Monday, May 11, 2009

Kohn had Board backing for NY Fed waiver: official

(Reuters) - A waiver granted by Federal Reserve Vice Chairman Donald Kohn that allowed the chairman of the New York Fed's board of governors to stay in his job had the full backing of the Fed's Board of governors, including Chairman Ben Bernanke, a Fed official said on Monday.

The controversial waiver allowed Stephen Friedman to stay in his job as chairman of the board of governors of the New York Federal Reserve despite owning shares in Goldman Sachs (GS.N) ,which the Fed began regulating in September.

Friedman, a retired chairman of Goldman Sachs, resigned last week after it was reported in The Wall Street Journal that he had bought more Goldman shares.

The Wall Street Journal called in an editorial on Monday for Kohn's resignation, and said he had shown a tin political ear by allowing Friedman to stay at the New York Fed.

Goldman converted into a bank holding company last September in order to secure access to Federal Reserve lending facilities.

The U.S. central bank is comprised of a seven-member Board of Governors in Washington, and 12 regional Fed banks.

The Board of Governors selects some of the directors on the boards of each regional Fed, including Friedman, and these directors are banned from owning shares in Fed-regulated banks.

The Fed official said that it was unfair to single out Kohn, who had fully consulted with his board colleagues, including Bernanke, before the waiver was granted on January 21. It fell to Kohn because he heads up the committee on Federal Reserve bank affairs.

In addition, the Board of Governors in January voted to confirm Friedman as New York Fed chairman, the official said.

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Ackman says Target proxy not about him

(Reuters) - Hedge fund manager William Ackman introduced shareholders on Monday to his five nominees for the Target Corp (TGT.N) board, promising their expertise could make the retailer a better company.

"There is a lot to like, but that doesn't mean it can't be optimized," Ackman said at a town hall-style meeting in mid-town Manhattan.

While Target is well known for selling designer items, it is certainly not Gucci and the retailer, which sells the fashionable merchandise at discount prices, should be able to perform well even in difficult economic conditions, Ackman said.

For nearly two hours, the prominent investor, whose New York-based Pershing Square Capital Management owns a 7.8 percent stake in Target, downplayed fears he is only seeking a quick profit by launching this proxy contest and, instead, he played up the long resumes of his slate members.

"It's not about Bill Ackman. It's about how our directors compare with the existing nominees," Ackman said.

Target is Pershing Square's biggest single investment and Ackman lost a lot of money last year thanks to the retailer's poor performance.

Target's business faltered as shoppers, pressured by the recession, pulled back on buying trendy clothes and handbags and stuck to buying just the basics, such as food or medicine -- a trend that favored rival Wal-Mart Stores Inc (WMT.N). It is now trying to add more food to its merchandise assortment to lure shoppers into its stores more frequently.

But this year, Ackman is doing better, especially after the stock price jumped 45 percent since he announced his plan to replace four Target directors with five newcomers.

"We are the underdogs here," Ackman told about 150 people in the room and another 400 who registered to listen by webcast, according to Target's proxy advisers.

TOO CLOSE TO CALL

The outcome of this increasingly bitter proxy battle is too close to call since large shareholders such as State Street Global Advisors have not yet decided how to cast their votes before the May 28 annual meeting.

Ackman shared the stage with former Starbucks CEO Jim Donald; Richard Vague, the former CEO of Visa credit card issuer First USA; Richard Ashner, chairman and CEO of Winthrop Realty Trust; and Ronald Gilson, a law professor and corporate governance expert.

They sat in cherry red chairs -- mimicking Target's red bull's eye logo -- and answered questions about what they would do to help management perform better.

But Target has remained steadfast in defending its board members who are up for reelection.

"We believe that the four incumbent directors up for election are better qualified to serve the interests of shareholders than Pershing Square's nominees," a Target spokesman said.

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GM says open to moving HQ from Detroit

(Reuters) - General Motors Corp is open to considering moving its headquarters from Detroit, selling U.S. plants and renegotiating its restructuring plan with its major union as it heads toward probable bankruptcy, the automaker's chief executive said on Monday.

CEO Fritz Henderson said it was more likely that GM was headed for bankruptcy by June 1 -- the U.S. government-imposed deadline for the automaker to restructure or face bankruptcy.

"It's more probable that we would need to accomplish our goals in a bankruptcy," Henderson said on a conference call with reporters. "There's still a chance for it to be done outside a court proceeding."

A move by GM to leave Detroit would represent another blow for the economy of a region already reeling from the bankruptcy of Chrysler LLC and the sharp downturn in auto manufacturing.

GM purchased its glass-towered headquarters building, known as Detroit's Renaissance Center, last year for $625 million. The 100-year-old automaker has been based there since 1996.

"As we look at the structure, look at the business, we're looking at everything, particularly as we slim down," Henderson said. "At this point, I don't have anything to report. We don't have any such plans, but if we did it would be motivated by business rationale, which would be cost-efficiency and speed.

GM needs to reach deals that would slash debt owed to bondholders and the United Auto Workers union and to win concessions from the union that would cut operating costs for its remaining U.S. plants by the end of this month under terms set by the Obama administration's autos task force.

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Geffen offered to buy NY Times stake: source

(Reuters) - Media mogul David Geffen tried to buy a stake in the New York Times Co from hedge fund Harbinger Capital Partners, but was rejected, a source with knowledge of the matter said on Monday.

Geffen offered to buy the stake at market price, but Harbinger fund manager Philip Falcone wanted him to pay a premium, according to the source.

