WASHINGTON–The U.S. economy grew at a 2.2 per cent pace in the third quarter as the recovery got off to a weaker start than previously thought. But all signs suggest the economy will end the year on a stronger footing.
The commerce department’s new reading on gross domestic product for the July-to-September quarter was slower than the 2.8 per cent growth rate estimated a month ago. Economists had predicted this figure would remain the same in the final estimate of the quarter’s GDP – the value of all goods and services produced in the United States.
The main factors behind the downgrade were that consumers didn’t spend as much, commercial construction was weaker, business investment in equipment and software was softer and companies cut back more on their stockpiles of goods.
Even so, the economy managed to return to growth during the quarter, after a record four straight quarters of decline. That signalled that the deepest and longest recession since the 1930s had ended and the economy had entered a new fragile phase of recovery.
Despite the lower GDP reading, many analysts still think the economy is on track for a better finish in the current quarter.
Tuesday’s report showed consumer spending grew at a 2.8 per cent pace, slightly weaker than the 2.9 per cent rate previously estimated and one of the factors behind the lower overall reading.
Retail sales, though, showed momentum in October and November. That raised hopes that holiday sales would fare better than last year’s season, the worst in nearly four decades.
The economy is probably growing at nearly 4 per cent in the October-to-December quarter, analysts say. A few peg it closer to 5 per cent. If they’re right, that would mark the strongest showing since 5.4 per cent growth in the first quarter of 2006 – well before the recession began. The government will release its first estimate of fourth-quarter economic activity on Jan. 29.
Fast and Secure application for cash advance lenders and payday loans. We offer cash advance loans with a low cost guarantee.
Jamie Naessens thought so. She used her credit card to get a free sample of a tooth whitener advertised as cheaper than visiting a dentist.
"A friend of mine on Facebook posted about a product she was happy with that she got for free," she says. "Her account was hacked, but I didn’t know until later."
She went to the website, www.premiumwhitepro.com, and agreed to pay $1.95 (U.S.) to cover shipping costs. But a confirmation email showed $11.90 charged to her credit card.
"We charge an extra $9.50 for international orders," she was told after calling the Colorado-based company for a live chat on the night she did the transaction.
Only when she asked to cancel did she find out that accepting the trial order could have trapped her in a monthly shipping program.
"If you don’t cancel, you will be billed $87.62 for the product and you’ll then become a PremiumWhite Celebrity Member," the website says.
Naessens cancelled the trial order, but the company insisted the $11.90 shipping charge was non-refundable. Luckily, she had a screen shot of her live chat and sent it to her credit card issuer, President’s Choice Financial.
She also cancelled her credit card and asked for a new one to be issued with a new number.
Erin Gray, a President’s Choice spokeswoman, said customers have to take precautions against online scams.
"Ms. Naessens was reimbursed for the charge she incurred from the company," Gray said. "By taking the extra step of closing her card and opening a new one, she should avoid further charges related to the online offer.
"Should the company proceed with charging the card again, we will certainly work with Ms. Naessens to find a resolution (including adjusting the charge)."
Complaints about recurring charges by merchants often have the same result No teletrack payday loans. Customers have to call their credit card issuer every month and file a dispute.
This happens despite guarantees by Visa and MasterCard against unauthorized purchases made in a store, over the phone or online.
Naessens feels a little foolish, but a lot wiser, about how credit card companies operate.
"I have always considered myself a fairly smart consumer. However, I’ve been humbled recently.
"I feel that credit card issuers are not committed to changing the system to protect consumers.
"It is true that the issuer has promised to work with me in the future. However, that is not the same as making a promise to reverse any future charges, even though I did everything I could possibly do, given the situation.
"The very fact that suspect merchants can resubmit the charges is unacceptable — and once again, the consumer is victimized."
Naessens had one more surprise. She joined a security group at Facebook to share her experience.
But she couldn’t comment online without verifying her Facebook account. This meant having to provide her cellphone number, so she could be sent a text message with a security code.
"I’d already compromised my credit card number. I wasn’t going to do that with my cellphone number," she says.
Internet user beware. A free sample is a common come-on for monthly shipments of vitamins or cosmetics. And if you complain, the company will say you agreed to the terms and conditions before placing your order.
Next week, we’ll wrap up this Sunday series on fraud before tackling something new in the new year.
eroseman@thestar.ca
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.”
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.
Central banks will be net buyers of gold this year as they diversify away from the U.S. dollar, global commodities investment fund BlackRock said on Monday in comments that helped drive bullion to fresh record highs.
