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Businesses Increase Investment Spending

September 29, 2011 by Leave a Comment

The Commerce Department said Wednesday that orders for capital goods outside of the military sector and excluding aircraft, a closely watched proxy for business spending, increased 1.1 percent after falling 0.2 percent in July.

That was well above economists’ expectations for a 0.3 percent rise and suggested that businesses, sitting on about $2 trillion in cash, had not responded to the recent financial market volatility by curtailing investment.

“If we were in a recession we would expect to see business orders for capital goods plummeting and they are not,” said Richard DeKaser, an economist at the Parthenon Group in Boston.

The solid rise in investment spending, which was accompanied by a 2.8 percent rise in shipments of capital goods, prompted some economists to raise forecasts for third-quarter economic growth.

J.P. Morgan lifted its growth forecast for the economy to an annual rate of 1.5 percent from 1.0 percent, while the forecasting firm Macroeconomic Advisers raised their projection to 2.1 percent from 1.7 percent.

“While we don’t yet know the split between how much went to domestic versus foreign buyers, this almost certainly implies another solid quarter for capital equipment spending,” said Michael Feroli, an economist at J.P. Morgan in New York.

Extreme volatility in financial markets, as politicians in Washington fought over budget policy and Europe struggled to come to grips with its debt crisis, has knocked confidence and raised the risk of a new recession.

But businesses are showing some confidence in the recovery.

Although business spending plans point to continued growth, the report also confirmed a slowing trend in manufacturing.

Overall orders for durable goods — items meant to last three years or more, like toasters and aircraft — dipped 0.1 percent after a 4.1 percent jump in July.

The orders, which are volatile from month to month, dropped despite a 23.5 percent rise in orders for civilian aircraft.

Boeing received 127 orders for aircraft, according to the plane maker’s Web site, up from 115 in July, with Delta Airlines placing an order for 100 planes.

Excluding transportation, orders also slipped 0.1 percent after rising 0.7 percent in July.

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Airbus Raises Its Forecast for Demand

September 19, 2011 by Leave a Comment

Airbus predicted that airlines would buy 27,800 new jets by 2030, up 7 percent from a forecast of 26,000 planes, which was made last December before a wave of orders this year for new Airbus jets from Asian carriers. The company, based in Toulouse, France, said the new orders would be worth $3.5 trillion, up 9.4 percent from the $3.2 trillion forecast nine months ago.

In June, Boeing, based in Chicago, predicted sales of 33,500 new jets through 2030, worth $4 trillion. Boeing’s figures include smaller regional jets with 70 to 100 seats, whereas Airbus’s forecast is for aircraft that seat 100 or more passengers.

Airbus said it expected passenger traffic globally to grow at an annual rate of 4.8 percent over the next two decades, just below the approximately 5 percent average rate of the past 30 years. Boeing’s most recent forecast predicted a growth rate of 5.3 percent.

According to the Airbus forecast, more than a third of the demand for new planes will come from the Asia-Pacific region, particularly from India and China, where domestic air passenger traffic is expected to grow at an average annual pace of 9.8 percent and 7.2 percent, respectively, over the next two decades.

This year Airbus received several major orders from Asia for its single-aisle jets, including a record-breaking $18 billion deal for 200 planes from AirAsia, the Malaysian low-cost airline, and two large deals with Indian carriers: a $16.6 billion sale of 150 planes to GoAir and a 180-plane order from IndiGo, worth $16 billion.

By 2030, Airbus predicted, travel within Europe and North America will each represent about one-fifth of global passenger traffic and new aircraft demand, down from just under one third each today.

Nonetheless, Airbus forecast that domestic travel within the United States would represent the biggest region in terms of overall traffic flows, as measured by the revenue that airlines earn per available seat for each mile flown, at 11.1 percent of the total. Europe would represent 7.5 percent of revenue per seat mile.

John Leahy, the chief salesman at Airbus, acknowledged that the current economic climate was likely to lead to below-average growth in demand for air travel at least through 2012, but he emphasized that the long-term growth trends in air travel had remained consistent for at least three decades.

