Consumer confidence rose slightly this month, coming off 28-year lows thanks to cheaper oil and deep discounts during the holiday-shopping season.
Reuters/University of Michigan released its monthly survey of consumer confidence Tuesday, and the December index increased to 60.1 from November’s 55.3 - better than the 58.8 expected by economists surveyed by Bloomberg.
The index was revised up from the 59.1 preliminary figure reported on Dec. 12, but the uptick is still substantially lower than the 75.7 reported in December 2007.
"It’s a very minor increase, and we’re still near all-time lows," said Adam York, economic analyst at Wachovia (WB, Fortune 500). "These surveys are fairly volatile in nature, and it’s clear the rapidly deteriorating economic situation is pretty dire for the American consumer."
Lower gas prices and deep discounts at retail stores provided temporary relief, according to the report, but absent the holiday price slashing, the index is expected to fall again next month.
"Even for those who haven’t been laid off or suffered salary cuts, it’s on their mind," York said. "It’s a real problem for retailers."
He added that the country is likely "only halfway through what we’ll see in job cuts."
"The most significant change recorded in the December survey was the record plunge in inflation expectations," Richard Curtin, director of Reuters/University of Michigan Surveys of Consumers, said in a statement payday loan.
In fact, one in four consumers expected deflation would occur, a higher percentage than any time since the 1950s, the report said.
"We don’t often take that number into strong consideration, but this shows a sharp concern," York said.
Still, the decline in gas prices and commodity prices "should start to help consumers soon," York added. "But even that wont completely offset income losses that come from a pretty bad labor market."
Total consumer spending is expected to decline by 1% in 2009, with an "unusually slow recovery in 2010," Curtain said.
"The personal finances situation of consumers remained bleak," the report said, adding that "the majority reported that their finances had recently worsened."
In the December survey 75% of consumers said they expect the recession to continue throughout 2009; 70% also forecasted a rise in unemployment.
"The fourth quarter will be the worst in economic growth," York said. "While the first quarter wont be pretty, it will be better."
President-elect Barack Obama issued a warning Sunday to officials around the country lining up for federal dollars to help projects take off in the struggling economy: No more business as usual.
In an interview on NBC’s Meet the Press, Obama said, "What we need to do is examine: What are the projects where we’re going to get the most bang for the buck? How are we going to make sure taxpayers are protected?
"You know, the days of just pork coming out of Congress as a strategy, those days are over."
Later, at a news conference in Chicago, Obama said that in his recent meetings with the National Conference of Governors, there was a "strong bipartisan" consensus that "we’ve got to get people working on some key projects that have been sitting there for a long time."
Infrastructure, energy programs, and school construction projects will get people working and ultimately help build a stronger economy, he said.
But, he added, "We are not going to simply write a bunch of checks and let them be spent without some very clear criteria as to how this money is going to benefit the overall economy and put people back to work. We’re not going to be making decisions on projects simply based on politics and - and lobbying."
The president-elect faced questions about a possible bailout of the auto industry, which he supports with caveats.
"It makes no sense for us to shovel more money into the problem if you have not seen an auto industry that is committed to restructuring - restructuring that, frankly, should have been done 10 years ago, 20 years ago, 30 years ago," he told reporters.
He added, "Congress is doing the exact right thing by asking for a conditions-based assistance package that holds the auto industry’s feet to the fire, gives them some short-term assistance, but also insists that that assistance leads to some very difficult choices involving all the stakeholders… including management, labor, shareholders, creditors, and so on."
Asked whether he supports Sen. Christopher Dodd’s call Sunday for General Motors CEO Rick Wagoner to step down, Obama did not respond directly. But he said generally that "if this management team that’s currently in place doesn’t understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances, then they should go instant pay day loans."
In the NBC interview, recorded Saturday, Obama slammed executive compensation packages in the industry as "out of line" compared to Japanese auto companies.
"Now, it’s not unique to the auto industry. We have seen that across the board. Certainly we saw it on Wall Street," he said. "And part of what I’m hoping to introduce as the next president is a new ethic of responsibility."
Facing a financial crisis that is "going to get worse," Obama said his top priority is building a recovery plan "equal to the task." He gave no specifics, saying his economic team is "crunching the numbers."
Despite the nation’s massive debt, Obama said he won’t be focusing on building a balanced budget at the start of his administration.
