BRUSSELS, BELGIUM — The EU on Tuesday warned the United States against protectionism after a European-led consortium pulled out of the bidding for an Air Force contract, saying the terms had been altered to favor a U.S. company.
EADS, the parent company of Airbus, had partnered with Northrop Grumman to vie for the 179 tanker order, but the consortium pulled out on Monday. It said the terms of the deal appeared designed to eliminate its design in favor of a smaller jet offered by rival Boeing Co.
The announcement left Chicago-based Boeing as the only bidder for the project. It is offering a version of the 767 commercial airplane to replace the Air Force’s 1960s-era fleet of KC-135 tankers.
"The European Commission would be extremely concerned if it were to emerge that the terms of tender were such as to inhibit open competition for the contract," the EU said in a statement.
In 2008, the EADS-led consortium was awarded a contract for the fleet, but Boeing protested and the deal was annulled later that year cheap credit report.
In December, Northrop Grumman/EADS expressed concerns to the Pentagon and the Air Force that the new criteria were slanted in favor the Boeing design.
"It is highly regrettable that a major potential supplier would feel unable to bid for a contract of this type," said EU Trade Commissioner Karel De Gucht. "Open procurement markets guarantee better competition and better value for money for the taxpayer."
The EU noted that the trade balance in defense equipment with the 27-nation EU has traditionally been heavily in favor of the American side, and that in 2008, the US exported $5 billion worth of defense materials while importing only $2.2 billion from the European side.
"The Commission will be following further developments in this case very closely," the statement said.
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On the last day of 2009, the state of Missouri gave $19.6 million to developer Paul McKee.
It came in the form of tax credits, from a program never before used, to pay back some of the cost of the land McKee spent five years secretly buying in north St. Louis.
It was a good day for McKee, and for his hugely ambitious $8.1 billion NorthSide project.
It was also a good day for his bankers.
Because after McKee sold the tax credits for cash, he used the money not on NorthSide itself but to pay down his debt, mostly to the small Washington, Mo., bank that is his primary lender on the project.
Yet nearly half of the $19.6 million was reimbursement for interest and fees already paid to lenders. In a sense, the bank got some added protection and a quick payback.
This is exactly how the new tax credit program was intended to work, supporters say. The credits provided the backup a bank needed to see before accepting the risk of financing a long, complex process of assembling land in beleaguered north St. Louis neighborhoods.
"We’ve got to understand, these are high-risk loan areas," said Missouri Sen. John Griesheimer, who pushed the Distressed Areas Land Assemblage tax credit in the Capitol. "This is where bankers and developers don’t want to go."
But the way the program has worked so far speaks to the heart of a lawsuit against it to be heard this week in Cole County. The tax credits won’t create jobs, said attorney Irene Smith. They won’t build buildings or generate any other public good, at least not directly.
"You’re basically just incentivizing the collection of land," she said. "You’re not incentivizing any development."
When state lawmakers established the program in 2007, they designed it to encourage lending on a speculative project such as NorthSide, something risky that might take years to pan out. Indeed, many say it was written specifically for McKee.
Griesheimer, a Republican from Washington, Mo., chairs the Senate’s economic development committee and helped author the credit. Early on in that process, he said in a recent interview, the senator consulted with McKee and with L.B. Eckelkamp, a constituent of his and chief executive of McKee’s primary lender, the Bank of Washington.
They met, Griesheimer said, "to explain what they needed." And after talking with a few other experts, he inserted the tax credit program, worth $95 million, into a massive state economic development bill. It had the vocal support of Lt. Gov. Peter Kinder, St. Louis Mayor Francis Slay and St. Louis County Executive Charlie Dooley. And it passed.
The measure included a 100 percent reimbursement for money spent on interest and loan fees to buy at least 50 acres of land in low-income neighborhoods, and a 50 percent reimbursement for the cost of land itself. It was structured that way, Griesheimer said, to protect any banker willing to take a chance on a major project such as this. It was, he said, the only way NorthSide would happen.
"It was a very high-risk area," he said. "The banks and everybody wanted to make sure that they’re going to recoup at least some of their losses, some of their money."
Indeed, beyond a $27 million loan from the Bank of Washington, McKee has struggled to attract lenders, even with the support of the tax credits. He has pitched NorthSide to a number of local banks, but none has publicly committed to him.