“While we experienced a kind of ‘lost decade’ in the period since Sept. 11 in terms of economic growth, air traffic over that same period is still up by 45 percent,” Mr. Leahy said by telephone, referring to the terrorist attacks in 2001. “Over the next couple of years, we do expect to see another slow growth period, but we don’t foresee a double-dip recession,” he added.

The vast majority of new jet sales were expected to be in the single-aisle category of planes like the Boeing 737 and the Airbus A320, which normally seat about 150 passengers. Airbus predicted that nearly 70 percent of sales over the next 20 years — 19,200 aircraft worth $1.4 trillion by 2030 — would be of this type. Forty percent of those planes would be used to replace aging, less fuel-efficient aircraft, Airbus said, while half of new single-aisle deliveries were likely to go to airlines in North America and Europe.

The single-aisle segment is the most hotly contested for both Boeing and Airbus, each of which claims about half of the market. But the two companies are expected to begin to face competition at the beginning of the next decade when other manufacturers — including Bombardier of Canada and Embraer of Brazil — are forecast to start deliveries of jets that can seat similar numbers of passengers.

This article has been revised to reflect the following correction:

Correction: September 19, 2011

An earlier version of this article provided incorrect figures for forecast annual domestic air traffic growth in the United States and Europe for the period 2011-2030. Airbus predicted average growth of 2.4 percent per year over the period, not 11.1 percent, while intra-European traffic was predicted to increase by an average 3.2 percent, not 7.5 percent.

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DealBook: Kelly Steps Down at Bank of New York Mellon

September 1, 2011 by Leave a Comment

Bank of New York Mellon’s chief executive and chairman, Robert P. Kelly, has stepped down, the bank said on Wednesday, citing “differences in approaches to managing the company.”

Mr. Kelly, 57, a longtime bank executive who had once been seen as a candidate to to run Bank of America, had been chief executive since Bank of New York merged with Mellon Financial of Pittsburgh in a $16.5 billion stock deal in 2007. In December 2009, he sent a memo to employees saying that while he had been approached by another bank, “I firmly concluded that my place is here at BNY Mellon.”

Gerald L. Hassell, 59, the bank ’s president and a board member since 1998, has been appointed chairman and chief executive.

Bank of New York Mellon is one of the world’s largest custodial banks, with $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management.

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Bernanke Offers No Plan for New Stimulus

August 26, 2011 by Leave a Comment

In remarks that went well beyond his previous calls for Congress and the White House to address the nation’s long-term fiscal challenges, Mr. Bernanke suggested the process itself was broken.

“The country would be well served by a better process for making fiscal decisions,” he said.

Mr. Bernanke said he was “optimistic” about the long-run prospects for the American economy, and he gave little indication the Fed was mulling any increase in its economic aid programs, although he said the issue would be revisited in September.

But Mr. Bernanke, the nation’s most prominent economist, warned that the government had emerged as perhaps the greatest threat to renewed growth.

“The quality of economic policy-making in the United States will heavily influence the nation’s long-term prospects,” Mr. Bernanke said in the much-anticipated speech at a policy conference held each August at a resort in Grand Teton National Park.

The turn toward stronger language was welcomed by some observers of partisan battles in Washington that have pitted Republicans demanding spending cuts to reduce the federal debt against Democrats arguing for cuts and increased revenue.

A deal reached earlier this month to raise the maximum amount the government can borrow, in exchange for spending cuts of at least $2.1 trillion, would not reduce the debt to a level most economists regard as sustainable, and the chaotic political brinksmanship led Standard Poor’s to remove long-term Treasury securities from its list of risk-free investments.

Maya MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget, described Mr. Bernanke’s remarks as “an emergency intervention.”

“It was great to hear him weigh in so strongly,” said Ms. MacGuineas. “He’s saying what needs to be said, and hopefully people will listen because of the messenger.”

Mr. Bernanke’s speech comes on the heels of the Fed’s announcement earlier this month that it intends to hold short-term interest rates near zero until at least the middle of 2013, a reflection of its view that growth will not be fast enough during that period to drive up wages and prices.

Many investors had viewed that announcement as merely the opening of a new round of efforts by the Fed to bolster an economy that once again is struggling to grow. The government said Friday that it now estimated the economy expanded at an annual pace of just 1 percent in the second quarter, down from its initial estimate of a 1.3 percent annual pace.