"We understand that we’ve got to provide a blood infusion to the patient right now to make sure that the patient is stabilized. And that means that we can’t worry short term about the deficit. We’ve got to make sure that the economic stimulus plan is large enough to get the economy moving," he said.
Part of that movement means taking big steps to fix the mortgage crisis, he said, adding that he is "disappointed that we haven’t seen quicker movement" by the Bush administration on that front.
Asked whether he has "personally conveyed" that disappointment to the administration, Obama said only, "We have specifically said that, moving forward, we have to have a housing component to any actions that we take."
Throughout his campaign, Obama vowed to raise taxes on couples earning more than $250,000 and individuals making more than $200,000 while lowering taxes for all others. Asked whether that is still his plan, Obama responded, "We don’t yet know what the best approach is going to be. But the overall thrust is going to be that 95% of working families are going to get a tax cut and the wealthiest Americans… are going to give up a little bit more."
He did not say when that may happen.
Stocks tumbled Thursday as a rash of job cuts at major companies added to jitters ahead of the November jobs report.
The Dow Jones industrial average (INDU) ended down 215 points, recovering from a decline of as much as 332 points earlier in the afternoon. The Standard & Poor’s 500 (SPX) index fell 2.9% and the Nasdaq composite (COMP) retreated 3.1%.
Stocks seesawed through the morning, but turned lower in the last hour of the session. Wall Street has been reversing direction fairly regularly in the last hour of trading each day.
"It’s the 3 o’clock shuffle," said Joseph Saluzzi, co-head of equity trading at Themis Trading.
He said that with the uncertainty about the automakers and the worry about the November jobs report due Friday, investors would rather back out of stocks.
Executives from GM, Ford Motor and Chrysler testified before a Senate panel in an effort to get a $34 billion aid package from Congress. They speak before a House panel Friday.
Oil prices at an almost 4-year low and a selloff in gold and other metals kept the global recession in focus and added to the stock selling, Saluzzi said.
While the recession hasn’t seen its turning point yet, the stock market is trying to bottom, said Will Hepburn, president and chief investment officer at Hepburn Capital Management
"The government has put a lot of money to work, and at some point that money will come back into the economy and stock market," Hepburn said.
The problem in the short term, he said, is that between hedge fund redemptions and tax-loss selling, investors are going to want to sell into rallies through year-end.
"These are bear market spikes and they’re painful for people because they fizzle out quickly," Saluzzi said.
Research firm TrimTabs estimates that hedge fund redemptions between September and year-end will likely reach $250 billion.
Jobs: On Friday, the government is expected to report that employers cut 325,000 non-farm jobs from their payrolls in November after cutting 240,000 in the previous month.
The unemployment rate, generated by a separate survey, is expected to have risen to 6.8% from 6.5% in the previous month.
Ahead of that report, a slew of major companies announced more than 20,000 job cuts Thursday.
Among the standouts: AT&T (T, Fortune 500) said it would cut 12,000 jobs, or 4% of its workforce, while DuPont (DD, Fortune 500) said it was cutting 2,500 jobs. Both companies are Dow components. Also, Swiss bank Credit Suisse (CS) said it was cutting 5,300 jobs, or about 11% of its workforce, in the U.S. and globally.
A trio of financial services firms announced 3,000 job cuts Wednesday.
Also on Wednesday, payroll-processing firm ADP said 250,000 private sector jobs were cut.
In other employment news, the number of Americans filing new claims for unemployment benefits last week dipped to 509,000 from a revised 530,000 the previous week. Economists surveyed by Briefing.com expected jobless claims of 540,000.
Automakers: The Big Three automakers began two days of testimony on Capitol Hill, pleading for a bailout after being rebuffed last month.
On Tuesday, GM (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler each submitted their turnaround plans to Congress. The automakers are looking to receive a combined $34 billion in aid versus the initially requested $25 billion online payday loan. Early reports say Congress is unlikely to grant their requests.
The Senate Banking Committee held its hearing Thursday, while the House Financial Services Committee will hold its hearing Friday. (Full story)
Retailers: Wal-Mart Stores (WMT, Fortune 500) continued to outperform the overall retail sector as consumers sought bargains amid the economic crisis. Wal-Mart reported a 3.4% rise in November same-store sales, or sales at stores open a year or more. That was above the company’s growth forecast of 1% to 3%.
