Monday May 18 Housing and Economic stories

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TOP STORIES:

AIG Reports Much Deeper Loss than Expected - (www.cnbc.com) American International Group reported a quarterly loss that was narrower than last year's shortfall but much deeper than analysts had expected. Shares dropped steeply in late trading. The troubled insurance company, a regular target of criticism related to the U.S. government's economic bailout efforts, said it lost 97 cents a share on an adjusted basis in its fiscal first quarter. In the same period last year, AIG lost $1.41 a share. Analysts who follow the company saw AIG reporting a loss of 6 cents a share, according to an average estimate from Thomson Reuters. The adjusted figure excludes net realized capital losses and FAS 133 losses. FAS 133 relates to accounting for derivative instruments and hedging activities.

AIG Paid Nearly $1.5B in Retention, Performance-Related Bonuses in 2008, More Than Previously Disclosed - (www.latimes.com) Performance-related bonuses are disclosed in answer to Rep. Elijah Cummings (D-Md.), one of AIG's sharpest critics. The insurer received more than $180 billion in federal bailouts. Beleaguered insurer American International Group Inc. said it had set aside and paid in part nearly $1.5 billion in retention and performance-related bonuses to its employees, more than previously disclosed. The payments, $1 billion for retention purposes and more than $454 million that are performance-related, have been made as AIG received more than $180 billion from the federal government. The New York-based company previously said it would pay about $1 billion in bonuses aimed at retaining employees through 2010. But in answers to questions from a lawmaker that were released this week, AIG said it also paid more than $454.7 million in previously undisclosed performance bonuses to employees in 2008. AIG was heavily criticized for awarding $165 million in bonuses in March; the money is included in the $1 billion in retention bonuses. Employees returned some of the money. AIG told Rep. Elijah Cummings (D-Md.) that the performance bonuses were paid out by operating units, across its operations in some 120 countries. Cummings has been one of AIG's sharpest critics. The payments, on average, ranged from $4,994, to employees of its financial services business, to $51,026, for employees in the company's asset management group.

L.A. Unified pays teachers not to teach - (www.latimes.com) About 160 instructors and others get salaries for doing nothing while their job fitness is reviewed. They collect roughly $10 million a year, even as layoffs are considered because of a budget gap. For seven years, the Los Angeles Unified School District has paid Matthew Kim a teaching salary of up to $68,000 per year, plus benefits. His job is to do nothing. Every school day, Kim's shift begins at 7:50 a.m., with 30 minutes for lunch, and ends when the bell at his old campus rings at 3:20 p.m. He is to take off all breaks, school vacations and holidays, per a district agreement with the teacher's union. At no time is he to be given any work by the district or show up at school. He has never missed a paycheck. In the jargon of the school district, Kim is being "housed" while his fitness to teach is under review. A special education teacher, he was removed from Grant High School in Van Nuys and assigned to a district office in 2002 after the school board voted to fire him for allegedly harassing teenage students and colleagues. In the meantime, the district has spent more than $2 million on him in salary and legal costs. Last week, Kim was ordered to continue this daily routine at home. District officials said the offices for "housed" employees were becoming too crowded. About 160 teachers and other staff sit idly in buildings scattered around the sprawling district, waiting for allegations of misconduct to be resolved. The housed are accused, among other things, of sexual contact with students, harassment, theft or drug possession. Nearly all are being paid. All told, they collect about $10 million in salaries per year -- even as the district is contemplating widespread layoffs of teachers because of a financial shortfall. Most cases take months to adjudicate, but some take years.

Summers, Geithner Are Silent as IMF Loses Grip: William Pesek - (www.bloomberg.com) The International Monetary Fund’s 1997 meeting has a special place in the hearts of many journalists. There we were in Hong Kong, Asia’s economies crashing around us, watching George Soros duke it out with Malaysia’s prime minister. The billionaire described Mahathir Mohamad as a “menace to his own economy.” Mahathir labeled Soros, one of the speculators blamed for attacking Malaysia, a “moron.” That brawl comes to mind as another big story out of the event comes full-circle. It involves an Asia-only bailout fund, Lawrence Summers and Timothy Geithner. Its implications will travel far and wide in the fastest-growing economic region. The “Asian Monetary Fund,” so passionately derided by Summers and Geithner at the time, is back. There is little a crisis-plagued U.S. can do to stop Asia’s $120 billion foreign- exchange reserve pool. Its creation is the clearest sign yet that Asia is getting serious about combating the global crisis. Done right, it will bode well for the region’s outlook. There is still a role for Soros and Mahathir in this story more than a decade later, and I’ll get back to them shortly. In September 1997, Summers was deputy U.S. Treasury secretary and Geithner was just being sworn in as assistant secretary for international affairs. Today, they are director of the White House National Economic Council and Treasury secretary, respectively. Back then, Summers, Geithner and their boss, Robert Rubin, objected to Asia having a bailout fund.

