business

The Nikkei stock average briefly edged above 10,000 to an eight-month high on Thursday before slipping 0.1 percent on the day, with worries about rising U.S. interest rates offsetting a jump in steel shares on a brokerage upgrade.

The benchmark Nikkei .N225 inched down 10.16 points to 9,981.33, after rising as high as 10,022.23 in morning trade, its highest since Oct. 7 and a rise of roughly 43 percent from its March bear market low.

• 
• 
• 
• 
• 

by Jeff Drew

Progress Energy opened the shades Wednesday on an expanded solar energy strategy that calls for the company to provide incentives to individuals and businesses to install solar-power systems.

Raleigh-based Progress (NYSE: PGN) said the goal of its new SunSense program is to increase the amount of solar energy produced in its Carolinas and Florida territories by more than 100 megawatts over the next decade.

The company intends to reach that goal by offering a series of incentives and rebates.

• Progress will pay commercial customers the going market rate for each killowat-hour of electricity produced by newly installed solar power systems. This program will debut in the Carolinas this summer and in Florida next year.

• Also starting this summer is a program that will provide incentives for Progress’ business customers to install solar water heaters. That program will not be available in Florida.

• For residential customers, Progress Energy will pay $1.50 to $2 per watt for residential solar installations. That should cover about 25 percent of the installation cost, Progress said. The program will debut late this summer in the Carolinas and next year in Florida.

• Also for residential customers, Progress will offer rebates to customers who install solar water heating systems. The program, already established in Florida, is being rolled out the in Carolinas.

A fifth arm of the Progress plan will see the company’s Progress Energy Carolinas and Progress Energy Florida subsidiaries install solar panels at selected schools in their territories.

With a market capitalization of almost $10 billion, Progress Energy is the most valuable company in the Raleigh-Durham area and the only one in the federally defined Triangle area to rank among the Fortune 500. Raleigh-based Progress Energy Carolinas supplies electricity to much of the Triangle area.

source: Triangle Business Journal

• 
• 
• 
• 
• 

By BERNIE BECKER

Executives at General Motors and Chrysler defended the methods they used to whittle down dealerships at a Senate hearing on Wednesday, calling it a painful but necessary part of creating leaner, more competitive companies.
The chief executive of General Motors, Fritz Henderson, and the vice chairman of Chrysler, James E. Press, said dealerships that sold a small number of vehicles weighed down their companies. A more streamlined corps of dealers, they said, was vital for survival.

“Does my heart go out to the dealers who will not be part of the new company? Absolutely,” Mr. Press said in his prepared testimony. “But we’ve had to make many hard choices to create a viable business and preserve jobs for tens of thousands of people.”

But Senator John D. Rockefeller IV, the chairman of the Senate Commerce committee, criticized both executives in his prepared testimony for “somehow implying that the dealers themselves are responsible for the companies’ problems.”

“Let me be very clear,” Mr. Rockefeller, Democrat of West Virginia, said. “I don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves with no real notice and no real help.”

Chrysler is expected to close about 800 dealerships by June 9, according to the testimony. General Motors hopes to reduce its dealerships to about 3,500 by the end of next year from around 6,000 currently.

The G.M. dealers marked for closing will stay open as late as October 2010, when their current agreements with G.M. expire. In general, auto dealerships are independent businesses and are not owned by manufacturers like Chrysler or G.M.

The executives noted in their testimony that government entities, like the Treasury Department and federal bankruptcy courts, had urged them to make tough decisions about which dealerships to close and that those decisions were made as objectively as possible.

The executives said that a variety of factors, including a dealerships’ location, the quality of its facility and its profitability, were used to determine which ones would remain.

“Underperforming dealers,” as the two executives called them, cost sales, reduced customer satisfaction and fractured advertising messages. Mr. Henderson also notedthat many dealerships have been around since the 1940s or 1950s, setting up shop when American automakers had a stranglehold on the market. Now, with the influx of foreign dealerships, many of those dealers are in small towns or rural areas, not the suburban and urban population centers where most people live.

For their part, two small-town dealers disputed that their dealerships were a drag on the auto companies.