But other chains had a rougher period. Sales at Wal-Mart rival Target (TGT, Fortune 500) fell 10.4%, department store chain Nordstrom (JWN, Fortune 500)’s sales fell 15.9% and teen clothing chain Abercrombie & Fitch (ANF)’s sales fell 28%. (Full story)
Oil and metal stocks slipped with the raw commodities. Dow stocks Exxon Mobil (XOM, Fortune 500), Chevron (CVX, Fortune 500) and Alcoa (AA, Fortune 500) all declined.
Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by nearly three to one on volume of 1.47 billion shares. On the Nasdaq, losers topped winners by five to two on volume of 2.10 billion shares.
Other economic news: A report showed that October factory orders fell 5.1% after declining a revised 2.5% in September. Economists thought orders would fall 4.5%.
Federal Reserve Chairman Ben Bernanke said Thursday that the housing market is the key to the economic recovery and that the government has to do more to deal with foreclosures.
Bonds: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.56% from 2.66% late Wednesday. The 10-year yield dipped below 3% last week for the first time since the note was first issued in 1962. Treasury prices and yields move in opposite directions.
The yield on the 3-month Treasury bill inched up to 0.02% from 0.01% Wednesday, but still near the 68-year low of zero hit last month. The 3-month is seen as the safest place to put money in the short term. A low yield means wary investors would rather preserve cash despite earning little or no interest on it than risk the stock market.
Lending rates eased. The 3-month Libor rate slipped to 2.19% from 2.20% Wednesday, while overnight Libor fell to 0.52% from 0.88% Wednesday, according to Bloomberg. Libor is a key bank lending rate.
Other markets: In global trading, Asian markets ended lower. European markets ended lower, erasing earlier gains after the European Central Bank, the Bank of England and Sweden’s Riksbank all lowered rates. (Full story)
The dollar gained versus the euro and fell against the yen.
U.S. light crude oil for January delivery fell $3.12 to settle at $43.67 a barrel on the New York Mercantile Exchange, ending at a nearly 4-year low.
COMEX gold for February delivery lost $5 to settle at $765.50 an ounce.
Gasoline continued its fall to nearly four-year lows, with prices down 1.4 cents to a national average of $1.789 a gallon, according to a survey of credit-card swipes released Thursday by motorist group AAA. Prices have been sliding for 2-1/2 months and have dropped more than $2 a gallon, or 53%.
Local United Auto Workers leaders from across the country will hold an emergency meeting in Detroit on Wednesday to discuss concessions the union could make to help auto companies get government loans.
UAW leaders called the meeting Monday night in an e-mail, obtained by The Associated Press, to local union presidents and bargaining chairmen.
Among the subjects to be discussed at the meeting will be the possibility of restructuring the union-administered health care fund so that the automakers can delay payments to the multibillion-dollar fund, according to a person familiar with the matter.
The union leaders will also discuss potentially eliminating the jobs bank, in which laid-off workers keep receiving most of their pay. The person spoke on condition of anonymity because the details of the talks haven’t been finalized.
Presidents from union locals for General Motors Corp., (GM, Fortune 500) Ford Motor Co. (F, Fortune 500) and Chrysler LLC will attend the meeting, according to the e-mail. A separate meeting for GM union officials will follow.
Members of the committee that negotiated contracts last year with GM, Chrysler and Ford also will attend.
Chief executives from all three companies and UAW President Ron Gettelfinger are traveling to Washington this week to present business plans to Congress as they seek to get $25 billion in federal loans to help them survive.
The CEOs will go before Congress on Tuesday, the same day major automakers are scheduled to report November U Free Credit Report and Score.S. sales. Analysts are expecting yet another month of dismal volumes due to the economic recession and the credit crisis.
GM, Ford and Chrysler would refinance their companies’ debt, cut executive pay, seek concessions from workers and find other ways of reviving their staggering companies.
Gettelfinger said Tuesday the plans the automakers are submitting to Congress don’t yet include union-approved cutbacks, but he said "we recognize that there may be additional sacrifices required."
"We have ongoing discussions with the companies about different issues. We’re working all the time to help save the companies money," he said on WJR-AM’s "Paul W. Smith Show" in Detroit.
U.S. automakers are struggling to stay afloat heading into next year under the weight of an economic meltdown, the worst auto sales in decades and a tight credit market. GM, Ford and Chrysler went through nearly $18 billion in cash reserves during the last quarter, and GM and Chrysler have said they could collapse in weeks.
