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U.S. Stocks Open Steady After Jobless Claims Report

March 31, 2011 by Leave a Comment

The decline to 388,000 in claims for unemployment benefits last week was less than expected, but the drop still signaled improvement in the labor market.

The data also followed an encouraging ADP report on private-sector jobs and precedes Friday’s employment report from the government.

“Claims are going in the right direction, and that gives us hope that we’ll see a good employment number tomorrow,” said Jerry Harris, president of asset management at Sterne Agee in Birmingham, Ala.

The week has been marked by some of the year’s lowest volumes as traders opt to ride the quarter’s gainers amid global risks. The SP 500 is up 5.6 percent for the quarter, based on Wednesday’s close.

“Today will be quiet as people have already established their positions in preparation for a report that is expected to be positive tomorrow,” Harris said.

The Dow Jones industrial average was up 4.84 points, or 0.04 percent, at 12,355.45. The Standard Poor’s 500-stock Index was down 0.75 point, or 0.06 percent, at 1,327.51. The Nasdaq Composite Index was up 0.98 point, or 0.04 percent, at 2,777.77.

The Institute for Supply Management-Chicago said its index of Midwest business activity fell in March to 70.6 from 71.2 in February. The data was near economists’ expectations and stocks reacted little.

David Sokol, the man widely seen as the leading successor to Warren Buffett to head up Berkshire Hathaway, has resigned after buying shares in chemical company Lubrizol before pushing Buffett to acquire it.

In an interview on CNBC, Mr. Sokol said he did nothing wrong in buying the shares.

Berkshire’s Class B shares fell 1.8 percent to $83.90.

The Macau unit of Las Vegas Sands said it is being investigated by the Hong Kong Securities and Futures Commission for alleged regulatory violations. Shares fell 4.9 percent to $41.41.

Article source: http://www.nytimes.com/2011/04/01/business/01markets.html?partner=rss&emc=rss

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Uneven Nature of Recovery Highlighted in Europe

March 31, 2011 by Leave a Comment

PARIS — The uneven nature of the European recovery was underlined by data released Thursday, which showed prices rising and weak consumption across the euro zone. Portugal’s budget situation worsened even as the economic picture in France and Germany improved.

Officials in Portugal blamed the higher-than-expected deficit figure for 2010 on changes in accounting rules. But coming on the heels of a government collapse and two downgrades, investors sent yields on its 10-year bonds soaring to a new euro-era high, raising the pressure as the country struggles to avoid having to ask for a financial rescue.

Portugal’s woes are worsened by a weak economy and rising prices.

For the entire euro area, the European Union’s statistics agency reported that annual inflation rose to 2.6 percent in March from 2.4 percent in February, according to an initial estimate.

Analysts said higher oil and food prices remained the main factors behind the rise. But they added that the tightening labor market in countries such as Germany, as well as potential price increases by companies facing higher commodity costs, are likely to push up core inflation over the coming months. Core inflation excludes the more volatile energy and food categories.

The Federal Labor Agency in Germany reported that the largest economy in Europe continued to add jobs in March. German unemployment dropped by a seasonally adjusted 55,000 for the month, bringing the jobless rate down to 7.1 percent, from 7.3 percent in February. It was the lowest unemployment rate since the country’s reunification in 1990, according to economists.

At the same time, a separate report from the Federal Statistical Office showed that German retail sales fell by 0.3 percent in February from January, when they had risen 0.4 percent.

Carsten Brzeski, at analyst at ING in Brussels, said the data “again illustrated the German economy’s main dilemma: While the labor market remains the show case of the recovery, private consumption is still sluggish.”

The strong job market is only gradually lifting consumption because many of the jobs created pay low wages, while higher energy prices have dampened spending, he said.

The latest data have solidified expectations that the European Central Bank next week will raise borrowing costs for the euro area, given that inflation is riding well above its comfort zone of just below 2 percent. Analysts at Barclays Capital said there is also a growing expectation such an increase might be repeated.

Chiara Corsa, an economist at UniCredit Bank in Milan, said euro-zone inflation was likely to pick up throughout the summer, before starting to decline at the turn of the year. UniCredit expects an average 2.6 percent in 2011 and 2 percent next year.

In Lisbon, the national statistical office said that Portugal’s budget deficit last year was 8.6 percent of G.D.P., well above the target of 7.3 percent. The finance minister Fernando Texeira dos Santos said that the difference was due to new E.U. accounting rules, and not as a result of unreported items, Reuters reported.

He said the impact on public accounts would be limited to 2010 and that the 2011 budget goal would not be at risk. He also said the caretaker government would have enough funds to meet obligations until a new government takes office.