The Bank of Washington’s money did not come cheap. Since 2005, McKee’s NorthSide Regeneration has paid at least $9.25 million in interest and fees on loans held by the bank, according to documents obtained from the Missouri Department of Economic Development under state open records laws. Another $529,000 in interest went to a small Illinois bank that’s now defunct. Now, every cent of that has been reimbursed by the state.
In a recent e-mail, McKee acknowledged that his interest costs were high. But so, he argued, was the risk.
"The loans were unique," McKee wrote. "They were the only loans made in decades for large-scale site development in north St. Louis that were not backed by government guarantees."
Once he sold the tax credits in January, McKee used the proceeds to pay a substantial portion of his debt. The bank "required a pay down," he wrote, and it makes sense for the project. Paying off debt will reduce interest payments — which were nearly $3.8 million last year — and free up cash for actual redevelopment.
But some say all this focus on protecting lenders reflects misplaced priorities.
"Half of the money is going to pay interest on loans," Smith said. "What public benefit do we gain from a tax credit being used to pay someone’s interest?"
That question will be up to a judge.
Smith said she planned to focus her case on the constitutionality of the tax credits, an issue, she says, that’s never been thoroughly vetted in court. It’s a fairly narrow legal question, Smith said, and she expects the trial, set for Wednesday, to be brief.
In the mean time, McKee continues to buy property in north St. Louis.
His tax credit application says he has spent $25.1 million on 98 acres across two square miles near downtown. It estimates another $66 million in land-buying costs to come. And there’s still about $75 million in the pot of money available through the Distressed Areas credit; McKee’s financial plans project his getting nearly all of it.
Even the program’s critics express little surprise in how it’s been used so far. In floor debate three years ago, Sen. Brad Lager, R-Savannah, raised questions about so much reimbursement for borrowing costs and whether the state should spend $95 million on this sort of project. But he lost that debate.
"And right, wrong, or indifferent, they’re using the credit exactly how it was written," Lager said recently. As for whether it will work, he said: "Only time will be the judge."
Dell shares fell more than 5% in after-hours trading, after the computer maker reported a 5% drop in fourth-quarter earnings Thursday.
The Texas-based company beat Wall Street’s expectations, however, on solid sales across all its segments as businesses started spending on IT again.
Net income dropped to $334 million, or 17 cents per share, compared with $351 million, or 18 cents per share a year ago.
Results included a one-time charge of 11 cents per share for special items, mainly related to the company’s $3.9 billion acquisition of Perot Systems in November. Without the charge, Dell (DELL, Fortune 500) said it earned 28 cents per share. Analysts polled by Thomson Financial, who typically exclude one-time items from their estimates, were looking for 27 cents.
Sales rose 11% to $14.9 billion from $13.4 billion last year, beating analysts’ forecast of $13.85 billion.
In a conference call with analysts following the results, chief financial officer Brian Gladden and Dell chairman and CEO Michael Dell said they expect to see an uptick in commercial sales in the next year and continuing into fiscal 2011 as businesses upgrade to Windows 7.
Gladden said the company is focused on cutting overhead and manufacturing costs and in simplifying its supply chain. Last year, Dell announced plans to trim expenses by $4 billion annually by the end of fiscal 2011. Gladden noted that in the last two years, Dell had consolidated its manufacturing facilities to six from 11.
"Ongoing competitor pressure and economic realities never stop, and we can’t either," he said in the call. "We’re moving into the next phase of our transformation."
While Dell’s financials beat analyst expectations, the news comes with a mixed bag of concerns such as high consumer sales with lower margins, and tight commodity prices, said Shannon Cross, an analyst with Cross Research. On the upside, the company is investing in key growth areas, she said.
"The biggest concern is a lack of leverage in the model," she said. "People had hoped to see more of that revenue upside fall through to the bottom line."
Segment by segment
Analysts say trends point to a hardware-driven uptick in IT spending during the recent holiday months. Notebook and desktop computer sales together account for more than half of Dell’s revenue.
Dell reported a 16% year-over-year jump in laptop sales and a 3% drop in revenue from desktops.
