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President Barack Obama walks to the podium in the Grand Foyer of the White House to outline a series of security reforms following a meeting with his national security team, January 5, 2010.
President Obama is reported to be planning to recover for taxpayers as much as $120 billion of the money spent to bail out the financial system, through a special fee on large banks.
The president and his senior economic advisers are weighing a number of options as they complete the budget for the next fiscal year beginning on Oct 1st. The budget will be issued next month.
The plan is to devise a levy that would assist in reducing the budget deficit, which is now at a level not seen since World War II, and would also discourage the kinds of excessive risk-taking among financial institutions the officials said.
There is also an important political purpose, in responding to anger on record Wall Street bonuses, built on continuing unprecedented support of the financial system from the Federal Reserve.
The administration is reported to have considered two ideas in recent times to curb financial sector excess: a transaction tax on financial trades and a special tax on executives’ bonuses.
The current plan envisages a tax based on the size and riskiness of an institution’s loans and other financial holdings, or a tax on profits.
The losses from the $700 billion TARP (Troubled Assets Relief Program) bailout fund are estimated to run as high as $120 billion.
"We do not have change-of-control agreements, special executive retirement plans, golden parachutes, special severance packages or merger bonuses," JPMorgan Chase Chief Executive Jamie Dimon told a JP Morgan healthcare conference on Monday, adding that many of company's employees are in client-facing jobs and work hard with small and mid-size businesses.
"I am a little tired of the constant vilification of these people," he said.
Discussing the public backlash on bonuses given by companies rescued by taxpayer money, with William Isaac Former FDIC chairman (1981-1985); Carlos Gutierrez, former Commerce Secretary; and Andrew Ross Sorkin, The New York Times:
“It is perplexing to us,” said Edward L. Yingling, president and chief executive of the industry group, the American Bankers Association. He said President Obama recently had two White House meetings with bankers to urge them to provide more loans to credit-starved small businesses. But a tax, he said, would be“a hit on banks that will decrease their ability to lend.”
Tesco
Tesco sales increased by 7.5% at constant exchange rates (6.9% at actual rates) in the six weeks to 9 January 2010.
Terry Leahy, Chief Executive, commented: "We've delivered a very strong performance over the Christmas and New Year period. It was a great Christmas for Tesco customers with an excellent seasonal range in store and online. The Tesco team delivered a great shopping trip for customers
and I'd like to thank all our staff and also our suppliers for their tremendous efforts, particularly during the freezing weather."
Overseas businesses saw continued growth over the Christmas and New Year period, delivering a total International sales (excluding petrol) increase of 4.1% at constant exchange rates and 2.4% at actual exchange rates. Like-for-like sales in Asia, Europe and the United States have continued the improving trend we saw in Q3.
In Europe, sales grew by 0.8% at constant exchange rates (excluding petrol) and decreased by 2.2% at actual rates (excluding petrol). In Asia, sales increased by 7.8% at constant exchange rates and 8.0% at actual rates (the Homever stores acquired in Korea are now fully like-for-like following the anniversary of the acquisition on 30 September 2009).
In the United States, Fresh & Easy had a stronger Christmas and New Year period than last year, with total sales growth of 35% at constant exchange rates (24% at actual rates) and strongly positive like-for-like sales growth.
In the UK, total sales outperformed the industry as a whole, increasing by 8.3% compared with the same period last year (8.0% excluding petrol). Like-for-like sales excluding petrol and including VAT increased by 5.1% in the period (4.9% VAT-adjusted), all of which was volume growth. This was the strongest Christmas performance for three years.
Tesco said it was a good Christmas for Tesco customers with some great offers in store and online and with Double Clubcard Points. Customers were looking for ways to treat themselves with 35% more bottles of Champagne sold than last year and a strong performance from the Finest range. Non-food performance continued to strengthen with improving like-for-like sales, driven by particularly good growth in clothing, electricals and toys.
Online sales were very strong in both food and non-food with total online sales growth approaching 20% in the six weeks. In grocery we delivered over 100 million items to almost 1.5 million customers in the run up to Christmas with very good levels of availability. Tesco Direct had sales growth of over 50% with a strong performance in toys, TVs, games and entertainment (including digital downloads).
