax loss of $3 million in 2007. The 2008 results included a one-time charge of $53 million to revalue auction-rate securities.
JetBlue said its results were preliminary and would be completed after it determined the tax implications of its special charge. Its revenue was $811 million, up nearly 10 percent.
It shares fell 2.74 percent, or 18 cents, to $6.38.
JetBlue, which has grown rapidly since it began flying in 2000, said it expected to reduce its flights by 2 percent in 2009. But the airline announced plans to start service from Kennedy International Airport to Los Angeles International Airport, and said it would add service to Jamaica.
David Barger, the chief executive of JetBlue, told analysts that voting among its pilots would end Tuesday on whether they would join a new union, the JetBlue Pilots Association.
The group is independent of the nation’s biggest pilots’ union, the Air Line Pilots Association.
Financial Crisis Dims Hopes for Giant Cross-Border Banks in Europe
FRANKFURT — Only a few years ago, the future of European banking was said to belong to European champions, big border-straddling banks that would compete with the American giants.
Instead, European integration has been replaced by Balkanization.
Because of the financial crisis, banks are retrenching and refocusing on their home markets, all but abandoning ambitions of banking on a Continental scale — or bigger. Strings-attached government rescue plans and basic business logic are driving the change.
So instead of strategies for global conquest, Martin Blessing, the chief executive of Commerzbank, is concentrating on ways to keep credit flowing to the small and medium-size businesses that form the backbone of the German economy.
“We will see a domestic refocusing of banking but not because everyone is turning nationalist or because one or the other governments take stakes,” he said during a recent interview at his office in the bank’s stunning Norman Foster-designed office tower here. “Banks are going to look at where their franchise is strongest.”
These new realities could end up hurting Eastern Europe most. After communism, privatization led to an extended gold rush for Western bankers. Now those investors are having to decide whether to continue lending at home — in France or Austria — or in Poland, the Czech Republic or Hungary. In the global financial crisis, with the health of many banks dependent on the good will of their home governments, the choice is not hard. The thinking at the heart of cross-border expansion in Europe was always straightforward: Europe needed banks that could achieve economies of scale and have the global reach, global clients and global influence to compete with American titans.
Operating on that basis, a handful of European banks moved to grow and consolidate. In 2004, Banco Santander of Spain bought Abbey National of Britain. A year later, Italy’s UniCredit swallowed the bank HVB Group of Germany. In early 2007, Royal Bank of Scotland led a consortium that snapped up ABN Amro of the Netherlands for 70 billion euros, or $92 billion at current exchange rates.
That deal is already coming undone, with the implosion last year of Fortis, one of Royal Bank’s partners.
More broadly, nationalist impulses are on the move across the Continent, with many politicians arguing — as some Democrats are in the United States — that if the government is going to bail out banks, then taxpayers should get some ownership and some say in how they operate.
For example, Gordon Brown, the British prime minister, has said he wants to stay out of the operating side of the banks Britain has bailed out. But his government is under heavy pressure to help small businesses at home, and the documents that created the new British vehicle for investing in banks, United Kingdom Financial Investments, cite domestic lending as its priority.
French and German governments have also injected cash into their banks, both with the goal of keeping money flowing to businesses inside their borders.
Daniel Gros, director of the Center for European Policy Studies in Brussels, called the developments the Balkanization of European finance.
“Whenever governments get into the share capital of banks, even in a small way, of course they think nationally,” Mr. Gros said.
For instance, few banks expanded more rapidly in Germany over the last decade than Royal Bank of Scotland. The British financier muscled onto Continental turf with attractive financing packages for German manufacturers. Today, Royal Bank is majority-owned by the British government after losses in 2008 from £7 billion to £8 billion, or $9.2 billion to $10.5 billion.
According to two senior German executives, Royal Bank is now playing tough with German clients, calling in loans as the bank retrenches in favor of its British business. The executives, who asked not to be identified, because they were not authorized to publicly discuss confidential negotiations, said Royal Bank had demanded that its clients on the Continent sell assets, despite the catastrophic state of financial markets, so the bank could recover its cash quickly, perhaps to lend in Britain.
Most recently, Royal Bank was a major creditor of Adolf Merckle, the German billionaire who killed himself when it became clear the banks — with Royal Bank in the lead, the executives said — would insist on the sale of his prized possession, the generic drug maker Ratiopharm.
Christine Kortyka, a Royal Bank spokeswoman in Germany, denied the bank was retrenching. “We are an international bank with international clients and we will continue to serve them where they need us,” she said.
Mr. Blessing, who took over at Commerzbank just in time to sell a 25 percent stake to the German government to stabilize its finances and complete a major acquisition, does not dispute that governments are angling for national advantage.
Commerzbank styles itself the bank of Germany’s Mittelstand, as this country’s small and midsize companies are known.
Mr. Blessing says he is comfortable with focusing on serving the Mittelstand, because that has always been the bank’s core mission. .
As part of the deal for a cash infusion, the German government received the right to veto major decisions by the bank. That means it can ward off any acquisition from abroad — or any effort at a European expansion.
Instead, European integration has been replaced by Balkanization.
Because of the financial crisis, banks are retrenching and refocusing on their home markets, all but abandoning ambitions of banking on a Continental scale — or bigger. Strings-attached government rescue plans and basic business logic are driving the change.
So instead of strategies for global conquest, Martin Blessing, the chief executive of Commerzbank, is concentrating on ways to keep credit flowing to the small and medium-size businesses that form the backbone of the German economy.
“We will see a domestic refocusing of banking but not because everyone is turning nationalist or because one or the other governments take stakes,” he said during a recent interview at his office in the bank’s stunning Norman Foster-designed office tower here. “Banks are going to look at where their franchise is strongest.”
These new realities could end up hurting Eastern Europe most. After communism, privatization led to an extended gold rush for Western bankers. Now those investors are having to decide whether to continue lending at home — in France or Austria — or in Poland, the Czech Republic or Hungary. In the global financial crisis, with the health of many banks dependent on the good will of their home governments, the choice is not hard. The thinking at the heart of cross-border expansion in Europe was always straightforward: Europe needed banks that could achieve economies of scale and have the global reach, global clients and global influence to compete with American titans.
Operating on that basis, a handful of European banks moved to grow and consolidate. In 2004, Banco Santander of Spain bought Abbey National of Britain. A year later, Italy’s UniCredit swallowed the bank HVB Group of Germany. In early 2007, Royal Bank of Scotland led a consortium that snapped up ABN Amro of the Netherlands for 70 billion euros, or $92 billion at current exchange rates.
That deal is already coming undone, with the implosion last year of Fortis, one of Royal Bank’s partners.
More broadly, nationalist impulses are on the move across the Continent, with many politicians arguing — as some Democrats are in the United States — that if the government is going to bail out banks, then taxpayers should get some ownership and some say in how they operate.
For example, Gordon Brown, the British prime minister, has said he wants to stay out of the operating side of the banks Britain has bailed out. But his government is under heavy pressure to help small businesses at home, and the documents that created the new British vehicle for investing in banks, United Kingdom Financial Investments, cite domestic lending as its priority.
French and German governments have also injected cash into their banks, both with the goal of keeping money flowing to businesses inside their borders.
Daniel Gros, director of the Center for European Policy Studies in Brussels, called the developments the Balkanization of European finance.
“Whenever governments get into the share capital of banks, even in a small way, of course they think nationally,” Mr. Gros said.
For instance, few banks expanded more rapidly in Germany over the last decade than Royal Bank of Scotland. The British financier muscled onto Continental turf with attractive financing packages for German manufacturers. Today, Royal Bank is majority-owned by the British government after losses in 2008 from £7 billion to £8 billion, or $9.2 billion to $10.5 billion.
According to two senior German executives, Royal Bank is now playing tough with German clients, calling in loans as the bank retrenches in favor of its British business. The executives, who asked not to be identified, because they were not authorized to publicly discuss confidential negotiations, said Royal Bank had demanded that its clients on the Continent sell assets, despite the catastrophic state of financial markets, so the bank could recover its cash quickly, perhaps to lend in Britain.
Most recently, Royal Bank was a major creditor of Adolf Merckle, the German billionaire who killed himself when it became clear the banks — with Royal Bank in the lead, the executives said — would insist on the sale of his prized possession, the generic drug maker Ratiopharm.
Christine Kortyka, a Royal Bank spokeswoman in Germany, denied the bank was retrenching. “We are an international bank with international clients and we will continue to serve them where they need us,” she said.
Mr. Blessing, who took over at Commerzbank just in time to sell a 25 percent stake to the German government to stabilize its finances and complete a major acquisition, does not dispute that governments are angling for national advantage.
Commerzbank styles itself the bank of Germany’s Mittelstand, as this country’s small and midsize companies are known.
Mr. Blessing says he is comfortable with focusing on serving the Mittelstand, because that has always been the bank’s core mission. .
As part of the deal for a cash infusion, the German government received the right to veto major decisions by the bank. That means it can ward off any acquisition from abroad — or any effort at a European expansion.
Latest Reports Indicate Economy Is Getting Worse
Thursday brought a hat trick of grim economic news: New-home sales fell to their slowest pace on record, businesses cut their orders and jobless claims continued to rise.
Taken together, the three reports released by the government painted a picture of an economy that continued to slide as falling consumer spending and rising unemployment amplified the effects of a yearlong recession.
The Commerce Department reported that American businesses ordered fewer durable goods like computers, construction equipment and vehicles in December, cutting the prospects for growth as companies braced for a difficult 2009.
Orders of durable goods fell 2.6 percent last month, to $176.8 billion. It was the fifth consecutive month of declines, after a 3.7 percent drop in November as the country slipped deeper into a recession now nearly 13 months old.
Excluding transportation, new orders of durable goods orders fell 3.6 percent. Excluding orders for military equipment, durable goods fell 4.9 percent.
For all of 2008, orders fell 5.7 percent, a decline topped only by a 10.7 percent drop in 2001.
“This is pretty much what you expect when the economy is in the process of shrinking and businesses don’t see any need to purchase any capital goods,” said Bernard Baumohl, managing director of the Economic Outlook Group. “Even if you did want to increase your capital investments, it’s going to be difficult to get the capital to purchase this.”
