Nortel Networks Corp. pensioners reacted with disgust on Friday to reports of new lavish bonuses for the company’s top executives.
It was yet another blow to Nortel’s distressed pensioners, retirees and long-term disabled former employees, who have dealt with financial uncertainty since the former Canadian tech darling declared bankruptcy in January.
“It seems so aberrant, in terms of the executive of the company awarding themselves really, really rich pay raises for doing the job of taking the company apart,” said Tony Marsh, who retired from Nortel in 2000 after 30 years.
“Those of us who built the company up, into arguably the world’s No. 1 telecom company, could never have dreamed of such riches,” Marsh added.
An internal Nortel file “outlines a new compensation scheme for 72 Nortel executives that will see them get a total of $7.5 million U.S. on top of their current salaries in 2009,” according to CBC News.
The company has argued that bonuses are necessary to keep executives aboard what is essentially a sinking ship following Nortel’s filing for bankruptcy protection and the subsequent selling off of the company’s assets.
Nortel would not comment on details of the plan. It issued a statement saying: “As Nortel works through the highly complex tasks of this restructuring, it is critical to have the right specialist resources in place … Any steps taken around these individuals has been within the context of a previously approved compensation plan, taken in consultation with the creditor committees, external legal counsel and the Canadian Monitor.”
Earlier, former CEO Mike Zafirovski claimed $12.3 million (U.S.) for back pay and bonuses. In March, some 100 executives were awarded $45 million in retention bonuses.
The company’s divisions are being auctioned off in a process dragged out by bankruptcy court approvals. Retirees are worried that when Nortel’s various global divisions are entirely sold off, they will be stuck with even less than they are now, which is not much, Marsh said.
Federal Reserve Chairman Ben S. Bernanke said removing the central bank from bank supervision and tampering with its political independence would “seriously impair” economic stability in the U.S.
“A number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions,” the Fed Chairman said in a commentary released yesterday on the Web site of the Washington Post. The measures “would seriously impair the prospects for economic and financial stability in the U.S..”
Bernanke has presided over the most expansive use of Fed powers since the Great Depression. While the 55-year-old Fed chairman has said he averted a financial meltdown, lawmakers have voiced concern about taxpayer-sponsored bailouts and proposed the most sweeping dismantlement of Fed authority since the creation of the institution in 1913.
Bernanke’s commentary is his first comprehensive answer to proposals in the House and Senate that would limit the Fed’s supervisory powers and exert more political oversight in the setting of interest rates. The issues are likely to be discussed when he faces the Senate Banking Committee on Dec. 3 for a hearing on his nomination to a second term as chairman.
“Congress has a lot of public support for an attack on the Fed,” Allan Meltzer, a Fed historian and professor at Carnegie Mellon University in Pittsburgh, said in an interview Nov. 23. “They bailed out everybody in sight.”
Lax Supervision
Senate Banking Committee Christopher Dodd, a Democrat from Connecticut, has criticized the central bank for lax supervision and introduced legislation this month that would strip bank oversight from the Fed and create a single bank regulator. Dodd would also limit the central bank’s ability to loan to individual companies.
“There is a strong case for a continued role for the Federal Reserve in bank supervision,” Bernanke said. “Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks.”
The Fed chairman pointed to capital adequacy tests the Fed performed in May which helped restore confidence in the banking system. The Standard and Poor’s 500 Financials Index has increased 34 percent since May 1, outperforming the S&P 500 by about 10 percentage points.
Dodd and Representative Barney Frank, chairman of the House Financial Services Committee, want to take away the Fed’s rule- writing power on consumer financial products and give it to a new Consumer Financial Protection Agency.
‘Excessive Risk-taking’
“The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis,” Bernanke said. The Fed has reviewed its performance and “moved aggressively to fix the problems,” he added.
As the subprime mortgage crisis began to trigger losses in bank portfolios, Bernanke used emergency authority last year to purchase securities from Bear Stearns Cos. and facilitate its merger with JPMorgan Chase & Co.
The Fed chairman said that the government’s actions, while in some instances “distasteful and unfair,” were necessary to prevent “a global economic catastrophe that could have rivaled the Great Depression in length and severity.”
Bernanke pushed the Fed’s backstop lending beyond banks, setting up programs to support the commercial paper and asset- backed securities markets easy payday loan. The Fed Board approved the bank holding company applications of Goldman Sachs Group Inc. and Morgan Stanley, giving them access to the Fed’s loan window.
