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The Italian government allocated on Friday 420 million euros through a special decree aimed at supporting the country's slow economic recovery.   According to a press release by the government's headquarters, 300 million euros will go in incentives to boost internal consumption levels, 70 million euros in fiscal drags for the textile sector and 50 million euros to support the aerospace, naval industry and local television and radio broadcasting.   The stimulus package was presented by Prime Minister Silvio Berlusconi, Economy Minister Giulio Tremonti and Industry Minister Claudio Scajola.   The consumption incentives regard primarily green home technology, cleaner motorbikes and farm machinery purchases. Among other measures, a voucher plan for young people who want broadband Internet access.   The 420 million euro package will boost innovation, environmental sustainability and cut down on the unemployment level in the country that has reached over 8 percent.   Berlusconi praised the decree as an instrument immediately effective that will revamp the economy and help citizens in a critical moment.   "We are emerging from the crisis, not extremely quickly, but certainly," said the premier, who noted that the downturn was global but Italy was performing better than other European countries.   According to most national and international institutes, the Italian economy is today out of recession but faces a slow and uncertain recovery. The national statistics office Istat reported on Friday that industrial turnover rose in January by 2.7 percent compared to December 2009, but that orders fell by 2.8 percent.   In a statement, Scajola said that the stimulus package was essential if Italy planned to reach the target of a 1 to 1.2 percent growth in gross domestic product (GDP) this year.   Given that the 420 million euros package is funded primarily by recovered taxes from abroad, "it will have a positive, not a negative effect" on the state's balance sheet, Economy Minister Giulio Tremonti guaranteed.

Tags: Italy, Cabinet, Government, Economy
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$       US Q3 GDP growth was confirmed at -0.5% saar in the final reading; a larger contribution from government spending offset a 0.1% negative revision to personal consumption to -3.8%; the core PCE was revised down to 2.4%YoY from 2.6%YoY before

$       US Q3 real disposable income fell 8.8%QoQ; the savings rate fell to 1.2% from 2.5% before; undistributed profits fell 33% from a year ago; reflecting a sharp squeeze in liquidity in the private sector of the economy that is amplified by the credit crisis

€       ECB's Trichet: lower oil prices are helping the global economy; ECB's Nowotny: “cant exclude a further rate cut in January”

€       The Eurozone October current account deficit widened to -€4.8bn n.s.a. versus -€4.2bn in September and +€3.9bn a year ago

€       Italian wages rose 3.5%YoY in November, despite negative GDP growth, signaling a deep and prolonged recession

€       France plans to sell new 5y and 10y bonds in the 2009 issuance programme which amounts to €145bn, €10bn above the September estimates; linkers will account for 10% of sales; the French government's total financing requirement is €191.7bn 

£       UK Q3 GDP was revised down to -0.6%QoQ versus -0.5% before, on a surprise positive revision to imports from +0.1% to +1.0%; consumer spending and total domestic demand were confirmed at -0.2% and -0.4% respectively, but capital and government expenditure estimates were revised down; annual GDP growth was unchanged at 0.3% versus 2.1% a year ago

£       The UK current account posted a deficit of -£7.7bn in Q3, down from -£6.4bn revised in Q2 (-£11.0bn); the Q3 deterioration was led by investment income in line with expectations; while backdated downward revisions to the C/A gap suggest that the UK is not as vulnerable to changes in external financing conditions as previously thought; it also suggests that UK external capital outflows played a greater role in sterling's sharp 24% decline in the past year

£       UK services output fell -0.2% in the three months to October versus -0.6% expected and a downward-revised -0.5% decline in Q3 (-0.4% previously), illustrating the benefits of policy stabilization measures following Lehman for business and financial services

£       UK BBA November mortgage loans fell by 15%MoM and were down 60% versus the respective month of 2007

The Day Ahead

Market activity is winding down ahead of the Christmas and New Year holidays, reinforcing the familiar 2008 themes of soft equities, bullish steepening in government yield curves and downward pressures on sterling, commodities and emerging markets. The revised US Q3 GDP data yesterday confirmed the results of our earlier analysis that the economy is heading for a 6%-plus contraction in GDP in Q4, which would be the steepest decline since 1982. US real disposable consumer income fell 8.8%QoQ, the savings rate remained low and undistributed business profits fell 33% from a year ago. These developments reflect a sharp squeeze in private sector liquidity due to real economic weakness that will be amplified by the effects of the ongoing credit crisis and build consensus for more aggressive policy action via further fiscal and monetary easing in 2009. The US November personal income and spending data, and capex and employment indicators out today will bring more evidence of the relationship between private sector liquidity and real economic activity in Q4. European markets are closed over the next few days for the Christmas holidays. The next issue of the Daily Market News will be published on 29 December 2008. With best wishes from Tullett Prebon's G7 Economics team for happy and peaceful holidays.