Orders for computers and electronic goods dropped by 7.2 percent in December, and factory orders for metals, machinery, transportation equipment and communications equipment slumped as businesses cut their outlooks.
Shipment of goods also fell for a fifth month, declining 0.7 percent.
“The data show clear declines in sectors as diverse as cars, computers, metals and machinery,” Ian C. Shepherdson, chief United States economist at High Frequency Economics, wrote in a note. “The industrial recession is deep and broad, and there’s no prospect of any easing of the downward pressure anytime soon.”
As businesses struggled, the problems of the housing market continued to multiply. The Commerce Department reported that sales of new single-family homes in December fell 14.7 percent to an annual rate of 331,000, a record low.
In all, 482,000 new homes were sold last year as housing prices tumbled and credit dried up. That figure was 37.8 percent lower than the 776,000 homes sold a year earlier.
Also on Thursday, the Labor Department reported that first-time unemployment claims rose to a seasonally adjusted 588,000 for the week that ended Jan. 24, up 3,000 from a revised 585,000 for the week before.
Employers had long resisted making mass layoffs as the economy cooled, seeking instead to cut costs through shorter work weeks, pay cuts and hiring freezes, but they are now cutting jobs by the thousands.
The national unemployment rate has risen to 7.2 percent since the economy slipped into recession last December, and the jobless rates in Michigan and Rhode Island have already reached 10 percent. Some economists expect that the national unemployment rate will rise to 9 percent before the economy gets back on track.
Taken together, the three reports released by the government painted a picture of an economy that continued to slide as falling consumer spending and rising unemployment amplified the effects of a yearlong recession.
The Commerce Department reported that American businesses ordered fewer durable goods like computers, construction equipment and vehicles in December, cutting the prospects for growth as companies braced for a difficult 2009.
Orders of durable goods fell 2.6 percent last month, to $176.8 billion. It was the fifth consecutive month of declines, after a 3.7 percent drop in November as the country slipped deeper into a recession now nearly 13 months old.
Excluding transportation, new orders of durable goods orders fell 3.6 percent. Excluding orders for military equipment, durable goods fell 4.9 percent.
For all of 2008, orders fell 5.7 percent, a decline topped only by a 10.7 percent drop in 2001.
“This is pretty much what you expect when the economy is in the process of shrinking and businesses don’t see any need to purchase any capital goods,” said Bernard Baumohl, managing director of the Economic Outlook Group. “Even if you did want to increase your capital investments, it’s going to be difficult to get the capital to purchase this.”
Orders for computers and electronic goods dropped by 7.2 percent in December, and factory orders for metals, machinery, transportation equipment and communications equipment slumped as businesses cut their outlooks.
Shipment of goods also fell for a fifth month, declining 0.7 percent.
“The data show clear declines in sectors as diverse as cars, computers, metals and machinery,” Ian C. Shepherdson, chief United States economist at High Frequency Economics, wrote in a note. “The industrial recession is deep and broad, and there’s no prospect of any easing of the downward pressure anytime soon.”
As businesses struggled, the problems of the housing market continued to multiply. The Commerce Department reported that sales of new single-family homes in December fell 14.7 percent to an annual rate of 331,000, a record low.
In all, 482,000 new homes were sold last year as housing prices tumbled and credit dried up. That figure was 37.8 percent lower than the 776,000 homes sold a year earlier.
Also on Thursday, the Labor Department reported that first-time unemployment claims rose to a seasonally adjusted 588,000 for the week that ended Jan. 24, up 3,000 from a revised 585,000 for the week before.
Employers had long resisted making mass layoffs as the economy cooled, seeking instead to cut costs through shorter work weeks, pay cuts and hiring freezes, but they are now cutting jobs by the thousands.
The national unemployment rate has risen to 7.2 percent since the economy slipped into recession last December, and the jobless rates in Michigan and Rhode Island have already reached 10 percent. Some economists expect that the national unemployment rate will rise to 9 percent before the economy gets back on track.
Markets Reverse a Rally on Signs of Long Slump
Caution returned to Wall Street on Thursday as unemployment claims reached a record high and new home sales hit a record low — two glaring signs that the economy was still in a deep slump.
The major stock indexes gave back all of Wednesday’s gains, and then some.
The Dow Jones industrial average sank 226.44 points, or 2.7 percent, to 8,149.01. The Standard & Poor’s 500-stock index fell 3.3 percent, or 28.95 points, to 845.14. The Nasdaq also dropped more than 3 percent, to close at 1,507.84. Stocks had soared Wednesday on hopes that the government would take bad debt off banks’ books.
Investors took a step back Thursday after getting some harsh reminders that it might be a while before the recession, already in its 14th month, ended.
The Labor Department said the number of people continuing to receive unemployment benefits reached a seasonally adjusted 4.78 million the week that ended Jan. 17, the highest level on records that go back to 1967. As a proportion of the work force, that was the highest level since August 1983.
Companies across a variety of industries have been slashing their payrolls by the thousands.
Eastman Kodak said it would cut 3,500 to 4,500 jobs after weak sales. Its shares fell $2.08, or 29 percent, to $4.99, after it reported a $137 million fourth-quarter loss on a big drop in sales of both digital and film-based photography products.
After the markets closed on Wednesday, Allstate reported a loss of $1.13 billion for the fourth quarter and said it would cut 1,000 jobs. On Thursday, shares of Allstate fell $6.14, or 20.7 percent, to $23.50.
“It seems like we’ve gotten through the financial crisis. Now we’re dealing with global synchronized recession,” said Brian Battle, vice president for trading at Performance Trust Capital Partners in Chicago.
As more people lose their jobs, fewer of them are buying new homes. The Commerce Department said home sales plunged 14.7 percent to an adjusted annual rate of 331,000 in December.
Earlier this week, the National Association of Realtors said existing home sales posted an unexpected increase last month, but the sales were mostly of foreclosed homes.
“This all began as a housing crisis, and clearly, the housing crisis continues,” said Nathan Rowader, director of investments at Forward Management. “Bad housing numbers are not going to encourage anyone to be buying stock.”
The Commerce Department also said orders to factories for big-ticket manufactured goods fell for the fifth consecutive month in December.
Still, some in all fourth-quarter results were positive. Colgate-Palmolive said its earnings rose nearly 20 percent, partly as a result of higher prices and new products. Shares of Colgate-Palmolive rose $1.37, or 2.2 percent, to $65.22.
Many corporate results, however, were grim.
Qualcomm fell $1.69, or 4.6 percent, to $35.13 after reporting a steep drop in its earnings and slashing its forecast. The company, one of the world’s largest suppliers of chips for mobile phones, has seen demand fall as customers trim inventories.
The number of stocks falling outpaced advancers by 5 to 1 on the New York Stock Exchange. Trading volume came to 1.44 billion shares.
The dollar was mixed against other major currencies, while gold prices rose.
Bond prices sank Thursday. The Treasury’s 10-year note fell 1 23/32, to 107 18/32. The yield, which moves in the opposite direction from the price, rose to 2.86 percent from 2.67 percent late Wednesday.
In trading early Friday in Asia, stocks fell for the first day in four after the government reported a decline in factory output.
The major stock indexes gave back all of Wednesday’s gains, and then some.
The Dow Jones industrial average sank 226.44 points, or 2.7 percent, to 8,149.01. The Standard & Poor’s 500-stock index fell 3.3 percent, or 28.95 points, to 845.14. The Nasdaq also dropped more than 3 percent, to close at 1,507.84. Stocks had soared Wednesday on hopes that the government would take bad debt off banks’ books.
Investors took a step back Thursday after getting some harsh reminders that it might be a while before the recession, already in its 14th month, ended.
The Labor Department said the number of people continuing to receive unemployment benefits reached a seasonally adjusted 4.78 million the week that ended Jan. 17, the highest level on records that go back to 1967. As a proportion of the work force, that was the highest level since August 1983.
Companies across a variety of industries have been slashing their payrolls by the thousands.
Eastman Kodak said it would cut 3,500 to 4,500 jobs after weak sales. Its shares fell $2.08, or 29 percent, to $4.99, after it reported a $137 million fourth-quarter loss on a big drop in sales of both digital and film-based photography products.
After the markets closed on Wednesday, Allstate reported a loss of $1.13 billion for the fourth quarter and said it would cut 1,000 jobs. On Thursday, shares of Allstate fell $6.14, or 20.7 percent, to $23.50.
“It seems like we’ve gotten through the financial crisis. Now we’re dealing with global synchronized recession,” said Brian Battle, vice president for trading at Performance Trust Capital Partners in Chicago.
As more people lose their jobs, fewer of them are buying new homes. The Commerce Department said home sales plunged 14.7 percent to an adjusted annual rate of 331,000 in December.
Earlier this week, the National Association of Realtors said existing home sales posted an unexpected increase last month, but the sales were mostly of foreclosed homes.
“This all began as a housing crisis, and clearly, the housing crisis continues,” said Nathan Rowader, director of investments at Forward Management. “Bad housing numbers are not going to encourage anyone to be buying stock.”
The Commerce Department also said orders to factories for big-ticket manufactured goods fell for the fifth consecutive month in December.
Still, some in all fourth-quarter results were positive. Colgate-Palmolive said its earnings rose nearly 20 percent, partly as a result of higher prices and new products. Shares of Colgate-Palmolive rose $1.37, or 2.2 percent, to $65.22.
Many corporate results, however, were grim.
Qualcomm fell $1.69, or 4.6 percent, to $35.13 after reporting a steep drop in its earnings and slashing its forecast. The company, one of the world’s largest suppliers of chips for mobile phones, has seen demand fall as customers trim inventories.
The number of stocks falling outpaced advancers by 5 to 1 on the New York Stock Exchange. Trading volume came to 1.44 billion shares.
The dollar was mixed against other major currencies, while gold prices rose.
Bond prices sank Thursday. The Treasury’s 10-year note fell 1 23/32, to 107 18/32. The yield, which moves in the opposite direction from the price, rose to 2.86 percent from 2.67 percent late Wednesday.