Yields on Portuguese government bonds pushed to fresh records as investors bet on a near-term bailout. The benchmark 10-year issue rose 21 basis points to 8.1 percent, while the 2-year note climbed 53 basis points to stand at 8.2 percent, showing that the same high returns are now being demanded for holding Portuguese paper of all maturities. Spanish and Irish yields also climbed.

By contrast, the French statistics agency reported Thursday that the country registered a narrower budget deficit of 7 percent of gross domestic product last year, from 7.5 percent in 2009 and was under the government’s own target, which had initially stood at 8.5 percent.

Germany had a budget shortfall of 3.3 percent of G.D.P. last year, the according to data released last month.

Nevertheless, President Nicolas Sarkozy, currently in Asia, was quick to claim credit for the better than expected performance in France, which is likely to feature as a key theme in next year’s presidential election.

His office issued a statement saying that the data confirmed the effectiveness of government’s strategy based on economic reforms and strict spending control, “while refusing a general increase in taxes, which would prejudice growth and competitiveness.”

The ratings agency Fitch displayed less optimism for the region as a whole. It lowered its economic forecasts Thursday, “reflecting the persistent drag from fiscal consolidation, as well as lower consumption and tighter monetary policy in the context of higher oil prices.”

Fitch reduced its euro area G.D.P. forecast by 0.4 percentage point to 1.2 percent for this year, and by 0.3 percentage point to 1.8 percent for 2012.

Article source: http://www.nytimes.com/2011/04/01/business/global/01euecon.html?partner=rss&emc=rss

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DealBook: Galleon Jurors Hear Tape Discussing Call of Goldman Director

March 31, 2011 by Leave a Comment

Rajat K. Gupta, a former director of Goldman Sachs.Seokyong Lee/Bloomberg News Rajat K. Gupta, a former director of Goldman Sachs.

8:04 p.m. | Updated

In October 2008, with the global economy hemorrhaging and his hedge fund struggling, Raj Rajaratnam sounded calm during a lunchtime call with a colleague in Singapore.

“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” said Mr. Rajaratnam. “The Street has them making $2.50.”

The government played that secretly recorded telephone call on Wednesday during the trial of Mr. Rajaratnam, the co-founder of the hedge fund Galleon Group, who faces up to 25 years in prison if convicted on charges that he earned millions of dollars from insider trading.

The secretly recorded conversation came a day after Goldman held a board meeting informing directors that the bank was on track to report its first quarterly loss as a public company.


The Galleon networkAzam Ahmed and Guilbert Gates/The New York Times Click on the above graphic to get a visual overview of the Galleon information network.

The government says that Rajat K. Gupta, then a Goldman director, called Mr. Rajaratnam after the meeting and passed on the confidential information, allowing Mr. Rajaratnam to sell his Goldman position and avoid losses before its earnings announcement.

Federal prosecutors have named Mr. Gupta a co-conspirator of Mr. Rajaratnam but have not charged him criminally.

The Securities and Exchange Commission has filed a civil proceeding against Mr. Gupta accusing him of tipping Mr. Rajaratnam. Mr. Gupta’s lawyer has said his client had not done anything wrong.

When Mr. Rajaratnam told David Lau, his Singapore colleague, about Goldman’s poor performance, Mr. Lau seemed surprised.

“Really,” he said.

“So what he was telling me was that uh, Goldman, the quarter’s pretty bad. They have zero revenues because their trading revenues are offset by asset losses, and to date they have lost $2 per share,” Mr. Rajaratnam said. “I don’t think that’s built into Goldman Sachs stock price.”

The accusations against Mr. Gupta are being closely followed on Wall Street. Mr. Gupta, who ran McKinsey Company, the prestigious management consulting firm, was among the world’s most influential business executives.

Last week, Lloyd C. Blankfein, the chief executive of Goldman, took the witness stand at the trial and told the jury that it would be a breach of confidentiality for Mr. Gupta to divulge board discussions.

The Goldman call emerged during the testimony of Adam Smith, a former portfolio manager at the Galleon Group. Mr. Smith pleaded guilty to insider trading at Galleon and is testifying against his former boss as part of his cooperation agreement with the government.

During Mr. Smith’s cross-examination, Mr. Rajaratnam’s lawyers accused Mr. Smith of fabricating his illegal conduct at Galleon in order to secure a lesser sentence by helping them get “the big fish” — Mr. Rajaratnam. Mr. Smith testified that the government had caught him on a wiretap trading on inside information last year, after Galleon’s dissolution and while managing a different fund.