French Q4 GDP
The Banque de France said today that France's economy grew 0.5% in the final quarter of 2009, revising downward a previous estimate but still showing the pace of economic growth was accelerating.
The bank had previously estimated that the economy grew 0.6% in the last three months of 2009 after advancing 0.3% in the third quarter.
The government estimates the economy shrank 2.25% in 2009 as a whole.
Both France and Germany exited from recession in the second quarter.
Consumer spending appeared to increase near the end of 2009. Linda Yueh from Oxford University told CNBC one of the reasons for the increase was due to the expected rise in VAT. "When you look at the savings rate, it always goes up in a recession," she said:
Rent Review Completion
Real Estate Opportunities plc (REO), the real estate investment and development group active in the UK and Ireland and listed in London, Dublin and The Channel Islands, today announces that it has successfully completed a rent review with REO's largest tenant by rent, Vodafone (Central Park, County Dublin), at €7,200,000 per annum, or 12% above previous passing rent. The new rent is effective from October 2006. The Vodafone lease in Central Park is Ireland's largest single let building at 263,000 square ft and expires in 2026.
Two other rent reviews were also recently completed in Central Park with tenant Tullow Oil plc, achieving an average increase of 12.8% on passing rent.
Ray Horney, Chairman of REO commented:"I am very pleased that this anticipated rent review has been successfully completed at a significant premium to passing rent, which represents a strong result in this market environment and highlights how intensely REO is managing its investment portfolio and boosting rental income."
A mixed picture for UK housing and consumer sectors in December
Goodbody chief economist, Dermot O’Leary commented today: "The latest surveys on the UK housing and retail sectors paint a contrasting picture for the month of December. Firstly, the rebound in the UK housing market lost some momentum, according to RICS. Its headline balance of house prices dipped from +35% in November to +30%, the first decrease in a year. Although most regions saw a weakening, the South of the country continues to outperform, as has been the case for some time. For example, the price balance stood at +60% in London, but dropped to -7% in the North, indicating that prices continue to decline in that region.
Recent commentary from property agents in the UK indicates that potential sellers are putting their properties on the market in larger numbers due to the improvement in prices in recent months. This is likely to lead to a flattening of price inflation in the coming months in the UK. Nevertheless, with a structural undersupply of housing in the UK, barring a repeat of the financial conditions that existed in the latter part of 2008, there is little prospect for a large fall in UK house prices in the foreseeable future.
Secondly, the latest evidence points to UK consumer spending performing quite well. The BRC retail sales monitor for December shows retailers fared very well over the key Christmas spending season, with total retail sales up 6% yoy (+4.1% in November), the strongest Christmas performance in four years. On a like for like basis, sales still posted impressive growth of 4.2% yoy (1.8% yoy in November). The surge in spending was led by food and drink sales (up 4.4% yoy), a 6 month high for sales in that area. Clothing and footwear sales were also boosted by the unseasonably cold weather. While weak base effects undoubtedly provide a flattering comparison, these latest numbers echo positive trading updates from key UK retailers of a very satisfactory Christmas trading period. There are headwinds ahead for the UK consumer, including the increase in the VAT rate this month and likely tax increases after a General Election. Nevertheless, both sets of survey evidence add further weight to the view that the UK finally emerged from recession in the final quarter of 2009."
US markets
On Monday in New York, the Dow rose 46 points or 0.43% to 10,664.
The Nasdaq fell 0.21% and the S&P 500 rose 0.17%.
Asia
Bloomberg reports that India’s industrial production grew at the fastest pace in 25 months in November, strengthening the case for the central bank to raise interest rates in the first half of this year.
Output at factories, utilities and mines rose 11.7% from a year earlier after increasing 10.3% in October, the statistics agency said in New Delhi today.
On Monday, it was reported that China’s car sales climbed 46% in 2009.
The MSCI Asia Pacific Index rose 0.4% Tuesday.
The Nikkei 225 added 0.75%; the Shanghai Composite gained 1.91% and India's BSE Sensex 30 fell 0.68%.
In Europe, the Dow Jones Stoxx 600 is down 0.59% Tuesday.
Cadbury today confirmed its rejection of US food group Kraft's cash and shares offer worth £10.5 billion, terming it "derisory" and maintained its revenue targets for 2010.