Overall, consumer sales were up 11%. That’s better than expected, Gladden said in the conference call. That said, operating margins in the consumer segment were below a target 1% to 2%, due to holiday discounts, he noted.
Software sales from Dell’s third largest division were flat. Meanwhile server sales rose 26%, while sales in Dell’s tech services division were up 51%, year-over-year.
The company’s acquisition of Perot Systems in November marked a strategic shift toward ramping up its technology services market share and taking on Hewlett-Packard (HPQ, Fortune 500) and IBM (IBM, Fortune 500).
Revenue from Dell’s public business unit jumped 16% to $3.8 billion, with sales from services more than doubling, due in large part from the Perot addition.
Dell’s number one rival HP reported results Wednesday that blew past Wall Street’s expectations. The company said earnings jumped 25% on 8% rise in sales.
"HP had a lot more room to cut costs that Dell did, and HP has seen far more of the revenue upside fall through to their bottom line. HP is more focused on the consumer, so they’ve benefited from consumer strength more than Dell has," Cross pointed out.
For the full year, Dell reported a 42% drop in earnings and a 13% drop in sales over the year before.
Tampa-St. Petersburg hotel occupancy rates and revenue per available room were up for the week ending Nov. 5, while the U.S. hotel industry posted declines, according to national lodging research firm Smith Travel Research.
Tampa-St. Petersburg’s occupancy rate increased 11.8 percent to 52.2 percent, ranking the region among the top three out of 25 markets measured, a release from STR said.
The occupancy rate in Oahu Island, Hawaii, climbed 15.3 percent to 74.7 percent, and the rate in New Orleans, La. rose 13.1 percent to 67.6 percent, the release said.
The industry’s occupancy fell 4.9 percent to end the week at 47.6 percent in year-over-year measurements, the release said no faxing payday loan.
Along with Oahu Island and New Orleans, Tampa-St. Petersburg was one of only three markets to report an increase in revenue per available room for the week. The increase in Tampa-St. Petersburg was 1.8 percent increase to $44.70.
New Orleans posted a 42.4 percent increase to $101.72, and Oahu Island posted a 7.1 percent increase to $105.87.
The industry’s revenue per available room decreased 11.9 percent to $45.86, and the average daily rate dropped 7.3 percent to $96.25, the release said.
European Central Bank President Jean- Claude Trichet is withdrawing stimulus measures faster than economists anticipated, clearing obstacles to higher interest rates next year.
The ECB’s decision yesterday to end long-term emergency loans and tighten the terms of its final 12-month tender will give greater traction to any rate increases in 2010 should policy makers deem them necessary.
“The ECB chose a quicker exit path,” said Laurent Bilke, a former ECB economist now at Nomura International Plc in London. “It’s very difficult not to think it’s the beginning of a tightening process.”
The move to tie the rate on the 12-month loans to the ECB’s key rate rather than setting a fixed rate of 1 percent means any increase in the benchmark will also affect banks’ funding costs. While Trichet said the move doesn’t signal the ECB intends to raise rates, some officials are concerned that leaving borrowing costs at a record low for too long will fuel asset bubbles and faster inflation.
Trichet spoke as Federal Reserve Chairman Ben S. Bernanke promised a “smooth” withdrawal of stimulus in the U.S. as the world’s two biggest economies pull out of recession.
Yesterday’s announcements “put the ECB in a position where it can choose to raise rates if it wants to further down the line,” said David Page, an economist at Investec Securities in London. “We’re penciling in a rate rise in the second half of next year.”
Economic Recovery
The risk for the ECB is that any indication it could raise rates sooner than the Fed may fuel further gains in the euro and undermine the region’s economic recovery.
Economists had expected the ECB to leave the rate on its 12-month tender fixed at 1 percent, according to a Bloomberg News survey. That would have made any increase in the benchmark rate next year less effective because banks would have had money at 1 percent through the end of 2010.
By setting the rate on the loans to the average of the benchmark rate over the year, “the ECB has made sure that future movements in interest rates will be reflected in banks’ funding costs,” said Colin Ellis, an economist at Daiwa Securities SMBC Ltd. in London.
Some members of the ECB’s Governing Council were against indexing the rate, fearing it would fuel market expectations of policy tightening, people familiar with the discussions told Bloomberg last week. Trichet said today the decision was not unanimous, rather reached “by consensus.”
