Lehman Brothers, the once high-flying investment bank hit hard by the real estate crisis, is planning to lay off 1,500 workers, a source within the company confirmed Thursday.
The layoffs, which were first reported on the New York Times’ Web site, represent about 6% of Lehman’s workforce and are expected to take effect prior to the company’s third-quarter earnings report, due Sept. 15.
A Lehman spokesman declined comment.
News of the pink slips serves as a cruel reminder of what happens when a company’s main business lines collapse at the same time.
Lehman has been wracked by troubles resulting from its longtime effort to dominate the commercial and residential real estate markets in North America. Other business units, including its advisory work, have also slumped as the kinds of deals that are Wall Street’s bread and butter have come to a halt payday loans paydayloans.
Lehman’s (LEH, Fortune 500) stock is down almost 80% this year as its prospects continue to dim. Shares were up nearly 5% in trading Thursday.
The layoffs come amid unprecedented moves by Lehman to shore up its balance sheet. These efforts include the sale of up to $40 billion in commercial real estate loans and securities - which appear to be declining in value on weekly basis - as well as the sale of a stake in its highly profitable Neuberger Berman money management unit.
While both the sale of the mortgage investments and a Neuberger stake have been pursued for weeks, Lehman so far has been unable to reach a deal. The company has also been unable to secure a major equity investment.
The government’s latest assessment of the nation’s financial system showed that many more small banks are in trouble. But what the report didn’t say may speak volumes.
On Tuesday, the Federal Deposit Insurance Corp. revealed that the number of institutions on its so-called "problem bank" list jumped to 117 during the second quarter, up from 90 just three months earlier.
That list has gained greater attention lately as many banks continue to suffer losses stemming from the deteriorating housing market and slowdown in the broader economy. Nine banks have failed so far this year, including IndyMac, a California-based mortgage lender with assets of $32 billion at the time of its collapse.
But experts contend that the list is a lagging indicator and, as a result, may not provide an accurate picture of the current health of U.S. banking industry.
Typically, the list is published some 8 weeks after all of the nation’s banks have reported their latest quarterly results.
What’s more, notes Mark J. Flannery, a professor of finance at the University of Florida’s Warrington College of Business Administration, regulators base their decision on what banks tell them.
And since current accounting standards give banks some discretion about when they recognize bad news, they may want to put it off as long as possible.
Exactly how bank regulators determine which institution is worthy for the "problem list" remains a process shrouded in secrecy.
But what is known is that the health of a bank tends to be based on several factors including the amount of capital an institution has on hand to protect against losses, the quality of its assets, its management, and its earnings, liquidity and sensitivity to market risk.
Bank regulators - which in addition to the FDIC include the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) - then give the banks a report card, assigning a composite rating based on the bank’s performance in each category. Those that receive a rating of 4 or 5 are put on the list.
Since the failure of IndyMac in mid-July, however, speculation has emerged that regulators may have exercised some discretion about which institutions they put on the confidential list.
The FDIC’s first-quarter problem list, released at the end of May, clearly did not have IndyMac on it. That’s because the FDIC reported that the 90 banks on the list had a combined $26.3 billion in assets - less than the size of IndyMac. That suggested that the only problem banks at the time were smaller community banks.
Experts say that if IndyMac had been on the list, the total asset size of troubled banks would have been much higher. That might have prompted a witch hunt of sorts, with the market looking for which bank was in trouble and possibly causing a run on that institution.
"It is kind of the issue of the snake swallowing the watermelon," said Bert Ely, an Alexandria, Va.-based banking industry consultant of Ely & Co cash advance flexible payments instant payday advance. "I can assure you if IndyMac had been on the list in late May, there would have been an immediate hunt."
Others pointed out that bank failures, as a rule, don’t happen to be overnight phenomena.
Tim Yeager, a professor of finance at the University of Arkansas’ Walton College of Business who previously worked for the Federal Reserve Bank of St. Louis, said regulators probably knew about the state of IndyMac for some time even though it wasn’t on the first-quarter problem list.
"It is telling that IndyMac was not on the problem list the quarter before," said Yeager. "Usually bank failures like that are pretty slow events - it is unlikely [federal regulators] were surprised by that."
The OTS, IndyMac’s primary regulator, has maintained that it was aware of the company’s problems, but was in the midst of an examination of the lender that did not wrap up until after the first quarter was over. At that point, IndyMac was placed on the list.
Those who keep a close eye on the nation’s banking industry argue that the nearly 30-year-old bank monitoring system, commonly referred to as CAMELS (which stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk) remains quite effective at gauging a bank’s health.