"Our performance in 2009 was outstanding," Cadbury CEO Todd Stitzer said in a statement. Group sales rose 5% last year, Cadbury said.
Venezuelan President Hugo Chavez threatened to seize businesses that raise prices after the country has decided to devalue its currency. Stuart Culverhouse from Exotix told CNBC that inflation in the country could rise above 30%; the bolivar and the Saudi Riyal, are the only currencies officially pegged to the US dollar:
Currencies
The euro is trading at $1.4487 and at £0.8986.
For live currency updates, check the right-hand column of the Finfacts home page.
The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.
Davy chief economist, Rossa White, comments: Two sectors likely to be left behind as economy emerges from recession - - "The Irish construction and associated banking collapse of 2008 and 2009 somewhat masked the troubles of another sector of the economy. Indigenous industry was buffeted in part by lower construction volumes, as related manufacturing activity declined proportionately. But the real problems stem from Ireland's elevated cost base and hard euro currency. There is a glimpse of light from the latest manufacturing data, perhaps enough to provide hope of a bottom in late-2010. But construction will take longer to stabilise.
Output in that mainly Irish-owned part of industry peaked in Q3 2007 and has been declining sharply since Q1 2008. The volume of production fell for six straight quarters for a cumulative drop of 19.6%. Fabricated metal products, transport equipment, food and beverages and energy have been the worst performers.
But yesterday's data for November suggest that output in the traditional sector (i.e. all activity apart from the dominant chemicals, software, medical devices and electronics sub-sectors) is beginning to stabilise. Although output slipped 2.2% month-on-month, most of October's 5.5% gain was consolidated. Even if output slides another 2% in December, the average level for the quarter will be higher than that recorded in Q3. That is only a start. Looking ahead, further cost reduction across the economy will help. But luck with the exchange rate would provide a bigger boon."
Goodbody analyst Eamonn Hughes comments: Aer Lingus; Getting closer to settlement - - "Press reports this morning carry some detail on the arbitration agreement being hammered out between Aer Lingus and the pilot’s union, IALPA. The pilots are the last remaining group to sign up (or maybe not?) to the airline’s proposed restructuring programme to save €97m in annualised costs. The arbitrator has made recommendations and, while we believe they are not legally binding, they are rarely ignored, so we presume we are getting closer to an agreement being reached. Both parties now head off to assess the recommendations from the arbitrator.
It appears that the arbitrator has recommended that pilots i) take a 10% cut in basic pay; ii) see other benefits cut and iii) pay more towards their pensions. We presume these will go a long way towards the estimated €30m savings sought from the pilots as part of the airline-wide targeted savings level of €97m (€74m from staff and €23m of non-staff related costs). So, in effect the airline was seeking 40% of the staff savings from the pilots. They will also give up a pay rise that was due in 2012, though expenses will remain unchanged. The arbitrator has also called for 50 “top of scale” pilots to be made redundant and a further 26 redundancies are expected to take place among full-time equivalent pilots. The article highlights that IALPA had received expressions of interested from a further 16 FTE’s as well. AERL has circa 500 pilots, so a figure of 76 equates to c.15% of total.
However, the arbitrator also recommends that a fund of €20-30m be established to be shared among employees based on their contribution to the restructuring. It would be disbursed over a 5 year period, which would ease demands on cash flow, and would only be divvied up when the airline returns to profitability. In terms of our own forecasts, we will most likely add this to the restructuring provision. The airline was hoping for any restructuring charge to be a fraction of the cost saves, but we have already pitched our figure at 1x the staff costs saves to be conservative. We will provisionally move this to 1.35x, again to be conservative, knocking c. 5 cent from our fair value to €1.10.
At the instigation of the restructuring plan, the potential cost saves represented 27% of the staff cost bill, broadly broken down to 17% in numbers and 10% in pay. So it appears that the potential deal with the pilots – if accepted - isn’t too far off the mark, though probably a little light, as we believe that the airline was seeking c. 20%+ reductions in pilots’ remuneration in total. Nevertheless, it is probably more important that a deal is struck in general, so that the plan can move forward and help return the airline to profitability. As such, last Friday’s IMS provided some welcome relief on yields."