Last month, chief executives from the Detroit Three failed to convince Congress they were worthy of the $25 billion in loans. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., ordered them to outline major changes, including the elimination of lavish executive pay packages and assurances that taxpayers would be reimbursed for the loans.
Americans may be descending on the malls today to hunt for bargains. But this is still expected to be a blue Christmas for many retailers and a gloomy end to what’s turning out to be a dismal 2008.
Nonetheless, some consumer stocks are actually thriving this year. Not surprisingly, almost all of the retailers that are in the black through Black Friday are benefiting from the weak economy because they tend to focus on thrifty shoppers. (And who isn’t trying to be more frugal these days?)
Shares of Wal-Mart Stores (WMT, Fortune 500) have gained nearly 20% so far this year. That makes it not just the best-performing stock in the Dow in 2008 — it’s the only one of the Dow 30 that’s up this year.
The discount retailer is expected to post an 8% gain in sales and 10% increase in profits — incredibly impressive in this economic environment.
Big Lots (BIG, Fortune 500), a closeout retailer of bargain-priced merchandise, is also doing well as consumers pull back. The stock is up 10% this year and earnings per share are expected to increase 35%.
But the companies that are really taking off this year are the ones that offer consumers the most bang for their buck — literally. Shares of the dollar store discount chains have been among the best-performers in the market in 2008.
Dollar Tree (DLTR) has soared about 60% so far. Shares of Family Dollar Stores (FDO, Fortune 500) are up 50% while 99 Cents Only Stores (NDN) has gained more than 35%.
Are these stocks still worth buying though? That’s less certain.
On the one hand, many are predicting that the economic malaise will linger into the early part of 2009 easy fast payday loans. That means these companies are likely to rack up sales and profits increases that will outpace the rest of the retail industry.
Wal-Mart, for example, is expected to report an earnings per share increase of 8% in its next fiscal year. Analysts are forecasting a 10% jump in profits for Dollar Tree next year.
But investors are already anticipating this sluggishness to continue and have priced that into the stocks of many of these discounters. So several now actually trade at luxury-like valuations when compared to other retailers.
Wal-Mart, Family Dollar and Dollar Tree all trade at more than 16 times earnings estimates for this fiscal year, compared to an average price-to-earnings ratio of just below 13 for the retailing sector.
In addition, it’s important to remember that investors often do a pretty good job of predicting economic recoveries well before they happen. Even though the next few quarters look bleak, there are growing hopes that the worst of this downturn will be over by late 2009.
If that’s the case, money may start to move out of hot stocks like these discount retailers and back into other more hard-hit consumer stocks, as well as beaten down banks and tech companies, which could all do well once the economy improves.
So buyer beware. Cheap may be chic now. But the discount retailers are so in vogue on Wall Street that these stocks are no longer the "doorbuster" deals they used to be.
A Democratic official says President-elect Barack Obama will name New Mexico Gov. Bill Richardson as commerce secretary.
The official says Obama plans to announce Richardson’s selection after Thanksgiving. The official spoke on condition of anonymity because the official was not authorized to speak publicly about the negotiations.
Richardson was energy secretary and U business card.N. ambassador under President Bill Clinton. Richardson would be the most visible Hispanic named to Obama’s Cabinet.
Richardson dropped out of the Democratic presidential contest in January and endorsed Obama.
The Group of Seven warned the surging yen posed a threat to financial and economic stability on Monday in the latest coordinated effort by the world’s richest nations to contain worst financial crisis in 80 years.
The yen was the only currency mentioned in a brief G7 statement issued as it rallied to 13-year high against the dollar, threatening Japanese exports as world’s second-largest economy tumbles toward recession.
With Tokyo’s Nikkei share average hitting a 26-year low and share of Japan’s biggest banks tumbling on fears that they would have replenish capital, Finance Minister Shoichi Nakagawa said the G7 was worried about volatility in the yen.
“We continue to monitor markets closely and cooperate as appropriate,” Nakagawa said, reading from the G7 statement.
South Korea resorted to a record interest rate cut and Australia’s central bank said it had intervened to support its currency in another sign that policymakers are reaching beyond troubled banks now that the financial crisis has shattered investor confidence, and threatens jobs and corporate sales.