IMF calls for Asia to 'flood' banking system, cut interest rates - (www.marketwatch.com) Report marks drastic about-face from earlier advice during the last crisis. Asia Pacific nations should flood their banking systems with liquidity and actively support credit growth using unconventional monetary policy and accommodative fiscal policy, the International Monetary Fund said Wednesday. The global financial body urged the measures as part of a "forceful" strategy to last through next year in efforts to counter the effects of the global crisis. The IMF also called for a refocusing upon domestic demand and away from exports as a source of economic growth, noting that consumption in the key export destinations of the U.S. and Europe could remain weak for years to come. The measures, it said, were needed to counter an "astonishing" economic contraction in the poorest nations in the region, excluding China and India, in which gross domestic product fell a seasonally adjusted 15% during the fourth quarter. The IMF made the recommendations in its Regional Economic Outlook, released Wednesday in Singapore. "The spillovers from the global crisis have impacted Asia with unexpected speed and force," the report said. "The downswing has been even larger than in other regions, and sharper than at the epicenter of the global crisis." Eating their words: The recommendations are a radical departure from the fiscal austerity measures that the IMF demanded as part of bailout packages during the 1997-98 collapse in the region's currency and asset markets. At that time, nations accessing the IMF's $40 billion in bailout funding were required to cut back on government spending to reduce deficits, allow insolvent banks to fail and aggressively raise interest rates.

Spain Output Falls by Record; Bankruptcies Quadruple - (www.bloomberg.com) Spain’s industrial production shrank by 25 percent and bankruptcies almost quadrupled, as the global recession ravaged the economy and put it on course for its worst slump in 60 years. The 24.7 percent annual decline in output at factories, refineries and mines in March was greater than expected and follows a drop of 22.5 percent the previous month, adjusting for the number of days worked, the Madrid-based National Statistics Institute said today. The number of companies in bankruptcy proceedings increased to 1,358 in the first quarter from 359 a year earlier, a separate report showed. Spain’s economy, which helped drive European growth for more than a decade, is struggling to pull out of a downward spiral. The European Commission forecasts the economy will shrink 3.2 percent this year and another 1 percent in 2010, pushing the unemployment rate to 20.5 percent. Industry has contracted more sharply in Spain than in France or Germany as its economy has also been hit by the collapse of a construction boom. “This has gone on a lot longer than a lot of people expected,” said Ben May, economist at Capital Economics in London. “There is much further to go in terms of the labor market downturn.”

Almost One-Quarter of U.S. Homeowners Underwater as Values Sink - (www.bloomberg.com) A growing number of U.S. homeowners owe more than their properties are worth after prices extended their two-year decline in the first quarter, Zillow.com said. About 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier. Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The decline has left about 20.4 million of the U.S.’s 93 million houses, condos and co-ops with loans higher than the properties are worth. The gain in underwater homeowners will lead to more bank repossessions, Zillow said. Many owners “would be more willing to bear the financial consequences of bankruptcy or foreclosure,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “You are going to continue to see home prices fall for the rest of this year and some portion of next year.” The recession cut home values by $2.4 trillion last year, First American CoreLogic said in a March 4 report. More than 8.3 million U.S. mortgage holders owed more than their properties were worth and an additional 2.2 million borrowers will be underwater if prices decline another 5 percent, the Santa Ana, California-based seller of mortgage and economic data, said in the report.

PetroChina Needs as Much as $22 Billion in Financing - (www.bloomberg.com) PetroChina Co., the world’s second- largest company by market value, said it may need as much as 150 billion yuan ($22 billion) in funds this year to boost cash flow and maintain its capital expenditure and dividend payout. The company raised 50 billion yuan through bank borrowings and a bond issue in the first quarter, and will seek approval for the remaining 100 billion yuan at a shareholder meeting this month, spokesman Mao Zefeng said in Hong Kong today. Free cash flow fell 76.9 billion yuan in 2008 because of taxes and investments, the company said in a statement earlier. PetroChina plans to spend 233 billion yuan this year to acquire and upgrade assets including oil fields as China’s government encourages its companies to take advantage of low commodity prices to expand reserves. The company is building a 142 billion yuan pipeline from northwestern Xinjiang province to Guangdong in the south and may pay as much as $1.4 billion for a stake in a Kazakhstan oil company.