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$       US Q3 GDP growth was confirmed at -0.5% saar in the final reading; a larger contribution from government spending offset a 0.1% negative revision to personal consumption to -3.8%; the core PCE was revised down to 2.4%YoY from 2.6%YoY before

$       US Q3 real disposable income fell 8.8%QoQ; the savings rate fell to 1.2% from 2.5% before; undistributed profits fell 33% from a year ago; reflecting a sharp squeeze in liquidity in the private sector of the economy that is amplified by the credit crisis

€       ECB's Trichet: lower oil prices are helping the global economy; ECB's Nowotny: “cant exclude a further rate cut in January”

€       The Eurozone October current account deficit widened to -€4.8bn n.s.a. versus -€4.2bn in September and +€3.9bn a year ago

€       Italian wages rose 3.5%YoY in November, despite negative GDP growth, signaling a deep and prolonged recession

€       France plans to sell new 5y and 10y bonds in the 2009 issuance programme which amounts to €145bn, €10bn above the September estimates; linkers will account for 10% of sales; the French government's total financing requirement is €191.7bn 

£       UK Q3 GDP was revised down to -0.6%QoQ versus -0.5% before, on a surprise positive revision to imports from +0.1% to +1.0%; consumer spending and total domestic demand were confirmed at -0.2% and -0.4% respectively, but capital and government expenditure estimates were revised down; annual GDP growth was unchanged at 0.3% versus 2.1% a year ago

£       The UK current account posted a deficit of -£7.7bn in Q3, down from -£6.4bn revised in Q2 (-£11.0bn); the Q3 deterioration was led by investment income in line with expectations; while backdated downward revisions to the C/A gap suggest that the UK is not as vulnerable to changes in external financing conditions as previously thought; it also suggests that UK external capital outflows played a greater role in sterling's sharp 24% decline in the past year

£       UK services output fell -0.2% in the three months to October versus -0.6% expected and a downward-revised -0.5% decline in Q3 (-0.4% previously), illustrating the benefits of policy stabilization measures following Lehman for business and financial services

£       UK BBA November mortgage loans fell by 15%MoM and were down 60% versus the respective month of 2007

The Day Ahead

Market activity is winding down ahead of the Christmas and New Year holidays, reinforcing the familiar 2008 themes of soft equities, bullish steepening in government yield curves and downward pressures on sterling, commodities and emerging markets. The revised US Q3 GDP data yesterday confirmed the results of our earlier analysis that the economy is heading for a 6%-plus contraction in GDP in Q4, which would be the steepest decline since 1982. US real disposable consumer income fell 8.8%QoQ, the savings rate remained low and undistributed business profits fell 33% from a year ago. These developments reflect a sharp squeeze in private sector liquidity due to real economic weakness that will be amplified by the effects of the ongoing credit crisis and build consensus for more aggressive policy action via further fiscal and monetary easing in 2009. The US November personal income and spending data, and capex and employment indicators out today will bring more evidence of the relationship between private sector liquidity and real economic activity in Q4. European markets are closed over the next few days for the Christmas holidays. The next issue of the Daily Market News will be published on 29 December 2008. With best wishes from Tullett Prebon's G7 Economics team for happy and peaceful holidays.

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UK Economic Focus
UK Housing Watch: Some way to go in the adjustment

- In our UK Outlook for 2009 published last week we discussed the need for further adjustment in house prices following the 16% fall to date (Nationwide/Halifax measure).  We now see prices falling by a total of 35% in nominal terms from peak (end-2007) to trough (end-2010).  That translates into a real decline of around 40% over the period.

- Housing overvaluation has been one of the largest imbalances to build up over recent years in the UK.  House prices broadly tripled between 1997 and their peak at the end of 2007.  As a corollary, the household debt/income ratio has risen, from less than 100% of gross disposable incomes in 1997 to over 175% in H1 this year.  It stands higher than that of any other G7 economy
- even the US (see top chart).

- Forecasts for house prices are subject to error for two key reasons: i) estimating fair value of housing is tricky - one would come to a very different conclusion about the scale of the necessary decline if it were assumed that affordability ratios were trended upwards rather than static over time (see bottom chart right), ii) even if we knew where equilibrium was, there is nothing to stop prices from overshooting this level on the downside, as has been the case in previous boom and bust episodes.

- While the Crosby report's recent proposal for government guarantees to senior RMBS could provide the impetus for a revival in the RMBS market, the economics of mortgage origination remains stretched. In addition, demand for structured paper has shrunk considerably and is unlikely to be fully restored by such guarantees.  Indeed since our last Housing Watch UK RMBS/covered bond issuance has been entirely made up of retained issuance for the purpose of accessing central bank liquidity.

- Credit performance in securitised pools has weakened further and we see signs of rising losses on possessions. Rate cuts should help affordability, but will stop short of restoring the marginal bid for housing.  Moreover, rising unemployment against a backdrop of a deteriorating economy will likely be a key driver of collateral performance over the coming months.

- In the secondary market RMBS spreads have widened in sympathy with other asset classes and on the back of Granite's (Northern Rock) trigger breach.
Typical year-end liquidity concerns will likely exacerbate already extremely weak technicals.  However, 2009 may prove to be a less volatile year for ABS prices. More specifically, bad bank initiatives should help reduce distressed sellers, while government-guaranteed bank debt should act to anchor financials, creating a better benchmark for ABS.



