Plus: Fed Boosts Balance Sheet, Treasury Offers Billions to Auto Suppliers, a 90 Percent Tax on Big Bonuses and MORE.
GM CEO: Bankruptcy Would Cause Liquidation
With two weeks to go before the government deadline to approve General Motors Corp.’s restructuring plan, GM CEO Rick Wagoner told the press that if GM is allowed to go into bankruptcy, it will simply be liquidated.
According to the Associated Press:
Wagoner says restructuring out of court would accomplish 99 percent of what could be achieved in bankruptcy. But he says it wouldn’t have the risk of scaring away customers or the huge expense of Chapter 11.
GM has received $13.4 billion in federal loans and is seeking another $16.6 billion. The Detroit automaker faces a March 31 deadline to finish its viability plan and show the government it is worthy of the money.
“President Barack Obama’s auto task force is assessing proposals from GM and Chrysler LLC to decide whether to recommend U.S. assistance or tip the carmakers into bankruptcy,” Bloomberg News said on Saturday. On Friday, the Treasury’s chief auto advisor said GM and Chrysler LLC may need “considerably” more than the $21.6 billion in aid they requested, which was based on optimistic recovery plans.
Treasury Offers Billions to Auto Suppliers
The U.S. Treasury last week announced financing aid of up to $5 billion for automotive supply firms hurt by the credit squeeze and the collapse in vehicle sales.
According to Agence France-Presse:
The program will provide suppliers with access to government-backed guarantees that money owed to them for the products they ship will be paid no matter what happens to the automakers that ordered the products. Suppliers will also be able to sell their receivables into the program at a modest discount, giving them access to needed liquidity.
The program targets U.S.-based suppliers to auto manufacturers GM and Chrysler.
Fed Boosts Balance Sheet
In an unexpected move on Wednesday, the Federal Reserve announced plans to buy $300 billion in longer-term Treasury bonds to help arrest a deepening slide in the U.S. economy. The move, one of several aimed at making it less expensive to borrow money, signaled the Fed will boost the size of its balance sheet to more than $4 trillion.
Last week’s actions have doubled the amount of money the central bank has poured into the economy to try to stimulate economic activity.
Unlocking Credit for Small Biz
Aimed at helping small companies, President Barack Obama on Monday announced a three-pronged package to unclog the flow of credit to small businesses.
Coming after a $787 billion economic stimulus package and a $410 billion omnibus appropriations measure for the current year, the new program includes hundreds of millions of dollars from the economic stimulus plan to reduce lending fees while increasing government guarantees on a portion of Small Business Administration loans up to 90 percent. It also seeks to increase bank liquidity by injecting $15 billion into banks in order to thaw the credit market and boost lending to small businesses.
“But many small businesses never apply for an SBA loan,” the Wall Street Journal (subscription required) reports. “That’s particularly true for high-growth technology companies that may start out with little in the way of tangible assets to use as collateral. Those companies contend that lower taxes, incentives for hiring employees and encouraging private-equity investment are a better way to spur growth.” Critics also say that President Obama’s “plans to raise income taxes on those in the highest tax brackets will hurt owners of small, high-growth businesses who file as individuals.”
90 Percent Tax on Big Bonuses
On Thursday, the House of Representatives approved legislation that would “significantly curb Wall Street bonuses this year, as lawmakers from both parties echoed popular outrage over big payouts to employees of American International Group Inc. after the ailing insurance giant took billions of dollars [$182 billion] in taxpayer money,” the Wall Street Journal reports:
The House measure was approved on a 328-93 vote and would impose a 90 percent surtax on bonuses granted to employees who earn more than $250,000 at companies that have received at least $5 billion from the government’s financial rescue program. The bonus tax, if approved by the Senate and signed into law, would be retroactive to Dec. 31, 2008.
Edward Liddy, who was brought in last year by the government to run the embattled insurer, told a House subcommittee that the company was contractually obligated to pay the bonuses but that some of the recipients have begun returning all or part of them.
The text of the bill makes clear that the 90 percent tax on bonuses could recoup most of the $165 million paid to AIG employees. Documents turned over late Friday show AIG paid $218 million in bonuses last weekend, higher than the $165 million that was previously disclosed.
Jobless Claims Fall While Continued Claims Swell
The number of people filing new unemployment claims fell by 12,000 in the week ending March 14 to 646,000 from the previous week’s 658,000, according to the U.S. Department of Labor.
However, the number of laid-off workers continuing to receive unemployment benefits in the week ended March 7 rose to a new record high, jumping 185,000 to a seasonally adjusted 5.47 million from 5.29 million the previous week.
The four-week moving average for new claims rose to 654,750 — the highest since October 1982 — from the previous week’s revised average of 651,000.
Energy-Efficiency Tech a Likely Winner in Recession
Although the current economy has slowed the progress of some “green” technologies, things continue to look bright for energy-efficiency technologies, investors say. MIT’s Technology Review reports that “while green-technology companies dependent on [...] capital-intensive projects have foundered, things look brighter for other ventures, such as those that require little in the way of expensive equipment and facilities, or those that have managed to attract foreign investment,” according to clean-tech investors at the recent GoingGreen East conference.
“Perhaps the biggest winners will be companies with technologies to improve energy efficiency,” investors say, considering “‘efficiency is where you’ll get the highest marginal return on investment,’ in large part because costs are low.” They note that “some such ventures take advantage of cheap sensors, communications hardware, and software packages to monitor and control energy use both in buildings and on the electricity grid.”
(For more on this, see last week’s Managing Energy in Process Industries.)
Housing Starts Surge Unexpectedly
“Housing construction posted a surprisingly large increase in February, bolstered by strength in all parts of the country except the West,” the Associated Press reports.
Boosted by an 82 percent increase in the construction of apartment buildings, U.S. housing starts — construction of new homes and apartments — surged 22 percent in February to a seasonally adjusted annual rate of 583,000 units, according to new Commerce Department estimates. It was the largest percentage gain in 19 years and was the sector’s first increase in eight months.
“While the surge in construction was far better than the continued decline economists had expected, experts viewed the rebound as a temporary gain given all the problems the housing industry still faces,” the Associated Press notes.
(For more on this, see last week’s Housing Construction Soars in February.)
FedEx’s Cost-Cutting Measures
FedEx Corp. said its fiscal third-quarter profit plunged 75 percent on the back of declining shipments and the global recession, prompting the shipping giant to further slash its costs, workforce and network capacity, MarketWatch reports.
The company expects the cost-cutting measures will save the company $1 billion annually starting in fiscal 2010. It will also result in a fourth-quarter charge of about $100 million.