BlackRock is one of the world’s largest fund managers, boasting a total $1.4 trillion under management across all asset classes. It is manager and adviser to the U.S. Federal Reserve and its views can influence the direction of global markets.
Evy Hambro, who runs two of the world’s largest commodities funds, BlackRock World Mining Fund and Gold & General Fund, gave an upbeat outlook for gold during a media briefing in Australia.
His forecast for net central-bank purchases of gold this year would, if met, mark the first year in two decades when the world’s central banks bought more gold than they sold. They have been net sellers of gold each year since 1988.
“The most recent break-out in the gold price in U.S. dollars has caused most gold prices to start trending higher at the same time,” Hambro said, adding that investors were now looking for gold to rise in other commodities as well as U.S. dollars.
“When you start to see the price rising in a range of different currencies, it is a clear sign of a very strong market to come,” he added.
Spot gold stood at $1,123.70 as of 0216 GMT after touching $1,126.30 per ounce, a record, compared with the notional New York close of $1,118.50, helped higher by Hambro’s bullish outlook, according to financial broking group IG Markets.
The previous record was $1,122.85 marked on November 12.
Bullion was also gaining on renewed appeal as a hedge against the U.S. dollar’s weakness and inflation risks.
In other currencies, gold has not reached new highs since early 2009. In Australian and Canadian dollars and the South African rand, it peaked in February.
But Hambro said investors were now “looking for price rises across all currencies” as central banks build up their gold holdings and global supplies tapered off.
“Gold’s role is gathering a lot more attention in terms of risk diversification,” he said.
Hambro also said that the high level of gold production in China, which has replaced South Africa as the world’s biggest producer, was not sustainable, pressuring world supply.
China’s gold production rose 13.49 percent in the first half of 2009 from a year earlier to 146.505 metric tons, according to the Ministry of Industry and Information Technology.
Hambro also said U.S. demand for commodities was starting to show signs of recovery. This, along with stronger Asian demand, set the stage for a prolonged bull market, he added.
Stocks slumped Friday, in a broad-based selloff that was especially hard on the leaders of the most recent leg of the rally — banks, energy shares and transportation companies.
The Dow Jones industrial average (INDU) lost 109 points, or 1.1%. The S&P 500 (SPX) index lost 13 points or 1.2%. The Nasdaq composite (COMP) lost 11 points or 0.5%.
Stocks had risen in the morning after upbeat results from Microsoft and Amazon.com, and an encouraging reading on existing home sales. But the tone turned negative in the afternoon.
The three major indexes all ended lower for the week, after two weeks of gains amid a bigger multi-month advance.
"After seven months of mostly rallying, the buyers weren’t really here this week and the bears took that as an opportunity," said Paul Brigandi, vice president of trading at Direxion Funds.
Investors getting tired?: Since bottoming at a 12-year low on March 9, the S&P 500 has surged over 62% through its rally high earlier this week.
Although repeated predictions for a big 10% to 15% selloff haven’t materialized, smaller selloffs of 1% to 3% have popped up periodically during the past 7 months. Friday appeared to be an extension of that trend.
While the S&P 500 lost 1.1% Friday, for individual sectors, the declines were bigger.
The Dow Jones Transportation (DJT) average, which includes railroads, truckers and airlines, had surged 88% through its rally high earlier this week. On Friday it lost 3.5%.
Some market pros have said the rise in the transports is a good indicator of the economic recovery. But downbeat comments Friday from railroads Union Pacific and Burlington Northern put that optimism into question. It also gave investors an opportunity to cash out after the massive rise in the sector.
The KBW Bank (BKX) index, which tracks 20 financial firms, including Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), has rallied over 140% between March and its peak this week. The bank sector slumped as well Friday, losing 1.6%.
A strong U.S. dollar — bouncing back from one-year lows against a slew of other currencies — added to the downturn Friday. A strong dollar pressures dollar-traded commodities including oil, which in turn drags on energy shares. Big multinationals that benefit from a weak dollar also slipped.
Stocks had rallied Thursday following upbeat earnings from 3M (MMM, Fortune 500), AT&T (T, Fortune 500) and other blue chips. The advance propelled the Dow back above 10,000 and the S&P 500 closer to 1,100. But that advance proved unsustainable Friday, even though corporate news was upbeat.
"Investors know that the earnings for the third quarter are going to be better than expected," Brigandi said. "That’s no longer going to be a catalyst. They are going to want to see something else."