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Reprieve for publisher Mecom (FT)

• Mecom, the UK-based European newspaper publisher, has won breathing space from banks to secure asset sales that will cut its net debt, people close to the company said.
• With approaches for various parts of its businesses in Norway, Denmark, Poland and the Netherlands, Mecom was facing a debt covenant test on New Year's Eve.
• While those close to the group say there was no certainty the company would have gone over the limit of 3.5 times earnings before interest, tax, depreciation and amortisation, they added that extending the test until the end of February would help in deal negotiations.
• Mecom had £540m in net debt at the end of June, but because it borrows in euros and reports in sterling, currency movements have punished the company. Shares have fallen below 1p from a high in the year of 48½p. Yesterday, they closed at 0.86p, valuing the equity at £17m. Ben Fenton

BSkyB talks over Tiscali's UK business stall (Telegraph)

• Talks between BSkyB and Tiscali over the acquisition of the Italian group's UK business have hit the rocks after a disagreement over price.
• Following a period of due diligence in the past six weeks, sources said that BSkyB was not willing to pay anywhere close to the mooted £450m price tag, with the price it was offering closer to £350m.
• Sources close to BSkyB, run by chief executive Jeremy Darroch, said last night that talks had ended and "the ball is now in the Italian's court".
• Tiscali management are now understood to be in crucial talks to decide whether they will sell the business, although BSkyB sources are not expecting their latest offer to be accepted.
• An acquisition of the Tiscali UK business by BSkyB would have doubled the satellite broadcaster's number of broadband customers to 3.6m.
• Other bidders for Tiscali's UK business included Carphone Warehouse and Vodafone, who both dropped out of the process following concerns over price.

Kangaroo offers to sacrifice joint selling of shows to achieve launch (Guardian)

• Broadband TV service Project Kangaroo has offered to scrap plans to jointly sell catch-up and archive shows to rivals, in order to gain a green light from competition regulators to launch, warning that the joint venture will be scrapped if more restrictive measures are implemented.
• The venture between ITV, the BBC's commercial arm BBC Worldwide and Channel 4 argued that scrapping plans to jointly sell prime catch-up TV content would address the competition issue in its submission to the CC.
• Under the proposal submitted by the Project Kangaroo partners on Friday, ITV and Channel 4 would separately sell their catch-up TV content to third party online video providers. BBC Worldwide does not have catch-up TV content to syndicate as it this provided free via BBC iPlayer.
• The Kangaroo partners believe this should address competition concerns over the venture dominating the nascent UK online video market. However, if this is not deemed adequate by the competition authorities the partners have also agreed to scrap plans to jointly sell archive TV programming.

T.Italia Media says unit stake sale talks abandoned (Reuters)

• Telecom Italia Media plans to put up for auction next year a stake in its digital terrestrial television business, after a private equity fund pulled out, the company said on Monday.
• The unit of telecommunications group Telecom Italia had been in exclusive talks with the fund after receiving a non-binding expression of interest in acquiring a stake in the business, known as TIMB.
• "Owing to prevailing market conditions, the private equity fund ... has since withdrawn its interest," it said in a statement on Monday.
• "It (the board) has received several other non-binding expressions of interest from the market, and will ... proceed with a competition auction during the first quarter of 2009."

Alma Media says shareholder wants Talentum merger (Reuters)

• Finnish publishing house Alma Media said on Monday a major shareholder wants the company to merge with smaller rival Talentum and has demanded a shareholder meeting to decide the issue.
• Herttaassa, which holds 13.5 percent of Alma Media, said an extraordinary shareholder meeting should consider the merger with three Talentum shares equalling one Alma Media share.
• Alma Media chief executive Kai Telanne, who last month said a Talentum merger is a "real option" for Alma Media, said in a statement that there are no merger negotiations going on between the firms.

EU Approves News Corp.-Permira Deal to Take NDS Private (Bloomberg)

• The European Union approved a deal by News Corp. and hedge fund Permira Advisers LLP to take pay-TV-technology provider NDS Group Plc private.
• The European Commission, the EU executive in Brussels, announced the approval in a statement today.

 

Sirius Issues Stock for Debt; Accounting Chief Leaves (Bloomberg)

• Sirius XM Radio Inc. plans to issue 108.1 million shares of common stock in exchange for convertible notes, part of the pay-radio company's efforts to reduce debt.
• The satellite radio operator also said Chief Accounting Officer James Rhyu will leave in January to join another company, according to a regulatory filing today.
• Sirius XM, facing about $1 billion in loan repayments next year, has $193.6 million in convertible bonds maturing in February. Last week, shareholders approved a reverse stock split and voted to boost the number of authorized shares to 8 billion from 4.5 billion.
• Adrienne Calderone was named to succeed Rhyu as chief accounting officer. Calderone, 41, has been senior vice president and controller since August 2006 and was principal accounting officer prior to the acquisition of XM Satellite. Sirius didn’t identify the company Rhyu is joining.

ESPN to launch new interactive TV features in 2009 (Reuters)

• ESPN will launch three interactive features in 2009 that will let viewers use remote controls to access scores and statistics from its website and vote in polls while watching ESPN on television, officials told Reuters Monday.
• The cable sports network, owned by Walt Disney Co, has dabbled in interactive TV features in the past through limited programs with several distributors, but it now plans to phase-out those programs and pitch the new system to all of its 800 distributors early next year, said Sean Bratches, ESPN sales and marketing executive.
• The network hopes to deliver a multi-platform mass audience to advertisers, and new connectivity to viewers, through a marriage of its TV programming, data-rich website and mobile offerings, Bratches said.
• "Ultimately, it is our goal to create national ubiquity," Bratches said. "Advertiser interest is very high in what we have done. We have gotten advertisers to partner on all the smaller ones, and now we really want to make an investment."