‘Strong’ Dollar
The euro traded at $1.5081 at 7:30 p.m. in Frankfurt last night, down from $1.5123 before Trichet spoke. It fell to $1.5061 after Trichet said it’s “very important” for Europe that the U.S. has a “strong” dollar.
The euro has gained 20 percent against the greenback since mid-February, threatening to slow the region’s recovery by hurting exports same day payday loans. Daimler AG, the world’s second-largest maker of luxury cars, said yesterday it will shift some production to Alabama from Germany as it seeks to benefit from the cheaper dollar.
While the ECB raised its economic outlook, forecasting growth of 0.8 percent next year and 1.2 percent in 2011, it said price pressures remain “subdued.” Inflation is expected to average 1.3 percent next year and 1.4 percent in 2011, below the bank’s medium-term goal of just less than 2 percent.
‘No Compelling Argument’
“The new staff growth and inflation forecasts confirm that there is still no compelling argument for hiking rates,” said Marco Annunziata, an economist at UniCredit Group in London. “Trichet was emphatic in noting that the decisions on liquidity simply reflect improving market conditions and in no way signal a prospective hardening of the monetary policy stance.”
Still, the ECB is withdrawing its non-standard operations “at a somewhat quicker pace than we had expected,” said Julian Callow, an economist at Barclays Capital in London. “In our view, today’s decisions are on the hawkish side.”
ECB council member Axel Weber said yesterday it’s a “balancing act” for central banks to withdraw stimulus measures without threatening their economic recoveries.
“We’ve made it clear that we’ll gradually withdraw unconventional measures in the future,” Weber, who is also head of Germany’s Bundesbank, told ARD television. “But that doesn’t mean that we won’t use the necessary caution. There’s no need to send a signal on interest rates at the moment.”
Normal Refinancing
The changes announced by the ECB nevertheless pave the way for a return to normal refinancing operations, in which the interest rate on its loans is determined by market demand. After the collapse of Lehman Brothers Holdings Inc. in September last year made banks reluctant to lend to each other, the ECB said it would lend them as much cash as they wanted at its benchmark rate.
Money-market rates have dropped, suggesting banks have become less wary of lending to each other. The Eonia overnight rate, the rate European banks charge each other for overnight loans, has declined to 0.34 percent from 2.2 percent at the start of the year.
“Once liquidity conditions normalize in the third quarter of next year, the Eonia rate is likely to move back to the refinancing rate,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam.
“This would pave the way for conventional monetary tightening from the autumn of next year, and we expect 50 basis points of rate hikes by the end of 2010.”
Google Inc is adding Garmin Ltd and TomTom to its growing list of rivals as the Internet search giant weaves technology for driving directions into new versions of its smartphone software.
Google said its new Google Maps Navigation product will provide real-time, turn-by-turn directions directly within cell phones that are based on the new version of its Android software.
The navigation product, which features speech recognition and a visual display that incorporates Google’s online archive of street photographs, marks the latest step by Google to challenge Apple Inc’s iPhone and Microsoft Corp’s Windows Mobile software with its Android smartphone software.
It also represents a direct competitive threat to companies like Garmin and TomTom which sell specialized hardware navigation devices. TomTom also makes a software navigation app for the iPhone that sells for $99.99 in the U.S.
Google executives told reporters at a press briefing on Tuesday ahead of the announcement that the company decided to offer turn-by-turn driving directions in its four-year-old maps product because it was the most requested feature by users.
CEO Eric Schmidt said that expanding into a new market with new competitors was not a part of Google’s motivation.
“Those are tactical problems that occur after the strategic goal which is to offer something which is sort of magical on mobile devices using the cloud,” Schmidt said.
The new navigation service will work with Google’s forthcoming Android 2.0 software, the next version of the smartphone operating system developed by Google. The company announced development tools for Android 2.0 on Tuesday, but a spokeswoman said specific details about when Android 2.0 will be available should be directed to phone-makers and wireless carriers savings account payday advance.
Google said the product, which will initially be limited to driving directions in the U.S., will be free for consumers.
Executives said the company was not currently serving ads on the navigation product, though they said Google is constantly looking at innovative ways to advertise in Google maps.