In trading early Friday in Asia, stocks fell for the first day in four after the government reported a decline in factory output.
Chill of Salary Freezes Reaches Top Law Firms
LARGE law firms have long been known for lock-step salary increases and annual bonuses. But the recession and other economic pressures are changing that, with many firms deciding to freeze salaries and rethink bonuses.
In mid-December, the legal profession was taken aback when Latham & Watkins, considered a market leader, announced that it would keep 2009 associate salaries at their 2008 levels. At least 20 large firms nationwide have since done the same.
Although many associates are angry about the freezes, others are relieved, said David Lat, founding editor of AboveTheLaw.com, a blog about law firms and the profession.
“There is this sense that firms didn’t act prudently during the boom and now they are getting religion, and that it’s better late than never,” Mr. Lat said. “Many associates we have spoken to think the freeze probably saved jobs.”
For decades, when top-tier firms raised starting salaries, other firms would follow suit, in order to compete for the best talent.
“Lawyers are very conservative and tradition-bound,” Mr. Lat said. “There is a certain security in knowing what you are doing now is what others are doing and what has been done in the past. With salary freezes, you are seeing a sort of reverse ratcheting. If one firm sees a competitor lowering salaries, they feel it’s safe to lower salaries, too.”
Salaries of associates, as opposed to non-equity partners, appear to have been the most affected by freezes. (The pay of equity partners is closely tied to a firm’s profitability.)
Law is one of the few professions in which a 25-year-old with little experience can make a six-figure salary. Top law firms generally pay their new associates $140,000 to $160,000 a year.
Of course, not every lawyer’s starting salary is that high. According to the National Association for Law Placement, 16 percent of the class of 2007 law school graduates employed full time make $160,000 or more, while 38 percent make $55,000 or less.
Top-tier firms have been watching one another’s compensation moves since 1968, when the New York firm Cravath, Swaine & Moore raised first-year salaries to $15,000, well above what any other firm was paying at the time, said William D. Henderson, an associate professor at the Michael Maurer School of Law at Indiana University, who studies the legal labor market. “It was a watershed moment for the industry, akin to a shot heard round the world,” he said.
Starting salaries rose gradually through the 1990s, and in 2000, those at top firms jumped to $125,000, according to the association. Firms that did not meet that increase were perceived as second-rate, Professor Henderson said. “But today the thinking is, ‘If we meet the market, it may threaten our franchise.’ It’s too dangerous now,” he said.
Although the recent spate of salary freezes is a response to the recession, law firms have been facing other economic issues. For several years, corporate clients have complained about high billing rates, especially for relatively inexperienced junior lawyers.
In 2008, revenue and profits fell at many firms, and some managing partners at those firms are now rethinking their business model, Professor Henderson said.
Guy Halgren, chairman of Sheppard Mullin Richter & Hampton, which announced a salary freeze earlier this month, said the firm had been moving for the last few years toward a more merit-based advancement system. .
“We already do some of that — part of our bonus system is merit-based and it’s been like that for many years,” he said. “This has been happening in the profession slowly, but I think it will accelerate in the next year or two. We’ve been thinking about going to more merit-based incentives.”
This month, Morgan, Lewis & Bockius sent a memo to its associates announcing that 2009 bonuses would be merit-based, rather than hours-based.
Ralph Baxter, chairman of Orrick, Herrington & Sutcliffe, which announced salary freezes in late December, said his firm began reassessing its business model long before the economic crisis. In the last two years, the focus has been on operating more efficiently and at a lower cost to clients. Last year, Orrick announced that in addition to having partner-track associates, it would add substantial numbers of lawyers not working toward partnership, and a significant number of staff members who are not lawyers at all.
“This was born of our focus on adapting to a changed world, one in which our clients are facing greater and greater pressure to control their costs,” Mr. Baxter said.
The criteria for promotion toward partnership is not based just on hours billed, he said. “The criteria have changed over time,” he said. “Today you need a greater capacity to build personal relationships and far more entrepreneurial skill.”
MR. LAT says the focus on efficiency and cost control represents a change in the way law firms view themselves. “Law is becoming more of a business, and you will see more of an emphasis on results than in the past,” he said. “I think some breakdown in the lock-step mentality might actually stick. Firms are recognizing that on a certain level, it makes sense to pay people in a way that reflects their performance.”
A return to the days when starting salaries at top firms were under $150,000 is unlikely, however. A legal education is still expensive, and firms at the top of the rankings — those that traditionally drive salary increases — will continue to compete for graduates of leading law schools. “Clients want the best talent,” Mr. Halgren said. “Law firms like ours have to recruit and retain that top legal talent, and we need to pay competitively to do that.”
In mid-December, the legal profession was taken aback when Latham & Watkins, considered a market leader, announced that it would keep 2009 associate salaries at their 2008 levels. At least 20 large firms nationwide have since done the same.
Although many associates are angry about the freezes, others are relieved, said David Lat, founding editor of AboveTheLaw.com, a blog about law firms and the profession.
“There is this sense that firms didn’t act prudently during the boom and now they are getting religion, and that it’s better late than never,” Mr. Lat said. “Many associates we have spoken to think the freeze probably saved jobs.”
For decades, when top-tier firms raised starting salaries, other firms would follow suit, in order to compete for the best talent.
“Lawyers are very conservative and tradition-bound,” Mr. Lat said. “There is a certain security in knowing what you are doing now is what others are doing and what has been done in the past. With salary freezes, you are seeing a sort of reverse ratcheting. If one firm sees a competitor lowering salaries, they feel it’s safe to lower salaries, too.”
Salaries of associates, as opposed to non-equity partners, appear to have been the most affected by freezes. (The pay of equity partners is closely tied to a firm’s profitability.)
Law is one of the few professions in which a 25-year-old with little experience can make a six-figure salary. Top law firms generally pay their new associates $140,000 to $160,000 a year.
Of course, not every lawyer’s starting salary is that high. According to the National Association for Law Placement, 16 percent of the class of 2007 law school graduates employed full time make $160,000 or more, while 38 percent make $55,000 or less.
Top-tier firms have been watching one another’s compensation moves since 1968, when the New York firm Cravath, Swaine & Moore raised first-year salaries to $15,000, well above what any other firm was paying at the time, said William D. Henderson, an associate professor at the Michael Maurer School of Law at Indiana University, who studies the legal labor market. “It was a watershed moment for the industry, akin to a shot heard round the world,” he said.
Starting salaries rose gradually through the 1990s, and in 2000, those at top firms jumped to $125,000, according to the association. Firms that did not meet that increase were perceived as second-rate, Professor Henderson said. “But today the thinking is, ‘If we meet the market, it may threaten our franchise.’ It’s too dangerous now,” he said.
Although the recent spate of salary freezes is a response to the recession, law firms have been facing other economic issues. For several years, corporate clients have complained about high billing rates, especially for relatively inexperienced junior lawyers.
In 2008, revenue and profits fell at many firms, and some managing partners at those firms are now rethinking their business model, Professor Henderson said.
Guy Halgren, chairman of Sheppard Mullin Richter & Hampton, which announced a salary freeze earlier this month, said the firm had been moving for the last few years toward a more merit-based advancement system. .
“We already do some of that — part of our bonus system is merit-based and it’s been like that for many years,” he said. “This has been happening in the profession slowly, but I think it will accelerate in the next year or two. We’ve been thinking about going to more merit-based incentives.”
This month, Morgan, Lewis & Bockius sent a memo to its associates announcing that 2009 bonuses would be merit-based, rather than hours-based.
Ralph Baxter, chairman of Orrick, Herrington & Sutcliffe, which announced salary freezes in late December, said his firm began reassessing its business model long before the economic crisis. In the last two years, the focus has been on operating more efficiently and at a lower cost to clients. Last year, Orrick announced that in addition to having partner-track associates, it would add substantial numbers of lawyers not working toward partnership, and a significant number of staff members who are not lawyers at all.
“This was born of our focus on adapting to a changed world, one in which our clients are facing greater and greater pressure to control their costs,” Mr. Baxter said.
The criteria for promotion toward partnership is not based just on hours billed, he said. “The criteria have changed over time,” he said. “Today you need a greater capacity to build personal relationships and far more entrepreneurial skill.”
MR. LAT says the focus on efficiency and cost control represents a change in the way law firms view themselves. “Law is becoming more of a business, and you will see more of an emphasis on results than in the past,” he said. “I think some breakdown in the lock-step mentality might actually stick. Firms are recognizing that on a certain level, it makes sense to pay people in a way that reflects their performance.”
A return to the days when starting salaries at top firms were under $150,000 is unlikely, however. A legal education is still expensive, and firms at the top of the rankings — those that traditionally drive salary increases — will continue to compete for graduates of leading law schools. “Clients want the best talent,” Mr. Halgren said. “Law firms like ours have to recruit and retain that top legal talent, and we need to pay competitively to do that.”
Global Worries Over U.S. Stimulus Spending
DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.
Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.
“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”
Mr. Zedillo said that Washington, unlike most other countries, had the option of simply printing more money, because the dollar was a reserve currency for the rest of the world.
Over the long run, that could force long-term interest rates higher and drive down the value of the dollar, undermining the benefits that come with its special status.
Until now, most fears about surging government debt have focused on borrowing by European countries like Spain, Greece and especially Britain, which is also in the midst of a sizable bank bailout. That recently forced the British pound to a 23-year low against the dollar.
While the dollar’s status as refuge in a time of turmoil should prevent that kind of sell-off for now, a number of financial specialists warned that if fundamental factors like the lack of American savings and bloated budget deficits did not change, the dollar could eventually fall sharply .
“There aren’t that many safe havens,” said Alan S. Blinder, a Princeton economist who is a former vice chairman of the Federal Reserve in Washington, explaining why the dollar’s status as a reserve currency is unlikely to be threatened.
Instead, it is the dollar’s long-term value against other currencies that is vulnerable. “At some point, there may be so much Treasury debt, that investors may start wondering if they are overloaded in dollar assets,” Mr. Blinder said.