Japanese Prime Minister Taro Aso asked ministers to consider emergency measures to stabilize the stock market, including government purchases of shares and relaxing rules on recapitalization of banks. Three banks were looking to raise cash to offset stock market losses, Japanese media reported.
The Nikkei clawed 0.7 percent higher but Asia-Pacific shares outside of Japan fell 2.6 percent to a four-year low, according to an MSCI index. Safer assets such as government bonds and gold traded higher on the day, suggesting investors would need to see more than just rhetoric before acting.
“Whether what we’re seeing right now from policymakers is sufficient is difficult to tell faxless pay advances. The price action alone in markets tells me not,” said Dwyfor Evans, currency strategist with State Street Global Markets in Hong Kong.
Developing nations have been turning to the International Monetary Fund for help to stave off the worst global financial crisis since the Great Depression in the 1930s. Hungary had reached an agreement to get a “substantial financing package” in the next few days that will include financing by the European Union and some individual European governments, the IMF said.
The IMF agreed on a $16.5 billion loan package for Ukraine on Sunday.
STERNEST TEST
South Korean policymakers took their most dramatic measures yet in a months long battle to buttress confidence in an economy facing its sternest test since the Asian financial crisis a decade ago.
The Bank of Korea cut its main interest rate by 75 basis points to 4.25 percent in an unscheduled meeting. The rate cut was the biggest on record and only the second emergency move since the bank adopted its current monetary policy system; the first was after the September 11, 2001 attacks on the United States.
“Their priority is to minimize the impact of the crisis on growth and on volatility. Eventually this could also help the markets,” said Sebastien Barbe, senior economist and foreign exchange strategist with Calyon in Hong Kong.
President Lee Myung-bak pledged to increase government spending and to cut taxes to support Asia’s fourth largest economy, which grew at the slowest quarterly pace in four years during the last quarter.
The Bush administration will invest about $125 billion in nine of the biggest U.S. banks, including Citigroup Inc. and Goldman Sachs Group Inc., in the government's latest attempt to shore up confidence in the financial system.
The proposed cash injections in exchange for preferred shares are part of a $700 billion rescue approved by Congress and follow similar moves by European leaders to unfreeze credit markets by helping beleaguered banks. The other companies are Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., said people briefed on the plan.
“They've decided they need to do something drastic and this is drastic,'' said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.
The purchases represent a new approach for Treasury Secretary Henry Paulson, who first promoted a bailout targeted at illiquid mortgage-related assets. The urgency for a more immediate infusion has grown as banks struggle to regain the confidence of investors, counterparties and clients after bad loans caused more than $635 billion of writedowns across the industry. Paulson will discuss his plan at a press conference at 8:30 a.m. today in Washington.
The prospect of government support sent stocks higher around the world. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance. Asian stocks also surged, with the Nikkei 225 Stock Average jumping 13.4 percent, the most ever.
`Big Wallop'
“The government has gone to Plan B and it packs a big wallop,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.
The government will obtain its stakes with a type of security designed not to dilute the value of common shares.
None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.
`Healthy' Firms
Another $125 billion will be used to recapitalize other financial institutions around the country, the people said. Neel Kashkari, the U.S. Treasury official overseeing the rescue of the financial system, yesterday said the equity purchases will be aimed at “healthy'' firms best payday advance.
Under the plan to be announced today, the government will also guarantee for three years banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the people said.
Paulson, Federal Reserve Chairman Ben S. Bernanke and FDIC Chairman Sheila Bair scheduled a press conference at 8:30 a.m. today in Washington. The U.S. initiative follows an announcement that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.
“Steps to restore confidence in our institutions and markets will go far toward resolving the current market stress,'' Bernanke wrote today in a column in the Wall Street Journal. “We will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy.''
Bigger FDIC Role
Another part of the plan to be announced today would let the government expand FDIC coverage of non-interest bearing accounts, which are commonly business deposits.
Yesterday, Paulson summoned chief executive officers of the nine banks to the Treasury's headquarters in Washington to lay out the government's plans. The executives sat across the table with the heads of the Treasury, the Fed and other regulators.
After climbing for weeks, money-market rates in London yesterday fell after policy makers offered banks unlimited dollar funding and European governments pledged to take “all necessary steps'' to shore up confidence among lenders.
The London interbank offered rate, or Libor, for three- month dollar loans dropped 7 basis points to 4.75 percent, tied for the largest drop since March 17, the British Bankers' Association said.