Newspaper Shuns Web, And Thrives (New York Times)

• With 2008 drawing to a brutal close on the media beat -- bankruptcies, daily newspapers that are no longer daily, magazines that are downsizing into brochures -- a little ray of light appeared in my e-mail inbox. It was from a newspaper owner, of all people.
• Into the teeth of a historic recession, the newspaper had just published the biggest issue in its history. The product is double-digit profitable, and it has been growing at a clip of about 10 percent a year since it was founded in 1999, right about the time the Web was beginning to put its hands around print's neck.
• Finally, I thought, a story about a print organization that has found a way to tame the Web and come up with a digital business approach that could serve as a model. Except that TriCityNews of Monmouth County, N.J., is prospering precisely because it aggressively ignores the Web. Its Web site has a little boilerplate about the product and lists ad rates, but nothing more. (The address is trinews.com, for all the good it will do you.)
• ''Why would I put anything on the Web?'' asked Dan Jacobson, the publisher and owner of the newspaper. ''I don't understand how putting content on the Web would do anything but help destroy our paper. Why should we give our readers any incentive whatsoever to not look at our content along with our advertisements, a large number of which are beautiful and cheap full-page ads?''

Sina to buy Focus Media assets to increase advertising revenues (FT)

• Sina Corporation, China's leading internet news portal, is to buy the core assets of Focus Media, the country's leading digital media company, for more than $1bn in a bold attempt to seek a growth engine for its advertising revenues.
• Under the deal, Sina will gain control of Focus Media's network of outdoor advertising posters and LCD screens in hotels, offices and residential buildings. Focus Media will keep Allyes, its online advertising agency business, some traditional billboards and its cinema advertising business.
• The deal, announced amid fears that China's previously robust advertising revenues could slow down during the global economic downturn, consolidates the country's advertising landscape outside traditional media.

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Reprieve for publisher Mecom (FT)

• Mecom, the UK-based European newspaper publisher, has won breathing space from banks to secure asset sales that will cut its net debt, people close to the company said.
• With approaches for various parts of its businesses in Norway, Denmark, Poland and the Netherlands, Mecom was facing a debt covenant test on New Year's Eve.
• While those close to the group say there was no certainty the company would have gone over the limit of 3.5 times earnings before interest, tax, depreciation and amortisation, they added that extending the test until the end of February would help in deal negotiations.
• Mecom had £540m in net debt at the end of June, but because it borrows in euros and reports in sterling, currency movements have punished the company. Shares have fallen below 1p from a high in the year of 48½p. Yesterday, they closed at 0.86p, valuing the equity at £17m. Ben Fenton

BSkyB talks over Tiscali's UK business stall (Telegraph)

• Talks between BSkyB and Tiscali over the acquisition of the Italian group's UK business have hit the rocks after a disagreement over price.
• Following a period of due diligence in the past six weeks, sources said that BSkyB was not willing to pay anywhere close to the mooted £450m price tag, with the price it was offering closer to £350m.
• Sources close to BSkyB, run by chief executive Jeremy Darroch, said last night that talks had ended and "the ball is now in the Italian's court".
• Tiscali management are now understood to be in crucial talks to decide whether they will sell the business, although BSkyB sources are not expecting their latest offer to be accepted.
• An acquisition of the Tiscali UK business by BSkyB would have doubled the satellite broadcaster's number of broadband customers to 3.6m.
• Other bidders for Tiscali's UK business included Carphone Warehouse and Vodafone, who both dropped out of the process following concerns over price.

Kangaroo offers to sacrifice joint selling of shows to achieve launch (Guardian)

• Broadband TV service Project Kangaroo has offered to scrap plans to jointly sell catch-up and archive shows to rivals, in order to gain a green light from competition regulators to launch, warning that the joint venture will be scrapped if more restrictive measures are implemented.
• The venture between ITV, the BBC's commercial arm BBC Worldwide and Channel 4 argued that scrapping plans to jointly sell prime catch-up TV content would address the competition issue in its submission to the CC.
• Under the proposal submitted by the Project Kangaroo partners on Friday, ITV and Channel 4 would separately sell their catch-up TV content to third party online video providers. BBC Worldwide does not have catch-up TV content to syndicate as it this provided free via BBC iPlayer.
• The Kangaroo partners believe this should address competition concerns over the venture dominating the nascent UK online video market. However, if this is not deemed adequate by the competition authorities the partners have also agreed to scrap plans to jointly sell archive TV programming.

T.Italia Media says unit stake sale talks abandoned (Reuters)

• Telecom Italia Media plans to put up for auction next year a stake in its digital terrestrial television business, after a private equity fund pulled out, the company said on Monday.
• The unit of telecommunications group Telecom Italia had been in exclusive talks with the fund after receiving a non-binding expression of interest in acquiring a stake in the business, known as TIMB.
• "Owing to prevailing market conditions, the private equity fund ... has since withdrawn its interest," it said in a statement on Monday.
• "It (the board) has received several other non-binding expressions of interest from the market, and will ... proceed with a competition auction during the first quarter of 2009."

Alma Media says shareholder wants Talentum merger (Reuters)

• Finnish publishing house Alma Media said on Monday a major shareholder wants the company to merge with smaller rival Talentum and has demanded a shareholder meeting to decide the issue.
• Herttaassa, which holds 13.5 percent of Alma Media, said an extraordinary shareholder meeting should consider the merger with three Talentum shares equalling one Alma Media share.
• Alma Media chief executive Kai Telanne, who last month said a Talentum merger is a "real option" for Alma Media, said in a statement that there are no merger negotiations going on between the firms.

