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Italian borrowing costs have dropped significantly in the latest market test of confidence in the country’s ability to manage its high debt.
Italy easily sold euro7 billion ($9.4 billion) in 12-month bonds on Monday at an interest rate of 5.92 percent, down from last month’s record of 6.087 percent.
The sale was held on the second “bond day” sponsored by the Italian Banker’s Association, which allowed private buyers to snap up public debt without the usual commission. Analysts said the move _ aimed at engendering confidence in the nation’s debt _ would help retail sales.
Also Monday, union leaders are calling for a three-hour strike to protest austerity measures that Premier Mario Monti hopes will save the country from financial ruin.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
ROME (AP) _ Union leaders in Italy are calling on workers to stage a three-hour strike to protest austerity measures that Premier Mario Monti hopes will save the country from financial ruin.
The union leaders say the measures hit too hard at pensioners and workers and not hard enough at the wealthy. Besides Monday’s strike, an afternoon rally is to be held outside Parliament, which is expected to pass the measures by Christmas.
Labor Minister Elsa Fornero said Sunday that some pension reforms might be softened, but that overall spending cuts must remain for the country to regain credibility on financial markets. An auction of 12-month bonds will test that credibility.
The strike forced Milan’s La Scala opera house to cancel a performance. Metalworkers were among those expected to strike.
TORONTO
The American public has gotten past its animosity toward General Motors for taking a government bailout in 2009, the company’s top executive said Thursday.
Chairman and CEO Dan Akerson said a poll taken last summer for GM by Washington public opinion firm Peter Hart Research Associates shows that more than 70 percent of Americans have a positive opinion of the company. When the same poll was taken in July of 2009, more than 70 percent had a negative opinion, Akerson said.
“I think America loves a competitor. I think General Motors, Chevrolet in particular, is part of Americana,” Akerson said during an appearance at the Detroit Economic Club.
In 2009, GM, saddled with high debt and expensive labor costs, needed $49.5 billion in government loans to survive a trip through bankruptcy court.
The U.S. government got a stake in the restructured company, part of which was sold in an initial public stock offering about one year ago on Nov. 18, 2010. The government’s remaining 500 million shares would have to sell for around $53 per share for the U.S. to break even. Such a sale probably won’t come anytime soon. GM shares are trading around one-third less than the $33 IPO price.
The summer before the IPO, then-GM Chairman and CEO Ed Whitacre said government ownership was hurting the company’s sales. Whitacre said GM didn’t want to be known as “Government Motors.”
But Akerson said on Thursday that the new GM is now making money and has passed that stage.
“I do think that we’ve kind of gotten over that,” he said.
GM made a net profit of just over $7.1 billion in the first nine months of the year.
Akerson said the government doesn’t get involved in running GM. But he’s concerned about government pay limits for companies that took bailout money. GM, he said, won’t be able to give bonuses to its 25 highest-paid executives _ even though it could make $8 billion or $9 billion this year.
“We’ve got some very, very good people that could do well at other companies who are doing this one for the home team,” he said.
Akerson pinned the drop in GM’s stock price on the broader economy, not automaker’s performance. Shares of General Motors Co. were down 96 cents, or 4.2 percent, to $21.69 in afternoon trading Thursday. They’re down about 41 percent for the year, slightly worse than the 40 percent drop in shares of Ford Motor Co.
Akerson also said GM will take actions to right its money-losing European operations. He referred to French competitor Peugeot Citroen SA’s plan cut 6,000 jobs because of flat demand in Europe, although he stopped short of saying there would be plant closures or layoffs at GM.
He said the government debt crisis in Europe could have a larger impact on the U.S. than the 2008 financial meltdown and recession, because Europe is “a hugely and important cultural and economic center of gravity for the world.”
Last week GM said its third-quarter net income fell 15 percent from a year earlier to $1.7 billion, partly because of a pretax loss of $292 million in Europe. The loss forced GM to back off an earlier forecast of breaking even in Europe this year.