Defense lawyers also played a wiretapped call between Mr. Smith and Ian Horowitz, a former Galleon trader. During the call, made at the F.B.I.’s direction after Mr. Smith’s guilty plea, Mr. Smith tried unsuccessfully to gather more insider-trading evidence from Mr. Horowitz.

Mr. Smith, who testified that the F.B.I. had instructed him to lie in order to elicit incriminating information, said on the call that he believed Galleon’s trading was legitimate.

“You want the jury to believe you were lying then, but telling the truth now?” asked Terence J. Lynam, a lawyer for Mr. Rajaratnam.

“Yes,” Mr. Smith replied.

Sept. 24, 2008 transcript (U.S. vs. Rajaratnam)

Oct. 24, 2008 transcript (U.S. vs. Rajaratnam)

Article source: http://feeds.nytimes.com/click.phdo?i=023d7cdf21ac8ff6ea95ea389ed31ca3

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In Foreclosure Settlement Talks With Banks, Predictions of a Long Process

March 31, 2011 by Leave a Comment

The nation’s top mortgage servicers met Wednesday in Washington with the attorneys general from five states as well as Obama administration officials, beginning negotiations in earnest over new rules for homeowners who are in default.

The one thing everyone seemed to agree on was that an agreement was going to take time.

“We have a long way to go,” Iowa Attorney General Tom Miller, who is leading the effort from the states’ side, said after the afternoon session broke up.

“Obviously this is a very large set of issues, and it’s going to take some time to work through,” Thomas J. Perrelli, associate United States attorney general, said.

The quest to secure new foreclosure rules, which began last fall after the banks were shown to be breaking the rules as they pursued evictions, may be slow but it is playing out in public. When the effort was started, every attorney general signed on, but the coalition has begun to fracture.

Several Republican attorney generals are accusing their colleagues of overreaching in their attempt to bring the banks under control, while at least one Democrat, Eric T. Schneiderman, the New York attorney general, has expressed concern that any deal would immunize the banks from future legal action.

After Wednesday’s meeting, Mr. Schneiderman said through a spokesman that he remained worried about “providing broad amnesty to servicers.”

The banks at the meeting were Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and GMAC. A spokeswoman for GMAC, which is partly owned by taxpayers as a result of failing during the recession, called the session “productive and useful” but added it was “an extremely complex topic.” The other banks declined to comment.

Lengthy negotiations work to the banks’ advantage, critics say.

“The banks’ strategy is to run the clock,” a Georgetown University law professor, Adam Levitin, said. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”

The government negotiators may receive some support from the imminent release of a report by banking regulators. The report, based on investigations conducted over the winter, is expected to establish what many households in default knew long ago: that banks cared little for the legal niceties governing foreclosure, exacerbating the troubles of millions at a particularly vulnerable point of their lives.

In addition, the report is expected to show that bank employees were poorly trained, that they let law firms and other third party contractors run wild, and that they had little interest in keeping people in their houses.

Lenders say they have fixed these problems, and that few if any homeowners were evicted who did not deserve it. But as recently as a few weeks ago, a major bank, HSBC, which is based in London, was forced to suspend foreclosures when regulators found a number of deficiencies.

Enforcement action is expected to follow the release of the report by the Federal Reserve, the Office of the Comptroller of the Currency and other banking regulators. Those fines and penalties would be separate from any monetary settlement that results from talks with the state attorneys general.

The banking regulators were not present at Wednesday’s all-day meeting.

About two million households are in foreclosure, and another two million are in severe default. Data released this week by an analytics firm, LPS Applied Analytics, showed that banks were making some progress with modifications but that foreclosure was becoming, for better or worse, a permanent state for many families.

The government proposals require homeowners in foreclosure to be treated on an individual basis and would put in place a variety of measures that would encourage banks to modify mortgages rather than evict.

“I’m really hopeful something comes out of this,” said Jay Speer of the Virginia Poverty Law Center. “It’s starting to look like the last chance for real reform. The Virginia legislature still has this amazing allegiance to the big banks.”

If the negotiations are being conducted behind the scenes, the banks and their supporters are openly waging a battle for popular sentiment. The banks are presenting themselves as champions of those homeowners who might be hostile to the idea of someone in default getting an undeserved break.

Banks say cutting the mortgage debt of foreclosed families into something more bearable creates issues of moral hazard — that people will default to get a better deal.

Even as JPMorgan Chase representatives were meeting with the task force, the bank’s chief executive, Jamie Dimon, was rejecting the idea of writing down delinquent balances.

“Yeah, that’s off the table,” Mr. Dimon told reporters after a United States Chamber of Commerce forum in Washington.

His comments echoed previous remarks by other bankers, including the Wells Fargo chief executive John G. Stumpf, who said “it makes no sense” to entice people not to pay their debts.

