Toyota’s pain is its rivals’ gain.
All major automakers but Toyota reported higher U.S. sales in February, and most took customers from their powerful Japanese competitor, which has been struggling with a series of massive safety recalls.
Toyota Motor Corp. said its U.S. sales fell 9 percent last month, while Ford, GM, Nissan, Honda and Hyundai all reported double-digit growth compared with February 2009, at the depth of the recession.
The gains may have been even higher without the blizzards that paralyzed the East Coast.
Other winners included Kia Motors Corp. and Subaru. Even struggling Chrysler Group LLC saw improvement. Toyota, by contrast, suspended sales of eight popular models in late January. And it spent last week answering questions from Congress about its safety record.
"We feel we’re getting our fair share of the Toyota business," said Susan Docherty, vice president of marketing at GM, whose sales rose nearly 12 percent.
February was the first full month since Toyota’s decision Jan. 26 to halt sales of some of its vehicles in the U.S. because of safety concerns. Those vehicles went on sale again as dealers repaired them, but Toyota’s image suffered.
Ford Motor Co. posted a 43 percent jump in February U.S. auto sales and outsold General Motors Co. for the first time in nearly a dozen years as it grabbed customers from struggling Toyota. Ford sold 334 more cars than GM in the U free credit report online.S. for the first time since August 1998, when GM was in the midst of a strike.
Most automakers reported that sales to rental car companies and other fleet buyers also were strong as companies began buying again after cutbacks last year. Fleet sales generally mean lower profits to automakers than sales to individuals.
Chrysler, for example, said sales rose half a percent, its first year-over-year monthly increase since December 2007. Car sales rose 38 percent, but truck sales dived 28 percent.
Hyundai Motor Co. said its sales rose 11 percent, driven by sales of the new Tucson small SUV. The company’s redesigned Sonata midsize car saw sales rise 58 percent.
The industry was expecting to see gains over February 2009, which was one of the weakest months in a very depressed year. Sales over President’s Day weekend — which traditionally kicks off the spring selling season — were robust, according to automotive website Edmunds.com.
Still, winter storms at the beginning and end of the month hurt sales on the East Coast and in the Midwest.
"Three and a half feet of snow on these cars," Docherty said. "It took our dealers a bit of time to get all that snow off here and get the customers back into the showrooms."
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Owners of a Marion, Ill., golf club late last week finally got their long-awaited sit-down with U.S. Treasury officials to ask the agency to drop its objections to the club’s sale.
But Treasury did not indicate what action it might take or give a timetable, said Fritz Archerd, head of the golf owner’s group, who attended the meeting.
"There’s reason for hope. But there’s also reason for pessimism," Archerd said.
For the past 15 months, the Treasury has blocked the sale of the Kokopelli Golf Course because of the involvement of Zimbabwean national John A. Bredenkamp. He led a group that owned the golf course from 2001 to 2006. He retained a right to future profits when the course was sold again.
The problem is that Bredenkamp was named in late 2008 by Treasury’s Office of Foreign Asset Control to a list of people targeted for economic sanctions. These specially designated nationals, which include al-Qaida terrorists and drug kingpins, are prohibited from conducting any business in the U.S.
Treasury, which has declined to comment on the proceedings, accuses Bredenkamp of "gray-market arms trading and trafficking" and other endeavors to prop up Zimbabwe’s ruling regime.
Archerd said the Kokopelli investment lost about $750,000. A purchase price expected to be about $1 million would be enough to recoup that investment and pay off debt. So no profit would head to Bredenkamp if the golf club were sold to Marion-area owners quick payday loans.
Archerd said his group could no longer afford to invest in the golf club, featuring an 18-hole championship course once voted No. 3 in Illinois by Golf Week magazine. And yet, they cannot sell the course. It’s not even clear if the bank could foreclose on the property with the Treasury’s blocking order.
The plight of this golf course was the subject of a Post-Dispatch article last Sunday.