While the focus in Washington has been on putting together a stimulus package that will attract broader political support when it comes up for a vote in the Senate, here in Davos the talk has been about the coming avalanche of Treasury debt needed to pay for the plan on top of the bailout measures approved last fall, like the $700 billion Troubled Asset Relief Program, or TARP.
The stimulus was approved Wednesday by the House without Republican support, and could grow larger — mostly likely with additional tax cuts — to attract a bipartisan coalition.
American officials maintain they are aware of the challenge. A top White House adviser, Valerie Jarrett, promised in Davos on Thursday that once the stimulus plan achieved its intended affect, the United States would “restore fiscal responsibility and return to a sustainable economic path.”
To be sure, Congress and the White House will ultimately need to refill the government’s coffers, but how they might do that is barely on the radar screen in Washington at this point.
“Even before Obama walked through the White House door, there were plans for $1 trillion of new debt,” said Niall Ferguson, a Harvard historian who has studied borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.
“You either crowd out other borrowers or you print money,” Mr. Ferguson added. “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”
Mr. Ferguson was particularly struck by the new borrowing because the roots of the current crisis lay in an excess of American debt at all levels, from homeowners to Wall Street banks.
“This is a crisis of excessive debt, which reached 355 percent of American gross domestic product,” he said. “It cannot be solved with more debt.”
While Mr. Ferguson is a skeptic of the Keynesian thinking behind President Obama’s plan — rather than borrowing and spending to stimulate the economy, he favors corporate tax cuts — even supporters of the plan like Mr. Zedillo and Stephen Roach of Morgan Stanley have called on the White House to quickly address how it will pay for the spending in the long-term.
“It’s huge,” Mr. Roach, the chairman of Morgan Stanley Asia, said. “President Obama has now laid out a scenario of multiyear, trillion-dollar deficits.”
The stimulus is widely expected to pass, but once it does, Mr. Roach said the focus would shift to “who foots the bill and what is the exit strategy. We don’t have the answer to either question.”
Mr. Zedillo, who remembers how Mexico was forced to tighten its belt when it received billions from Washington to keep its economy from collapsing in 1994, was even more blunt.
“People are not stupid,” Mr. Zedillo said. “They see the huge deficit, the huge spending, and wonder what comes next.”
Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.
“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”
Mr. Zedillo said that Washington, unlike most other countries, had the option of simply printing more money, because the dollar was a reserve currency for the rest of the world.
Over the long run, that could force long-term interest rates higher and drive down the value of the dollar, undermining the benefits that come with its special status.
Until now, most fears about surging government debt have focused on borrowing by European countries like Spain, Greece and especially Britain, which is also in the midst of a sizable bank bailout. That recently forced the British pound to a 23-year low against the dollar.
While the dollar’s status as refuge in a time of turmoil should prevent that kind of sell-off for now, a number of financial specialists warned that if fundamental factors like the lack of American savings and bloated budget deficits did not change, the dollar could eventually fall sharply .
“There aren’t that many safe havens,” said Alan S. Blinder, a Princeton economist who is a former vice chairman of the Federal Reserve in Washington, explaining why the dollar’s status as a reserve currency is unlikely to be threatened.
Instead, it is the dollar’s long-term value against other currencies that is vulnerable. “At some point, there may be so much Treasury debt, that investors may start wondering if they are overloaded in dollar assets,” Mr. Blinder said.
While the focus in Washington has been on putting together a stimulus package that will attract broader political support when it comes up for a vote in the Senate, here in Davos the talk has been about the coming avalanche of Treasury debt needed to pay for the plan on top of the bailout measures approved last fall, like the $700 billion Troubled Asset Relief Program, or TARP.
The stimulus was approved Wednesday by the House without Republican support, and could grow larger — mostly likely with additional tax cuts — to attract a bipartisan coalition.
American officials maintain they are aware of the challenge. A top White House adviser, Valerie Jarrett, promised in Davos on Thursday that once the stimulus plan achieved its intended affect, the United States would “restore fiscal responsibility and return to a sustainable economic path.”
To be sure, Congress and the White House will ultimately need to refill the government’s coffers, but how they might do that is barely on the radar screen in Washington at this point.
“Even before Obama walked through the White House door, there were plans for $1 trillion of new debt,” said Niall Ferguson, a Harvard historian who has studied borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.
“You either crowd out other borrowers or you print money,” Mr. Ferguson added. “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”
Mr. Ferguson was particularly struck by the new borrowing because the roots of the current crisis lay in an excess of American debt at all levels, from homeowners to Wall Street banks.
“This is a crisis of excessive debt, which reached 355 percent of American gross domestic product,” he said. “It cannot be solved with more debt.”
While Mr. Ferguson is a skeptic of the Keynesian thinking behind President Obama’s plan — rather than borrowing and spending to stimulate the economy, he favors corporate tax cuts — even supporters of the plan like Mr. Zedillo and Stephen Roach of Morgan Stanley have called on the White House to quickly address how it will pay for the spending in the long-term.
“It’s huge,” Mr. Roach, the chairman of Morgan Stanley Asia, said. “President Obama has now laid out a scenario of multiyear, trillion-dollar deficits.”
The stimulus is widely expected to pass, but once it does, Mr. Roach said the focus would shift to “who foots the bill and what is the exit strategy. We don’t have the answer to either question.”
Mr. Zedillo, who remembers how Mexico was forced to tighten its belt when it received billions from Washington to keep its economy from collapsing in 1994, was even more blunt.
“People are not stupid,” Mr. Zedillo said. “They see the huge deficit, the huge spending, and wonder what comes next.”
n His Way Out, Blagojevich Makes a Day of It
CHICAGO — As the nine-seat airplane raced through the skies on Thursday somewhere between Springfield and here, an onboard telephone began to ring.
Rod R. Blagojevich, the soon-to-be ex-governor of Illinois, instructed his aides not to answer. It might be the news, he said, that he had been removed from office and that he no longer controlled the state’s thousands of employees or even, especially pertinent, the state-owned airplane taking him home.
“I’ll tell you what,” Mr. Blagojevich said, laughing, as the phone went on ringing. “I’m not jumping out. Not for those people, no way. I don’t like heights.”
So went Mr. Blagojevich’s final day as governor of Illinois. Six years ago, he had been elected on a message of reform, but on Thursday — a few hours after his plane, with a silhouette of Lincoln near its nose, landed — the State Senate unanimously voted him out of office. It was the first time that an Illinois governor had been convicted in an impeachment trial.
Through the day, Mr. Blagojevich was, by turns, furious over the methods of the trial, morose as he said goodbye to the cooks from the Governor’s Mansion and brimming with an odd gallows humor long before the lawmakers cast their votes. All the while, his assistant packed his belongings into cardboard boxes — among them, family photographs, a bust of Lincoln and a statue of Elvis.
“I’m still governor for now, and I say you take the afternoon off!” he cheerily told employees, many of them tearful. At another point, he pondered the more practical consequences of losing his job. “I wonder if we’ll have to hitchhike home,” he said. “Maybe we could take the bus.”
In the end, he left the Capitol in Springfield through a secret basement corridor full of grunting, clanking pipes, bare walls and puddles.
Mr. Blagojevich, who was arrested Dec. 9 on corruption charges, including an accusation that he tried to sell the Senate seat vacated by President Obama, had first refused to take part in his impeachment trial. Instead, as senators met in Springfield this week, he set forth on a campaign of appearances on national television talk shows to proclaim his innocence. Then, on Wednesday, he announced that he wished to make a “closing argument” in the trial he had mocked on show after show.
So on Thursday, he set off on a six-hour trip from his home on this city’s North Side to the Capitol and back again, allowing a reporter and a photographer for The New York Times to accompany him at the newspaper’s expense.
At moments during the day, Mr. Blagojevich reflected on what was ahead, most immediately how best to pay his mortgage come March 1 without his $177,000-a-year salary. He spoke of the guilt he felt toward his family for entering a political life, the “personal Greek tragedy” that he said he saw as his circumstances, and, all the while, his love of his job. His biggest error, he said, was the friends he had picked.
“I come out of the alleys of Chicago politics,” said Mr. Blagojevich, 52, who entered Democratic politics in 1992, first as a state representative, then a United States representative. “That’s a tough place. The politics there is not motivated by idealism or high purpose. It’s nuts and bolts, and you scratch my back, I’ll scratch yours. I came up that way.”
Mr. Blagojevich, who began the morning tracked by news helicopters following his sport utility vehicle’s every turn en route to the airport, said he lately had been trying to remember how to be a regular person. Not long ago he made the state troopers who drove him let him take the wheel; he had last driven six years ago. He said he tried to sneak out through a neighbor’s back fence for a jog without his security team, wanting to know what it felt like.
In Springfield, as he waited to speak to the State Senate, Mr. Blagojevich sat in silence in his chandeliered office not far from the impeachment hearing room, nervously jiggling a leg and jotting changes to the speech he had written overnight in longhand on graph paper. He repeatedly called his wife, Patti. He carried his black hairbrush (the one he is known for insisting be available at all times) to his private bathroom behind a heavy wooden door. Minutes before he was to appear on the Senate floor, Mr. Blagojevich stood up and told an aide: “Let’s go home. Screw it. It won’t matter.” Then he walked out and made his speech.
Rod R. Blagojevich, the soon-to-be ex-governor of Illinois, instructed his aides not to answer. It might be the news, he said, that he had been removed from office and that he no longer controlled the state’s thousands of employees or even, especially pertinent, the state-owned airplane taking him home.
“I’ll tell you what,” Mr. Blagojevich said, laughing, as the phone went on ringing. “I’m not jumping out. Not for those people, no way. I don’t like heights.”
So went Mr. Blagojevich’s final day as governor of Illinois. Six years ago, he had been elected on a message of reform, but on Thursday — a few hours after his plane, with a silhouette of Lincoln near its nose, landed — the State Senate unanimously voted him out of office. It was the first time that an Illinois governor had been convicted in an impeachment trial.