Four Republican attorneys general wrote a letter last week to Mr. Miller of Iowa, expressing concern with the “scope, regulatory nature and unintended consequences,” of the settlement proposals, particularly with the question of principal reductions. The attorney general of Virginia, Kenneth T. Cuccinelli, one of the signatories, was invited to Wednesday’s session to allay his concerns.

Critics of the banks say the entire issue is a red herring, and that principal writedowns are not such a gift that people would default to get them.

“Moral hazard is being invoked by the banks and their defenders as an excuse to do nothing, rather than out of any real concern for fairness,” Mr. Levitin said.

Article source: http://feeds.nytimes.com/click.phdo?i=3fe09686fd0c31a457fc92f4fa5fbec6

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Because of Japan’s Problems, Auto Dealers See Trouble Ahead in Meeting Demand

March 31, 2011 by Leave a Comment

At this point, most dealers in the United States say they have enough inventory to meet their needs, even though many Japanese parts and auto plants have been closed since the March 11 earthquake and tsunami, cutting output by at least 400,000 vehicles.

“As it stands right now, you can still go to any dealership and get any model you want,” Ivan Drury, an analyst with Edmunds.com, which provides car-buying information to consumers, said on Wednesday.

Still, the question for dealers is what happens next.

Robert Shrader, the general manager of Jim Coleman Infiniti in Bethesda, Md., said: “Every day things change, but we anticipate there is going to be some disruption.”

Infiniti, Nissan’s luxury brand, gets its full lineup from Japanese plants. The tsunami destroyed around 1,300 Infiniti vehicles that were awaiting shipment from a Japanese port to the East Coast

“What we have right now will probably hold us over for about 60 to 90 days,” said Mr. Shrader, who is still receiving regular deliveries. “The concern would be the summer.”

In March, new-vehicle sales increased at least 15 percent, according to several analysts’ forecasts; automakers are scheduled to report their results on Friday.

Mr. Drury said gasoline prices, which were rising quickly before the earthquake but have largely leveled off since, pushed many consumers last month toward smaller, fuel-efficient vehicles, many of which are imported from Japan, including its Prius hybrid.

While Toyota restarted production of the Prius and other hybrids in Japan on a limited basis this week, most of its plants remain closed or are making only parts. The plant that makes the Toyota Yaris, a subcompact sold in the United States, is expected to be down at least until late April, the trade publication Automotive News reported.

As a result, Toyota has told dealers in North America to stop ordering 233 different parts — out of a possible 300,000 — unless they are needed for a specific customer’s vehicle.

Honda and Subaru have begun slowing their North American assembly lines because they are running low on Japanese-made parts. The Ford Motor Company and the Chrysler Group are building fewer vehicles in some paint colors because a Japanese-made pigment is expected to be unavailable for another month or more.

Nissan said on Wednesday that it expected to resume normal operations at all but one of its Japanese plants by mid-April. The sole exception makes V-6 engines for several other plants and is expected to be fully repaired by the end of April, Nissan said in a statement.

Company executives are expected to decide in the next few days whether to begin shipping engines to Japan from a plant in Tennessee to make up for disruptions there. While Nissan has resumed building many vehicles in Japan, it said that it planned to shut its plants again all of next week.

The research firm IHS Automotive said that 13 percent of global automotive production was down last week and predicted that up to a third of the industry’s production capacity could ultimately be affected by the disaster.

Paul Newton, an IHS analyst, said in a report issued on Wednesday that automakers worldwide are in “a highly fluid and opaque situation, which will likely worsen significantly before improving.”

Many vehicles built in the United States and other countries use at least some Japanese parts, or else their parts makers rely on some chemicals or other products from Japan.

Shoppers could soon start seeing fewer Ford vehicles in “tuxedo black” and three shades of red, and Chrysler is restricting orders in 10 different colors made with the metallic pigment Xirallic from the German chemical company Merck. The shortage affects five of the eight colors in which the Chrysler 300 is sold and four of the seven colors for the Dodge Charger and Challenger, for instance.

Honda, which had already told its North American dealers that it would delay taking May orders for Japanese-made vehicles until it had more definitive information about availability, on Wednesday began shortening shifts at plants in the United States and Canada.

A Honda spokesman, Edward K. Miller, said the plants would remain open but operate for fewer hours each day so that parts supplies would last longer.

“The overwhelming majority of parts come from the U.S., but we are dependent on some Japanese parts,” Mr. Miller said. “It’s a global business and more efficient that way, but the magnitude of what happened in Japan was unforeseen.”