Propped Up Markets
The former Princeton University economist and Great Depression scholar has more than doubled the Fed’s assets to $2.21 trillion and become the lender of last resort to government bond dealers, banks, Wall Street firms and U.S. corporations. The central bank has also propped up markets for mortgage-backed and asset-backed securities that support credit to consumers, small businesses and commercial real estate.
A financial regulatory reform bill proposed by Frank, a Democrat from Massachusetts, would limit Fed emergency lending to broadly available credit programs.
The Frank bill preserves the Obama administration’s proposal to make the Fed the lead regulator of risk across the financial system.
The central bank’s independence is also under fire from both chambers of Congress. Frank’s committee advanced a proposal this month to remove a three-decade ban on congressional audits of Fed interest-rate decisions. The proposal was offered by Representative Ron Paul, a Republican from Texas, and based on a bill with more than 300 co-sponsors.
Less Independent
Bernanke said studies show that central banks independent of political influence tend to keep inflation and interest rates lower than their less independent counterparts.
“The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation,” Bernanke said.
Under the proposal by Dodd, commercial banks would lose their power to appoint directors of the 12 regional Fed banks. Instead, directors would be chosen by the Fed’s Senate-confirmed governors, and each board chairman would be appointed by the president of the United States and subject to Senate approval.
The proposal would increase political oversight of the Fed bank presidents, who are among the most vocal proponents on the Federal Open Market Committee for keeping inflation low.
‘Financial Stability’
“Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation,” Bernanke said.
Policy makers cut the benchmark lending rate to a range of zero to 0.25 percent almost a year ago and this month reiterated a pledge to keep the policy rate low for “an extended period.”
While the economy expanded at a 2.8 percent annual pace in the third quarter, unemployment jumped to 10.2 percent in October. The Fed’s challenge is to support growth without unleashing expectations of higher inflation prompted by aggressive monetary stimulus.
“The ultimate goal of all our efforts is to restore and sustain economic prosperity,” Bernanke said. “Our ability to take such actions without engendering sharp increases in inflation depends heavily on our credibility and independence from short-term political pressures.”
Continuing a Thanksgiving tradition, every year I ask our staff what they’re thankful for, excluding family, friends and good health — none of which we ever should take for granted, but too often do.
Here’s what they said this year, with a few items from me thrown in for good measure.
• Mentors. Each year I try to learn from people. It could be co-workers, business relationships, friends or family. Having a mentor has helped me be a better salesperson and has helped me in personal and business relationships.
• Mistakes. You can learn from other people’s mistakes and your own. Making mistakes in life is natural and makes people even stronger if they learn from them.
• People who admit their mistakes. This is mine, and I’ll give you an example. In last week’s column, I misspelled the name of Rebecca Kenyon, a local woman who tried out for and made a pro football team here. No excuses. Stupid mistake.
• Is it too corny to say I am thankful for my job? I think of all those people at the Tribune who will be facing some tough times this holiday season. I really am thankful to be a part of a well-respected publication — my home away from home.
• I am thankful that it looks like a buyer may have been found for the Tribune after all, hopefully saving at least some of those jobs.
• For all the trials and tribulations that have come my way. It has caused me to learn that we all have two choices: We either pull ourselves up by the bootstraps and make it through and become much stronger people, or we sit and wallow in self-pity and ask “Why me?” When we choose to push through whatever may happen in our lives, it gives us a better perspective of what life is really all about and how we need to focus on the present moment.
• Giving back and having compassion for people less fortunate. Whether it be monetary or hands-on support. Working with and seeing businesses and people who help the less fortunate has made me more aware that I need to give back more. Giving back to our community is something we all should be doing — not only during the holidays, but during the entire year.
• For the medical industry — particularly the nursing profession. … Health care workers are in the trenches every day taking care of people we love, and they truly are the unsung heroes of our community.
• The things I am grateful for this year are things in previous years I have taken for granted, probably along with many others. Seeing that this economy is so bad and a lot of people are losing their homes and jobs, I am extremely grateful for my job, for having a roof over my head and food on the table every night for my family and me.
• And all of us here at the Business Journal are thankful for you, our readers. We appreciate your continued support and feedback. We all have lots of things to be thankful for, and may we remember to think about them a lot more often in the year ahead.
Don Henninger can be reached at dhenninger@bizjournals.com.
Prime Minister Gordon Brown’s ruling Labour government is increasingly being blamed by voters for Britain’s “economic quagmire” even as the recession shows signs of easing, ComRes Ltd. pollster Greig Baker said.