Results: Microsoft (MSFT, Fortune 500) reported weaker quarterly sales and income Friday morning that easily surpassed analysts’ estimates. Cost cutting and strong sales of its Windows operating system fueled the advance.
On Thursday, Microsoft rolled out its new Windows 7 operating system, expected to boost PC sales in the coming months.
Shares of Microsoft, a Dow component, rose over 9% Friday morning, touching a one-year high, before giving up nearly half of that advance.
Late Thursday, Dow component American Express (AXP, Fortune 500) reported weaker quarterly sales and earnings that beat analysts’ forecasts. Shares fell 5% Friday.
Also late Thursday, Amazon.com (AMZN, Fortune 500) reported a big surge in earnings and revenue, thanks in part to strong sales of its e-reader, Kindle. Shares jumped 27% Friday, hitting a ten-year high.
So far, 199 companies, or 40% of the S&P 500, have reported results. Profits are currently on track to have fallen 18.2% versus a year earlier, according to the latest from Thomson Reuters. Revenue is expected to have dropped over 10% from a year ago.
Bernanke: The Federal Reserve chairman, speaking Friday, said that the financial turmoil is abating, but that lawmakers have to reform the system to help prevent a crisis of this magnitude happening again.
On Thursday, the Federal Reserve proposed a broad overhaul of pay policies at 28 of the largest U.S. banks. Also Thursday, White House "pay czar" Kenneth Feinberg called for the seven biggest recipients of federal bailout money to cut in half what they pay their top executives.
Economy: Existing home sales jumped to a 5.57 million unit annual rate in September, according to a National Association of Realtors report released Friday morning. Sales were expected to have risen to a 5.35 million unit annual rate from 5.1 million unit annual rate in August.
World markets: Global markets were mixed. In Europe, London’s FTSE 100 gained 0.7%, France’s CAC 40 lost 0.3% and Germany’s DAX gave up 0.4%. Asian markets ended higher.
Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.48% from 3.42% late Thursday. Treasury prices and yields move in opposite directions.
Currency and commodities: The dollar gained versus the euro, after falling to a 14-month low earlier in the week. The dollar gained versus the yen.
U.S. light crude oil for December delivery fell 69 cents to settle at $80.50 a barrel on the New York Mercantile Exchange, edging off a one-year high.
COMEX gold for December delivery fell $2.20 to settle at $1,056.40 an ounce. Gold has surpassed records repeatedly this month due to the weak dollar and longer-term worries about inflation.
In the past, Bank of America Chief Executive Officer Ken Lewis has received an annual salary of $1.5 million. But this year he will get nothing.
That means no salary, no bonuses. In fact, he will have to repay Bank of America Corp. (BAC, Fortune 500) the more than $1 million he has already earned in his final year on the job.
Lewis agreed to the deal on Thursday after the Treasury department’s pay czar, Kenneth Feinberg, "suggested" it to him, said Bob Stickler, a spokesman for the bank.
Stickler added that Lewis "felt it was not in the best interest of Bank of America or him to get into a dispute with the pay master."
Lewis, who announced last month that he will retire at the year’s end, will still have $53 million in pension benefits waiting for him. The outgoing chief will also have other stock awards and deferred compensation for a total $69 million payout, said Stickler.
Feinberg does not have authority to modify compensation awarded before 2009, which includes Lewis’ retirement package and stock holdings from a four-decade career at the bank.
But Stickler asked, "Since when does law apply to this administration?" As a result, he said Bank of America is unsure whether or not Lewis’ retirement package is under review by the government.
Wall Street has been waiting for Feinberg to announce rules on compensation at the seven firms that have received large government loans last year as the financial system neared collapse. And while firms are expecting Feinberg to crack down on payouts, a complete cut is bold.
The deal comes before the Charlotte, N.C.-based bank announces its third-quarter earnings on Friday morning. Analysts polled by Thomson Reuters expect earnings per share to decrease by 21 cents from a year ago when they were flat.
The possibility of securing a mortgage rate below 5% has greatly improved in recent weeks, in a positive sign for would-be home buyers.
Home mortgage rates fell for the sixth straight week, according to two key measures, with one of them pointing to a sub-5% rate for the 30-year fixed loan for the second week in a row.
Freddie Mac’s (FRE, Fortune 500) weekly report said the 30-year rate slipped to 4.87% for the week ended Thursday, the lowest since May. According to the mortgage backer, last week’s rates stood at 4.94%.