“Clearly you can’t have a unit as important as Opel is to General Motors chronically unprofitable,” he said. “It’s not sustainable and it’s not good for the company.”
Yemen’s embattled president must speed up reforms and begin a transfer of power according to a plan backed by the international community, said a U.N. envoy on Monday.
Jamal Benomar visited Yemen for a week to promote a Gulf-backed proposal that calls for President Ali Abdullah Saleh to transfer power to his vice president in exchange for immunity from prosecution.
Saleh told a TV interviewer that he will sign, but he did not say when.
Saleh has resisted the proposal despite nearly nine months of protests against his 30-year rule. Several times he said he would sign, only to back away at the last minute. Months of international diplomacy has failed to resolve the crisis.
Benomar held meetings with opposition figures on Monday, including Maj. Gen. Ali Mohsen al-Ahmar, who leads a military unit of defectors siding with the opposition and protecting protesters.
Earlier in his trip, Benomar met with Saleh and his deputy.
In a rare interview with foreign media, Saleh told the TV channel France 24 that he would sign the Gulf-backed package, but he would not say when that would happen or what was preventing him from doing so, vaguely noting that there was no time mechanism in the accord online payday loan lenders. The interview was broadcast late Monday.
“Definitely, definitely,” Saleh replied when asked if he intended to leave power. “I believe that anyone who grips on to power is crazy.” He said he would step down 90 days after the agreement goes into effect, but he did not say when that would be.
Mediators and opposition figures have become exasperated with what they see as Saleh’s stalling tactics.
He said that the media was lying when reporting he refused to sign the agreement. He accused armed militias of infiltrating peaceful demonstrations in Yemeni cities.
Pro-Saleh forces regularly engage in deadly clashes with armed tribesmen and military defectors who support the protesters in Yemen’s largest cities, and al-Qaida-linked militants have taken control of entire towns in the country’s restive south.
Security has collapsed across the Arab world’s poorest nation during the nine-month popular uprising.
EMI Group Ltd., the iconic British music company that is home to The Beatles, Coldplay and Katy Perry, is being split and sold for $4.1 billion.
The deals will open EMI’s buyers, Universal Music and Sony/ATV, to regulatory scrutiny as they increase their dominance of the music industry.
Universal Music Group said Friday that it will pay 1.2 billion pounds ($1.9 billion) for the recording division, joining Universal artists including Lady Gaga and Eminem with EMI superstars such as David Guetta and Lady Antebellum.
A consortium led by Sony/ATV announced a separate deal Friday to pay $2.2 billion for EMI’s publishing division. That business is in charge of songwriting copyrights for such artists as Rihanna and Norah Jones.
Sony/ATV, a joint venture between Sony Corp. and the Michael Jackson estate, said it is a 38 percent partner in the consortium. Other parties include Mubadala Development Co., Jynwel Capital Ltd., the Blackstone Group and David Geffen.
The two-part sale, if approved by regulators, would further increase Universal Music’s dominance in recorded music and springboard Sony/ATV into the top spot as a music publisher, according to Impala, an association of European independent music companies that is against the deal.
The purchases would give Universal Music and Sony/ATV undue negotiating power over artists and distributors of music, even over the world’s biggest music store, Apple Inc.’s iTunes, Impala said.
Both deals are expected to be carefully reviewed in Europe, the U.S., Japan and Australia. Even if regulators approve, they could force the sale of key assets or attach other terms.
Helen Smith, Impala’s executive chairwoman, noted that when Universal Music bought music publisher BMG in 2007, it had to sell some assets to get smaller.
“When you have players which are dominant, even if they take over small players in market share, that can have a serious impact on competition,” she said.
Jean-Bernard Levy, CEO of Universal Music parent company Vivendi SA, told analysts on a conference call that he was “very confident” the deal would be approved in as little as 10 months.
In the United States, Universal is the top music producer with a 30 percent market share compared with EMI’s 9 percent, according to Nielsen SoundScan. With a combined share of 39 percent, they would tower over Sony at 29 percent and Warner Music at 19 percent.