“There is a high level of personal animosity towards Gordon Brown and regardless of the economic figures, that’s going to be very, very difficult for Labour to get past,” Baker, research director at the U.K. polling company, told Bloomberg Television today. “The voting public is increasingly blaming the government for the economic quagmire we’re in.”
Data today showed the British economy shrank 0.3 percent in the third quarter, less than previously estimated, in the nation’s longest recession on record. Brown is fighting to rebuild support in time for an election due by June. Labour narrowed Conservative Leader David Cameron’s lead to six points in an Ipsos Mori poll published Nov. 22.
“If the government can claim that they steered the economy through recession, that will become their overbearing election theme,” Baker said. “It may change the political narrative of the time but I don’t think that will be enough to overcome the personal animosity that exists towards Gordon Brown. People simply don’t like him.”
Cameron pledged to work “night and day” to win a majority in Parliament at the next U no checking account payday advance.K. election after the Ipsos Mori poll in the Observer newspaper showed the Conservatives with the narrowest lead this year. That suggests he may fail to clinch enough lawmaker seats to control the House of Commons.
‘Anybody But Gordon’
“Looking at the poll over the weekend, it was slightly out of kilter with some of the others we’ve seen recently,” Baker said. “What it does suggest is that there’s not a huge affinity amongst the voting public with David Cameron. Basically, it’s an ‘Anybody but Gordon vote.’”
ComRes’s most recent poll, finished on Nov. 12, showed the Conservatives with a 14-point lead. Cameron needs a lead of about 10 percentage points to win a clear majority, according to Anthony Wells of pollsters YouGov Plc. A minority government, known as a ‘hung parliament,’ may face greater difficulty in tackling Britain’s record budget deficit.
The U.K. economy’s contraction was revised from a 0.4 percent drop, the Office for National Statistics said today in London. The Bank of England forecasts Britain will exit the recession in the fourth quarter. The economy will expand 2.2 percent in 2010 and 4.1 percent in 2011, according to policy makers’ projections published on Nov. 11.
Campbell Soup Co. reported that its first-quarter profit rose 17 percent with the help of lower costs from increased efficiency in getting its products from its plants to store shelves, as well as lower prices for grain ingredients. Earnings were $304 million, or 87 cents per share, up from $260 million, or 70 cents per share, a year ago. But revenue fell 2 percent to $2.2 billion with dips in sales for most categories, ranging from condensed soup to Prego pasta sauce.
Hewlett-Packard said cost cutting helped its profit jump 14 percent in the fourth quarter despite an 8 percent revenue decline. H-P got higher profit from Electronic Data Systems Corp., a tech services company H-P bought for $13.9 billion last year to better compete against IBM Corp. The world’s top seller of personal computers earned $2.4 billion, or 99 cents a share, compared with $2.1 billion, or 84 cents a share, a year earlier. Revenue was $30.8 billion, down from $33.6 billion. Analysts had expected earnings of $1.13 a share, on revenue of $30.4 billion, according to a consensus survey by Thomson Reuters.
Tyson Foods Inc. said it made strides in the meat business this year and predicts more improvements next year. The world’s largest meat producer, based in Springdale, Ark., said a hefty impairment charge in its beef business left it with a loss for the fourth quarter. But all of its business units, including chicken and pork, were profitable, when excluding the $560 million noncash charge. The company lost $455 million, or $1.22 a share, compared to a profit of $48 million, or 13 cents a share, a year ago. Excluding the charge, Tyson would have earned 28 cents a share, two cents better than analysts had forecasted. Revenue inched higher to $7.21 billion, up $13 million from a year ago.
The Federal Reserve should keep alive its asset purchase programs beyond the first quarter of 2010 to give policy-makers more flexibility if the economy took another turn for the worse, a senior Fed official said on Sunday.
“I would just like to keep them active at a very low level. It would give the Fed the option to react if the economy weakened,” St. Louis Federal Reserve bank James Bullard told reporters after his speech at an event organized by Princeton University students in New York.
“When you are trying to think how the economy might evolve, it could be that the economy comes in very strong … or it could go the other way payday loan. There is a lot of uncertainty. I’d hate to get the feeling that the Fed is saying our work is done. We need a policy that can react either way,” Bullard said.
The Federal Reserve cut interest rates to near zero last December and has kept them there since. At its last policy-setting meeting the central bank reiterated its pledge to keep interest rates “extraordinarily low” for an “extended period”.