Peter Lopez, who owns Chrysler and G.M. dealerships in Spencer, W.Va., and Russell Whatley, who has a Chrysler dealership in Mineral Wells, Tex., said they paid the auto companies for vehicles and parts, as well as other fixed costs, like the right to hang the manufacturer’s sign. Mr. Lopez saidhis dealerships produced roughly 15 percent of his town’s tax revenue and that he even bought additional Chrysler vehicles earlier this year, at the company’s insistence, to help it through the recent downturn. And Mr. Whatley said that he grossed almost $450,000 a month.

But both have been told their Chrysler dealerships will be closed. Mr. Lopez’s G.M. franchise will close next year.

“To be arbitrarily closed, with no compensation, is wasteful and devastating,” Mr. Whatley said.

source: The New York Times

• 
• 
• 
• 
• 

By Theo Francis

The days of home buying with little or no money down may be back—this time thanks to Uncle Sam.

Blamed for contributing to the housing bubble, zero-down-payment loans largely vanished when the market crashed and Congress blocked seller financing for government-backed loans. Now the federal government will be forking over cash at closing.

Buyers who haven't owned a home for three years or longer are eligible for an $8,000 tax credit, thanks to a provision in this winter's stimulus package. Now, under a little-noticed program announced May 29, the Federal Housing Administration will steer the funds to cover closing costs directly—in some cases even offsetting the 3.5% minimum down payment FHA loans require. That's enough to cover most or all of the down payment and fees for homes up to the U.S. median price, now about $169,000.

Officials hope "monetizing" the tax credit will help revive the housing market, because meeting closing costs is one of the biggest hurdles for new home buyers. The National Association of Home Builders predicts it will add 40,000 to the 160,000 sales originally expected to be spurred by the tax credit. Supporters say the move avoids the worst effects of seller financing, in that the credit is essentially the buyer's money, and government assistance doesn't give sellers a perverse incentive to inflate prices in an unsustainable manner.
Does Down Payment Aid Boost Defaults?

But while seller financing is riskiest, buyers who get down payment help have higher default rates, whether the money comes from government or other sources. That was shown in research by Austin Kelly—who oversees risk modeling at Fannie Mae and Freddie Mac for the FHA—published late last year in the Journal of Housing Research. FHA data on foreclosures show the same pattern.

The new program lets home buyers apply the tax-credit advance against the FHA's 3.5% down payment requirement only if the loan is handled through a state housing-finance agency; otherwise the tax advance may only be used to cover closing costs, to increase the down payment, or to buy down the mortgage's interest rate. The FHA already allows down payment assistance from family, employers, and governmental agencies, but generally bars it from sellers, mortgage writers, or others who would benefit financially from the transaction.

Ultimately, critics complain that the new program transforms a tax credit meant to reward sidelined buyers for taking the plunge into a subsidy that could goose sales to those who otherwise couldn't buy a home—and have little at stake if it doesn't work out. "Didn't we just have this big housing bust where people bought houses they can't afford?" says Peter Schiff, president of brokerage firm Euro Pacific Capital and an economic adviser to Representative Ron Paul's (R-Tex.) long-shot 2008 Presidential campaign. "We don't want people buying houses without using their own money."

source: Business Week

• 
• 
• 
• 
• 

By Sarah N. Lynch
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--Bank of America (BAC), Royal Bank of Canada's RBC Capital Markets (RY) and Deutsche Bank (DB) on Wednesday settled civil charges filed by the Securities and Exchange Commission and the New York Attorney General's office, which accused them of misleading investors of the risks associated with auction-rate securities.

Without admitting or denying the charges, the three firms will provide nearly $6.7 billion to 9,600 customers who invested in auction-rate securities before the market froze in February 2008.

These are the latest settlements in the SEC's wide-ranging auction securities case. Three other settlements were also completed with Wachovia, Citigroup and UBS AG. Meanwhile, the SEC announced a preliminary settlement with Merrill Lynch last August, but a final settlement hasn't yet been reached.

"Through these latest settlements and prior ARS settlements with other firms entered into by the commission, more than $50 billion in liquidity is being made available to tens of thousands of customers so they can get back all of the money they invested in auction rate securities," said Scott Friestad, Deputy Director of the SEC's Division of Enforcement.

Preliminary settlements with Bank of America and RBC were first announced in October last year, but Wednesday's announcement represented final agreements with the firms.

According to the SEC's complaint, which was filed in federal court in New York City, the three firms led investors to believe that auction rate securities were safe and liquid investments that were comparable to money markets.