EU Approves News Corp.-Permira Deal to Take NDS Private (Bloomberg)

• The European Union approved a deal by News Corp. and hedge fund Permira Advisers LLP to take pay-TV-technology provider NDS Group Plc private.
• The European Commission, the EU executive in Brussels, announced the approval in a statement today.

 

Sirius Issues Stock for Debt; Accounting Chief Leaves (Bloomberg)

• Sirius XM Radio Inc. plans to issue 108.1 million shares of common stock in exchange for convertible notes, part of the pay-radio company's efforts to reduce debt.
• The satellite radio operator also said Chief Accounting Officer James Rhyu will leave in January to join another company, according to a regulatory filing today.
• Sirius XM, facing about $1 billion in loan repayments next year, has $193.6 million in convertible bonds maturing in February. Last week, shareholders approved a reverse stock split and voted to boost the number of authorized shares to 8 billion from 4.5 billion.
• Adrienne Calderone was named to succeed Rhyu as chief accounting officer. Calderone, 41, has been senior vice president and controller since August 2006 and was principal accounting officer prior to the acquisition of XM Satellite. Sirius didn’t identify the company Rhyu is joining.

ESPN to launch new interactive TV features in 2009 (Reuters)

• ESPN will launch three interactive features in 2009 that will let viewers use remote controls to access scores and statistics from its website and vote in polls while watching ESPN on television, officials told Reuters Monday.
• The cable sports network, owned by Walt Disney Co, has dabbled in interactive TV features in the past through limited programs with several distributors, but it now plans to phase-out those programs and pitch the new system to all of its 800 distributors early next year, said Sean Bratches, ESPN sales and marketing executive.
• The network hopes to deliver a multi-platform mass audience to advertisers, and new connectivity to viewers, through a marriage of its TV programming, data-rich website and mobile offerings, Bratches said.
• "Ultimately, it is our goal to create national ubiquity," Bratches said. "Advertiser interest is very high in what we have done. We have gotten advertisers to partner on all the smaller ones, and now we really want to make an investment."

Newspaper Shuns Web, And Thrives (New York Times)

• With 2008 drawing to a brutal close on the media beat -- bankruptcies, daily newspapers that are no longer daily, magazines that are downsizing into brochures -- a little ray of light appeared in my e-mail inbox. It was from a newspaper owner, of all people.
• Into the teeth of a historic recession, the newspaper had just published the biggest issue in its history. The product is double-digit profitable, and it has been growing at a clip of about 10 percent a year since it was founded in 1999, right about the time the Web was beginning to put its hands around print's neck.
• Finally, I thought, a story about a print organization that has found a way to tame the Web and come up with a digital business approach that could serve as a model. Except that TriCityNews of Monmouth County, N.J., is prospering precisely because it aggressively ignores the Web. Its Web site has a little boilerplate about the product and lists ad rates, but nothing more. (The address is trinews.com, for all the good it will do you.)
• ''Why would I put anything on the Web?'' asked Dan Jacobson, the publisher and owner of the newspaper. ''I don't understand how putting content on the Web would do anything but help destroy our paper. Why should we give our readers any incentive whatsoever to not look at our content along with our advertisements, a large number of which are beautiful and cheap full-page ads?''

Sina to buy Focus Media assets to increase advertising revenues (FT)

• Sina Corporation, China's leading internet news portal, is to buy the core assets of Focus Media, the country's leading digital media company, for more than $1bn in a bold attempt to seek a growth engine for its advertising revenues.
• Under the deal, Sina will gain control of Focus Media's network of outdoor advertising posters and LCD screens in hotels, offices and residential buildings. Focus Media will keep Allyes, its online advertising agency business, some traditional billboards and its cinema advertising business.
• The deal, announced amid fears that China's previously robust advertising revenues could slow down during the global economic downturn, consolidates the country's advertising landscape outside traditional media.

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Detroit Court Changes Rules, Prepares for Big Filing (Bloomberg)

The federal bankruptcy court in Detroit, preparing for large reorganizations including possible filings by General Motors Corp., Chrysler LLC or Ford Motor Co., has changed some of its rules. Efforts to make the jurisdiction more business-friendly may prompt automakers to seek protection in their Michigan home, rather than in the traditional, big-business venues of New York and Delaware. Among the changes the court is making is the ability for the chief judge to choose which bankruptcy judge handles the main case, according to an administrative order signed Dec. 10. The Sixth U.S. Judicial Circuit, which includes Detroit, is “the backyard” of the United Auto Workers union as well as the circuit most protective of health-care benefits promised to retirees, which makes it less likely to attract a bankrupt auto company that would likely seek to terminate those benefits, said Colleen Medill, an employee-benefits law professor at the University of Nebraska. Still, the district's judges are well versed in the auto industry, having handled bankruptcies of auto-parts makers including Collins & Aikman Corp., Intermet Corp. and Plastech Engineered Products Inc. “There is no district in the country that has a greater stake in the outcome of a filing by one of the Big 3 than the Eastern District of Michigan,” said Chief Judge Steven Rhodes, referring to the formal name of his Detroit-based court. The court is reviewing staffing, security and technology functions so as to be ready to handle a case the size of an automaker.