Friday’s speech was eagerly anticipated because Mr. Bernanke and his predecessors have made a habit of coming to this conference, hosted by the Federal Reserve Bank of Kansas City, to clarify their views on the economy and monetary policy.

Last year, Mr. Bernanke used his remarks here to provide the first substantial indication that the Fed intended to renew its economic aid campaign. The central bank went on to buy $600 billion in Treasury securities between November and June, increasing its total portfolio of Treasuries and mortgage securities to more than $2.5 trillion.

This year, Mr. Bernanke noted that the nation faces significant challenges, including huge amount of unemployment and an unsustainable federal debt. But the speech marked a return to the Fed’s position earlier this year that it has largely exhausted the power of monetary policy and that the rest of government must do more through fiscal policy.

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Mr. Bernanke said.

While offering his standard disclaimer that the Fed would take any steps necessary to help the economy, he notably omitted any description of possible measures. He did say, however, that a scheduled meeting of the Fed’s policy-making committee in late September would be extended to two days from one day “to allow a fuller discussion.”

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Modest Expectations Urged on Deficit Cuts

August 25, 2011 by Leave a Comment

The report from the nonpartisan budget office underscores the high stakes for a special 12-member Congressional committee created to figure out by December how to achieve up to $1.5 trillion of the $2.4 trillion in maximum 10-year savings promised by the deal.

It comes as Mr. Obama and Democrats, like many economists, are calling for a mix of larger long-term deficit reduction measures with immediate additional job creation measures. While the latter would add to deficits in the short term, proponents argue that they would prevent another recession and avoid the associated costs in lost revenues and safety-net spending. But Republicans oppose any stimulus measures or long-term increases in tax revenues.

The budget office, in its annual summer snapshot of the nation’s fiscal health, projected annual deficits from the 2012 fiscal year, which begins Oct. 1, through 2021 totaling $3.5 trillion. That is just over half of the $6.7 trillion shortfall it forecast in March.

About two-thirds of the difference reflected projected savings from the bipartisan deficit deal; the rest was due to technical and economic revisions. The lower deficits would leave the nation’s accumulated public debt at $14.5 trillion in 2021, or 61 percent of the gross domestic product — a level that many economists consider the maximum level of debt that is sustainable in a growing economy.

But such projections “understate the budgetary challenges facing the federal government in the coming years,” Douglas Elmendorf, director of the budget office, wrote on its Web site.

Annual deficits would be $5 trillion higher for the decade, or a total of $8.5 trillion, assuming the White House and Congress continue several policies as in years past — keeping the lower income-tax rates of 2001 and 2003, which already were extended by two years last December; adjusting the alternative minimum tax annually so it does not hit middle-class taxpayers, and blocking a mandated cut in Medicare payments to doctors. The result would be deficits averaging 4.3 percent of gross domestic product instead of 1.8 percent, the budget office said; economists generally say annual deficits should not exceed 3 percent of gross domestic product.

The higher deficits would bring total public debt through 2021 to 82 percent of gross domestic product rather than 61 percent, higher than in any year since 1948 when debt peaked after World War II.

Mr. Obama and Congressional Democrats have called for ending after 2012 the Bush-era rates on annual taxable income above $250,000 for couples and $200,000 for individuals. That would save about $1 trillion over the decade, including interest. But they want to extend a one-year payroll tax cut, some business tax cuts and emergency unemployment aid.

The budget office as expected said the deficit for the current fiscal year, which ends Sept. 30, would be $1.3 trillion.

At 8.5 percent of gross domestic product, it will be the third consecutive deficit exceeding $1 trillion; as a percentage of the economy, the three deficits spanning the end of the George W. Bush administration and the Obama administration are the largest of the past 65 years.

That “stems in part from the long shadow cast on the U.S. economy by the financial crisis and the recent recession,” Mr. Elmendorf wrote. “Although economic output began to expand again two years ago, the pace of the recovery has been slow, and the economy remains in a severe slump.”