Bullard said it could be helpful to have a discussion on what the term “extended period” means.
Amelia A.J. Bond is opening a St. Louis office for George K. Baum & Co., a Kansas City-based public finance firm.
Bond worked as managing director and head of public finance for Wachovia Securities for two years after its merger with A.G. Edwards in 2007. Before the merger, she served for seven years as senior vice president and director of public finance for A.G. Edwards.
While leading the A.G. Edwards public finance department from 2001 to 2007, Bond supervised the doubling of annual revenue for the department.
From 2003 to 2006, Bond served on the Municipal Securities Rulemaking Board, the regulator for U.S. municipal bonds, and she was elected by fellow board members to serve as its chairman during the 2005-2006 fiscal year. She is only the second woman to have held that position in the organization’s 30-year history.
Treasury Secretary Timothy Geithner defended the Obama administration’s economic record and dismissed a call for his resignation from the senior House Republican on the Joint Economic Committee.
Geithner blamed the policies of the Republican party and President George W. Bush for the financial crisis that pushed the nation into the deepest recession since the 1930s.
Republicans “gave this president an economy falling off the cliff,” Geithner told Representative Kevin Brady of Texas as the two men interrupted each other during a hearing today. “I can’t take responsibility for the legacy of crises you bequeathed the country.”
Gearing up for next year’s elections, Republicans are training their sights on Geithner, an architect of the Wall Street bailout as Treasury secretary and in his previous job as president of the Federal Reserve Bank of New York. A report issued earlier this week critical of Geithner’s handling of the rescue of insurer American International Group Inc. has also prompted calls for him to quit.
Today, the Treasury chief fired back, saying that by “any measure” of consumer or investor confidence, the economy is “substantially stronger today than when the president took office” in January.
The “worst financial crisis in generations” happened after “almost a decade, certainly eight years, of basic neglect of basic public goods, in health care, in education, in public infrastructure, in how we use energy,” Geithner said.
Economic Management
Brady told Geithner that a growing number of liberal Democrats as well as conservative Republicans think that he is handling the economy poorly.
“For the sake of our jobs, will you step down from your post?” Brady asked. “The public has lost all confidence in your ability to the do the job, and it is reflecting on your president.”
Another Republican on the panel, Representative Michael Burgess of Texas, told Geithner that he disagreed with Brady.
“I don’t think you should be fired,” Burgess told Geithner. “I thought you should have never been hired.”
Democrats on the panel defended Geithner .
“It just amazes me how there are some people here who are trying to pretend, and I think consciously and intentionally pretending, that the economic circumstances that we’re confronting, all of them, mysteriously materialized over the course of the last nine months or so, which is totally, completely false,” said Representative Maurice Hinchey, a New York Democrat.
White House Comment
The White House stepped in to defend the Treasury chief later in the day. “Secretary Geithner has helped steer the American economy back from the brink, and is now leading the effort on financial reform,” White House spokeswoman Jennifer Psaki said in an e-mailed statement. “His focus today — and ours — is on economic recovery and addressing the challenges the American people face every day.”
Earlier this week, former Republican congressman Rob Simmons, seeking a U.S. Senate seat from Connecticut, called on Geithner to resign over his role in the AIG bailout.
Simmons, who is bidding to challenge Democratic incumbent Christopher Dodd in the 2010 election, cited the report issued Nov. 16 by the watchdog of the $700 billion Troubled Asset Relief Program that faulted the New York Fed — with Geithner at its helm — for making “limited efforts” to protect taxpayer funds during last year’s rescue of AIG.
Dodd chairs the Senate Banking Committee, which is considering legislation to toughen oversight of the U.S. financial system.
In today’s hearing, Geithner also told lawmakers that the Treasury wants to end the TARP as soon as possible.
“We are working to put TARP out of its misery,” he said.
The Obama administration is moving “aggressively” to shut down “the programs that defined TARP at the beginning of the crisis,” he said.
The department has already completed its guarantee for money-market mutual funds and it has ceased making capital injections into large banks.
Treasury prices were lifted Tuesday as investors pulled back on the previous day’s gains on Wall Street, spurring demand for perceived safe haven assets.
"Bonds are trading on some weakness in the equity market today," said Bill Larkin, portfolio manager at Cabot Money Management.
Stocks fell from their highest level in 13 months on Tuesday as investors reacted to a stronger dollar. The greenback, which is also perceived as a safer investment, rebounded from 15-month lows Tuesday.