U.S. President George W. Bush said he's “considering all options” for a federal bailout of the auto industry after the Senate rejected a plan last week. GM, based in Detroit, and Chrysler are seeking $14 billion to keep operating through March 31. Chrysler, based in Auburn Hills, is controlled by Cerberus Capital Management LP. Dearborn-based Ford Motor Co. isn’t seeking short-term aid. “We have a plan to make it through the recession and get back to profitability in 2011 and begin repairing the balance sheet,” Ford Chief Executive Officer Alan Mulally said yesterday in a Bloomberg Television interview.

In the past, Michigan-based companies such as auto-parts makers Delphi Corp. and Tower Automotive Inc., now known as TA Delaware Inc., forswore the U.S. Bankruptcy Court in Detroit in favor of Manhattan, which along with the U.S. Bankruptcy Court for the District of Delaware in Wilmington has a reputation as a sophisticated court that handles large bankruptcies quickly, and isn’t afraid to alter or discard union agreements. Those two courts have long drawn the largest bankruptcies and will be the top choices for GM or Chrysler, should they choose to seek court protection, said Lynn LoPucki, who teaches bankruptcy law at Harvard University. Under the reforms implemented in Detroit, whichever judge gets the case may then assign adversary suits and contested matters related to the bankruptcy to other judges to ensure the case runs efficiently, according to the order. In the past, a judge would be selected at random and would likely handle all related matters, slowing reorganization. There is a clear sense among judges around the country that it isn’t fair that so many companies are filing in New York and Wilmington, said a former bankruptcy judge who didn’t want to be identified by name. He cited the recent example of Chicago-based Tribune Co. filing in the Delaware court.

The U.S. Bankruptcy Court in New York, located just a few blocks from Wall Street, draws many of the biggest bankruptcies because it is regarded as business-friendly. “It is sophistication and efficiency” that brings troubled companies there, said Donald Workman, a bankruptcy partner at the law firm Baker Hostetler. It's “their ability to efficiently handle mega, or even mega-mega, cases.” Judges in Manhattan have handled many of the biggest Chapter 11 cases in history, including WorldCom Inc., Enron Corp. and Delta Airlines Inc. On Sept. 15, New York-based Lehman Brothers Holdings Inc. filed the biggest U.S. bankruptcy ever there, with $613 billion in debt. “New York is the most likely venue,” said LoPucki. Delaware, also known as business-friendly, would be a second choice, he said. The Wilmington court is currently overseeing the bankruptcies of SemGroup LP and Washington Mutual Inc. The Delaware bankruptcy court has become the nation's hotspot for large corporate filings, said LoPucki. About 60 percent of Chapter 11 cases involving companies with more than $250 million in assets were filed in Delaware from January 2007 to June of this year, LoPucki said.

One of the biggest liabilities the Detroit court has in attracting the automakers is its proximity to unionized workers who will likely suffer in their collapse. Automakers need to shrink by cutting plants, dealers and employees, said Daniel Kasper, a managing director at the consulting firm LECG. The case law in New York for rejecting union contracts is “usually considered a little more favorable to debtors” than in other districts, Kasper said. “You have judges with a lot of experience in this that are less likely to be swayed by emotional arguments like, ‘We were promised this,’” added Nebraska's Medill. Bankruptcy judges in New York have allowed companies to reject union contracts and impose wage cuts while blocking unionized workers from striking. In October, bankrupt discount carrier Frontier Airlines Inc. won approval from U.S. Bankruptcy Judge Robert Drain to reject a contract with unionized machinists. The union is appealing.

Last year, U.S. Bankruptcy Judge Adlai Hardin in Manhattan blocked pilots at Delta's Comair unit represented by the Air Line Pilots Association from striking over pay reductions. Typically, companies without headquarters in New York put a New York-based unit into Chapter 11 and then file bankruptcy there, saying its other businesses are related cases, LoPucki said. GM's only New York-based subsidiary is a bank that isn’t eligible for Chapter 11 protection, he said. As a result, the automaker would have to set up a New York unit before filing bankruptcy, following the example of Winn-Dixie Stores Inc. GM has hired the law firms Weil, Gotshal & Manges and Dewey & LeBoeuf, both based in midtown Manhattan, to advise on a potential bankruptcy, a person familiar with the matter said. Harvey Miller of Weil Gotshal didn’t return a call seeking comment. Martin Bienenstock of Dewey & LeBoeuf declined to comment. Ford spokesman Mark Truby and spokeswoman Marcey Evans didn’t return calls seeking comment. Chrysler spokeswoman Shawn Morgan declined to comment.

GM rose 12 cents to $4.35 in New York Stock Exchange composite trading. Ford rose 1 cents to $3.14. Medill said an auto company would want to avoid, at all costs, filing in the Sixth U.S. Judicial Circuit, which encompasses the Detroit court as well as the rest of Michigan, Ohio, Kentucky and Tennessee. The court's experience, however, with companies related to the auto industry makes it better qualified to handle the reorganization of a major automaker, said Stephen Gross, a lawyer with McDonald Hopkins LLC in Bloomfield Hills, Michigan. UAW spokesman Roger Kerson didn’t return a call for comment. “The judges here are more inclined to do whatever it takes to keep the company alive,” said Gross, who represents auto- parts company Getrag Transmission Manufacturing LLC that filed for bankruptcy in Detroit. In New York, he said, they run the risk of being “just another big case.”