On the publishing side, Sony/ATV will add EMI’s 1.3 million song copyrights to its roster of 750,000 songs that include hits from The Beatles, Bob Dylan and Taylor Swift.
The deal leaves Citigroup, EMI’s current owner, with liability for its underfunded pension plan, according to two other people familiar with the talks. One put the liability at $600 million, the other said it was about $260 million.
Neither person was authorized to speak publicly and spoke on condition of anonymity.
Citigroup had put EMI up for sale in June, four months after it foreclosed on private equity firm Terra Firma. Terra Firma bought EMI in 2007 in a $6.8 billion acquisition financed with debt from Citigroup, but it couldn’t make enough money to keep up with the terms.
Vivendi believes it is swooping in to buy a troubled asset at an “inflection point” in the music industry, Levy said. Thanks to gains in digital track and album sales, overall U.S. album sales are up 5.2 percent at 360 million units so far this year, according to SoundScan. At this point last year, overall album sales had plunged 10 percent.
Vivendi expects to cut costs and save more than $150 million a year _ making the deal profitable even if the music industry doesn’t grow in the future. Vivendi expects the deal to boost its profits in the first year after regulatory approval.
Morningstar analyst Allan Nichols, who covers Vivendi, viewed the deal with trepidation on fears that the music industry could resume its decline and that regulators could reject it.
But antitrust regulators could be more lenient of big tie-ups when the music industry is struggling to recover from more than a decade of online piracy, he said.
Also, Vivendi is paying less per dollar of earnings than Access Industries’ Len Blavatnik did when he took Warner Music Group Corp. private for $1.24 billion in July.
“The catalog is very impressive, and they didn’t pay a whole lot,” Nichols said.
Sony/ATV’s interest in expanding its library is due to the stability of licensing music copyrights, a business that has been profitable over the years because it relies on business customers like filmmakers instead of individual consumers.
Sony/ATV plans to reap new revenues from the EMI catalog, which includes around 100 No. 1 hits from Motown artists Smokey Robinson, Marvin Gaye, Stevie Wonder and The Supremes.
“We think there are biopics and life stories yet to be told about them,” said Sony/ATV Chief Executive Marty Bandier in an interview. “There’s a depth and quality to this asset that can’t be compared to anything.”
In a move that may appease regulators in Europe and the U.S., Vivendi said it would sell 500 million euros ($680 million) worth of non-core assets, mostly minority stakes in companies that it did not disclose. Strategic bidders that lost out on the auction, such as Warner Music, are expected to vie for those assets.
Vivendi said that London-based EMI would find a safe home at a company headquartered not far away in Paris.
“For me, as an Englishman, EMI was the pre-eminent music company that I grew up with,” Universal CEO Lucian Grainge said in a statement. “UMG is committed to both preserving EMI’s cultural heritage and artistic diversity and also investing in its artists and people to grow the company’s assets for the future.”
Grainge said on the conference call that he would ensure the famous Beatles’ recording studio, Abbey Road Studios, would remain open as a “symbol of British culture.”
Universal released statements from bands in support, including from Coldplay manager Dave Holmes, who said “this can only be a positive for the artists and executives at EMI.”
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Trouble on two fronts in the European debt crisis sent American stocks tumbling Wednesday to their biggest loss since the rocky trading of last summer. The Dow Jones industrial average fell almost 400 points.
Stocks were down from the opening bell after borrowing costs in Italy spiked to dangerous levels, a sign that investors are losing faith in Italy’s ability to repay its national debt.
“Italy is potentially too big to bail out, but that’s the problem,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “It’s spiraling out, and the question is now, how do you fix it?”
In Greece, meanwhile, power-sharing talks aimed at avoiding a default broke down in chaos.
The Italian economy is more than six times larger than that of Greece, which so far has been the center of the continent’s debt problem. American investors are worried that the consequences from Europe could include a freeze in lending, the disintegration of the euro currency or a bruising recession that would hurt the U.S.
They sold stocks as a result. The Dow finished down 389.24 points, at 11,780.94.