Freddie Pressured Over Accounting Disclosure - (www.washingtonpost.com) When Freddie Mac privately suggested to regulators last month how it planned to account for its mounting losses, the mortgage giant set off a firestorm. Freddie Mac's regulator pressed the company to withhold information related to the proposal from a federal filing, concerned that this seemingly arcane discussion of accounting practices could add billions of dollars to the government's cost of bailing out financial firms, two people familiar with the matter said. But the company's executives refused, the sources said. They worried that removing the information from the report to the Securities and Exchange Commission could expose them to accusations they'd hid required details from regulators. The dispute between the mortgage giant and the Federal Housing Finance Agency was the latest since the federal government took over McLean-based Freddie Mac and its larger sister, District-based Fannie Mae, in September, enlisting the companies in the campaign to revive the housing market and pledging to cover their losses. The transition has proven awkward for companies that are still, in part, privately owned by investors.

Crunch Fitness Files for Bankruptcy in New York - (www.bloomberg.com) Crunch Fitness, a gym operator with 73,000 members and clubs in six U.S. cities, filed for bankruptcy protection from creditors in New York, citing slowing membership and overpriced leases for some locations. The petition for Chapter 11 protection filed in Manhattan today listed $102.4 million in both assets and debts, according to a March 31 balance sheet. The company has asked the court for more time to file a final list of assets and debts, citing “limited resources” to evaluate its books. AGT Crunch Acquisition LLC filed for court protection, along with affiliate clubs in New York, Miami, Chicago, Los Angeles, Atlanta and San Francisco. Crunch seeks to sell its assets through an auction under court protection, to New Evolution Fitness Company, formed by CH Fitness, a joint venture of entities formed by New York-based fund manager Angelo, Gordon & Co., and a private equity fund called NEFC Crunch, according to court filings. The sale “will allow Crunch to emerge as a strong player focused on what we have become famous for: being the place where entertainment meets fitness,” said Tim Miller, CEO of Crunch in a press release. Mark Mastrov, founder of California-based New Evolution, will become chairman of the new company’s board, according to the statement.




OTHER STORIES:

Stress Tests: Ten Banks Need to Raise $74.6 Billion in Capital - (www.cnbc.com) US regulators told 10 of the top 19 banks to raise a total of $74.6 billion in capital over the next six months to cushion against any worsening of the deepest recession in decades.
After Stress Tests: Investors Look for Winners and Losers - (www.cnbc.com) While few expect banks to lead the market, reaction to the stress test results could signal where stocks are headed next.
Stress-Test Leaks Suggest Big Bank Bailouts May Be Over - (www.nytimes.com)
Geithner Says Banks’ Stress-Test Results Will Be ‘Reassuring’ - (www.bloomberg.com)
Big banks need capital under stress tests - (www.reuters.com)
Fed Seeks End to Wall Street Lock Over OTC Derivatives Market - (www.bloomberg.com)
U.S. May Set a Debt Test for Banks - (www.nytimes.com)
China Central Bank Pledges Ample Liquidity to Support Recovery - (www.bloomberg.com)
ADP Says U.S. Companies Reduced Payrolls by 491,000 - (www.bloomberg.com)
Layoffs, still elevated, drop to 6-month low in April - (www.marketwatch.com)

Rich Americans Default on Luxury Homes Like Subprime Victims - (www.bloomberg.com)
Mortgage applications climb in latest week - (www.marketwatch.com)
Partially completed SoCal housing tract demolished - (finance.yahoo.com)
Bank of America, Citigroup, GMAC Need More Capital - (www.bloomberg.com)
Wells Fargo Said to Need $15 Billion in New Capital After Test - (www.bloomberg.com)
Bank of America May Need About $34 Billion of Capital - (www.bloomberg.com)
Pressure mounts on BofA and Citi - (www.ft.com)
Banks returning bailouts will face conditions - (news.yahoo.com/s/ap)
Central banks must target more than just inflation - (www.ft.com)

Stress Tests: 'This Whole Process Has Been a Fiasco' - (www.cnbc.com)
Crude Oil, Marching Higher Or About To Tumble? - (www.cnbc.com)
Kneale: Spitzer Should Crawl Back Under His Rock - (www.cnbc.com)