They made these claims, the SEC alleged, while knowing that their ability to support auctions by purchasing more auction rate securities had been reduced with the stress of the growing credit crisis.

When the banks stopped supporting the auction-rate securities market in February last year, customers were left holding billions in illiquid auction-rate securities.

Under the terms of the settlements, which still await court approval, Bank of America customers will have $4.5 billion of liquidity restored. RBC customers, meanwhile, will have $800 million in liquidity restored and Deutsche Bank customers will have $1.3 billion in restored liquidity.

Each firm will offer to purchase auction-rate securities from individuals, charities and other businesses that purchased the securities even if those customers have since moved accounts.

They also must work to provide liquidity solutions for institutional investors and other customers. In addition, they must pay eligible customers who sold their auction-rate securities below par the difference between the sale price and par.

New York Attorney General Andrew Cuomo's office finalized deals with Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS). In total, 11 firms that the office has reached agreement with have bought back $61 billion of ARS from investors. Citigroup Inc. and UBS AG in December finalized their deals with both the SEC and Cuomo's office. All the companies still need to provide liquidity to the ARS market.

source: The Wall Street Journal

• 
• 
• 
• 
• 

By Deborah Lynn Blumberg
Of DOW JONES NEWSWIRES


SHERIDAN, Wyo. (Dow Jones)--Withdrawing the help that it has extended to the economy and financial markets will be tricky for the Federal Reserve, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said Wednesday, but it must be done as the economy begins to recover in order to stem inflation.

The Fed has doubled its balance sheet to help markets. It can't wait until inflation begins to become an issue before it acts, though, and needs to try to "pull the stimulus out at the right time," Hoenig said.

That will be a "very delicate matter," said Hoenig. If the Fed pulls its help too quickly, it could trip the U.S. economy back into a recession, he said. Failure to pull help away fast enough, though, risks causing inflation, he said.

When it does begin to pull back, the Fed will need to raise excess reserves and begin to dispose of the assets it purchased. The latter, though, does put downward pressure on prices and "people become annoyed," he said.

In that light, it is key to "withdraw carefully and systematically. It's a matter of judgment and timing, but it has to be done. It won't be easy."

Hoenig was responding to questions from the audience after delivering prepared remarks at a lunch meeting in Sheridan, Wyo.

In response to other questions, the central banker also said the financial system needs a clear set of disciplinary rules to keep it from falling into another crisis in the future.

"We really do need to diagnose this correctly," he said. "We did get away from some very fundamental standards."

However, a complete regulatory restructuring isn't the way to go, he said, pointing instead to developing a clear set of rules that are "a disciplinary force on the industry."

For example, he cited setting firm principles for examiners who audit the banks. A reasonable leveraged standard or reasonable loan ratios are examples of such principles, he said. Banks that exceed a reasonable figure that was set would have to correct the imbalance. Hoenig also said banks with securities off their balances sheet could perhaps be required to retain a portion of that.

He also said commercial real estate is a sharp issue, noting that some of the financing of commercial real estate was done at very low rates.

In commercial real estate, "there are serious adjustments that are taking place," he said, adding also that the adjustment period will last for a period of time.

Discussions are ongoing related to the government's Public Private Investment Program, which was designed to remove troubled assets from bank balance sheets, Hoenig said.

The U.S. will have to think about how to bring balance back to its economy, how to save more as a nation and how to build up productivity, the central banker noted.

"This will take time," he said, "but the only way to get it solved is to begin solving it."

source: The Wall Street Journal

• 
• 
• 
• 
• 

By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES


Aetna Inc.'s (AET) lowering of its 2009 earnings forecast has raised questions about whether the pressures that hobbled its managed-care peers a year ago - and caused them to repeatedly cut their guidance - are finally catching up with the Hartford, Conn., company.

The news has left some wondering if Aetna isn't done reducing its outlook amid lingering concerns that the company has priced its commercial plans too low relative to medical costs.

"We are concerned that industrywide margin pressure that hit most of the sector in 2008 has caught up with Aetna in 2009," Wachovia analyst Matt Perry said in downgrading the company to market perform.

Perry added that last year the average reduction in projected per-share earnings was 34% and that most companies cut their views more than once. Aetna on Tuesday lowered the midpoint of its per-share earnings guidance, given in February, by 7%.