In recent years, there have been calls for regulators to take into greater account the wisdom of the market, most notably a bank’s stock price or the yield a company’s debt is trading at.
As innovative a solution that may be, the lion’s share of the nation’s banks are not publicly traded. What’s more, those indicators aren’t always reliable, note experts such as Flannery.
Stock prices, for example, can be affected by broader gyrations in the market and may not accurately predict if a bank will go bust or is even on the verge of failure.
"I think there are times when the CAMELS system is more informative and times when the market price is more informative," said Flannery. "There is no general rule."
If regulators are at a disadvantage, it is determining just how many banks could fail as a result of the current credit crisis.
While regulators are working hard to stay ahead of the problems faced by banks, their forecasting models have not endured a credit or mortgage crisis of this magnitude before and, as a result, have no way of telling how deep the impact will be.
"You can look at this and say they are missing the problems, but this business cycle is different from others," said Yeager. "You need to go through this to be able to update the model - it is really a Catch-22."
Federal Judge S. Arthur Spiegel this morning sentenced the last of 11 Berkeley Premium Neutraceutical executives who either pleaded guilty or were convicted for their part in a multi-million fraud scheme.
Paul Kellogg, 41, of West Chester, was Berkeley’s in-house counsel. He received a prison sentence of one year and one day for his February conviction on six conspiracy counts.
Investigators from four federal agencies and the U.S. Attorneys office spent years pursuing the case, alleging Berkeley made millions of dollars over five years by sending customers dietary supplements they didn’t order, charging credit cards without authorization, misrepresenting their business activities to clients and lenders and laundering money.
Berkeley owner Steven Warshak received the most severe punishment, including 25 years in prison and a $93,000 fine no qualifying payday advance paydayloans. His mother, Harriet Warshak, drew a 24-month sentence. The Warshaks and their company were ordered to forfeit more than $500 million to the government.
Other Berkeley executives received sentences of 12 to 13 months. Among those sentenced this week were Greg and Susan Cossman of Maineville, Shelly Kinmon of Union, Ky.; James Teegarden of Florence, Ky.; and Steven Pugh of West Chester. Former Berkeley accountant William Bertemes drew the lightest sentence – one month in prison and a $10,000 fine. Bertemes pleaded guilty to one count of obstruction of justice in May, 2006.
United Airlines said on Wednesday it will furlough 1,550 flight attendants as it reduces its flying this fall.
The furloughs work out to roughly 10 percent of United’s cabin workers. United is seeking 7,000 job reductions companywide by the end of 2009, said spokesman Jeff Kovick. United has previously announced plans to cut as many as 1,600 managers and 5,500 front-line workers, and to furlough 950 pilots.
United (UAUA, Fortune 500) said it would seek voluntary flight attendant furloughs first, but will need to get to a total of 1,550 by Oct. 31.
"As we reduce the size of our fleet and take other actions to enable United to compete in this environment of record fuel prices, we must take the difficult but necessary steps to reduce the number of people we have to run our operation," Kovick said.
United is also laying off 213 foreign national flight attendants based in Bangkok and Singapore. Those workers, who are not part of the Association of Flight Attendants-CWA, are required to be dismissed before any union members can be furloughed, the union said no fax payday loan payday loans application. United, along with Northwest Airlines Corp., is one of the biggest U.S. carriers in Asia.
Furloughed flight attendants keep their health insurance and flight privileges. AFA spokeswoman Sara Nelson said the union is encouraging voluntary furloughs in an effort to avoid involuntary ones.
Also on Wednesday, testimony began in U.S. District Court in Chicago on United’s request for a temporary injunction to stop alleged sick-outs by pilots. The Air Line Pilots Association has said it did its best to discourage any organized sick-out. Testimony was scheduled to continue on Thursday.
Shares of United parent UAL Corp. fell $1.27, or 11.4 percent, to close at $9.88 on Wednesday as oil prices rose.
Bank of Japan Governor Masaaki Shirakawa, after four months on the job, is making one of the world's most opaque major central banks more transparent.
When policy makers kept the benchmark rate at 0.5 percent yesterday, they listed the reasons for the decision. Until July, they said nothing when they held rates steady. The bank is increasing the number of forecasts it publishes, and instead of just signaling the direction of borrowing costs during his press conferences, Shirakawa tries to explain his thinking about the economy.
The changes by the University of Chicago-educated Shirakawa, 58, bring the Bank of Japan into line with moves worldwide to help outsiders better understand how decisions are reached. Clear communication helps to anchor inflationary expectations and makes it easier for investors to predict rate changes, said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts.