“The market loves a quick solution, and we’re obviously not getting one,” said Mark Lehmann, director of equities of JMP Securities.
The slide in stocks was broad: Only a single stock in the Standard & Poor’s 500, Best Buy, finished higher for the day. Financial companies were among the hardest hit because they would suffer first if Europe’s debt problem spins out of control.
Morgan Stanley stock plunged 8 percent and Goldman Sachs 7 percent. In regulatory filings last week, Morgan Stanley reported it had $1.8 billion in liabilities related to Italy, and Goldman said it had $28 billion related to all of Europe.
Markets fear that a chaotic default by Greece would lead to huge losses for European banks. That could cause a global lending freeze similar to what happened after the investment house Lehman Brothers fell in 2008.
In Italy, where the crisis is only beginning, the country’s borrowing rate has skyrocketed to a level that is widely considered to be unsustainable. The higher rates will make it far more difficult and expensive for Italy to roll over its debts. It has over $400 billion to raise in 2012 alone. Italy’s total economy is about $2 trillion.
The 389-point decline for the Dow was the worst since Sept. 22. The S&P 500 closed down 46.82 points at 1,229.10. The S&P, the broadest major stock index, declined 3.7 percent, its worst day since Aug. 18.
Over the summer, swings of 3 or 4 percent a day for the stock market were common. Investors were focused on a debt showdown in Washington and fear of a second recession.
Lately, Europe has pushed everything else to the back burner, and the volatility has continued. Last week, the Dow fell 276 points Monday and 297 points Tuesday, both because of instability in Europe. It rose 100 or more three of the next five days.
The Nasdaq composite index finished Wednesday down 105.84, or 3.9 percent, at 2,621.65.
European stock markets fell sharply, too. The main stock index in Italy finished the day down 3.8 percent. The DAX index in Germany and the CAC-40 in France each declined 2.2 percent.
In the United States, prices rose for assets seen by investors as reasonably safe. The dollar rose 1.6 percent against the euro, a reflection of the instability in the 17 nations that use the euro.
The yield on the 10-year Treasury note fell to 1.96 percent from 2.08 percent Tuesday, a steep drop. Falling Treasury yields are a sign of rising bond prices, both indications that investors feel safe buying American debt.
In Italy, the yield on the benchmark government bond blew past 7 percent. That was considered an important level because Greece, Portugal and Ireland required bailouts from other nations when their bond yields hit 7 percent.
Italy is of more concern because it has the third-largest economy in Europe _ more than twice as big as Greece, Portugal and Ireland combined. And its debt, $2.6 trillion, is too large for other European countries to erase.
Italian Premier Silvio Berlusconi promised late Tuesday to step aside after a new budget is passed, but there are concerns that the transition will be difficult. Markets see Berlusconi as an impediment to far-reaching economic reforms.
The benchmark Italian bond rate spiked to 7.4 percent, a startling increase of 0.82 percent point from the day before. It settled down later in the day, to 7.26 percent.
In Greece, Prime Minister George Papandreou told the nation that the political parties were joining together to save it from going broke. Then power-sharing talks broke down, and political leaders failed to name a new prime minister.
Papandreou threw world markets into turmoil last week when he stunned European leaders by announcing he would put a hard-fought bailout deal for Greece up for a popular vote. He later backed off that plan and announced he would step aside.
When an interim government takes over for him, its main job will be to secure the next $11 billion or so of the $150 billion bailout package set up for Greece last year.
Thailand’s prime minister says she hopes the process of draining floodwater through Bangkok can be sped up now that peak high tides have passed.
Prime Minister Yingluck Shinawatra said Monday that “if there is no more additional water, the current runoff might not cause heavy flooding in Bangkok.” She said there was still a massive amount of water that needs to pass through the capital’s drainage network as it makes its way down from flooded provinces in the north quick cash.
Record high tides pushing up the Chao Phraya River from the Gulf of Thailand have made draining the water from Thailand’s worst flooding in a half-century more difficult. That has put extreme pressure on Bangkok’s flood defenses, though they have largely held and most of the city remains dry.
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