The current deficit could be the peak, but only for the short term. The budget office repeated a longstanding warning: While annual shortfalls will decline through the decade — presuming the economy recovers — deficits will climb after 2021 to unsupportable levels as the aging population and rising health care costs drive up spending for Medicare and Medicaid.

Each party seized on the latest report to buttress its position, evidence of the partisan divide facing the special House and Senate budget committee.

“The C.B.O. outlook underscores the need for the joint committee to propose a plan to help put America back to work, coupled with a blueprint to reduce the long-term deficit,” said Representative Chris Van Hollen of Maryland, a Democratic member of the panel.

Representative Eric Cantor, Republican of Virginia and the House majority leader, said, “Despite a nearly trillion dollar so-called stimulus program, this administration’s policies have resulted in anemic growth, record unemployment and underemployment, and millions of Americans remain out of work.” All the Democrats offer, he added, “is lofty rhetoric, tax hikes and more of the same stimulus spending.”

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You’re the Boss: Big Banks Shrinking as S.B.A. Lenders

August 10, 2011 by Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

The Small Business Administration’s guaranteed business loan program is back. Nudged by stimulus provisions that reduced fees and increased guarantees, American banks made a record amount of S.B.A.-backed loans in 2010 (measured in dollars), reversing a demoralizing four-year slide. But there’s something noteworthy about who was doing that lending: while banks as a whole loaned more government-backed money than ever, the biggest banks loaned less.

The 25 American banks with the most deposits in 2010 underwrote $3.6 billion in S.B.A. general business, or 7(a), loans. That is just more than 20 percent of all 7(a) loans approved that year, down nearly a third from the share these same banks loaned in 2006. The decline cannot be tied to a decline in deposits. In that same period, these banks grew to control $5.8 trillion in deposits, 61 percent of all bank deposits in 2010.

In other words, in 2010 the 25 biggest banks held 32 percent more in deposits than those banks did in 2006 — but approved 30 percent less in S.B.A. loans.* The decline appears to be related to losses the banks suffered when borrowers defaulted on one type of 7(a) loan during the crisis, and perhaps as well to the difficulty large banks have in making profits on smaller loans in general.

Steve Smits, the S.B.A. associate administrator who supervises lending programs, said that one reason big banks lost 7(a) market share was that during the recession, many community banks joined — or rejoined after a long absence — the S.B.A. program as a way to keep lending despite their weakened balance sheets. This was possible because S.B.A. loans permit a bank to keep less cash in reserve and can be sold on a secondary market to generate still more cash for the bank. “We definitely saw north of a thousand lending partners use our programs for the first time in years during the depths of the recession, and many of those institutions were the small community banks,” Mr. Smits said.

But the big banks didn’t just lose share of total S.B.A. lending; their dollar volume fell absolutely as well — 15 percent from 2006. Bank of America, the largest bank and one of the top 7(a) lenders in 2006, saw its loan volume plummet 89 percent by 2010. Loans at PNC Bank and RBS Citizens (which operates as Citizens Bank in the Northeast and Charter One in the Midwest) fell by 82 and 83 percent, respectively. At Capital One, which had moved aggressively into the S.B.A. market only a few years earlier, 7(a) lending has almost completely collapsed: the bank, which approved $228 million worth of 7(a) loans in 2006, green-lighted only $551,000 in 2010.

The figures here (and in the chart below) represent loan amounts approved by either the bank or the S.B.A. — a higher amount than the money actually distributed to borrowers, since some loans are canceled before they are issued. They were compiled by the loan brokerage firm MultiFunding, using deposit data from the Federal Deposit Insurance Corporation and loan information from the S.B.A. (which was provided by Coleman Publishing). The loan figures are for calendar years, though the S.B.A. itself tracks its lending by the government’s fiscal year, which begins Oct. 1 and ends Sept. 30.

“I did expect to find that the big banks currently are making a lot less loans to small businesses than smaller banks are,” said Ami Kassar, who is chief executive of MultiFunding. “I didn’t expect to find that the big banks commitment had decreased.”