Through the day, Mr. Blagojevich was, by turns, furious over the methods of the trial, morose as he said goodbye to the cooks from the Governor’s Mansion and brimming with an odd gallows humor long before the lawmakers cast their votes. All the while, his assistant packed his belongings into cardboard boxes — among them, family photographs, a bust of Lincoln and a statue of Elvis.
“I’m still governor for now, and I say you take the afternoon off!” he cheerily told employees, many of them tearful. At another point, he pondered the more practical consequences of losing his job. “I wonder if we’ll have to hitchhike home,” he said. “Maybe we could take the bus.”
In the end, he left the Capitol in Springfield through a secret basement corridor full of grunting, clanking pipes, bare walls and puddles.
Mr. Blagojevich, who was arrested Dec. 9 on corruption charges, including an accusation that he tried to sell the Senate seat vacated by President Obama, had first refused to take part in his impeachment trial. Instead, as senators met in Springfield this week, he set forth on a campaign of appearances on national television talk shows to proclaim his innocence. Then, on Wednesday, he announced that he wished to make a “closing argument” in the trial he had mocked on show after show.
So on Thursday, he set off on a six-hour trip from his home on this city’s North Side to the Capitol and back again, allowing a reporter and a photographer for The New York Times to accompany him at the newspaper’s expense.
At moments during the day, Mr. Blagojevich reflected on what was ahead, most immediately how best to pay his mortgage come March 1 without his $177,000-a-year salary. He spoke of the guilt he felt toward his family for entering a political life, the “personal Greek tragedy” that he said he saw as his circumstances, and, all the while, his love of his job. His biggest error, he said, was the friends he had picked.
“I come out of the alleys of Chicago politics,” said Mr. Blagojevich, 52, who entered Democratic politics in 1992, first as a state representative, then a United States representative. “That’s a tough place. The politics there is not motivated by idealism or high purpose. It’s nuts and bolts, and you scratch my back, I’ll scratch yours. I came up that way.”
Mr. Blagojevich, who began the morning tracked by news helicopters following his sport utility vehicle’s every turn en route to the airport, said he lately had been trying to remember how to be a regular person. Not long ago he made the state troopers who drove him let him take the wheel; he had last driven six years ago. He said he tried to sneak out through a neighbor’s back fence for a jog without his security team, wanting to know what it felt like.
In Springfield, as he waited to speak to the State Senate, Mr. Blagojevich sat in silence in his chandeliered office not far from the impeachment hearing room, nervously jiggling a leg and jotting changes to the speech he had written overnight in longhand on graph paper. He repeatedly called his wife, Patti. He carried his black hairbrush (the one he is known for insisting be available at all times) to his private bathroom behind a heavy wooden door. Minutes before he was to appear on the Senate floor, Mr. Blagojevich stood up and told an aide: “Let’s go home. Screw it. It won’t matter.” Then he walked out and made his speech.
Obama Calls Wall Street Bonuses ‘Shameful’
WASHINGTON — President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.
“There will be time for them to make profits, and there will be time for them to get bonuses,” Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. “Now’s not that time. And that’s a message that I intend to send directly to them, I expect Secretary Geithner to send to them.”
It was a pointed — if calculated — flash of anger from the president, who frequently railed against excesses in executive compensation on the campaign trail. He struck his populist tone as he confronted the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion.
This week alone, American companies reported as many as 65,000 job cuts, and public anger is rising over reports of profligate spending by banks and investment firms that are receiving help from the $700 billion bailout fund. About half of that money is still available, but the new administration has yet to announce how it will use it, and many analysts think it will take far more to stabilize the banking system.
Should Mr. Obama have to go to Congress to seek more money for the bailout fund to avert the failure of more banks, he would most likely encounter opposition within both parties and demands for tighter restrictions on pay for executives of institutions that receive government assistance.
Mr. Geithner has already signaled a willingness to impose stricter compensation limits as part of a revamped approach to dealing with the banking crisis, but with his strong words on Thursday, Mr. Obama seemed intent on reassuring Congress and the public that he would step up the pressure on bankers before granting them additional assistance.
Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008, less than for the previous several years but the same level of bonuses as they received in 2004, when times were flush.
“That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”
The Obama administration and lawmakers have begun to consider ways to control executive pay; the bailout fund, known as the Troubled Asset Relief Program, or TARP, would be the main vehicle for exerting such control. The administration of former President George W. Bush issued guidelines last October to try to control executive pay at companies receiving government help, but so far they have done little to curb large salaries.
During his confirmation hearings, Mr. Geithner said the administration is preparing rules that would require executives at companies receiving taxpayer money to agree that any compensation above a certain amount — he did not specify how much — be “paid in restricted stock or similar form” that could not be liquidated or sold until the government had been repaid.
Some lawmakers, meanwhile, have said they are considering so-called “clawback” provisions that could be invoked by the government to take back bonuses and executive pay from officials at companies that encountered problems.
In the meantime, public outrage is already forcing some companies to rein in their lavish spending. John A. Thain, the former Merrill Lynch executive who was forced out of Bank of America, said this week he would reimburse Bank of America for an expensive renovation of his office that included an $87,000 area rug and $35,000 commode.
But it took the urging of the Obama administration to force Citigroup, which received an infusion of taxpayer funds last year, to abandon plans to buy a $50 million corporate jet. On Thursday, Mr. Obama made reference to the jet, without singling out Citigroup by name; his remarks came one day after the president met at the White House with business leaders, including Richard D. Parsons, the new chairman of Citigroup.
On Capitol Hill, Senator Christopher J. Dodd of Connecticut, the chairman of the Senate Banking Committee, issued his own warning on Thursday, saying companies would be summoned to testify if taxpayer money was involved.
“Whether it was used directly or indirectly, this infuriates the American people and rightly so,” Mr. Dodd said. “So I say to anyone else who does it, if you do it, I’m going to bring you before the committee.”
There is also political pressure to rein in pay in industries beyond banks and investment firms. The pressure reflects the substantial disparities between pay increases for senior executives, the low rate of wage growth for workers and the frequent disconnect between compensation and the long-term strategic success or failure of corporations.
Mr. Obama’s message on Thursday was reinforced by Vice President Joseph R. Biden Jr., who pledged in an interview with CNBC and The New York Times that the government would spend the remaining $350 billion of the troubled assets money “wisely and prudently and transparently.”
Mr. Biden said that he, like the president, was outraged by reports of large bonuses going to Wall Street executives.
“I’d like to throw these guys in the brig,” he said. “They’re thinking the same old thing that got us here, greed. They’re thinking, ‘Take care of me.’ ”
“There will be time for them to make profits, and there will be time for them to get bonuses,” Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. “Now’s not that time. And that’s a message that I intend to send directly to them, I expect Secretary Geithner to send to them.”
It was a pointed — if calculated — flash of anger from the president, who frequently railed against excesses in executive compensation on the campaign trail. He struck his populist tone as he confronted the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion.
This week alone, American companies reported as many as 65,000 job cuts, and public anger is rising over reports of profligate spending by banks and investment firms that are receiving help from the $700 billion bailout fund. About half of that money is still available, but the new administration has yet to announce how it will use it, and many analysts think it will take far more to stabilize the banking system.
Should Mr. Obama have to go to Congress to seek more money for the bailout fund to avert the failure of more banks, he would most likely encounter opposition within both parties and demands for tighter restrictions on pay for executives of institutions that receive government assistance.
Mr. Geithner has already signaled a willingness to impose stricter compensation limits as part of a revamped approach to dealing with the banking crisis, but with his strong words on Thursday, Mr. Obama seemed intent on reassuring Congress and the public that he would step up the pressure on bankers before granting them additional assistance.
Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008, less than for the previous several years but the same level of bonuses as they received in 2004, when times were flush.
“That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”
The Obama administration and lawmakers have begun to consider ways to control executive pay; the bailout fund, known as the Troubled Asset Relief Program, or TARP, would be the main vehicle for exerting such control. The administration of former President George W. Bush issued guidelines last October to try to control executive pay at companies receiving government help, but so far they have done little to curb large salaries.
During his confirmation hearings, Mr. Geithner said the administration is preparing rules that would require executives at companies receiving taxpayer money to agree that any compensation above a certain amount — he did not specify how much — be “paid in restricted stock or similar form” that could not be liquidated or sold until the government had been repaid.
Some lawmakers, meanwhile, have said they are considering so-called “clawback” provisions that could be invoked by the government to take back bonuses and executive pay from officials at companies that encountered problems.
In the meantime, public outrage is already forcing some companies to rein in their lavish spending. John A. Thain, the former Merrill Lynch executive who was forced out of Bank of America, said this week he would reimburse Bank of America for an expensive renovation of his office that included an $87,000 area rug and $35,000 commode.
But it took the urging of the Obama administration to force Citigroup, which received an infusion of taxpayer funds last year, to abandon plans to buy a $50 million corporate jet. On Thursday, Mr. Obama made reference to the jet, without singling out Citigroup by name; his remarks came one day after the president met at the White House with business leaders, including Richard D. Parsons, the new chairman of Citigroup.
On Capitol Hill, Senator Christopher J. Dodd of Connecticut, the chairman of the Senate Banking Committee, issued his own warning on Thursday, saying companies would be summoned to testify if taxpayer money was involved.
“Whether it was used directly or indirectly, this infuriates the American people and rightly so,” Mr. Dodd said. “So I say to anyone else who does it, if you do it, I’m going to bring you before the committee.”
There is also political pressure to rein in pay in industries beyond banks and investment firms. The pressure reflects the substantial disparities between pay increases for senior executives, the low rate of wage growth for workers and the frequent disconnect between compensation and the long-term strategic success or failure of corporations.
Mr. Obama’s message on Thursday was reinforced by Vice President Joseph R. Biden Jr., who pledged in an interview with CNBC and The New York Times that the government would spend the remaining $350 billion of the troubled assets money “wisely and prudently and transparently.”
Mr. Biden said that he, like the president, was outraged by reports of large bonuses going to Wall Street executives.
“I’d like to throw these guys in the brig,” he said. “They’re thinking the same old thing that got us here, greed. They’re thinking, ‘Take care of me.’ ”
Obama slams Wall Street over bonuses
President Barack Obama lashed out on Thursday at “shameful” Wall Street executives for claiming billions of dollars in bonuses while their stricken institutions asked taxpayers for support.