Google Engineering Vice President Vic Gundotra said the company hoped to eventually make versions of the navigation product for non-Android smartphones, but noted that the software has “stringent” hardware requirements.
He would not comment on whether Apple’s iPhone, which offers Google mapping software as part of its standard menu of built-in applications, would offer the new navigation features. He said, in response to a question, that the latest version of the iPhone, the iPhone 3GS, has the horsepower to support the navigation product.
The new navigation product taps into various existing Google products and technology, including Google’s flagship Internet search capability to find the addresses for a particular destination, as well as Google satellite images and Google Street View, for more realistic views of a route.
The product also uses voice-recognition technology, making it well-suited for use while driving, Google said. And the navigation software can display live traffic data that Google collects from various sources, including data it collects on the speed and distance that users of Google mobile maps are traveling.
Gundotra said the company does not collect any personally identifiable information in the Google mobile maps and the navigation products.
(Reporting by Alexei Oreskovic; Editing Bernard Orr)
Hewlett-Packard Co may get acquisitive again despite its recent absence from the technology sector’s M&A scene, analysts said, and Brocade Communications Systems Inc may a prime target.
Brocade is putting itself up for sale, and HP has looked at the company’s assets but has not made a formal bid, sources told Reuters. Brocade and HP declined to comment.
Brocade makes routers and switches for blade servers, as well as software to help companies manage data efficiently. It has been expanding its partnerships and already sells equipment to HP, International Business Machines Corp and Dell Inc.
Analysts say HP’s sprawling portfolio has cushioned it against the shock of the IT spending downturn, but that investors now want to see the world’s largest computer company move to ramp up growth. Some say one way to do that is through acquisitions.
Stifel Nicolaus analyst Aaron Rakers said HP is likely looking to acquire in areas such as software and networking, to complement its ProCurve networking product.
HP has been relatively quiet on the M&A front, Rakers said, given that the company is still working through last year’s blockbuster $13 billion acquisition of EDS.
“As we roll out into the next couple of quarters, I wouldn’t be surprised to see them do something,” he said.
Kaufman Bros analyst Shaw Wu said HP and its rivals are focused on offering customers an end-to-end suite of products. Cisco recently began selling computer servers targeted at data centers, pitting the company against HP and IBM.
“It makes sense for HP to add to its portfolio in two areas: one is networking, the other is software,” Wu said. “The more software and the more networking that they do, the better the margins.”
Wu said Brocade would be a good fit for HP, noting that an offer for Juniper Networks — another tie-up much speculated on in markets — the No. 2 networking equipment maker after Cisco, would be a bolder and more expensive move.
M&A HEATS UP
Juniper’s market capitalization of roughly $13.8 billion is more than three times that of Brocade. F5 Networks is another networking name that crops up in acquisition talk.
As the IT sector has stabilized, the economy steadies and credit looses, M&A has been picking up. Last week, Cisco agreed to acquire Norwegian videoconferencing company Tandberg for $3 billion, leading analysts to wonder whether HP would respond.
There were also major deals in an IT services sector that analysts say is ripe for consolidation: Dell’s $3.9 billion bid for Perot Systems Corp and Xerox Corp’s $5.5 billion play for Affiliated Computer Services.
HP has a formidable warchest of $13.7 billion in cash should it decide to deal. It has made more than 45 acquisitions since 2001.
Charlie Eickmeyer says he was a fan of Saturn vehicles years before he was able to drive. Today he’s in shock.
So were employees at Day Automotive Group in Pittsburgh when they read the news online that a deal to rescue Saturn had fallen through. And Mike Martin is left wondering how he can move the Saturns left on his lot or what to do with the employees at his Manassas, Va., dealership now that the brand is apparently doomed.
"It seemed like the deal was going through," said Eickmeyer, 34, who started following Saturn when he was 10 years old and now runs a website for enthusiasts of the brand. "I was really excited about the next chapter in Saturn’s history."
The chapter was supposed to be a future under former race car driver Roger Penske with the novel approach of filling dealerships with cars made overseas and rebranded as Saturns.