Article source: http://feeds.nytimes.com/click.phdo?i=38a7b017d9b7c6721c58b77542bb72e2

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Justices Hear Arguments in Generic-Drug Lawsuit

March 31, 2011 by Leave a Comment

On Wednesday, the justices heard arguments in a follow-up case that presented an interesting wrinkle: May the makers of generic drugs, whose products must use the same warning labels as the corresponding brand-name drugs and who cannot alter those labels, also be sued for failing to warn users about the risks posed by their products?

The answer to the question will have enormous financial consequences, said Jay P. Lefkowitz, a lawyer for the drug companies. “This would totally change the way generics do business,” he said of a ruling against his clients.

The three consolidated cases the court heard on Wednesday, including Pliva Inc. v. Mensing, No. 09-993, were brought by women who took the generic equivalent of Reglan for stomach ailments and developed a serious neurological disorder. Appeals courts ruled against the drug makers, saying that the federal regulatory regime did not block claims under state law.

Mr. Lefkowitz said the rulings put his clients in an impossible position.

“Generics can’t simultaneously comply with a federal duty to be the same and a state duty to be different,” he said.

He said the makers of generic drugs are in a fundamentally different business from the companies that created the original medications.

“Brand companies do safety and efficacy testing; generics do sameness testing,” Mr. Lefkowitz said. “Generics are required to make copies of the drugs and by definition make copies of the labels, because it wouldn’t make any sense to go into a drugstore to buy Advil and to see 15 different generic ibuprofen and to have 15 different sets of warnings.”

Justice Antonin Scalia echoed that point, likening the makers of generic drugs to “this guy who graduated from high school.”

“He doesn’t know anything about science,” Justice Scalia said. “He knows how to replicate this pill exactly. That’s all he really knows.”

But a lawyer for the plaintiffs, Louis M. Bograd, said that it would be odd to hold the two kinds of companies to different standards.

“The position that the generics are proposing here is one in which they would be immune from liability for selling a product with inadequate warnings,” he said, “even though the name-brand company selling the same drug with the same warnings would be liable.”

Mr. Bograd added that 70 percent of prescriptions were filled with generic drugs and that a third of generic drugs had no brand-name competitors.

“If generics are not responsible,” he said, “in many of these cases no one is responsible.”

Several justices said makers of generic drugs could take steps short of changing their labels, including urging the F.D.A to take action.

“You could propose a revision of the label, and if you did that, then you would be home free,” Justice Ruth Bader Ginsburg told Mr. Lefkowitz. “You would not be subject to the state suit.”

But Justice Samuel A. Alito Jr. seemed skeptical of lawsuits based on what he called “a duty to lobby the F.D.A.”

Justice Sonia Sotomayor said she doubted that Congress had intended a two-track system.

“Do you think Congress really intended to create a market in which consumers can only sue brand-named products?” she asked Mr. Lefkowitz. “Because if that’s the case, why would anybody ever take” a generic medicine?

Later in the arguments, Justice Alito proposed an answer to that question.

“I don’t know whether this is a good idea or not,” he said of allowing state suits, “but it does seem to me that it may significantly increase the costs for generic drug manufacturers, and therefore counteract one of the objectives of the statute, which was to provide generic drugs at a low cost.”

Article source: http://feeds.nytimes.com/click.phdo?i=37cbaa66e7ac20b889d75f36164ed8d0

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Treasury Now Sees Profit From Bailouts

March 31, 2011 by Leave a Comment

When it comes to calculating the bill for the government’s bailout of banks, insurers, automakers and the ailing housing market, the numbers have been all over the map.

But on Wednesday, Treasury officials laid claim to an eventual $23.6 billion gain for taxpayers on the entire rescue program, despite doubts from skeptics about just how Washington crunched the numbers.

Indeed, as late as Tuesday afternoon, accountants from Treasury and the Office of Management and Budget were at odds over how to calculate the gains the government made on once-troubled mortgage securities it acquired at the height of the financial crisis in 2008.

As a result, on Tuesday morning the Treasury estimated it would show a $100 billion profit but by late Tuesday that had been reduced to nearly $24 billion.

Even that is debatable, however, according to lawmakers like Representative Patrick T. McHenry, Republican of North Carolina, who is chairman of the House oversight committee’s bailout panel.

“The estimates have been consistently off and Treasury has consistently changed the metric for success,” Mr. McHenry said in an interview on Wednesday. “In the beginning, they weren’t touting payback — they touted effectiveness. Now, they are touting payback but ignoring the moral hazard this program has created.”

Treasury officials say they are actually being conservative in their profit projections. But even if that roughly $24 billion estimate proves too optimistic, the trend still represents a major turnabout from the river of red ink critics predicted. The administration itself projected a $100 billion loss only a year ago.