Mr Obama was responding to a report showing that financial sector employees received $18.4bn (£12.9bn) in bonuses last year, amid dire financial crisis. The figure was down 44 per cent from 2007 but was still the sixth largest payout in history.
Mr Obama described the bonuses as the “height of irresponsibility”, and made clear that additional government support for the industry would be subject to tough conditions on pay and other perks.
“Part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint,” he said. “There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.”
The White House is working on plans for the second $350bn tranche of funds available through the troubled asset relief programme as well as additional measures to clean up “toxic assets”.
Mr Obama is under pressure to adopt a tough line against Wall Street amid mounting public anger over how the first $350bn of bail-out funds was used.
The president recently chided Merrill Lynch, which has received taxpayer support, for spending more than $1m renovating the office of John Thain, its former chief executive, and his administration pressured Citigroup to cancel its order for a $50bn corporate jet.
“We shouldn’t have to do that, because they should know better,” he said yesterday, referring to Citigroup.
“The American people understand that we’ve got a big hole that we’ve got to dig ourselves out of, but they don’t like the idea that people are digging a bigger hole even as they’re being asked to fill it up.”
Bankers reacted to the president’s remarks with a mixture of anger and resignation.
“Attacking Wall Street is like fishing out of a barrel at the moment,” said one financial executive. “Obama is in the middle of a tough political battle to get the stimulus plan approved. He has to say these things.”
Mr Obama’s proposals for tougher oversight of Wall Street received backing on Thursday from a congressional panel charged with overseeing the government response to the crisis.
The Congressional Oversight Panel said policymakers and the financial industry ignored multiple warning signs that a crisis was brewing and called for tighter regulations to prevent it happening again.
In a draft report released on Thursday, the panel recommended greater supervision of financial institutions deemed “too big to fail” and limits on leverage throughout the sector.
Mr Obama was responding to a report showing that financial sector employees received $18.4bn (£12.9bn) in bonuses last year, amid dire financial crisis. The figure was down 44 per cent from 2007 but was still the sixth largest payout in history.
Mr Obama described the bonuses as the “height of irresponsibility”, and made clear that additional government support for the industry would be subject to tough conditions on pay and other perks.
“Part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint,” he said. “There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.”
The White House is working on plans for the second $350bn tranche of funds available through the troubled asset relief programme as well as additional measures to clean up “toxic assets”.
Mr Obama is under pressure to adopt a tough line against Wall Street amid mounting public anger over how the first $350bn of bail-out funds was used.
The president recently chided Merrill Lynch, which has received taxpayer support, for spending more than $1m renovating the office of John Thain, its former chief executive, and his administration pressured Citigroup to cancel its order for a $50bn corporate jet.
“We shouldn’t have to do that, because they should know better,” he said yesterday, referring to Citigroup.
“The American people understand that we’ve got a big hole that we’ve got to dig ourselves out of, but they don’t like the idea that people are digging a bigger hole even as they’re being asked to fill it up.”
Bankers reacted to the president’s remarks with a mixture of anger and resignation.
“Attacking Wall Street is like fishing out of a barrel at the moment,” said one financial executive. “Obama is in the middle of a tough political battle to get the stimulus plan approved. He has to say these things.”
Mr Obama’s proposals for tougher oversight of Wall Street received backing on Thursday from a congressional panel charged with overseeing the government response to the crisis.
The Congressional Oversight Panel said policymakers and the financial industry ignored multiple warning signs that a crisis was brewing and called for tighter regulations to prevent it happening again.
In a draft report released on Thursday, the panel recommended greater supervision of financial institutions deemed “too big to fail” and limits on leverage throughout the sector.
Sweden offers lessons for US toxic clean up
Lars Thunell, head of the World Bank’s International Finance Corporation, is one of the few people in the world who has actually run a so-called “bad bank” – Securum – formed by Sweden to absorb toxic assets during its banking crisis in the 1990s.
He says the US can learn general lessons from Sweden but differences in the nature of the two financial sectors and the assets involved mean the US cannot import it wholesale.
“To get the system running again you have to get uncertainty out of the system, and the way to do that is, one way or another, to ringfence the bad assets,” Mr Thunell says. “At the same time you have to recapitalise the remaining good bank.”
He says: “The mindset of people involved in the good bank and bad bank should be very different . . . One is in run-off, the other should be extending credit to the economy.”
Mr Thunell says banks need to be dealt with “on a case-by-case basis” but with “clear rules of the game”. Sweden categorised its banks according to their capital ratios.
He says the whole process is much easier if – as with Sweden’s Nordbanken – the restructuring takes place in temporary government ownership. “This way, you don’t have to worry about the price at which assets are transferred to the bad bank.”
Securum simply bought all the assets from Nordbanken at face value and then wrote everything down, Mr Thunell says. “We then got capital in an amount equivalent to the writedown, plus operating expenses from the government.”
But since most US banks remain above regulatory capital minimums, he says, the US government will have to deal with private shareholders.
“It was easier for us because we were dealing with industrial loans, or real estate loans, for which we could actually identify each piece of real estate. We could estimate a fair value based on its yield in a normal market.”
The problem now, he says, is that “it is very hard to identify the underlying assets and know what the final losses are likely to be. In some ways it is more like an insurance crisis.”
Because Securum understood the assets well, he says, it could accelerate the run-off by selling assets quickly. A US bad bank, he says, may have to hold assets longer.
Moreover, at the time when Sweden did its banking sector clean-up it had only five banks, plus savings unions.
“You can scale up this model. But it needs to be adapted,” he says.
He says the US can learn general lessons from Sweden but differences in the nature of the two financial sectors and the assets involved mean the US cannot import it wholesale.
“To get the system running again you have to get uncertainty out of the system, and the way to do that is, one way or another, to ringfence the bad assets,” Mr Thunell says. “At the same time you have to recapitalise the remaining good bank.”
He says: “The mindset of people involved in the good bank and bad bank should be very different . . . One is in run-off, the other should be extending credit to the economy.”
Mr Thunell says banks need to be dealt with “on a case-by-case basis” but with “clear rules of the game”. Sweden categorised its banks according to their capital ratios.
He says the whole process is much easier if – as with Sweden’s Nordbanken – the restructuring takes place in temporary government ownership. “This way, you don’t have to worry about the price at which assets are transferred to the bad bank.”
Securum simply bought all the assets from Nordbanken at face value and then wrote everything down, Mr Thunell says. “We then got capital in an amount equivalent to the writedown, plus operating expenses from the government.”
But since most US banks remain above regulatory capital minimums, he says, the US government will have to deal with private shareholders.
“It was easier for us because we were dealing with industrial loans, or real estate loans, for which we could actually identify each piece of real estate. We could estimate a fair value based on its yield in a normal market.”
The problem now, he says, is that “it is very hard to identify the underlying assets and know what the final losses are likely to be. In some ways it is more like an insurance crisis.”
Because Securum understood the assets well, he says, it could accelerate the run-off by selling assets quickly. A US bad bank, he says, may have to hold assets longer.
Moreover, at the time when Sweden did its banking sector clean-up it had only five banks, plus savings unions.
“You can scale up this model. But it needs to be adapted,” he says.
Trichet warns on capital hoarding
Jean-Claude Trichet gave a stark warning to financial markets on Thursday to stop putting pressure on banks to hold more capital, insisting that such views were exacerbating the global recession.
The president of the European Central Bank criticised the prevailing view among investors that banks should hoard funds, insisting that the view was contrary to those of the European authorities. Such ideas did nothing to contain the deepening recession, he said, and also provided non-financial companies with incentives to postpone investment.
Mr Trichet’s comments at the World Economic Forum in Davos, came as leading bankers and policymakers also warned on Thursday that the wave of bank bail-outs in Europe and the US could usher in a new era of financial protectionism that could lead to a deeper global economic slump.
Asked by Josef Ackermann, chief executive of Deutsche Bank, whether the markets were right to press banks to hold more capital, the ECB president insisted three times that “what the markets are suggesting is not appropriate”.
It was “very important as far as the authorities are concerned”, he added, that the route forward was “not in line with the ideas that [banks] should now augment capital ratios”.
In the turmoil that followed the collapse of Lehman Brothers last September, investors have increasingly punished those banks with relatively low capital ratios, thereby encouraging them to hoard capital rather than expand their loan books.
Mr Trichet said it was now up to companies and markets to do their bit by resuming normal business practices and regain some of their lost confidence. Private companies were becoming too short-termist in their outlook and fear of investment, he said and “have to get back to a normal horizon of investment”.
Mr Trichet’s message of support for bank lending and business investment came at a time of increasing political pressure on banks to shrink their business overseas while maintaining lending to domestic consumers and companies, which has contributed to a sharp drop in international capital flows.
Bankers warned on Thursday that this trend was a creeping form of protectionism that could plunge the world into a deeper economic slump.
“One lesson we must learn is that we can not turn the clock back (in finance),” said Stephen Green, chairman of HSBC, the global bank which has extensive operations in Asia.
“If we do, the casualties will be emerging markets which depend on international capital movements.”
The president of the European Central Bank criticised the prevailing view among investors that banks should hoard funds, insisting that the view was contrary to those of the European authorities. Such ideas did nothing to contain the deepening recession, he said, and also provided non-financial companies with incentives to postpone investment.
Mr Trichet’s comments at the World Economic Forum in Davos, came as leading bankers and policymakers also warned on Thursday that the wave of bank bail-outs in Europe and the US could usher in a new era of financial protectionism that could lead to a deeper global economic slump.
Asked by Josef Ackermann, chief executive of Deutsche Bank, whether the markets were right to press banks to hold more capital, the ECB president insisted three times that “what the markets are suggesting is not appropriate”.
It was “very important as far as the authorities are concerned”, he added, that the route forward was “not in line with the ideas that [banks] should now augment capital ratios”.
In the turmoil that followed the collapse of Lehman Brothers last September, investors have increasingly punished those banks with relatively low capital ratios, thereby encouraging them to hoard capital rather than expand their loan books.