Going forward, Larkin said prices of longer-dated treasuries will turn lower and prices for short term bonds will rise as the Federal Reserve holds interest rates near zero.
"That market will start to anticipate higher future inflation," Larkin said. "Because the Fed is on the sidelines, there is more embedded risk that inflation will become a problem for longer-dated securities."
Investors are keeping a close eye on the Fed for any indication of when it will raise interest rates loan till payday.
"The Fed’s change from the current liquidity to tightening monetary policy and raising interest rates without choking the economic growth will be just as challenging as it was getting the economy going again," he said. "And the market will be focus on that change."
Bond prices. The benchmark 10-year note was up 3/32 to 10-14/32, and its yield fell to 3.33% from 3.34% late Monday. Bond prices and yields move in opposite directions.
The 30-year bond rose 17/32 to 102-6/32, and its yield eased to 4.25%.
The 2-year note edged higher to 100-15/32. Its yield fell to .77%.
The yield on the 3-month bill .07%
And the PM’s Indian audiences have reacted with jubilance.
"The south Asian tiger has awoken and the world is standing in awe," Harper told a business gathering at the posh Trident Hotel in Mumbai on Monday – and the audience rose to give the visiting statesman a standing ovation.
Yet for all its headline-grabbing dynamic growth this decade, India still has the world’s biggest poor population. At 400 million people, India’s destitute would, on their own, be the world’s third-most-populous country.
India ranks 45th in the latest Legatum Prosperity Index, which measures quality of life and economic progress in 104 nations accounting for 90 per cent of the world’s population.
It is held back by malnutrition affecting one in five Indians, an average life expectancy of just 53 years and a severely inadequate health care system. With a GDP of about $1 trillion (U.S.), this nation of 1.2 billion people still trails in size the $1.2 trillion (Canadian) economy of Canada.
It’s the nature of such friendly exchanges – and this one is long overdue – that pleasantries dominate the conversation.
And in that context it was admirable of Harper to complain that while "between us, our combined GDP is well on the way to $4 trillion … at the moment we are only doing $5 billion worth of business per year."
That’s equal to five days’ trade between Canada and the U.S. "Where we are today is not where we ought to be," Harper said.
In fact, both nations are in catch-up mode in what has long been a relationship of mutual disdain. Canada recently boosted from five to eight its permanent trade missions in India. The Harper government has sponsored 11 ministerial visits to India, whose GDP growth will far outstrip that of the West over the next few years.
India’s largest firms at last are taking on multinational status. The century-old Tata family empire has acquired the former British Steel and the Jaguar and Land Rover brands. Names such as Reliance, another old-line conglomerate; ICICI Bank, which operates in Canada; and IT giant Infosys, which now has a branch in Mississauga, are becoming familiar to North American business clients low cost payday loans.
A handful of Canadian firms have established toeholds in India, including Sun Life, Bombardier, SNC-Lavalin, Cameco and Bank of Nova Scotia.
Yet, the larger picture is one of stalled initiatives.
Talk of a free-trade pact has been just that. A deal to protect foreign investors from bureaucratic meddling in each country is stalled, apparently over Indian fears of tainted Canadian meat products. A civilian-nuclear materials export program announced in January remains in limbo, long after the U.S., Britain and other nations signed such agreements.
There is no annual ritual of Team Canada political-business missions to south Asia, as there were under Jean Chretien in China, the other emerging economic superpower, and the one that has always claimed much more of Canada’s attention in matters of diplomacy and business.
Annual Canadian corporate investment in India trails that of Sweden, Belgium and even Bermuda. Despite the presence in Canada of about a million people claiming Indian descent, Canadian universities have enrolled just 4,000 Indian students. Australian universities have 80,000 Indian students.
Yet India also is home to the world’s largest middle class, at about 300 million people. There’s no question that with expected heady economic growth of 5.75 per cent next year, India and China are leading the world out of the global recession. There are euphoric local predictions of an Indian economy surpassing that of the U.S. in size by mid-century.
But real progress in Canada’s potentially crucial relationship won’t come from PM photo-ops with Indo-Canadian heartthrob Akshay Kumar, which the PMO spent weeks lining up.
It will require a sustained, low-key effort by notoriously unadventurous Canadian firms to understand the Indian market.
That won’t happen until Canadian entrepreneurs grasp that India’s economic growth is destined to be far more dynamic than North America’s for decades, and that the easier trip south will gradually yield less rewarding returns on investment.
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