Why did the numbers move so wildly? For starters, asset prices improved as the economy rebounded. But some of the gains remain on paper, and profits that haven’t been booked have to be continually adjusted to reflect price swings in the market. Then there are the vagaries of government accounting, like how to properly value complex mortgage securities.

What is more, the government’s financial rescue remains a political hot potato, drawing criticism from the left and the right, but Obama administration officials are naturally eager to portray it as a success, especially with a budget deficit of $1.5 trillion expected in 2011.

“There is no historical precedent for a financial rescue this effective,” the Treasury secretary, Timothy F. Geithner, said in an interview Tuesday. “We are performing better than all expectations and ahead of the other countries caught up in the crisis.”

At a House Oversight subcommittee hearing on Wednesday, Treasury officials once again sparred with a government watchdog over the success of the financial rescue. In his testimony, Neil M. Barofsky, the special inspector general overseeing the bailout program, greeted the lower cost estimates as “good news,” but warned that the“most significant legacy may be the exacerbation of the problems posed by ‘too big to fail,’ particularly given the manner in which Treasury executed the bailout.”

On Wednesday, the Treasury said that KeyCorp and SunTrust Banks repaid their bailout funds, helping the government claim a $6 billion profit on the bailout program for banks. The Treasury projects it will receive another $14 billion as hundreds of smaller banks repay their bailout funds.

The Treasury is also claiming it will make a $12 billion profit when it winds down its 92 percent ownership stake in the American International Group later this year, although for now that is only on paper. It also assumes that large stake can be sold at current prices, even though unloading such a big position could depress its value.

Those gains could also disappear if several big losses materialize. The Treasury projects the bailouts of General Motors, Chrysler and Ally Financial could cost it about $15 billion, while losses from the government’s beleaguered mortgage modification programs, like HAMP, could wind up reaching $46 billion. (With only about $1 billion of HAMP funds disbursed so far, bailout watchers say the actual loses could be sharply lower.)

Still, the TARP bailout was only one part of the government’s rescue. Counting other federal aid programs allows the administration to radically reduce its overall cost of the effort.

As part of its analysis, the Treasury included in its profit estimates about $1.2 billion from fees it collected from federal guarantees on money market mutual funds during the crisis. It also included realized gains of $22.5 billion from a series of Federal Reserve emergency aid programs designed to get credit flowing again.

But the bulk of its gains come from a bounce-back in the value of more than $1.6 trillion in mortgage bonds and other debt that the government bought as the financial crisis worsened between 2008 and early 2010, in an effort to prop up the housing market. The Treasury has realized about $13.5 billion in income from interest payments of these bonds through the end of 2010, while the Federal Reserve has earned about $72.5 billion on a similar portfolio of securities backed by Fannie Mae and Freddie Mac. Treasury officials project they will collect at least another $16 billion over the next few years.

On Wednesday, the Federal Reserve Bank of New York rejected a $15.7 billion offer from A.I.G. to buy back mortgage securities owned by the government, underscoring Washington’s hard line in trying to maximize the value of its holdings.

Even as the Treasury collects income from the mortgage securities it owns, it is still pumping tens of billions into Fannie and Freddie, the government-controlled mortgage giants, to keep them afloat. Although the Treasury recently lowered its loss estimates, its analysis project that losses stemming from government’s support of the two companies could reach $73 billion over the next decade.

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Antitrust Cry From Microsoft

March 31, 2011 by Leave a Comment

Microsoft plans to file a formal antitrust complaint on Thursday in Brussels against Google, its first against another company. Microsoft hopes that the action may prod officials in Europe to take action and that the evidence gathered may also lead officials in the United States to do the same.

In Europe, Microsoft is joining a chorus of complaints, but until now they have come mainly from small Internet companies saying that Google’s search engine unfairly promotes its own products, like Google Product Search, a price comparison site, over rival offerings.

The Internet and smartphones are the markets where energy, investment and soaring stock prices reside. Microsoft, still immensely wealthy, is pouring billions into these fast-growing fields, especially Internet search. Yet the champion of the PC era trails well behind Google.

“The company that was the 800-pound gorilla is now resorting to antitrust, where it is always the case that the also-rans sue the winners,” said Michael A. Cusumano, a professor at the Massachusetts Institute of Technology’s Sloan School of Management who has studied Microsoft.

The Microsoft complaint, Professor Cusumano notes, is also a reminder of the comparative speed with which fortunes can shift in fast-moving technology markets. “It doesn’t happen instantly, but it does happen faster than in most industries,” Professor Cusumano said. “It took Google about a decade to really turn the tables on Microsoft.”