Similar to Buffett
The government plan to buy preferred shares with warrants is similar to investments that Berkshire Hathaway Inc., the company run by billionaire Warren Buffett, made recently in Goldman and General Electric Co. Rather than buying common stock in the companies, which has declined in recent weeks, Buffett bought preferred stock paying a 10 percent dividend and received warrants that allow him to buy common stock at a pre-set price.
John Paulson, the founder of hedge fund Paulson & Co., wrote in a Sept. 26 editorial in the Wall Street Journal that the Treasury should adopt Buffett's approach rather than buying troubled assets.
Scott Talbott, chief lobbyist of the Financial Services Roundtable in Washington, which represents 100 of the biggest firms in the industry, said the group “is very supportive of using all these tools in varying degrees to help restore liquidity to the market.''
The beleaguered insurance giant AIG announced plans Friday to hold onto its property and casualty insurance businesses, while selling off the rest of the company to pay its massive debt to the federal government.
American International Group (AIG, Fortune 500) said it also would retain a majority stake in its foreign life insurance operations.
Everything else is on the table, said Chief Executive Edward Liddy, who was installed by the Federal Reserve last month after it gave AIG an $85 billion loan. Other businesses include its aircraft leasing unit, asset management division, retirement services and U.S. life insurance operations.
Liddy gave an upbeat presentation to analysts, saying the company will end up strong and nimble after the asset sales.
"We fully expect to emerge from this with a capital structure that’s fit to fight," said Liddy in a conference call, noting the property and casualty businesses generated $40 billion in 2007 revenue. "Our insurance businesses…are strong and well-capitalized. Our policyholders are secure."
Liddy said the company has "already been contacted by numerous strong, stable parties, and we expect that buyers will recognize the value of these properties."
He did not provide a price estimate, but noted the $700 billion government bailout of troubled assets will help stabilize the firm.
The goal is to divest these units in larger transactions to brand-name companies, he said. If AIG gets good bids, it will sell fewer assets.
Potential bidders include Berkshire Hathaway, Allstate, State Life, MetLife and Manulife, as well as some European insurers, said CreditSights, a debt analysis firm.
First to hit the market will likely be units tied to airline leasing and consumer lending, both of which require funding from the debt markets, which is hard to come by these days.
International Lease Finance Corp. could command more than $7 billion and American General Finance Corp. will likely bring in about $2 billion, according to CreditSights.
While Liddy was very reassuring on the call, some analysts said his talk was mainly hype. As the financial turmoil continues, it’s hard to say how successful the asset sales will be.
"They don’t know what they are going to get," said David Schiff, founder of Schiff Insurance Observer, a newsletter.
Ratings agency Standard and Poor’s wasn’t impressed either. It placed AIG and its guaranteed subsidiaries in its financial-services division - such as the airline leasing company - on CreditWatch negative (best payday loan).
"The current disruption in the credit markets could make it difficult to sell businesses at attractive valuations," S&P said.
CreditSights valued the units AIG planned to sell at $32.9 billion and the divisions it will keep at $86 billion. These figures do not include the sale of a minority stake in its foreign life insurance operations, valued at $133.1 billion.
Once AIG sells its assets, it faces many hurdles in stabilizing its property and casualty insurance divisions. Customers are already fleeing and rivals are swooping in, experts said.
"The next challenge will be getting the core insurance business back on track, keeping the existing business and bringing in new customers," said Stewart Johnson, portfolio manager with Philo Smith, an investment bank. "Given the competitive nature of the industry, it will be tough without giving incentives."
AIG said it has drawn $61 billion in credit from the Federal Reserve as of Sept. 30. About $54 billion of it went to boost collateral at its troubled securities lending business, which is being wound down, Liddy said.
AIG’s stock rose more than 20% - to just under $5 - in afternoon trading Friday.
AIG’s downfall was due in large part to a small financial services unit in London, which prospered for years issuing credit default swaps, which insure against corporate debt defaults. With the global titan on the brink of bankruptcy a day after being downgraded by credit rating agencies, the Fed stepped up with a $85 billion loan carrying a steep interest rate, currently 12.83%. In exchange, the government took control of nearly 80% of the company.
The purpose of the loan, according to the Fed, was to help AIG to sell off its $1.1 trillion worth of assets in an "orderly manner, with the least possible disruption to the overall economy." And with the financial industry in chaos, the company needs the time so it won’t have to divest at firesale prices.