“There is a sense of mystery about what the BOJ does, more so than with other central banks, so this is Japan's attempt to follow'' its counterparts, said Behravesh.
Shirakawa is tackling tradition even though he came to the job by default in April. Prime Minister Yasuo Fukuda's first and second picks were rejected by the opposition parties that control Japan's upper house of parliament. That left Shirakawa, who became deputy governor only weeks earlier.
Building on Fukui
Japan's central bank has been independent from the government for only 10 years, and Shirakawa's predecessor, Toshihiko Fukui, 72, made some moves toward transparency. In July 2005 the bank started publishing the number of votes for and against a move at the time it announced a decision. In February 2007, it began to identify, on the day of the decision, how each member voted.
Shirakawa has already established a style that some economists welcome for its clarity.
He “provides detailed explanations and solid logic, though his language is more boring than Fukui's,'' said Mari Iwashita, chief market economist at Daiwa Securities SMBC in Tokyo. “He also tries to avoid comments'' that may mislead markets, she said.
Iwashita cites the June 13 press conference as an example. Asked about the risks of rising commodity prices on inflation, Shirakawa said the bank was more focused on their effect on growth.
His answer damped speculation that he might raise borrowing costs after a report two days earlier showed producer prices climbed at the fastest pace in 27 years.
Treading Carefully
“Shirakawa carefully avoided commenting on inflation risks and instead underlined that Japan's economic situation is different from those of the U.S. and Europe,'' Iwashita said. “If it had been Fukui, he would have made more hawkish remarks.''
Benchmark 10-year bond yields retreated after he spoke, falling to 1.74 percent in the following week from 1.88 percent before the briefing pay day loans fast cash online.
The steps toward more openness follow greater disclosure at other central banks. In May 2007, Sweden's Riksbank started holding press conferences after all meetings. In November, Ben S. Bernanke increased the number of forecasts the Federal Reserve issues each year to four from two.
Giving Up Secrecy
“At last, major central banks have given up secrecy,'' said Allan Meltzer, a Carnegie Mellon University professor who was an honorary adviser to the BOJ between 1986 and 2002.
For all the efforts at transparency, Shirakawa said he doesn't plan to flag rate decisions, in contrast with ECB President Jean-Claude Trichet, who has used the phrase “strong vigilance'' to indicate increases.
“De facto announcement of the future level of the policy interest rate means disregarding the changes in economic conditions after such an announcement,'' the governor said in a July 18 speech.
Central banks' efforts to be more open have sometimes backfired.
In April 2006, Bernanke said the Fed might suspend rate increases even if risks between inflation and growth weren't “entirely balanced.'' Some people said this meant he was less worried about inflation, only to find in August that the Fed still identified prices as its chief concern.
Nakagawa Request
An increase in transparency may help to insulate the BOJ from political interference. Three days before the policy board met in January 2007, Hidenao Nakagawa, then the ruling Liberal Democratic Party's secretary general, said the government might ask the bank to postpone a rate increase in comments interpreted at the time as an attempt to meddle in the board's decision.
At the meeting, the bank held the benchmark rate at 0.25 percent, waiting until the following month to double it.
“With a clearer picture of the BOJ's intentions, investors can be more confident about their own forecasts, which makes it harder for politicians' comments to sway markets,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo.
Of 26 economists surveyed by Bloomberg News this month, 21 said there will be no increase in borrowing costs by June 2009, four projected higher rates and one forecast a cut.
“Shirakawa's true test will be whether he can properly manage investors' expectations when the bank starts to prepare for a rate-policy change,'' said Seiji Adachi, a senior economist at Deutsche Securities in Tokyo. “That we have yet to see.''
German producer-price inflation accelerated to the fastest pace since October 1981 last month, bolstering the European Central Bank's case to keep interest rates at a seven-year high even as the economy cools.
Prices for goods from newsprint to plastics increased 8.9 percent from a year earlier after rising 6.7 percent in June, the Federal Statistics Office in Wiesbaden said today. Economists expected a 7.5 percent gain, the median of 30 estimates in a Bloomberg News survey shows. In the month, prices rose 2 percent.
Higher energy prices make production more expensive, putting companies under pressure to pass on rising costs to customers. Even though the price of oil has retreated 21 percent from a July 11 record, the ECB kept its benchmark rate at 4.25 percent this month, saying it is worried that past commodity-price increases will push up wage demands and lead to entrenched inflation.
“This should be the peak in producer-price inflation, but it's too early for the ECB to sound the all clear,'' said Nick Matthews, an economist at Barclays Capital in London. “The bank is still concerned about the pass-through of previous price increases and will stay on hold for the foreseeable future.''