An economic sanctions attorney not involved in the case said he was surprised Treasury did not offer a solution at the sit-down meeting.
"I don’t understand why this hasn’t moved forward," said Clif Burns with Bryan Cave in Washington.
After Archerd’s meeting, the potential buyers indicated they had lost patience. Marion-area restaurateur David Hays said in a release, "We no longer are optimistic that we will see a timely solution to this dilemma."
Time — and money — does appear to be running out for Kokopelli. Staff already has been cut from 75 to one. The lawnmowers were repossessed last week, so there is no way to maintain fairways and greens. And next week the power company plans to turn out the lights.
Taiwan and Thailand exited recession last quarter and Malaysia probably followed, as Asian economies lead the global recovery.
Taiwanese gross domestic product rose 9.2 percent in the fourth quarter from a year earlier and the Thai economy expanded 5.8 percent, according to reports today. Malaysian figures for the three months to Dec. 31, due for release on Feb. 24, may show GDP increased 3.4 percent last quarter, according to the median estimate of 14 economists surveyed by Bloomberg News.
Asian economies are paving the way for a global recovery from the worst worldwide recession since the Great Depression after central banks in the region slashed interest rates to record lows and governments increased spending by more than $1 trillion. The strength of Asia’s rebound has seen policy makers lead the way in withdrawing stimulus.
“Asia’s recovery is at least two quarters ahead of the U.S. and monetary authorities have been contemplating exit strategies for some time,” said David Carbon, head of economic and currency research at DBS Group Holdings Ltd. in Singapore. “With higher U.S. rates on the cards, Asia’s central banks can pursue their exit strategies with less to fear on the inflow and currency front.”
Policy makers in China, India and Vietnam are tightening monetary conditions amid signs that accelerating growth is fueling inflation and may led to asset bubbles. The U.S. Federal Reserve, which increased its discount rate by a quarter point to 0.75 percent on Feb. 18, has left its benchmark policy rate unchanged for more than a year.
Rising Demand
Asian stocks jumped by the most since November on speculation Federal Reserve Chairman Ben S. Bernanke will say in a report due to be released this week that U.S. interest rates will be kept low to spur economic growth. The MSCI Asia Pacific Index gained 2.4 percent to 118.14 as of 2 p.m. in Tokyo, the biggest increase since Nov. 30.
The emergence of the world economy from the global recession is encouraging companies in Asia to boost production and hire more workers. Singapore last week raised its economic growth forecast for 2010, predicting an expansion of as much as 6.5 percent this year.
Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp., the world’s largest makers of custom chips, are boosting capital spending this year after fourth- quarter profits beat analysts’ estimates.
‘Very, Very Strong’
Demand has been “very, very strong” in the computer, automotive and consumer electronics sectors over the past few quarters, Richard Han, chief executive officer of Hana Microelectronics Pcl, said in an interview with Bloomberg Television in Bangkok today. Hana makes parts for computers and mobile phones including Apple Inc.’s iPhone.
Taiwan’s fourth-quarter economic growth was the strongest since June 2004 and Thailand’s increase in GDP was the most in seven quarters.
China’s central bank on Feb. 12 ordered lenders to set aside larger reserves, aiming to rein in credit growth after banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending target in January and property prices climbed the most in 21 months. Goldman Sachs Group Inc. expects the Chinese economy will expand 11.4 percent this year.
Reserve Bank of India Governor Duvvuri Subbarao on Jan. 29 increased the cash reserve ratio to 5.75 percent from 5 percent, exceeding the median forecast for a half-point move in a Bloomberg News survey of economists. India is due to release GDP data for the December quarter on Feb. 26, along with the budget for the next fiscal year.
Emerging Asia
India’s $1.2 trillion economy may grow 7.2 percent in the current fiscal year through March, accelerating for the first time since 2007, the statistics office said Feb. 8.