Mr Trichet said it was now up to companies and markets to do their bit by resuming normal business practices and regain some of their lost confidence. Private companies were becoming too short-termist in their outlook and fear of investment, he said and “have to get back to a normal horizon of investment”.
Mr Trichet’s message of support for bank lending and business investment came at a time of increasing political pressure on banks to shrink their business overseas while maintaining lending to domestic consumers and companies, which has contributed to a sharp drop in international capital flows.
Bankers warned on Thursday that this trend was a creeping form of protectionism that could plunge the world into a deeper economic slump.
“One lesson we must learn is that we can not turn the clock back (in finance),” said Stephen Green, chairman of HSBC, the global bank which has extensive operations in Asia.
“If we do, the casualties will be emerging markets which depend on international capital movements.”
Singapore Air cuts flights to US, Europe, India
SINGAPORE, Jan 28 (Reuters) - Singapore Airlines (SIAL.SI) said on Wednesday it will reduce the number of flights connecting the city-state to parts of the United States, Europe, India and Thailand.
The frequency of flights will be reduced from Singapore to New Delhi, Hyderabad and Mumbai in India, while some flights to Bangkok and London will be suspended.
The frequency of all-business flights from Singapore to the U.S. will also be reduced, but flights to Kuwait and Cairo will be increased.
The frequency of flights will be reduced from Singapore to New Delhi, Hyderabad and Mumbai in India, while some flights to Bangkok and London will be suspended.
The frequency of all-business flights from Singapore to the U.S. will also be reduced, but flights to Kuwait and Cairo will be increased.
Wednesday, January 28, 2009
Caterpillar to slash 20,000 jobs
NEW YORK (AFP) - - US construction equipment giant Caterpillar announced Monday that it intends to cut about 20,000 jobs worldwide to cope with plunging sales amid a sharp economic slowdown.
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The layoffs, equivalent to about 18 percent of its workforce, came even as the company chalked up its sixth consecutive year of record sales and revenues in 2008.
Some 4,000 production and 7,500 administrative staff as well as about 8,000 contract staff will be among those to be downsized, the company said as it reported 2008 fourth-quarter profit dropped 32 percent to 661 million dollars.
"Fourth-quarter profit was disappointing, particularly in light of record fourth-quarter sales and revenues and a significant favorable tax adjustment," Caterpillar chief executive Jim Owens said in a statement.
The company's fourth-quarter sales and revenues was six percent higher from the same period in 2007 to 12.92 billion dollars.
Its whole year sales and revenues hit a record high of 51.32 billion dollars for 2008, up 14 percent from 2007.
"While 2008 was our sixth consecutive year of record sales and revenues, it was an extraordinarily challenging year," Owens said.
"It is now clear that we need to sharply lower our production and costs, and aggressive actions were triggered in December," he said.
Caterpillar, a top manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, said its 2009 expectations had "deteriorated" amid uncertainty following a deepening US recession.
"We have initiated actions which will remove about 20,000 workers from our business and every indirect spend dollar will be heavily scrutinized," the company said.
The cuts would be accompanied by substantial reductions in overtime and freeze on hiring and salaries for administrative staff, it said.
The company forecast 2009 sales and revenues to be in "a range of plus or minus 10 percent" from 40 billion dollars.
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The layoffs, equivalent to about 18 percent of its workforce, came even as the company chalked up its sixth consecutive year of record sales and revenues in 2008.
Some 4,000 production and 7,500 administrative staff as well as about 8,000 contract staff will be among those to be downsized, the company said as it reported 2008 fourth-quarter profit dropped 32 percent to 661 million dollars.
"Fourth-quarter profit was disappointing, particularly in light of record fourth-quarter sales and revenues and a significant favorable tax adjustment," Caterpillar chief executive Jim Owens said in a statement.
The company's fourth-quarter sales and revenues was six percent higher from the same period in 2007 to 12.92 billion dollars.
Its whole year sales and revenues hit a record high of 51.32 billion dollars for 2008, up 14 percent from 2007.
"While 2008 was our sixth consecutive year of record sales and revenues, it was an extraordinarily challenging year," Owens said.
"It is now clear that we need to sharply lower our production and costs, and aggressive actions were triggered in December," he said.
Caterpillar, a top manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, said its 2009 expectations had "deteriorated" amid uncertainty following a deepening US recession.
"We have initiated actions which will remove about 20,000 workers from our business and every indirect spend dollar will be heavily scrutinized," the company said.
The cuts would be accompanied by substantial reductions in overtime and freeze on hiring and salaries for administrative staff, it said.
The company forecast 2009 sales and revenues to be in "a range of plus or minus 10 percent" from 40 billion dollars.
India cuts growth forecast
MUMBAI - INDIA'S central bank cut its growth forecast on Tuesday to 7 per cent - down from a prior estimate of 7.5 to 8.0 per cent - and warned of a deep, protracted global downturn, but left key interest rates unchanged.
Industrial production and consumer demand have slowed, business confidence is deteriorating, and the fiscal deficit is sharply up, the bank said.
Growth in the service sector, a key segment of India's economy, is also slowing. After 14 quarters of double-digit growth, India's service sector posted just 9.6 per cent growth during the July-September quarter, the bank said.
Reserve Bank of India Governor D. Subbarao said growth would likely become even more 'challenging' next fiscal year.
'The global crisis will dent India's growth trajectory as investments and exports slow. Clearly, there is a period of painful adjustment ahead of us,' he said in the bank's quarterly policy review statement.
'However, once the global economy begins to recover, India's turnaround will be sharper and swifter, backed by our strong fundamentals and the untapped growth potential,' he said.
Mr Subbarao also noted that the global slowdown clearly shows that emerging economies remain closely linked to developed markets.
'Contrary to the expectation of decoupling, which was a commonly held view even till recently, the crisis has spread to the emerging economies too,' he said.
India has already taken aggressive measures to boost growth, since September announcing two fiscal stimulus packages and pumping 3.9 trillion rupees (S$1.19 trillion) into the financial system.
Last quarter, the bank cut the repo rate - at which the central bank makes short-term loans to commercial banks - from 9 to 5.5 per cent, and the reverse repo - the rate at which it borrows from commercial banks - rate from 6 to 4 per cent, both historic lows. But economic growth has continued to slow.
Over the last five years, India's economic growth averaged 8.8 per cent a year. Gross domestic product growth from April to September was 7.8 per cent, down from 9.3 per cent for the same period the prior year.
The bank urged commercial banks to pass on easing credit to consumers more swiftly, noting that a few banks have yet to lower lending rates.
Despite the central bank's aggressive rate cuts - and a 4 percentage point cut in the cash reserve ratio, or the amount of cash commercial banks must keep on hand - commercial banks, fearful of rising bad loans, have reduced their rates to consumers by just 1.5 to 2 percentage points, according to Citigroup.
'There is room for banks to further reduce their lending rates,' Mr Subbarao told reporters.
India's fiscal deficit surged 83.3 per cent from April to November, after falling 11.0 per cent the same period the prior year.
Reduced tax collection and stimulus spending is expected to put even more strain on the budget, potentially pushing the fiscal deficit from 2.5 to at least 5.9 per cent of GDP, the bank said.
Counting the cost of oil subsidies, the deficit could hit 8 per cent of GDP, the bank said.
India's most-watched inflation indicator, the wholesale price index, has fallen by more than half since August, hitting 5.6 per cent as of Jan 10, due largely to falling commodities prices.
The bank predicted inflation would fall still further, to 3 per cent by March.
Consumer prices have fared less well, thanks to persistently high food costs, the bank said. Consumer price inflation is still in the double digits, the bank warned.
KVS Manian, head of retail liabilities at Kotak Mahindra Bank in Mumbai, said given the worrisome fiscal deficit - which he said totals 10 per cent of GDP, counting states' debts - India has little room to boost spending to stimulate growth. The reserve bank, he said, is thus trying to use monetary policy cautiously.
'They want to be cautious about releasing all their ammunition too quickly,' he said.
Mr Subbarao also said banks had relatively low exposure to beleaguered outsourcing giant Satyam Computer Services Ltd. and related companies. Satyam has been scrambling to pay employees and hold on to customers since its founder confessed to a US$1 billion fraud on Jan.7.
'There is no systemic threat to the banking system or individual banks,' he said.
The investigation into banks' role in the scandal is ongoing, he said. So far, he added, 'we have not seen any major irregularity.' -- AP
Industrial production and consumer demand have slowed, business confidence is deteriorating, and the fiscal deficit is sharply up, the bank said.
Growth in the service sector, a key segment of India's economy, is also slowing. After 14 quarters of double-digit growth, India's service sector posted just 9.6 per cent growth during the July-September quarter, the bank said.
Reserve Bank of India Governor D. Subbarao said growth would likely become even more 'challenging' next fiscal year.
'The global crisis will dent India's growth trajectory as investments and exports slow. Clearly, there is a period of painful adjustment ahead of us,' he said in the bank's quarterly policy review statement.
'However, once the global economy begins to recover, India's turnaround will be sharper and swifter, backed by our strong fundamentals and the untapped growth potential,' he said.
Mr Subbarao also noted that the global slowdown clearly shows that emerging economies remain closely linked to developed markets.
'Contrary to the expectation of decoupling, which was a commonly held view even till recently, the crisis has spread to the emerging economies too,' he said.
India has already taken aggressive measures to boost growth, since September announcing two fiscal stimulus packages and pumping 3.9 trillion rupees (S$1.19 trillion) into the financial system.
Last quarter, the bank cut the repo rate - at which the central bank makes short-term loans to commercial banks - from 9 to 5.5 per cent, and the reverse repo - the rate at which it borrows from commercial banks - rate from 6 to 4 per cent, both historic lows. But economic growth has continued to slow.
Over the last five years, India's economic growth averaged 8.8 per cent a year. Gross domestic product growth from April to September was 7.8 per cent, down from 9.3 per cent for the same period the prior year.
The bank urged commercial banks to pass on easing credit to consumers more swiftly, noting that a few banks have yet to lower lending rates.