For years, the swaggering giant of personal computer software battled competitors and antitrust regulators in America and abroad, parrying their claims that it had bullied rivals and abused its market muscle. In the United States, it suffered rulings against it and in 2001 reached a settlement that prohibited Microsoft from certain strong-arm tactics. In Europe, Microsoft absorbed setbacks and record fines from regulators and judges.

Still, irony has no place in antitrust doctrine. Microsoft’s complaint must be weighed on the merits, as part of a wide-ranging antitrust investigation of Google, begun last year and led by Europe’s competition commissioner, Joaquín Almunia.

The litany of particulars in Microsoft’s complaint, the company’s lawyers say, includes claims of anticompetitive practices by Google in search, online advertising and smartphone software. But a central theme, Microsoft says, is that Google unfairly hinders the ability of search competitors — and Microsoft’s Bing is almost the only one left — from examining and indexing information that Google controls, like its big video service YouTube.

Such restraints, Microsoft contends, undermine competition — and thus pose a threat to consumer choice and better prices for online advertisers.

When told of the Microsoft claims, Adam Kovacevich, a Google spokesman, denied that the company had done anything wrong and said its practices did not deny Microsoft access to Google technology and content.

Though it is making an antitrust claim, Microsoft is also claiming a bit of hypocrisy on Google’s part. In an interview, Bradford L. Smith, Microsoft’s general counsel, cited Google’s stated mission to “organize the world’s information and make it universally accessible and useful.”

“That is a laudable goal,” Mr. Smith said. “But it appears Google’s practice is to prevent others from doing the same thing. That is unlawful and it raises serious antitrust issues.”

Google’s strategy, he adds, seems to be to “wall off content so that it cannot be crawled and searched by competing companies.”

In smartphones — sources of increasing volumes of search traffic — Microsoft says Google is withholding technical information needed to let phones using Windows Phone 7 software have a rich, full-featured application for YouTube. That technical information, Microsoft says, is available not only in Google’s Android software but also Apple iPhones, as part of a deal dating back to when Google’s chief executive, Eric E. Schmidt, was on the Apple board. (He resigned in 2009, after the Federal Trade Commission raised questions about the arrangement.)

Mr. Kovacevich said that about two years ago, the company decided to make an improved version of YouTube available for all mobile devices instead of tailoring it to each company on smartphone applications, as it did earlier with Apple.

Microsoft also contends that Google has set up what amount to technical roadblocks so that Microsoft’s Bing search service cannot examine and index up to half of the videos on YouTube.

Another Microsoft claim focuses on Google’s ad contracts. Its contracts prohibit advertisers and online agencies from using third-party software that could instantly compare results and move advertisers’ data from one ad platform to another — from Google’s Adwords to Microsoft’s Adcenter, for example.

Article source: http://feeds.nytimes.com/click.phdo?i=c7408713451c5584a31e84492249ed6f

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Shares Rise on Job Gains, Extending S.&P. Rally

March 31, 2011 by Leave a Comment

The drug maker Cephalon rose 28 percent for the biggest jump in the S. P. 500 after Valeant Pharmaceuticals International offered to buy it. Visa climbed 2.8 percent on speculation that curbs on fees for debit cards will be delayed or modified. ATT advanced 2.2 percent, the biggest increase in the Dow, to close at $30.71 after its chief executive said the company’s acquisition of T-Mobile USA would increase network capacity and improve service.

The S. P. 500 gained 8.82 points, or 0.67 percent, to close at 1,328.26 and is up 5.6 percent for the first quarter, which ends Thursday. The Dow Jones industrial average increased 71.60 points, or 0.58 percent, to close at 12,350.61 and has rallied 6.7 percent this year. The Nasdaq composite index was up 19.90 points, or 0.72 percent, to 2,776.79.

“Given the beginning of a strong cyclical recovery in the U.S. and a tougher environment in many of these other international markets, it seems to us like a good place for investors to be,” said Connor Browne, an investment manager at Thornburg Investment Management in Santa Fe, N.M.

The S. P. 500 is poised to complete a third consecutive quarterly advance and is headed for its biggest gain in the January through March period since 1998, when it surged 14 percent.

A report from ADP Employer Services showed companies hired 201,000 workers in March, the third time in four months that the nation added more than 200,000 jobs.

Economists predict that the Labor Department’s employment report on Friday will show nonfarm payrolls rose by 190,000 in March and the unemployment rate held at 8.9 percent. The rate fell below 9 percent in February for the first time in 22 months.