The big banks simply are not well suited to make S.B.A loans in particular, or small-business loans in general, said Barry Sloane, chairman and chief executive of Newtek Business Services, a large 7(a) lender that is not a bank. “The larger institutions have a much higher cost structure, and they have a harder time making a million-dollar loan profitable,” Mr. Sloane said. “Larger banks, when they lend, want to lend more money, to a larger borrower, and they want to secure a depository arrangement. S.B.A. loans don’t necessarily go along with a significant amount of deposits. And they are much more labor-intensive than a conventional loan.”

To induce large banks to make S.B.A. loans, the agency developed a 7(a) program especially for them, S.B.A. Express. This program lets lenders use their own application forms and credit-scoring models to make smaller loans, which they can approve themselves, and banks don’t have to take any more collateral than their regular loans require. It allows those banks to incorporate government-guaranteed loans seamlessly into their lending operations — borrowers who don’t qualify for a bank’s conventional loan can automatically be considered for an S.B.A.-backed loan without having to start the paperwork all over again. Because they take on more responsibility for underwriting the loan, the banks must also shoulder more of the risk, in the form of a lower guarantee.

By 2007, S.B.A. Express had grown into an important component of the 7(a) program, constituting almost a quarter of the loan volume and more than two-thirds of the total loan numbers. But big banks put the brakes on S.B.A. Express lending in late 2007, a year before the full-on credit crisis that saw most lending come to a halt. At the time, Mr. Smits’s predecessor at the S.B.A. explained that banks were seeing higher defaults than they originally anticipated, so they were raising their credit standards. Since then, many appear to have in fact pulled out of the program. Bank of America, RBS Citizens, and Capital One — the three banks showing the sharpest drop in S.B.A. lending — had all specialized in S.B.A. Express loans. Mr. Sloane and Tony Wilkinson, president of the National Association of Government Guaranteed Lenders, both attribute the decline in big-bank 7(a) lending to big losses in Express lending.

The S.B.A.’s Mr. Smits said he was not able to explain the decline in S.B.A. lending among big banks. “I think you have to look at each lender on its own and see whether they’ve actually had a drop in activities to small business lending in general, or whether it was just S.B.A. in specific,” he said. “You have to look at what their model is, and what their average loan sizes are.”

The banks contacted by The Agenda were for the most part reluctant to say much about their S.B.A. lending. All insisted that S.B.A. loans are just one of many ways they provide credit to small businesses and that they are broadly making more credit available to those companies.

Robb Hilson, an executive in Bank of America’s Global Commercial Banking division, was the most explicit. “Admittedly, we made mistakes, and we ended up losing a lot of money, even on the S.B.A.-guaranteed portfolio, because we were too aggressive at a time where it was not appropriate,” he said. “We were looking at borrowers who at the end of the day unfortunately in too many cases did not have the ability to repay the loan.”

Several years ago Bank of America suspended its traditional 7(a) program, with the higher guarantees and additional paperwork, because “we thought it wasn’t customer-friendly,” said Mr Hilson. Last year the bank reintroduced it, and Mr. Hilson vowed that the bank would rebuild — carefully — its Express program. And he added that Bank of America remained a leading lender in another popular S.B.A. program, which guarantees loans made by nonprofit community development companies that partner with banks.

In an e-mail, a PNC spokesman, Fred Solomon, attributed some of that institution’s lending decline in 2009 and 2010 to its efforts to combine with National City Bank, which PNC bought in 2008. But, he added, “other factors do play a role, including our determination not to rely on the S.B.A.’s guarantee when qualifying potential borrowers.” A spokesman for Capital One, Steve Schooff, said in an e-mail message, “We are reevaluating our strategy and opportunities in the current environment relative to S.B.A. loans to determine the best approach.”

Mr. Kassar, for his part, acknowledged the limitations of his analysis of which banks are supporting small businesses. “I don’t think the S.B.A. is the only indicator, or a perfect indicator,” he said. Still, he added, “it does seem like a reasonable indicator of Main Street lending.”

Not all of the big banks have struggled with S.B.A. lending. Despite the overall downward trend, several  actually made more 7(a) loans over this time period. SunTrust posted the biggest growth: through 2008, its 7(a) lending hovered around $34 million. In 2009, it grew to $44 million — and then soared to $155 million in 2010. SunTrust has gone from being purely an Express lender to an S.B.A. “generalist,” said Jeff Nager, a SunTrust senior vice president and its S.B.A. Division Executive. “We have made it a focus of the bank.”