Mortgage tracker Bankrate.com said the average 30-year fixed loan slipped to 5.22% from 5.25% the previous week. The 15-year fixed rate also fell, Bankrate said, to 4.6% from 4.64% the week before.
The 30-year rate is influenced by the benchmark 10-year note’s yield, which moves in the opposite direction of its price. Treasury prices have risen over the past week as $78 billion worth of auctions received above-average demand.
"Another disappointing employment report had investors questioning the strength and sustainability of the economic rebound," the Bankrate report said. "The resulting uncertainty drove investors into the safety of government and mortgage-backed bonds."
"Not even a substantial auction of government debt has been enough to derail the streak of declining mortgage rates," the Bankrate report said.
Rates are returning to levels not seen since the spring when, in an effort to cap mortgage rates, the Federal Reserve began a campaign to buy back $300 billion in Treasurys easy pay day loans. The Fed hoped that it would spark demand and keep yields — and therefore, mortgage rates — in check.
Mortgage rates fell as refinancings abounded. But those benefits seemed to wear off, as rates started on a tear in the summer. By June, the benchmark 10-year bond’s yield had increased steadily to hover around 4%.
Now the central bank has less than $15 billion left to spend on its buyback program, which led some investors to worry that yields would soar again. So far, that’s not the case.
On Wednesday, reports said Democratic congressional leaders were working to extend a $8,000 tax credit for first-time home buyers past the Nov. 30 expiration date and could even make it available to current homeowners who buy a new house.
Homeowners have received a boost from both the tax credit and the lower rates — last year, the average 30-year fixed mortgage rate was 6.2%, according to Bankrate.
To translate the difference in mortgage rate into dollars, consider a $200,000 loan. At last year’s rate of 6.2%, the monthly payment would be $1,224.94, or $124 higher than the monthly payment at the current rate.
The low rates helped mortgage applications surge by 16.4% last week, according to a separate report.
For General Motors, the road out of bankruptcy isn’t proving to be as smooth as its quick trip through it.
In the past week, the company’s plans to sell its Saturn brand to auto retailer Penske Auto Group fell through, forcing GM to start winding down a network of about 350 dealerships.
But that’s not the only post-bankruptcy problem for GM. Its plans to sell Hummer to a Chinese industrial company missed a target date of closing by Sept. 30.
GM is also trying to close a deal to sell two-thirds of GM’s European Opel brand to a joint venture between Canadian auto parts maker Magna International (MGA) and Russian automaker GAZ Group. Despite ongoing losses at Opel, the decision to sell that stake was a difficult one for GM. Many experts are concerned that the Opel sale will weaken GM by limiting its global reach.
"It hurts their global capabilities," said Tom Libby, president of the Society of Automotive Analysts. "They can’t draw on this major source of engineering resources that they’ve used for years. If they had had the money they needed, they wouldn’t have done it."
Libby said it’s not surprising that the Saturn deal fell through, that Hummer is behind scheduled, or that the Opel deal has raised questions. But he said these are all signs that turning around GM for the long run will be a significant challenge.
"They made assumptions during the bankruptcy process and that’s why the process was so quick," he said, referring to the company’s six-week trip in and out of bankruptcy court. "But it was always going to be difficult to meet those expectations."
Saturn closure comes with costs
The Saturn deal with Penske (PAG, Fortune 500) was never going to raise a large amount of money for GM. But it would have allowed GM to supply a Penske-run Saturn with vehicles for two years while it found a new contract supplier. That plan would have helped GM keep factories running more efficiently.
In addition, GM will now have to pay Saturn dealers between $100,000 and $1 million each to wind down, which will cost the company more than $100 million. Libby said those payments, while modest in comparison to the company’s ongoing losses, still will hurt GM.
"They have no excess funds. It’s going to affect something in the organization significantly," he said.
GM spokesman John McDonald said that the company never counted on avoiding payments to dealers through a Saturn sale. So the collapse of the Saturn deal is not a setback, he said.
McDonald added that the company hopes to produce the same number of vehicles for its other brands that it would have if it was still making Saturns no fax pay day loans. GM has Chevrolet and Buick offerings that are similar to most Saturn models.
Saturn’s industrywide market share has fallen to a record low of less than 1% this year as buyers avoided the endangered brand and GM cut back on marketing efforts. But Saturn still accounted for about 4% of GM’s total sales in 2009. So any slip in sales could hurt GM at a time when it is struggling to end a period of market share declines in the U.S.
Opel deal critical. Hummer? Not so much.