“The expectation is that the U.S. economy is going to remain strong, and the equity markets are going to continue higher,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

Cephalon advanced 28 percent to $75.44 after Valeant, Canada’s biggest drug maker, offered to buy it for $73 a share. The offer is valued at about $5.7 billion. Valeant rose 13 percent to $50.08. Forest Laboratories, another drug company, climbed 4.3 percent to $32.48.

Visa gained 2.8 percent to close at $74.23 after Ben S. Bernanke, chairman of the Federal Reserve, said Tuesday that it would miss a April 21 deadline for a rule on debit card transaction fees. The Treasury’s benchmark 10-year note rose 14/32, to 101 18/32, and the yield slipped to 3.43 percent from 3.49 percent late Tuesday.

Article source: http://feeds.nytimes.com/click.phdo?i=1c878859562a1fadfe3e4bdf67a2003c

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DealBook: Galleon Jurors Hear Tape Discussing Call to Goldman Director

March 31, 2011 by Leave a Comment

Rajat K. Gupta, a former director of Goldman Sachs.Seokyong Lee/Bloomberg News Rajat K. Gupta, a former director of Goldman Sachs.

8:04 p.m. | Updated

In October 2008, with the global economy hemorrhaging and his hedge fund struggling, Raj Rajaratnam sounded calm during a lunchtime call with a colleague in Singapore.

“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” said Mr. Rajaratnam. “The Street has them making $2.50.”

The government played that secretly recorded telephone call on Wednesday during the trial of Mr. Rajaratnam, the co-founder of the hedge fund Galleon Group, who faces up to 25 years in prison if convicted on charges that he earned millions of dollars from insider trading.

The secretly recorded conversation came a day after Goldman held a board meeting informing directors that the bank was on track to report its first quarterly loss as a public company.


The Galleon networkAzam Ahmed and Guilbert Gates/The New York Times Click on the above graphic to get a visual overview of the Galleon information network.

The government says that Rajat K. Gupta, then a Goldman director, called Mr. Rajaratnam after the meeting and passed on the confidential information, allowing Mr. Rajaratnam to sell his Goldman position and avoid losses before its earnings announcement.

Federal prosecutors have named Mr. Gupta a co-conspirator of Mr. Rajaratnam but have not charged him criminally.

The Securities and Exchange Commission has filed a civil proceeding against Mr. Gupta accusing him of tipping Mr. Rajaratnam. Mr. Gupta’s lawyer has said his client had not done anything wrong.

When Mr. Rajaratnam told David Lau, his Singapore colleague, about Goldman’s poor performance, Mr. Lau seemed surprised.

“Really,” he said.

“So what he was telling me was that uh, Goldman, the quarter’s pretty bad. They have zero revenues because their trading revenues are offset by asset losses, and to date they have lost $2 per share,” Mr. Rajaratnam said. “I don’t think that’s built into Goldman Sachs stock price.”

The accusations against Mr. Gupta are being closely followed on Wall Street. Mr. Gupta, who ran McKinsey Company, the prestigious management consulting firm, was among the world’s most influential business executives.

Last week, Lloyd C. Blankfein, the chief executive of Goldman, took the witness stand at the trial and told the jury that it would be a breach of confidentiality for Mr. Gupta to divulge board discussions.

The Goldman call emerged during the testimony of Adam Smith, a former portfolio manager at the Galleon Group. Mr. Smith pleaded guilty to insider trading at Galleon and is testifying against his former boss as part of his cooperation agreement with the government.

During Mr. Smith’s cross-examination, Mr. Rajaratnam’s lawyers accused Mr. Smith of fabricating his illegal conduct at Galleon in order to secure a lesser sentence by helping them get “the big fish” — Mr. Rajaratnam. Mr. Smith testified that the government had caught him on a wiretap trading on inside information last year, after Galleon’s dissolution and while managing a different fund.

Defense lawyers also played a wiretapped call between Mr. Smith and Ian Horowitz, a former Galleon trader. During the call, made at the F.B.I.’s direction after Mr. Smith’s guilty plea, Mr. Smith tried unsuccessfully to gather more insider-trading evidence from Mr. Horowitz.

Mr. Smith, who testified that the F.B.I. had instructed him to lie in order to elicit incriminating information, said on the call that he believed Galleon’s trading was legitimate.

“You want the jury to believe you were lying then, but telling the truth now?” asked Terence J. Lynam, a lawyer for Mr. Rajaratnam.

“Yes,” Mr. Smith replied.

Sept. 24, 2008 transcript (U.S. vs. Rajaratnam)

Oct. 24, 2008 transcript (U.S. vs. Rajaratnam)

Article source: http://feeds.nytimes.com/click.phdo?i=023d7cdf21ac8ff6ea95ea389ed31ca3

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