 

UK to set 'Tough' Conditions to Bail Out Car Makers (Financial Times)

The U.K. government will impose “very tough” conditions on rescue packages it may offer British automakers, to avoid setting precedents for possible bail-outs in other industries, the Financial Times reported, citing unidentified U.K. government representatives familiar with the matter. The U.K.'s Treasury plans to ensure that any credit guarantees or loans offered to auto companies will be provided on similar terms to those commercial lenders would require, the newspaper said. The measures may involve taking the companies’ shares as collateral, the newspaper added.

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FLSmidth to Meet Goals, Slow Purchases, Chief Says (Bloomberg) 

FLSmidth A/S, the Danish provider of mineral-handling equipment, is sticking to profit and revenue targets for 2008 after mining company Anglo American Plc cut its spending forecast by more than half, its chief executive officer said. “We haven’t experienced the kind of problems one might expect, judging from statements that have come from the big mineral companies,” Joergen Huno Rasmussen, CEO of the Copenhagen-based company, said today in a telephone interview. Still, FLSmidth will slow its acquisition strategy in the mineral division as financing becomes harder and global demand wanes, Rasmussen said. Anglo American, the world's fourth- biggest diversified mining company and an FLSmidth customer, today cut planned investment as a rout in metals prices thwarted its $45 billion expansion program. Outotec Oyj, the Finnish company whose flash-smelting equipment is used to produce half the world's copper, today lowered its year-end order backlog forecast. “The business atmosphere has been weak in minerals during the last six months, but we haven’t felt further deterioration during the last four weeks,” Rasmussen said.

The minerals division hasn’t seen any cancellations and only 5 percent of the group's order book has been delayed or suspended, he said repeating a figure from the company's Nov. 19 third-quarter report. Revenue from minerals operations has tripled in two years, helped by acquisitions including the 2007 purchase of a sorting business of Groupe Laperriere & Verreault Inc. for 4.8 billion kroner ($910 million). The unit is catching up with the division that supplies machinery to the cement industry, contributing 40 percent of group sales in the fist nine months of 2008, compared with 25 percent two years earlier. Mining and construction companies will reduce capital spending by 40 percent in 2009 and 2010, amid falling commodity prices, Citigroup Inc. said in an Oct. 27 report. “We’re now protecting our liquidity; we have no plans of larger acquisitions in minerals or in cement,” Rasmussen said, adding the company may still pursue “small acquisitions” worth less than $100 million, if “very attractive and well-fitting opportunities should appear.” FLSmidth will provide profit and sales forecasts for 2009 in its fourth-quarter report due for release Feb. 26, Rasmussen said.

GE's Decision to End Forecast May Ease Lumpy Ride (Bloomberg) 

General Electric Co.'s decision to stop providing per-share forecasts for quarterly and annual profit may be the right step as a global financial crisis batters its shares and limits customers’ plans to place orders. “We’re in a period where it's likely to be lumpy,” said Bill Batcheller, who helps manage $700 million in assets including GE shares at Butler Wick & Co. in Youngstown, Ohio. “Looking quarter-to-quarter probably isn’t the way you want to look at business anyway.” Chief Executive Officer Jeffrey Immelt told investors yesterday the company will instead outline earnings goals focused more on individual units, adding enough detail that analysts can come to their own conclusions about potential per-share results. Giving per-share forecasts “just adds needless volatility,” he told reporters after GE's 2009 outlook meeting in New York. Investors have cut GE's market value by about half since April, when Immelt missed analysts’ quarterly estimate by about 7 cents a share amid turmoil in global markets. GE had never strayed even a full penny from the estimates in the prior 12 quarters, reflecting a tradition that dates to predecessor Jack Welch in the 1990s, according to data compiled by Bloomberg. “There are a lot of companies that have changed the way they communicate,” Immelt told reporters after the presentation. “This is something I’ve been thinking about for a long time. We’re going to give all the transparency, all the access to management. This aligns shareholders more with the way we run the place.”

GE fell 53 cents, or 3 percent, to $17.39 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has declined 53 percent this year. The company's rating was reduced to “sell” from “hold” by Sterne Agee & Leach Inc. analyst Nick Heymann, who cited economic challenges facing all its business units. “In essence, GE's new ‘core’ investor is the retail investor, which is supplanting institutional investors” who want better balance between growth and yield, Heymann wrote in a note to clients today. The analyst has covered the stock for 25 years. Profit at the Fairfield, Connecticut-based company's industrial businesses, which includes NBC-Universal, will rise no more than 5 percent next year, GE said yesterday. That's less than a targeted range of 10 percent to 15 percent given in September. GE Capital, the finance arm, will still have about $5 billion in profit, Immelt said. That's down from about $9 billion this year excluding restructuring costs.

The finance arm contributed about half of profit last year and may shrink to less than 40 percent in 2009. GE is likely to undertake a “supersonic shrink” of its GE Capital division, wrote Heymann, slicing as much as 28 percent of its 75,000 member workforce. The company will continue to disclose segment details like revenue, cash flow, orders and operating profit quarterly. GE joins a minority of large companies that issue no earnings per- share guidance, including Google Inc. and General Motors Corp. Other companies such as United Technologies Corp. and Time Warner Inc. give annual per-share projections, though not quarterly. United Parcel Service Inc. gave only annual guidance for the first time in the third quarter because of the uncertain economy, and hasn’t said whether it will give quarterly or annual forecasts in 2009.