“We expect GDP growth in emerging Asia to stay strong in coming quarters,” said Kevin Grice, an economist at Capital Economics Ltd. in London. “The most trade-dependent economies will eventually see slower GDP growth later this year and in 2011 as the global upswing loses momentum. But Asia’s rebound will not come to a complete halt and growth, by some distance, will stay higher than in any other part of the world.”
Haitian Prime Minister Jean-Max Bellerive told an aid conference in Montreal that his country needs help with a “colossal” reconstruction from the Jan. 12 earthquake that left the nation in shambles.
“Haiti will need massive support in the medium and long term from its partners in the international community,” Bellerive said today at the conference attended by 20 governments and multi-lateral organizations. “The challenge will require that we do more, that we do better and certainly that we do differently.”
Aid groups called on those attending the meeting to cancel the Caribbean nation’s $890 million foreign debt. The meeting, to discuss long-term reconstruction and plan a full donor conference in March, is being hosted by Canadian Foreign Affairs Minister Lawrence Cannon. The U.S. is represented by Secretary of State Hillary Clinton.
Haiti was already the poorest country in the Western Hemisphere before the temblor, which killed more than 150,000 people and destroyed a third of the buildings in the capital, Port-au-Prince. The country’s infrastructure, including the water system, has collapsed and the government is unable to deliver services. Relief groups and foreign military forces are trying to reach the estimated 3 million of Haiti’s 9 million people affected by the quake.
‘Path to Development’
The donor nations’ plans must aim to “bring the country back on the path to development,” Bellerive said in a speech to the group. “Going back to the status quo ante is not an option.”
Reconstruction will have to include moving some people out of shantytowns that have overrun the capital, and fostering economic development outside Port-au-Prince, he said.
“The Haitian government is at work in precarious conditions, but it is able to provide the leadership the Haitian people expect of it in the colossal challenges on the way to development,” Bellerive said.
Most government offices and computer systems were destroyed the quake.
The U.S. has taken control of aid deliveries through Haiti’s sole international airport, and the United Nations has taken responsibility for the country’s security
Cannon said the delegates at the conference support the Haitian government’s effort to join in the reconstruction planning. Today’s meeting will help set out a “coherent” and “consistent” approach for supporting Haiti in advance of a major conference to be held in coming months.
‘Ready to Help’
“Your role is key, and your voice is clear guaranteed payday loans. We stand ready to help,” Cannon said.
Haiti’s foreign debt must be cancelled immediately, “accompanied by urgent action to support farmers and prevent a man-made food crisis exacerbating the hardship,” Oxfam Executive Director Jeremy Hobbs said in an e-mailed statement.
Cancelling debt is “indispensable to help the government of Haiti marshal the most resources possible” to rebuild the country, said Eric Faustin, president of Regroupement des Organismes Canado-Haitiens pour le Developpement, a Montreal- based non-profit aid group that focuses on Haiti.
Rescuers today wound down operations seeking survivors among the wreckage, and the UN reported that security in Port- au-Prince “remains calm but fragile, with isolated instances of looting.”
More than 150,000 bodies have been buried and 200,000 residents of Port-au-Prince have left the city, the New York Times reported Jan. 23, citing Marie-Laurence Jocelynn Lassegue, Haiti’s culture and communications minister.
Aid Groups
UN humanitarian chief John Holmes and UN development head Helen Clark are attending the Montreal meeting, along with representatives from the International Monetary Fund and the Inter-American Development Bank. Other participating nations include Japan, Mexico, Costa Rica, France and Spain.
Japan will pledge $70 million in aid at Montreal, Chief Cabinet Secretary Hirofumi Hirano told reporters today in Tokyo. The nation, which has the world’s second-biggest economy, had initially pledged $5 million, compared with the U.S. pledge of $100 million and $10 million promised by South Korea.
Japan also intends to send about 300 members of its Self- Defense Force to Haiti, serving with the UN peace-keeping troops, Hirano said.