Instead, the collapse of talks between GM and Penske Automotive Group Inc. this week likely means the end of the nearly 25-year-old brand, sending Saturn dealers, including six dealerships in the St. Louis metro area, scrambling over what to do with their soon-to-be empty showrooms and leaving the company’s loyal owners mourning the apparent demise of a company that built its reputation on customer care.
GM said it will cease making Saturns at plants in Kansas, Mexico and Michigan almost immediately, but will continue to honor warranties after Saturn dealers stop selling cars. Saturn owners can still get their vehicles serviced at GM’s remaining dealerships once their Saturn dealer shuts down.
Lou Fusz Jr., whose family-operated automobile network includes five Saturn dealerships, said his company will continue selling the discontinued line through October 2010.
Fusz said Saturn has yet to notify dealers when to expect the final deliveries of the models.
"All I can tell you is that we’re still in business," Fusz said. "We’re not closing up."
When the time comes, he added, Fusz will sell and service other brands of vehicles in locations now occupied by Saturn.
Fusz said 200 people are employed at the five Saturn dealerships — four in the St. Louis metro area and the fifth in Columbia, Mo. — and could wind up working for "the other franchises we put in there."
A spokesperson for the two remaining local Saturn dealerships, which are run by Jim Butler, couldn’t be reached for comment.
Saturn’s future has been in doubt since GM said earlier this year that it planned to phase out the brand by 2011. GM was shrinking to four brands as part of a deep restructuring. Just five days after GM filed for bankruptcy, Penske emerged as a possible buyer for Saturn payday loan online. Wednesday, Penske backed out, unable to find another company to supply vehicles after GM stops making Saturns in two years.
So, more than 350 Saturn dealers expecting to hear about the closing of a deal instead are faced with shutting their showrooms if they don’t have a viable contingency plan. Thousands of jobs are in jeopardy. Dealers will have to figure out how to sell remaining vehicles to customers who may be skittish over the news that the brand will disappear. But they won’t close immediately — GM gave dealerships until October 2010 to wind down their operations.
Many Saturn dealers have already been through difficult times recently, hit by a combination of one of the worst downturns in auto sales in decades and the uncertainty about the brand’s future. In a clear sign of that pain, GM reported Thursday that Saturn sales were down 84 percent in September from a year ago. But about 13,000 jobs are still tied to Saturn, the vast majority of them at dealerships.
GM had a midday conference call with dealers to discuss the closures. Dealers said executives expressed shock and disappointment that the Penske deal fell through, but didn’t provide much detail on the specifics.
The mood was grim Thursday at dealerships, where owners said they were blindsided by the news.
"This is nothing short of the bride running away at the altar," said Lou Gonzales, president and owner of the Saturn of Antelope Valley dealership in Palmdale, Calif., about 60 miles north of Los Angeles. "The millions of Saturn customers across the United States, I’m sure are disappointed. But they will not be left out in the lurch."
GM spokesman John M. McDonald said GM estimates it will take 4 months to sell the existing inventory of 12,000 Saturns. Dealers believe it could take longer, worried they will have difficulty selling a lame-duck brand to customers.
Martin was weighing whether to run his lot as a used car business or shift his employees over to the Chevrolet dealership he also operates nearby. He has only about 25 Saturns left on his lot after the popular cash for clunkers program, but said he hoped GM would offer some generous incentive programs to help dealers sell out the cars that remained.
There are no plans to offer any special incentives to help sell remaining vehicles, McDonald said. Other brands that are winding down like Pontiac are still selling well without any extras.
Steve Giegerich of the Post-Dispatch contributed to this report.
President Barack Obama’s “pay czar” said on Friday he will not cap compensation for the top employees at bailed-out companies, and will not reveal names, when he releases the first wave of decisions within a few weeks.
“We don’t want specific names next to dollars,” said Kenneth Feinberg, who was appointed in June to decide compensation packages for the highest-paid personnel at companies that received U.S. government bailouts.
The rules do not call for capping pay, Feinberg told a conference here, adding he is faced with setting compensation that discourages excessive risk-taking and that relates pay to performance.
Feinberg said he has the “daunting task of actually determining the compensation,” adding, “avoiding excessive risk means different things to different people in different situations.”
Feinberg, a Washington lawyer, is reviewing companies bailed out in the U.S. Treasury’s Troubled Asset Relief Program (TARP) — a job he has acknowledged comes with enormous political pressures on the heels of the crippling financial and economic crisis that spread around the world.