Mr. Nager acknowledged that SunTrust’s S.B.A. lending effort was buoyed by the generous government incentives established by the 2009 Recovery Act. “It didn’t change our desire to play or not play, but it stimulated a lot of knowledge in the S.B.A.,” he said. “The borrowers and the clients learned a lot more about the S.B.A. in a short amount of time because of the stimulus. It became a more prevalent part of the discussion in the market place.”

The stimulus provisions have since expired, but Mr. Nager predicted further growth for S.B.A. lending at his institution.

*Eight of the top 25 deposit-holding banks did not participate in the 7(a) program at all between 2006 and 2010; these banks are chiefly credit card lenders or investment managers.

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S.&P. Downgrades Debt Rating of U.S. For the First Time

August 6, 2011 by Leave a Comment

The company, one of three major agencies that offer advice to investors in debt securities, said it was cutting its rating of long-term federal debt to AA+, one notch below the top grade of AAA. It described the decision as a judgment about the nation’s leaders, writing that “the gulf between the political parties” had reduced its confidence in the government’s ability to manage its finances.

“The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge,” the company said in a statement.

The Obama administration reacted with indignation, noting that the company had made a significant mathematical mistake in a document that it provided to the Treasury Department on Friday afternoon, overstating the federal debt by about $2 trillion.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokeswoman said.

The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for governments, businesses and home buyers. But many analysts say the impact could be modest, in part because the other ratings agencies, Moody’s and Fitch, have decided not to downgrade the government at this time.

The announcement came after markets closed for the weekend, but there was no evidence of any immediate disruption. A spokesman for the Federal Reserve said the decision would not affect the ability of banks to borrow money by pledging government debt as collateral, a statement that could set the tone for the reaction of the broader market.

S. P. had prepared investors for the downgrade announcement with a series of warnings earlier this year that it would act if Congress did not agree to increase the government’s borrowing limit and adopt a long-term plan for reducing its debts by at least $4 trillion over the next decade.

Earlier this week, President Obama signed into law a Congressional compromise that raised the debt ceiling but reduced the debt by at least $2.1 trillion.

On Friday, the company notified the Treasury that it planned to issue a downgrade after the markets closed, and sent the department a copy of the announcement, which is a standard procedure.

A Treasury staff member noticed the $2 trillion mistake within the hour, according to a department official. The Treasury called the company and explained the problem. About an hour later, the company conceded the problem but did not indicate how it planned to proceed, the official said. Hours later, S. P. issued a revised release with new numbers but the same conclusion.

In a statement early Saturday morning, Standard Poor’s said the difference could be attributed to a “change in assumptions” in its methodology but that it had “no impact on the rating decision.”

In a release on Friday announcing the downgrade, it warned that the government still needed to make progress in paying its debts to avoid further downgrades.

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” it said.

The credit rating agencies have been trying to restore their credibility after missteps leading to the financial crisis. A Congressional panel called them “essential cogs in the wheel of financial destruction” after their wildly optimistic models led them to give top-flight reviews to complex mortgage securities that later collapsed. A downgrade of federal debt is the kind of controversial decision that critics have sometimes said the agencies are unwilling to make.

Eric Dash contributed reporting from New York.

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Sony Slashes Annual Profit Forecast After Posting Quarterly Loss

July 28, 2011 by Leave a Comment

TOKYO — Sony slashed its annual profit forecast after sinking to a 15.5 billion yen, or $199 million, quarterly loss Thursday, as lingering effects of the Tohoku earthquake, a punishingly strong yen and lackluster TV sales wiped out its bottom line.

The electronics and entertainment company, which is based in Tokyo, said in a statement that it now expected net income of 60 billion yen for the fiscal year that ends March 31, 2012, revising a 80 billion yen projection it made just two months ago.

Sony also cut projected sales for the year to 7.2 trillion yen from a previous forecast of 7.5 trillion yen.

The company said that its net loss for the April-June quarter came to 15.5 billion yen, compared with a profit of 25.7 billion yen for the same quarter a year earlier. The loss was significantly higher than a 2.5 billion yen loss estimate in a Bloomberg survey of three analysts.