"Both of these data points leave us concerned that [Aetna] could cut EPS again in 2009," the analyst said. Goldman Sachs analyst Matthew Borsch, who has rated Aetna at sell for the past year and also sees further forecast cuts as a possibility, blames aggressive pricing.

"We continue to see pricing as the chief culprit here," he said. "We argue the red flags for lower earnings have been evident for some time as Aetna maintained its view of cycle-peak margins in the face of industrywide deterioration last year and as Aetna has continued to show strong sector-relative market share gains in the price-sensitive commercial risk segment."

Aetna maintains it aims to price its health plans in line with increases in medical costs and will continue to do so.

"The tradeoff between growth and profitability is not one that we're willing to make," Chief Financial Officer Joseph Zubretesky said on a conference call. "If we have to sacrifice membership growth for [next year] in order to price to our new medical [cost] trend, we will do that."

Aetna late Tuesday reduced its outlook for per-share operating earnings to between $3.55 and $3.70, from a previous range of $3.85 to $3.95, citing ongoing increases in medical costs in its commercial health plans and lower-than-expected Medicare revenue.

The company said it is continuing to see a higher level and number of services applied on a per-patient basis at hospitals, linking the phenomenon to the weak economy.

Wachovia's Perry said Aetna had the weakest results in the first quarter of this year and was the only company to cite unexpectedly high medical costs, while last year it was the only company not to significantly lower guidance and had higher margins than its peers.

For most of 2008, Aetna maintained its earnings forecast and expanded its lucrative commercial health-plan enrollment as its managed-care competitors struggled with pricing, medical costs, membership and profits.

Since then, Aetna's peers have tried to correct their pricing in response to their margin troubles last year. As a result, Borsch - like others - sees Aetna's current commercial margin pressure as company-specific.

Meanwhile, Citigroup's Charles Boorady believes the managed-care industry as a whole is indeed facing higher cost increases as providers seek to offset effects of the weak economy, but that Aetna is less reserved for it than its peers.

These concerns are reflected in Aetna's stock price. Aetna shares recently traded at $25.90, down 5% Wednesday, and is the only one of the top four managed-care companies showing a decline in its stock price year to date.

A year ago, the stock traded at a premium to its peer group, as measured in price to earnings for the next 12 months, although on average Aetna has traded in the middle of the pack for the past five-plus years.

Now, Aetna trades at roughly seven times projected earnings, a discount to larger competitors UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP), which trade at more than eight times, although still a premium to Cigna Corp. (CI), the fourth-largest player, which trades at 5.8 times.

Overall, Borsch sees 2009 as marking a pause in an industry margin down cycle, although the sector is unlikely to outperform the market from here.

source: The Wall Street Journal

• 
• 
• 
• 
• 

By JESSICA E. VASCELLARO and JUSTIN SCHECK

The Justice Department is investigating whether a number of large U.S. companies violated antitrust laws by establishing agreements not to recruit each other's employees, according to people briefed on the investigation.

Members of the department have sought information from companies in the technology and biotechnology sectors, including Google Inc., Apple Inc., Yahoo Inc. and Microsoft Corp., these people said, adding the inquiry appears to be in an early stage. It is unclear which of the companies may be targets of the investigation.

A Google spokesman confirmed the company has been contacted about the investigation and is cooperating. A spokeswoman for Yahoo declined comment. An Apple spokesman couldn't immediately be reached.

A Justice Department spokeswoman declined comment.

The inquiry, reported earlier by the Washington Post, is the latest sign that the Obama administration is living up to its promise to enforce antitrust laws more aggressively. And it is further evidence that it intends to keep tech companies, in particular, in its sights.

The DOJ continues to investigate whether Google's proposed settlement with authors and publishers to resolve a copyright dispute over its book search service violates antitrust laws, according to people familiar with the matter. And the Federal Trade Commission has inquired about whether the fact that two directors--Google Chief Executive Eric Schmidt and former Genentech Inc. CEO Art Levinson--sit on both the Apple and Google board violates antitrust laws.

The latest investigation casts a wider net, looking at the hiring practices of companies in multiple industries, say people familiar with the inquiry.

Businesses frequently agree not to poach each other's employees as part of business deals or merger agreements and those pacts don't appear to violate antitrust laws, according to one person familiar with the investigation. Instead, the Justice Department is looking into whether companies establish blanket agreements not to do so, which may be considered collusion, this person said.

source: The Wall Street journal

• 
• 
• 
• 
•