Norway today doubled its humanitarian aid to Haiti to 200 million krone ($34 million).
Venezuela, Nicaragua and Bolivia said they will boycott the meeting to protest the U.S. military’s presence in the Caribbean, according to the German news service Deutsche Presse Agentur.
Former Cuban President Fidel Castro wrote in the official Cuban newspaper Granma that U.S. troops have “occupied” Haiti. The U.S. bolstered its presence in the country and offshore to 11,000 soldiers and sailors last week to help provide humanitarian assistance and security.
Consumer outrage about AT&T’s 3G service for iPhones is boiling over, but the dropped calls and spotty service reflect a greater lack of foresight in the wireless industry.
Analysts say AT&T’s problems would have happened on any network that carried Apple’s (AAPL, Fortune 500) iPhone because of the overwhelming amount of data downloaded by iPhone users. Over the past three years, AT&T’s data traffic increased 5,000% because of the iPhone.
"The challenges that AT&T has are being faced by a lot of operators around the world: Very rapidly growing usage coupled with dense populations," said Daniel Hays, wireless expert and partner at consultancy PRTM. "Would it have been different on Verizon? Probably not."
AT&T accurately states that it has the nation’s fastest 3G network but it "probably bit off more than it could chew," said Doug Helmreich, program director at consultancy CFI Group. "Now some of their customers are paying the price."
IPhone users in New York and San Francisco in particular have been up in arms about frequent service interruptions. Earlier this month, AT&T’s head of mobility, Ralph de la Vega, admitted at an investors’ conference that the company’s service in those two cities was "below our standards."
It’s not just New York and San Francisco iPhone users who are grumbling. An annual Consumer Reports study recently rated AT&T (T, Fortune 500) the worst in customer satisfaction in 19 cities across the country. (Rival Verizon Wireless rated No. 1 in the study.)
In nearly three-quarters of the surveyed areas, AT&T was rated lowest for availability of service, frequency of dropped calls and quality of voice service.
Verizon vs. AT&T
Verizon (VZ, Fortune 500) has had a field day at AT&T’s expense.
"There’s a map for that" commercials have poked fun at AT&T’s smaller 3G footprint. And that has helped Verizon take market share, according to Piper Jaffray.
But studies show that AT&T’s network is actually faster than Verizon’s, and Verizon’s ad campaign may be a bit misleading.
Four recent independent studies from wireless industry analysis firms Global Wireless Solutions and Root Wireless, investment bank Piper Jaffray and tech blog Gizmodo all concluded that AT&T’s 3G network was the fastest in the United States.
"We drove millions of miles across the country, and our data support AT&T’s claim that it has the fastest 3G data network," said Global Wireless CEO Paul Carter.
The map that Verizon shows in its ads is correct, but AT&T’s 3G network still covers nearly 80% of the U.S. population, said Carter. And AT&T’s non-3G coverage is also broader than its 3G network.
With that kind of pedigree, analysts say AT&T was likely the best-equipped network to handle the iPhone.
"For Verizon … we still wonder if the network has the capacity and backhaul to support a device with an adoption curve of the iPhone," said Piper Jaffray analyst Chris Larsen in a client note.
Perception vs. reality
AT&T admits that it has had problems keeping up with the data demands of iPhone users, which has prompted the company to accelerate scheduled improvements in its network.
"There’s more work to be done and a sense of urgency to do it, but we feel like we’re on the right track with our investments," said Fletcher Cook, spokesman for AT&T.
In the next few years, AT&T said it would double its network speed, and Cook said AT&T has already improved overall network quality by 25%. The company has also deployed more than 20,000 Wi-Fi hotspots across the country, which it says may help alleviate stress on its 3G network.
PRTM’s Hays applauded the Wi-Fi solution and AT&T’s dedication to improving its network, calling them "critical levers in addressing AT&T’s network performance issues." He expects AT&T to go even further, perhaps by integrating tiered data plans that would force iPhone users to pay for the data they download.