Based on the call, Liddy clearly intends to keep the company operating. In a nod to past complaints of AIG’s radio silence during troubled times, Liddy promised the company would be more forthcoming about its plans.
"Our communications and transparency will be second to none going forward," he said.
CNNMoney.com Staff Writer Aaron Smith contributed to this report.
Japanese and Australian money market rates fell as U.S. lawmakers worked to salvage a financial- rescue plan and central banks pumped $15 billion into the system.
The Bank of Japan added 1.2 trillion yen ($11.3 billion), helping lower the overnight call rate to 0.4 percent from 0.7 percent, the highest level since April 1, according to Tokyo Tanshi Co. Overnight U.S. interbank loan rates fell to 3.85 percent from as high as 7.3 percent earlier today in Tokyo.
“With news from Congress they will come up with a solution, the high anxiety of yesterday's open has been stripped out to an extent,'' said Peter Pontikis, a treasury strategist at Suncorp- Metway Ltd. in Brisbane. “A fear premium got locked.''
Central banks including the U.S. Federal Reserve and the European Central Bank are pumping billions into money markets to keep them functioning. The cost of borrowing in dollars overnight in London rose the most on record yesterday after Congress's rejection of Treasury Secretary Henry Paulson's plan caused an unprecedented squeeze in credit markets.
Senate Democrats and Republicans agreed to vote today on legislation that would give Paulson broad authority to buy troubled assets from financial companies.
Asian financial markets including China, Hong Kong and Singapore are closed today for holidays.
`Better Quality Assets'
The Reserve Bank of Australia injected A$4.67 billion ($3.7 billion) as one-month bank rates fell 0.285 percentage point to 7.1 percent at 3 p.m. in Sydney, the lowest since January.
The BOJ and RBA “will continue to intervene as much as is needed to maintain liquidity in inter-bank markets,'' said Guthrie Williamson, portfolio manager in Sydney at Principal Global Investors, which manages $244.9 billion in assets globally. “Banks are definitely more resilient in Japan and also in Australia because of better quality assets.''
Australian banks' borrowing costs fell from near the highest since Bear Stearns Cos. failed six months ago, according to a gauge that measures the availability of funds in the market. The difference between the rate banks charge each other for three-month loans and the overnight indexed swap rate stood at 62.5 basis points, from 97.67 points yesterday.
The rate that Japanese banks charge overseas lenders for overnight loans fell to 0.75 percent, from 1 percent yesterday, the highest since at least December payday loans cash advance.
Financial shares in Asia gained. Westpac Banking Corp., Australia's third-largest bank, rose 5.3 percent and Nomura Holdings Inc., Japan's largest brokerage, jumped 4.8 percent.
Credit Risk Drops
The cost of protecting investors in Japanese and Australian corporate bonds from default also declined. The Markit iTraxx Australia index fell 15 basis points to 185.5, Citigroup Inc. prices show. The benchmark is tied to the debt of 25 companies and drops as perceptions of credit quality improve. The Markit iTraxx Japan fell 6 to 158, according to Morgan Stanley.
The BOJ yesterday said Japan's banking industry has been resilient during the U.S. financial crisis, though slower economic growth at home is stalling profit growth.
“Japan's financial system, on the whole, has remained stable despite continued turmoil,'' the central bank said in its semi-annual Financial System Report released yesterday. “Credit risk has started to increase amid the sluggish economic growth, and future developments require vigilance.''
India, Korea
India's benchmark overnight borrowing rate climbed to an 18-month high of 17.5 percent, the most since March 2007, according to data compiled by Bloomberg.
The central bank should make more cash available to lenders to ease a credit shortage and restore investor confidence, executives at Alok Industries Ltd., Jaiprakash Associates Ltd. and Balrampur Chini Mills Ltd. have said.
South Korea's three-month interbank offered rate held at 7.15 percent yesterday, the highest since May 2002.
The nation plans to provide at least 4.3 trillion won ($3.6 billion) in extra loans to small and medium-sized companies struggling from higher costs.
The extra loans will be provided through state-controlled banks including Korea Development Bank and Industrial Bank of Korea, the Financial Services Commission said today in a statement. The government will ask the central bank to raise the limit on total loans to commercial banks, the regulator said.
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