The two sides are not currently in talks, said the source, who spoke on condition of anonymity.

Fortune magazine first reported the news on its website in an article that said Times board member Scott Galloway, who was nominated by Harbinger, approached Google Inc co-founder Larry Page to try to get the Internet company to try to buy the Times.

Galloway and New York Times spokeswoman Catherine Mathis declined to comment.

Geffen's overture comes at a pivotal moment in the history of the New York Times Co, its namesake newspaper and the family that has controlled the company for 113 years.

One of the most venerated names in world journalism, the Times has fallen on hard financial times in recent years because of falling advertising revenue at its newspapers and looming debt payments that have forced it to borrow money at high interest rates.

Speculation is bubbling among media watchers that the Ochs-Sulzberger family might sell the paper rather than watch their empire shrivel. The move by the billionaire ex-movie producer and pop music label owner Geffen only fuels speculation that the family could bend to an attractive offer.

It also prompts speculation over whether Harbinger might give up its attempt to force the Times to change its business to survive in the 21st century. Interest in the stake has grown as the investment fund reels from losses in its funds.

Harbinger owned 19.94 percent of the Times Co as of March 6. At Monday's closing price of $6.81, the stake would be valued at about $194 million, far less than the $500 million that Harbinger paid for it.

Times shares have fallen along with other newspaper stocks, hurt by the slump in advertising spending and by circulation declines as readers turn to the Internet for free news and information.

Harbinger funded the fight against the Times, but its leader was Web entrepreneur Galloway, who convinced Falcone to front the money. To avoid a proxy battle, the Times expanded its board to allow Galloway and an ally on board.

The Times has made efforts to streamline its business, but Galloway's plan has proved a wash for Harbinger so far.

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Economists Downgrade U.S. Recovery Outlook, Survey Indicates

(Bloomberg) -- Economists downgraded their projections for a recovery from the deepest U.S. recession in half a century, now seeing the jobless rate exceeding 8 percent through 2011, a Bloomberg News survey showed.

Unemployment will average 8.5 percent in 2011 after a 9.6 percent rate next year, higher than previously expected, according to the median forecast in the survey taken from May 4 to May 11. The economy may expand 2.8 percent in 2011, less than estimated last month, after a 1.9 percent rise in 2010.

“The worse the labor market is and the longer that lasts, the more difficult it’ll be for consumers to recover,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “The economy isn’t going to come roaring out of the box here.”

A weaker recovery will keep pressure on the Obama administration, lawmakers and Federal Reserve officials to maintain the emergency lending and stimulus programs implemented in the past year. Shapiro said the danger is that policy makers may “pull out too soon.”

The economy will contract at a 1.9 percent pace this quarter, returning to a growth rate of 0.5 percent in the July to September period and 1.8 percent in the final three months, according to the median forecast of 61 economists surveyed.

Consumer spending, after stagnating this quarter, will not exceed the first three months’ 2.2 percent gain in the second half of the year, the survey showed. Such spending accounts for 70 percent of the economy.

25-Year High

The unemployment rate jumped to 8.9 percent in April, the highest level in 25 years, and the economy has lost 5.7 million jobs since the recession began in December 2007, the most of any economic slump since the Great Depression, according to Labor Department figures.

Some companies have yet to see any signs of recovery. Airgas Inc., the biggest U.S. distributor of industrial gases, last week forecast per-share earnings may fall this year and said April sales failed to pick up as expected.

“We are expecting no improvement in the economy during the calendar year,” Chief Executive Officer Peter McCausland said on a May 6 conference call with analysts. “We’ve never seen a downturn like this. When we see a tick up, then we’ll say things have stabilized.”

More Capital

The credit crunch, while easing, is clouding prospects for a recovery. Ten of the 19 largest U.S. banks will need another $75 billion in capital to withstand deterioration in the economy almost as dire as economists now anticipate, according to results of government tests issued last week. Examiners used an “adverse scenario” of a 3.3 percent decline in gross domestic product this year, and an average unemployment rate of 10.3 percent in 2010.

“The financial crisis is still making people wonder how far and how fast this economy can come back,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Credit is the life blood of the economy and bank balance sheets are still very constrained. That will put a damper on the strength of this recovery.”

A benchmark interest rate that’s already near zero and a yawning government budget gap make it unlikely the government will step in with additional spending, Rupkey said. “We may need more stimulus, but we can’t afford more at this stage,” he said.

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China’s Export Decline Worsens, Hampering Recovery

(Bloomberg) -- China’s export slump worsened in April, making it harder for the government to revive the world’s third-biggest economy.

Overseas sales declined 22.6 percent to $91.94 billion from a year earlier, the official Xinhua News Agency said. Imports fell 23 percent.

The collapse of world trade has cost millions of jobs in China and dragged growth to its weakest pace since at least 1999. Surging lending and a 4 trillion yuan ($586 billion) stimulus package are yet to establish solid foundations for an economic recovery, the central bank said last week.

“The export outlook remains highly uncertain and downbeat,” said Tao Dong, chief Asia economist at Credit Suisse in Hong Kong. China will still be the first major economy to “crawl out of recession” as lending and stimulus spending fuel growth, he added.

The yuan was little changed after the report, trading at 6.8252 per dollar as of 10:19 a.m. in Shanghai, compared with 6.8230 yesterday.

April’s export decline compared with March’s 17.1 percent slump. The median forecast of 19 economists surveyed by Bloomberg News was for a 15.3 percent drop.

Seasonally-adjusted, exports rose 6.9 percent from the previous month and imports climbed 15.1 percent, Xinhua reported.

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