“The move away from quarterly guidance has been a long time coming and should be liberating for businesses,” Nicole Parent, a Credit Suisse analyst in New York, wrote in a note to investors yesterday. She has a “neutral” rating on the stock. “We’ve maintained for a while that it is impossible for a company this large to manage earnings per share within a few cents on a quarterly basis.” The company said it will continue to run the Consumer & Industrial unit, which includes lighting and appliances, instead of spinning it off or selling it as planned earlier this year. GE also will maintain its $1.24 a share dividend next year and sees keeping its highest-available AAA debt rating as “important,” Immelt said. GE has the resources to do both, the executive said. Some analysts including Parent said GE's presentation put more emphasis on its commitment to paying the dividend and less on the credit rating. About 40 percent of GE's shareowners are individual investors, Immelt noted during the presentation. Other analysts, including Deutsche Bank's Nigel Coe, characterized Immelt's comments as “aggressively” defending the AAA rating and the dividend. The pair can co-exist and “remain non-negotiable,” he wrote.

“It is hard to disagree with this point, considering $30 billion of cash on the balance sheet and just $5 billion of required capital injections into GE Capital at this stage,” Coe, who rates the stock “hold,” wrote in a note to investors yesterday. “Clearly, GE is sacrificing its capacity for M&A and share buybacks, but the reality is there aren’t too many industrials investing in these arenas right now.” Cost reductions that include as much as $1.4 billion in this year's fourth quarter will help shave $5 billion of what Immelt called the company's cost base in 2009, Immelt said. GE doesn’t provide aggregate job-loss numbers but there will be fewer employees “for sure,” he said. Next year, analysts are predicting a 21 percent decline in per-share profit from continuing operations to $1.48 a share, the average of 14 estimates in a Bloomberg survey. The estimate fell 3 cents since yesterday's meeting.

GE reiterated its profit forecast of 50 cents to 52 cents for the current quarter. Immelt cut his 2009 backlog forecast by about $20 billion to $170 billion. About 70 percent of the backlog is service-contract related, with margins of about 30 percent, he said. The CEO on Sept. 25 slashed his forecast for 2008 profit for the second time this year to $1.95 to $2.10 a share as the financial crisis deepened. In October, GE raised an additional $3 billion in the sale of preferred shares to investor Warren Buffett's Berkshire Hathaway Inc. and $12.2 billion in common stock. Immelt said he doesn’t “envision any need to do new capital.” Immelt, who took the job on Sept. 7, 2001, began disclosing more details about each unit than previously done under Welch, including starting the practice of holding quarterly conference calls. He has reshaped it by divesting more than $60 billion in assets such as plastics and insurance, while buying into water treatment, wind turbines, media and health care. The company is unlikely to make any large industrial acquisitions, though it will still add smaller purchases to its main business lines, Immelt said.  

Schneider Electric Cut Targets as Crisis Worsens (Bloomberg)

Schneider Electric SA, the world's biggest maker of circuit breakers, cut its targets for 2008, citing weakening demand. The company expects like-for-like sales growth of about 5.5 percent this year, down from its earlier forecast of 8 percent, and operating profit at “close to 15 percent” of sales, down from “at least” 15 percent, according to a statement today. “Business conditions for Schneider Electric decelerated in October but the deterioration was particularly sharp in November,” Chief Executive Officer Jean-Pascal Tricoire said in the statement. “We do not anticipate the trend to improve in December.”

The Rueil-Malmaison-based company, which has been diversifying away from declining construction markets through acquisitions, doesn’t have “enough visibility” to provide targets after 2008, Tricoire was quoted as saying Oct. 25 in an interview with weekly newspaper Investir. The shares have fallen 41 percent this year as demand for light and heavy equipment decreased worldwide. Schneider will implement cost-cutting measures to generate 600 million euros ($859 million) in annual savings by 2011, the company said. It will also cut back on temporary workers and production capacity. Schneider “enjoys a comfortable liquidity position” and will be able to meet its commitments, including a dividend for 2008, the company said in today's statement.  

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Goldman Sachs's First Loss Is Narrower Than Some Analysts Had Estimated (Bloomberg)

Goldman Sachs Group Inc. reported a fourth-quarter loss of  $2.12 billion, its first since going public in 1999, as the  most profitable of Wall Street's biggest firms succumbed to the  global credit crisis. The loss of $4.97 a share in the three  months ended Nov. 28 was smaller than analysts' most  pessimistic estimates, and the shares rose 14 percent. The firm  reported net income of $3.22 billion, or $7.01, in the same  period a year earlier. Chief Executive Officer Lloyd Blankfein,  who led the firm to its lowest annual earnings since 2002, gave  up his bonus after converting Goldman Sachs to a bank-holding  company and accepting $10 billion in bailout funds from the  U.S. government. The firm that set a Wall Street profit record  in 2007 cut 10 percent of its employees as its stock plummeted 69 percent this year and revenue fell by half. ``I think people  are just happy that it's not a disaster,'' said Len Blum, a  managing partner at Westwood Capital LLC, a closely held  investment bank in New York. ``This is the best of the bunch,  and that just shows how weak the expectations are for the  sector.''

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