Oil has risen more than 60 percent over the past year and reached a record of $147.27 a barrel on July 11. Inflation in Germany accelerated to 3.5 percent in July, the fastest pace in 12 years, and consumer prices in Europe gained an annual 4 percent, the most since 1992.
Energy Jump
German energy prices gained 25 percent from a year earlier and prices for electricity increased 23 percent, today's report showed. The cost of diesel fuel rose 30 percent from July 2007 payday advance $500 payday loan. Excluding energy, producer prices rose 3.6 percent in the year.
BASF SE, the world's biggest chemical producer, on July 31 reported profit that beat analyst estimates for a sixth straight quarter after passing on higher costs. The company has raised prices by as much as 20 percent.
ECB President Jean-Claude Trichet said on Aug. 3 that “a pipeline effect'' from commodity-price increases “is something which is ongoing and undoubtedly creates more risks.'' There is an “absolute necessity to avoid the materialization of such risks.''
Rising prices are leading to higher wage demands and the pushing up the outlook for prices. Inflation expectations, as measured by the so-called breakeven on 5-year French indexed bonds, were at 2.2 percent yesterday, up from 2.1 percent in March. They fell from a record 2.83 percent after the ECB raised rates on July 3.
Higher prices are eroding purchasing power and curbing growth in an economy already burdened by a stronger euro and the U.S. slowdown. Germany, which accounts for about one third of the euro- area economy, contracted 0.5 percent in the second quarter, while gross domestic product in the 15 euro nations fell 0.2 percent.
The Bundesbank said yesterday economic activity may remain muted for “some time yet,'' with the economy likely to experience a “dry spell'' in the second half of the year. Still, it said it doesn't expect a further deterioration in growth and noted that inflation expectations remain above the ECB's 2 percent price- stability limit.
JPMorgan Chase & Co. and Morgan Stanley have agreed to repurchase a combined $7 billion in auction-rate securities as part of a settlement with New York Attorney General Andrew Cuomo and other regulators.
The companies will also pay a combined $60 million in fines.
Last week, regulators reached settlements that required Swiss bank UBS (UBS) to repurchase $18.6 billion in the securities, while Citigroup (C, Fortune 500) agreed to buy back $7 billion of the securities.
Auction-rate securities are investments that resembled corporate debt, but with interest rates reset at regular auctions instant payday loan payday loans lenders.
The market for the securities collapsed in February amid deterioration in the broader credit markets.
Shares of JPMorgan (JPM, Fortune 500) still rose 2.5% and Morgan Stanley (MS, Fortune 500) rose 1.5% in morning trade.
The government says the federal budget deficit soared in July, pushed higher by economic stimulus payments and $15 billion in outlays to protect depositors at failed banks.
The Treasury Department reported Tuesday that the deficit for July totaled $102.8 billion, nearly triple the $36.4 billion deficit recorded in July 2007 payday loans instant cash advance.
The deficit beats the $97 billion gap that Wall Street economists had been expecting for July.
U.K. inflation accelerated to more than double the central bank's 2 percent target in July, making it harder for policy makers to cut interest rates as the threat of a recession looms.
Consumer prices rose 4.4 percent from a year earlier, breaching the government's 3 percent upper limit for a third month and the most since comparable records began in 1997, the Office for National Statistics said today. That exceeds the 4.2 percent median forecast of 38 economists in a Bloomberg News survey.
House prices fell in July and retail sales dropped as Britain veered closer to a recession, reports showed today. Record oil and food costs have kept inflation above the target for 10 months, prompting Bank of England Governor Mervyn King and his colleagues to refrain from interest-rate reductions since April.
“The risk now is that inflation rises above 5 percent,'' James Knightley, an economist at ING Financial Markets in London, said in an interview on Bloomberg Television. “There is a risk of a rate hike, but the weakness in activity suggests that they're more likely to stay on hold.''
Knightley predicted that the Bank of England will cut the benchmark interest rate “quite aggressively'' next year from the current level of 5 percent as the economy falters.
Brown's Woes
The pound rose as much as 0.2 percent against the dollar after the report before erasing its gains and staying close to a 21-month low. The U.K. currency was at $1.9023 as of 12:01 p.m. in London compared with from $1.9108 yesterday. It was at 78.27 pence per euro compared with 78.03 pence.
Higher living costs have added to the unpopularity of Prime Minister Gordon Brown, whose governing Labour Party trails behind the opposition Conservatives by 20 percentage points, according to a YouGov Plc survey published on Aug. 10.