For the past month, Feinberg and his team have been reviewing the appropriateness of pay packages proposed by seven companies that received extraordinary assistance from the U.S. Treasury: Citigroup Inc, Bank of America Corp, American International Group Inc, Chrysler Financial, Chrysler Group LLC, General Motors Co and GMAC Inc.
Feinberg said there are 15 people on his team, and that he has hired outside consultants. The team is preparing to issue initial determinations, he said at the New York conference hosted by Labaton Sucharow LLP.
The government has laid out general principles that will guide Feinberg’s decisions, such as ensuring the contracts do not encourage excessive risk-taking, that they have an appropriate balance of short-term and long-term pay, and that pay is tied to performance.
The pay plans should also be generous enough that the companies can retain top people and become profitable enough to repay taxpayer investments, Treasury has said.
The model, report, and formulas Feinberg is using will be made public, he said on Friday, adding the rules could be a model for other regulators or institutions.
Feinberg, who previously oversaw payouts to families of victims of the September 11 attacks, has a great deal of latitude in making his determinations and can even claw back pay that employees have received if he finds that it was paid out unfairly.
After Feinberg makes his initial determination about whether to approve or disapprove pay contracts, the companies have 30 days to ask him to reconsider, after which Feinberg has 30 days to make a final determination.
The final determinations are binding, Treasury has said. Feinberg has been verifying the submissions since they were due in to Treasury on August 14.
Andrew Hall, a Citigroup energy trader on track to make about $100 million this year, has recently become a target for accusations of excessive pay at bailed-out companies.
After Feinberg finishes his review of pay packages for the companies’ top 25 employees, he will have to approve broader compensation structures for the 75 next-highest-paid employees.
(Additional writing by Jonathan Spicer; Editing by Steve Orlofsky, Dave Zimmerman)
Chinese housing prices have surged since March, but they will soon lose momentum and even start to fall around the end of the year, boding well for a more sustained contribution to overall economic growth.
A burst of lending in the first six months helped fuel a wave of pent-up end-user buying and speculative purchases, driving up prices for some projects in major cities by 20-30 percent and creating concerns about dangerous bubbles.
Speculative transactions are subsiding now; at the same time, a fresh round of property investments will increase supply.
The resulting moderation in prices, far from signaling the next phase of a boom-bust cycle, will probably pave the way for steadier demand from owner-occupiers, providing a valuable prop for an economy adjusting to a slump in exports, analysts say.
“First we see transactions fall, then prices will decline,” said Ge Haifeng, deputy head of data research at the Beijing-based China Real Estate Index System, which is affiliated with SouFun.com, China’s biggest property website.
Transaction volumes in Beijing, for instance, fell 5.6 percent in August compared with July, the second straight fall after a four-month streak of gains, according to the city’s housing management bureau. In the eastern port city of Ningbo, they were down 37 percent.
That has not been by chance.
Worried by the spike in house prices, authorities in Beijing, Shanghai and other major cities attempted to curb speculation by introducing measures in July to make it harder for people to apply for second mortgages.
Such moves will increase the cost of buying a home and push down prices, said Fan Jianjun, a senior researcher at the Development Research Center, a government think tank.
TWEAKS, NOT WHOLESALE CLAMPDOWN
The drop in new bank lending — to an average of 383 billion yuan ($56 billion) in July and August compared with a monthly average of over 1.2 trillion yuan in the first half — will also pull down transactions in the coming months, said Gao Shanwen, chief economist at Essence Securities.
Policy tweaks and slower lending will probably be enough for now, analysts say, allowing Beijing to stop short of declaring a full-fledged campaign to stamp out property speculation similar to one in 2007.
Ge projected that housing prices would drop toward the end of 2009 or early next year, by about 10 percent, much less than a 20-30 percent fall witnessed last year.
Song Li, a senior analyst at Centaline Property Research Center in Shanghai, gave an even bolder forecast: “We expect prices to peak in September.”
Andy Rothman with brokerage CLSA in Shanghai disagreed that the recent burst of buying and price increases made the sector vulnerable to a setback. He said the market was growing at a healthy, sustainable pace, driven by fundamental demand.
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