The Opel deal could affect GM’s competitiveness not just in Europe but in North America as well. Some of GM’s most critically acclaimed vehicles in recent years, including the Chevrolet Malibu and the Buick Lacrosse, are built on an Opel platform.
The Opel sale was temporarily put on hold by GM’s new board as it studied whether it was the best move for the company following bankruptcy. But the need for short-term cash and political pressure from the German government, which had loaned the company money to keep Opel afloat, left GM little choice than to proceed with the sale.
"It wasn’t negotiating from a position of power," said Subroto Banerjee, a partner with business consultant Frost & Sullivan. "In a time of being forced to sell something, you’re in deep trouble. You’re going to give up more than they’d like."
Still, the Opel deal could benefit GM even though some worry about the impact it will have on sales. The keys to whether the deal will be good or bad for GM depends on how much access GM will have to Opel’s engineering resources going forward and the limits on Opel’s new owners being able to compete against GM in markets outside of Europe.
"From GM’s position, those two things are critical," said David Cole, chairman of the Center for Automotive Research, a Michigan think tank.
Then there’s Hummer. The decision to get rid of Hummer, while arguably attracting the most attention because a Chinese company wants to buy the brand, will likely have the least impact on GM. Hummer is small even in comparison to Saturn and it has a much smaller dealer network.
GM’s McDonald insists that missing the target date to close the deal is not necessarily a sign that there are problems. "Especially when dealing with an international buyer, missing a deadline is not uncommon," he said.
Nonetheless, Hummer has been another drain on GM’s limited resources, and experts say they need to resolve the future of the brand sooner rather than later. Libby said that keeping Hummer is not an option for GM.
Chevron Corp’s David O’Reilly will hand Vice Chairman John Watson the reins as the second-largest U.S. oil company brings several big projects online and navigates through a massive, potentially damaging lawsuit in Ecuador.
Watson, 52, becomes chairman and chief executive at the end of this year, Chevron (CVX, Fortune 500) said Wednesday. He has been at Chevron since 1980, in roles such as chief financial officer and head of exploration and production outside North America. He also led the integration of Texaco after the deal closed in 2001.
The California native, who currently oversees strategy and development, will take the helm at a time when oil majors face increasing competition from state-run oil companies for access to the largest untapped reserves. Two-thirds of the world’s top 20 oil companies are backed by governments.
O’Reilly, a 62-year-old from Dublin, has worked for the San Ramon, California-based company for 41 years and served in the top two roles for the past decade.
A new CEO is just the latest change at the top of Chevron in the past year, which has seen a new chief financial officer take over and the appointment of a new chief in-house lawyer.
While O’Reilly made headlines in June by debating the head of the Sierra Club, an environmental group, his public profile was lower than that of many top executives.
"We really like that O’Reilly wasn’t real outspoken and on a lot of different boards," said Alan Brochstein, senior energy analyst at Management CV, which rates executive teams.
"We sure hope Watson won’t be either because quite frankly we think Chevron has had, over the long term, one of the higher returns for its shareholders," he added, noting that Watson had "major skin in the game" with $30 million of Chevron stock.
Ecuador threat
Watson faces a potential crisis from a $27 billion claim in a lawsuit in Ecuador, where indigenous people blame Texaco for polluting the areas where they live and damaging their health.
A ruling in the 16-year-old case had been due in the coming months, but that is now complicated by the judge’s replacement amid allegations he was involved in a $3 million bribery plot.
The CEO change is a "mild positive" for Chevron shares by setting up a smooth transition, said James Halloran, consultant with Financial America Securities in Cleveland, Ohio.
But he said the road ahead looks tough since oil companies largely occupy a second tier after national oil companies.
"They can no longer show up at the doorstep of countries and get access to the oil," Halloran said.
In the face of this challenge, Chevron in January dropped its target for 3% compound annual production growth from 2005 to 2010, although in July it did bump up its 2009 output growth target to 5% from 4%.
O’Reilly will depart as a number of sizeable projects come online from Brazil to the Gulf of Mexico to Australia, where the $37 billion Gorgon gas project just got the green light.
"He’s left him with a well-stocked pond," said Fadel Gheit, analyst at Oppenheimer & Co, who also identified access to new reserves as Watson’s biggest challenge.
Chevron’s board elected George Kirkland, 59, to succeed Watson as vice chairman. Kirkland will retain responsibility for Chevron’s global oil and gas exploration and production.
Chevron shares were trading 0.8% lower at $70.32, in line with peers. Shares of larger rival Exxon Mobil Corp (XOM, Fortune 500) were down 0.7% at $68.61.
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