Sony said that quake and tsunami damage to factories in the Tohoku area came to about 5.3 billion yen for the quarter, though some of that cost would be offset by insurance. It also said the recovery from the March 11 quake was progressing “faster than anticipated.”

Meanwhile, Sony has been battling slow demand for its high-end Bravia TVs amid growing global economic woes and heightened price competition.

Though Sony saw brisk sales in Japan before the country’s switch earlier this month from analog to digital broadcasting, sales in the United States and Europe were sluggish, the company said.

Slower personal computer and video camera sales helped to bring sales of Sony’s consumer products division to 732.3 billion yen, down 17.9 percent from the same period the previous year.

A strong yen — about 13 percent stronger against the dollar in the latest quarter, compared to the previous year — further hurt Sony profits. A strong Japanese currency makes Sony products more expensive, and therefore less competitive, overseas. It also erodes the company’s overseas earnings when they are repatriated.

Sony also suffered a series of hacker attacks on its Web sites and online services, including its popular PlayStation Network, which the company was forced to shut down in April. The network was fully restored earlier this month, but not without damaging the reputation of Sony’s online business.

The company said that user logins to the PlayStation Network in North America had returned “to a similar level as before the cyber attacks.”

Sony Ericsson, Sony’s long-suffering mobile phone joint venture with the Swedish telecommunications giant, posted a dismal quarter, with sales down 32.1 percent from the same period last year. Sony blamed the poor performance to a lack of critical components in the wake of the earthquake and a fall in shipments of cellphones as consumers shifted to more advanced smartphones.

Sony’s movie division was a bright spot, with sales up 9.3 percent in the quarter from the previous year to 144.4 billion yen on home entertainment releases of titles like “The Green Hornet.”

Sales at Sony’s music division fell 0.6 percent to 109.6 billion yen, however, despite a new release from Beyoncé and albums tied to the hit American TV show “Glee.”

Shares in Sony fell 1.1 percent to 2,013 yen in Tokyo trading before the earnings announcement. Sony shares have fallen 30 percent this year, far underperforming Japan’s benchmark Nikkei 225 Stock Average, which has fallen just over 3 percent.

Article source: http://www.nytimes.com/2011/07/29/business/global/sony-earnings.html?partner=rss&emc=rss

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Credit Agencies Tell Congress a Default Is Unlikely

July 27, 2011 by Leave a Comment

The president of Standard Poor’s Corp. also said that deficit-reduction plans currently being considered in Congress could be sufficient to allow the United States to keep its triple-A credit rating.

But the executive, Deven Sharma, disavowed recent news reports that quoted an S.P. analyst as saying that Congress would need to achieve at least $4 trillion in deficit cuts over 10 years to maintain the country’s triple-A rating.

Mr. Sharma told a House subcommittee that the $4 trillion figure was “within the threshold” of what the agency thinks is necessary. But he declined to draw a bright line, saying only that “some of the plans” being considered on Capitol Hill could reduce the U.S. debt burden to a level that was “in the range of the threshold of a triple-A rating.”

The remarks came at a hearing by the oversight and investigations subcommittee of the House Financial Services Committee. The hearing was scheduled to examine the performance of the major credit ratings agencies following reforms that were instituted as part of the Dodd-Frank Act, but questions quickly turned to the issue of whether or not the United States would be able to meet its obligations if Congress does not raise the federal debt ceiling.

A senior national bank examiner also told the panel that they were “right to worry” about the possible unknown effects of a downgrade of the United States’ credit rating on financial institutions and the markets.

David Wilson, senior deputy comptroller and chief national bank examiner in the Office of the Comptroller of the Currency, said a downgrade of the AAA rating of the United States would mean that borrowers would have to increase the amount of margin they offered as collateral for loans.

A downgrade of the country’s credit rating would probably also be followed by lower ratings on state and local government debt, he said.

Any resulting difficulties would be “manageable in the short term” because even a downgrade to AA from the current AAA rating would still mean that Treasuries are “very high quality securities,” Mr. Wilson said. But the long-term effects of a ratings downgrade, he added, were unknown.