Today's inflation data “are yet another worrying signal for families desperately trying to make ends meet,'' Conservative leader David Cameron told reporters in London today.
Consumer-price increases are also accelerating in the euro region, where the inflation rate rose to 4.1 percent in July, the highest since April 1992 and more than double the European Central Bank's ceiling of 2 percent.
The U.K. inflation rate jumped from 3.8 percent in June. The 0.6 percentage point increase was the biggest since the series began in 1997. Based on a constructed index using retail-price data, it was the largest gain since 1991, the statistics office said.
Letter of Explanation
King will have to write his third letter of explanation to the government unless inflation slows to 3 percent in August, which would require an unprecedented drop in consumer prices fast cash easy payday loan.
The letter, setting out how he would return inflation to target, is required under rules established when the bank won rate-setting independence in 1997.
Consumer prices stayed unchanged on the month in July. The inflation rate jumped after the cost of food and non-alcoholic drinks rose 12.3 percent from a year earlier, the most on record, and energy prices increased, the statistics office said.
Oil prices have dropped 19 percent since reaching a record above $147 a barrel on July 11. They are still more than 60 percent higher than a year ago. Producer prices increased in July at the fastest pace since records began in 1986, the statistics office said yesterday.
So-called core inflation, which strips out costs of food, energy, tobacco and alcoholic beverages, accelerated to 1.9 percent in July, the most since June 2007.
Pay Pressure
Retail-price inflation, which pay negotiators use as a measure of the cost of living, quickened to 5 percent, the fastest pace since 1991. Excluding mortgage-interest payments, it reached 5.3 percent, the most since 1992, today's report showed.
Faster inflation has yet to stoke pay pressures. Wage data due tomorrow will probably show salaries including bonuses increased 3.6 percent in the second quarter, the weakest pace in almost a year, according to the median of 30 forecasts.
Slowing economic expansion may curb inflation. The International Monetary Fund last week slashed its forecasts for U.K. growth to 1.4 percent this year and 1.1 percent in 2009. The economy expanded 3 percent in 2007.
House prices fell in July as the squeeze on credit locked out buyers and brought the property market to a “virtual standstill,'' the Royal Institution of Chartered Surveyors said today. Sales in shops open at least a year fell an annual 0.9 percent, the British Retail Consortium said in a separate report.
Slowing economic growth has pushed up unemployment. Claims for jobless benefits probably climbed for a sixth month, increasing 17,000 from June, according to the median forecast of 31 economists in a Bloomberg News survey. The Office for National Statistics will publish the figures tomorrow.
The Bank of England predicted on May 14 that growth will slow to a 1 percent annual pace in the first quarter of 2009, the weakest since 1992. King said then that there may be “an odd quarter or two of negative growth,'' while predicting inflation would quicken to more than 4 percent. The bank will release new forecasts tomorrow.
The former owner of one of the world’s biggest commodities brokerages was sentenced to 10 years in prison Thursday for a fraud that cost investors more than $2 billion.
Tone N. Grant, 64, of Chicago, was convicted in April in a scheme to defraud investors at Refco Inc., a large financial services company that offered securities, derivatives and commodities brokerage services to investors.
Prosecutors said Grant conspired with former Chief Executive Phillip R. Bennett and others to transfer debts to accounts that made it seem as if they were debts owed to Refco. Bennett was sentenced last month to 16 years in prison after apologizing for the fraud.
Grant offered no apology, telling U.S. District Court Judge Naomi Reice Buchwald that he had "always done everything in my power and control to protect the law … and be a positive influence on the lives of others."
His lawyer, Roger Zuckerman, blamed Bennett for the fraud and argued for no more than three-and-a-half years in prison, saying his client’s wrongdoing was minimal.
"By any rational measure, the conduct of Phillip Bennett dwarfed the conduct of Mr pay day loans free credit reports. Grant," he said.
The judge said Grant had clearly lied to the public about the troubled state of Refco’s finances. She called it a "gross understatement of the facts" to portray Grant as out of the loop since the pivotal transactions in the fraud could not be carried out without his signature.
Buchwald said the "staggering losses" to Refco investors still exceed $1.5 billion.
The plot unraveled in October 2005, just two months after Refco went public, when the brokerage announced it had discovered it was owed $430 million by a company controlled by Bennett. Refco’s stock value plummeted, and it was forced into bankruptcy proceedings a week later.
Prosecutors say Bennett and Grant directed a series of transactions every year from 1999 through 2005 to hide losses from Refco’s auditors and others.
Before its fall, Refco was one of the world’s biggest commodities brokerages, employing some 2,400 employees in 14 countries.
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