Despite the central bank's aggressive rate cuts - and a 4 percentage point cut in the cash reserve ratio, or the amount of cash commercial banks must keep on hand - commercial banks, fearful of rising bad loans, have reduced their rates to consumers by just 1.5 to 2 percentage points, according to Citigroup.
'There is room for banks to further reduce their lending rates,' Mr Subbarao told reporters.
India's fiscal deficit surged 83.3 per cent from April to November, after falling 11.0 per cent the same period the prior year.
Reduced tax collection and stimulus spending is expected to put even more strain on the budget, potentially pushing the fiscal deficit from 2.5 to at least 5.9 per cent of GDP, the bank said.
Counting the cost of oil subsidies, the deficit could hit 8 per cent of GDP, the bank said.
India's most-watched inflation indicator, the wholesale price index, has fallen by more than half since August, hitting 5.6 per cent as of Jan 10, due largely to falling commodities prices.
The bank predicted inflation would fall still further, to 3 per cent by March.
Consumer prices have fared less well, thanks to persistently high food costs, the bank said. Consumer price inflation is still in the double digits, the bank warned.
KVS Manian, head of retail liabilities at Kotak Mahindra Bank in Mumbai, said given the worrisome fiscal deficit - which he said totals 10 per cent of GDP, counting states' debts - India has little room to boost spending to stimulate growth. The reserve bank, he said, is thus trying to use monetary policy cautiously.
'They want to be cautious about releasing all their ammunition too quickly,' he said.
Mr Subbarao also said banks had relatively low exposure to beleaguered outsourcing giant Satyam Computer Services Ltd. and related companies. Satyam has been scrambling to pay employees and hold on to customers since its founder confessed to a US$1 billion fraud on Jan.7.
'There is no systemic threat to the banking system or individual banks,' he said.
The investigation into banks' role in the scandal is ongoing, he said. So far, he added, 'we have not seen any major irregularity.' -- AP
Corning cuts 3,500 jobs
ROCHESTER (New York) - CORNING Inc. said on Tuesday it is cutting 3,500 jobs, or 13 per cent of its payroll, as demand slumps for glass used in flat-screen televisions and computers.
The specialty glass and ceramics maker, the world's largest maker of liquid crystal display glass, announced the cutbacks as its fourth-quarter profit plunged 65 per cent to US$249 million (S$374.2 million), or 16 cents a share, from US$717 million, or 45 cents a share, a year earlier.
Excluding one-time items, its profit of 13 cents a share came in well below Wall Street's forecast of 20 cents a share.
Sales fell 31 per cent to $1.08 billion from $1.58 billion, below US$1.16 billion in sales forecast by analysts polled by Thomson Reuters.
In December, the company withdrew all guidance for the October-December period because of volatility in the LCD market. It previously said earnings would fall below an earlier projection of 20 cents to 28 cents a share on sales between US$1.1 billion and US$1.2 billion.
The cutbacks at Corning, which employs 27,000 people, will result in first-quarter restructuring charges of US$115 million to US$165 million before taxes as well as fourth-quarter charges of US$22 million. The move will bring annualized savings of US$150 million to US$200 million, it said.
About 1,500 of the 3,500 jobs being eliminated are salaried employees. The company also is cutting more than 1,400 temporary jobs.
The restructuring program will include a selective early retirement program and consolidation of manufacturing plants.
The 157-year-old company is based in the city of Corning in rural western New York.
In premarket trading, Corning's shares fell 65 cents, or 6.5 per cent, to $9.30. -- AP
The specialty glass and ceramics maker, the world's largest maker of liquid crystal display glass, announced the cutbacks as its fourth-quarter profit plunged 65 per cent to US$249 million (S$374.2 million), or 16 cents a share, from US$717 million, or 45 cents a share, a year earlier.
Excluding one-time items, its profit of 13 cents a share came in well below Wall Street's forecast of 20 cents a share.
Sales fell 31 per cent to $1.08 billion from $1.58 billion, below US$1.16 billion in sales forecast by analysts polled by Thomson Reuters.
In December, the company withdrew all guidance for the October-December period because of volatility in the LCD market. It previously said earnings would fall below an earlier projection of 20 cents to 28 cents a share on sales between US$1.1 billion and US$1.2 billion.
The cutbacks at Corning, which employs 27,000 people, will result in first-quarter restructuring charges of US$115 million to US$165 million before taxes as well as fourth-quarter charges of US$22 million. The move will bring annualized savings of US$150 million to US$200 million, it said.
About 1,500 of the 3,500 jobs being eliminated are salaried employees. The company also is cutting more than 1,400 temporary jobs.
The restructuring program will include a selective early retirement program and consolidation of manufacturing plants.
The 157-year-old company is based in the city of Corning in rural western New York.
In premarket trading, Corning's shares fell 65 cents, or 6.5 per cent, to $9.30. -- AP
World tourism to fall 2%
MADRID - WORLD tourism will stagnate in 2009 with numbers dropping by up to two percent as the economic downturn bites, the United Nations' tourism agency said on Tuesday.
The World Tourism Organisation (WTO) 'expects 2009 international tourism to be in a range of zero to two percent decline,' according to a statement released by its Madrid headquarters.
'Along with the Americas, Europe will be the most affected region in terms of overall tourism results as most of its source markets are already in or entering into recession,' the statement said.
The two percent prediction 'could be widened,' said Taleb Rifai, the organisation's deputy secretary general.
'We expect the results to be geographically mixed,' he said. 'We expect the Americas to do slightly better than Europe, but not as good as Africa, the Middle East or Asia regions.'
The forecasts mark a sharp change from 2008, when tourist arrivals worldwide rose to 924 million, a two percent increase from the previous year.
But signs of a downturn became clear as the year progressed, said John Kester, director of market studies.
'Around the middle of the year, we noticed a sharp change in trends,' said Mr Kester.
In the first six months of 2008, arrivals grew by five per cent before decreasing by one percent in the second half when the global financial crisis, unemployment and recession became major concerns, he said.
'We have witnessed a sharp drop in confidence in the sector,' said Kester.
The last time tourist arrivals shrank over the course of a year was 2003, which saw a 1.4 per cent decrease, according to the organisation.
Mr Geoffrey Lipman, a spokesman for the organisation, predicted the tourism industry could rebound 'in four years'.
The organisation does not yet have 2008 numbers in a country-by-country breakdown. In 2007, France was at the top of the list, followed by Spain. -- AFP
The World Tourism Organisation (WTO) 'expects 2009 international tourism to be in a range of zero to two percent decline,' according to a statement released by its Madrid headquarters.
'Along with the Americas, Europe will be the most affected region in terms of overall tourism results as most of its source markets are already in or entering into recession,' the statement said.
The two percent prediction 'could be widened,' said Taleb Rifai, the organisation's deputy secretary general.
'We expect the results to be geographically mixed,' he said. 'We expect the Americas to do slightly better than Europe, but not as good as Africa, the Middle East or Asia regions.'
The forecasts mark a sharp change from 2008, when tourist arrivals worldwide rose to 924 million, a two percent increase from the previous year.
But signs of a downturn became clear as the year progressed, said John Kester, director of market studies.
'Around the middle of the year, we noticed a sharp change in trends,' said Mr Kester.
In the first six months of 2008, arrivals grew by five per cent before decreasing by one percent in the second half when the global financial crisis, unemployment and recession became major concerns, he said.
'We have witnessed a sharp drop in confidence in the sector,' said Kester.
The last time tourist arrivals shrank over the course of a year was 2003, which saw a 1.4 per cent decrease, according to the organisation.
Mr Geoffrey Lipman, a spokesman for the organisation, predicted the tourism industry could rebound 'in four years'.
The organisation does not yet have 2008 numbers in a country-by-country breakdown. In 2007, France was at the top of the list, followed by Spain. -- AFP
Fiat, unions fear job cuts
ROME - SOME 60,000 jobs could be lost in Italy's auto sector unless the government comes to its rescue, union leaders and Fiat's chief executive said.
The government is to open talks this week on possible aid for the auto sector, which has been hit hard by the global economic crisis.
'Without a government intervention, the risk that 60,000 workers in the auto sector will have to stay at home is real,' Fiat CEO Sergio Marchionne was quoted as saying in Italian daily La Repubblica and other newspapers on Tuesday.
'We are asking for an intervention for the entire auto sector,' Mr Marchionne said, speaking during a meeting in Turin on Monday.
'It's not a matter of helping Fiat but of aiding an important sector and the whole economy with it.'
Earlier on Monday, the same figure had been given by Bruno Vitali of the Fim-Cisl union.
Italy's auto industry employs 275,000 people overall, according to figures released by the Italian Association of the Automotive Industry.
Last week Fiat, Italy's largest private-sector employer, reported a 70 per cent drop in fourth quarter profit. The company blamed the result on a slump in demand for its cars as the economic slowdown hit its key western European and south American markets.
Fiat also said it expects demand to drop a further 20 percent in 2009.
Talks between government, unions and industry officials are set to open on Wednesday. -- AP
The government is to open talks this week on possible aid for the auto sector, which has been hit hard by the global economic crisis.
'Without a government intervention, the risk that 60,000 workers in the auto sector will have to stay at home is real,' Fiat CEO Sergio Marchionne was quoted as saying in Italian daily La Repubblica and other newspapers on Tuesday.
'We are asking for an intervention for the entire auto sector,' Mr Marchionne said, speaking during a meeting in Turin on Monday.
'It's not a matter of helping Fiat but of aiding an important sector and the whole economy with it.'
Earlier on Monday, the same figure had been given by Bruno Vitali of the Fim-Cisl union.
Italy's auto industry employs 275,000 people overall, according to figures released by the Italian Association of the Automotive Industry.
Last week Fiat, Italy's largest private-sector employer, reported a 70 per cent drop in fourth quarter profit. The company blamed the result on a slump in demand for its cars as the economic slowdown hit its key western European and south American markets.
Fiat also said it expects demand to drop a further 20 percent in 2009.
Talks between government, unions and industry officials are set to open on Wednesday. -- AP
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