Asked by Brad Miller, a Democrat from North Carolina, if he were “right to worry that this could be real bad if our debt were downgraded,” Mr. Wilson replied, “You know, it’s hard to measure, but I think you’re right to worry. I mean, it could happen. It could be a big thing.”

Representatives from the Federal Reserve, the Securities and Exchange Commission and the comptroller’s office all said they believed that the credit rating agencies were doing a better job of accurately assessing risks in their credit ratings now than they were before the financial crisis.

However, said Mark Van Der Weide, senior associate director in the division of banking supervision and regulation at the Federal Reserve Board, “no matter how good they are doing,” it is important that “we not over-rely on them.”

This article has been revised to reflect the following correction:

Correction: July 27, 2011

An earlier version of this article incorrectly said that officials from two credit rating agencies said the United States was unlikely to default.

Article source: http://www.nytimes.com/2011/07/28/business/bank-examiner-testifies-on-credit-downgrade.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

After Nuclear Crisis, Japan’s Biggest Utility Faces Insolvency Risk

June 10, 2011 by Leave a Comment

On Thursday, shares in Tokyo Electric again fell to a record low, at one point slumping to 148 yen ($1.85), down 93 percent from prequake levels. Shares finished at 192 yen ($2.40), down 4 percent from the previous day, and the company already had a 1.25 trillion yen loss in the year ending March 31, the largest annual loss for a nonfinancial institution in Japanese history.

The physical damage from the accident at the Fukushima Daiichi nuclear power plant has been so widespread that even conservative estimates of compensation claims amount to tens of billions of dollars — a burden that could render Japan’s largest utility insolvent.

In the early days of the disaster, even while hydrogen explosions continued to rock the nuclear plant, the collapse of Tokyo Electric was thought highly unlikely. Despite the catastrophe, analysts said, the government would not allow the failure of Tokyo’s sole electricity supplier. Because the effect of such a collapse on credit and stock markets would be catastrophic, they said, surely the government would cap compensation claims, or step in to provide other support.

And banks were so certain of this that they agreed, in early April, to lend almost 2 trillion yen ($25 billion) to the struggling utility company. In the eyes of the market, Tokyo Electric was too big to fail.

Now, three months later, the market is not so sure.

“Investors used to think, ‘This is a utility. What’s the government going to do, let it fail and let Tokyo go without power?’ ” said Yasuhide Yajima, the senior economist at the NLI Research Institute, an arm of Nippon Life Insurance. “But now their confidence is completely shaken,” he said. “They’re racing to offload their holdings before the share price hits zero.”

One cause for concern, analysts say, is the inability of a gridlocked government to complete a financial rescue plan for Tokyo Electric. To appease public anger over the disaster, the government has vowed to hold Tokyo Electric fully liable for the compensation claims that are likely to roll in from farmers, fishermen and others whose livelihoods have been disrupted in the crisis.

A government plan drawn up last month places no limit on the company’s liabilities, even though Japanese law would allow for such a cap following natural disasters. But the plan, which must still be approved by a divided Parliament, also calls for a fund that would use taxpayer money to help Tokyo Electric compensate victims and continue to provide Tokyo with power, while avoiding insolvency. Under the plan, the company will eventually pay back the fund in full.

The problem, analysts say, is that it is virtually impossible to know how large those claims could eventually be — and whether the government would have the means and commitment to cover them.

In a recent estimate, Shigeki Matsumoto, an analyst at Nomura Securities, predicted the total would come to around 5 trillion yen ($64 billion), including 3.2 trillion to 3.3 trillion yen ($40 billion to $41.2 billion) in payout to farmers and fishermen — two years’ worth of agricultural and fisheries output in the plant’s vicinity. Nomura also projected 0.6 trillion yen in compensation to displaced families.

A Bank of America-Merrill Lynch estimate puts the sum as high as $130 billion. (By comparison: BP’s compensation fund for the Gulf of Mexico oil spill is $20 billion. )

“Estimating damages at this point,” Mr. Matsumoto said, “is difficult.”

Amid these uncertainties, Japan has resisted offering a blanket promise to back Tokyo Electric’s compensation payouts.

Article source: http://www.nytimes.com/2011/06/10/business/global/10tepco.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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