Still, perception has hurt AT&T.
AT&T’s network is the No. 1 hangup for people who are in the market for an iPhone, according to a CFI Group study. The company’s woes have even become the butt of jokes on late-night TV.
"It was reported this week that Google would soon launch its own cell phone as a challenge to the iPhone," said "Saturday Night Live’s" Seth Meyers on Dec. 19. "Also a challenge to the iPhone? Making phone calls."
The building frustrations led some angry consumers to take matters into their own hands. "Operation Chokehold," which took place on Dec. 18, was an attempt to overload AT&T’s network by running data-intensive apps to try and send a message that consumers "are sick of their substandard network." The ploy failed.
"Unfortunately for AT&T, when it comes to network quality, perception is reality and right now Verizon has a more positive public perception," said Larsen. "If AT&T can continue to show improvement in network throughput, it may blunt some of the impact."
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.
Industrial conglomerate Tyco International Ltd said it expects its revenue to continue to slide until late in its 2010 fiscal year, sending its shares down 3 percent on Tuesday.
The maker of security and fire-control systems expects demand to remain soft through the first half of its current fiscal year — which began in late September — and set revenue and profit targets that allowed for the possibility of declines.
“We have assumed that the current environment continues well into the year… with some modest — and I emphasize modest — pickup in the second half of the year,” Chief Executive Ed Breen told investors on a conference call.
The company looks for sales to fall at a low-double-digit percentage rate through the first half of the fiscal year, with the rate of decline slowing in the third quarter and growth perhaps returning by the fourth quarter, Breen said. Recent cost-cutting measures could help boost Tyco’s bottom-line performance when revenue starts to pick up, he added.
Analysts noted the company tends to be cautious in its forecasts — pointing out that news came on a day that Tyco reported fourth fiscal quarter results that topped Wall Street’s expectations.
“Their outlook is conservative,” said Buckingham Research analyst Edward Wheeler. “They have been exceeding their expectations as they’ve gone along so I think it’s all in line with the history of conservative guidance that they’ve had for the last year.”
Tyco shares have risen some 64 percent so far this year, sharply outpacing the 7 percent rise of the Dow Jones U Payday Loan for Bad Credit.S. diversified industrials index .DJUSID.
SETS 2010 OUTLOOK
Tyco expects first-quarter profit from continuing operations of 48 cents to 50 cents per share on a drop in organic revenue of 11 percent to 13 percent. Analysts, on average, had looked for profit of 56 cents per share excluding one-time items, according to Thomson Reuters I/B/E/S.
For the year, the company expects a profit of $2.30 to $2.50 per share, excluding one-time charges, on $17 billion in revenue. Wall Street had looked for profit of $2.45 per share on revenue of $17.14 billion.
Tyco shares fell 98 cents to $34.41 in early trading on the New York Stock Exchange, reversing pre-market gains.
Tyco this year moved its incorporation to Switzerland from Bermuda, a move that cost it its spot in the Standard & Poor’s 500 index .SPX.
The company also reported a fiscal fourth-quarter profit that exceeded analysts’ forecasts, boosted by lower costs.
Net income fell 53 percent to $205 million, or 43 cents per share, in the quarter, ended on September 25, from $434 million, or 91 cents per share, a year earlier.
Earnings from continuing operations, excluding special items, came to 61 cents per share, beating analysts’ average forecast of 54 cents.
The U.S. jobless rate unexpectedly jumped to 10.2 percent last month, a 26-1/2-year high, adding to pressure on the Obama administration to do more to tackle unemployment even as signs of recovery mount.
The Labor Department said on Friday that employers cut 190,000 jobs in October, more than the 175,000 markets had expected but fewer than the 219,000 jobs lost in September.
Job losses for August and September were revised to show 91,000 fewer jobs were lost than previously reported, taking some of the sting out of the report.
While the revisions hinted at some improvement, economists had expected the jobless rate to rise to 9.9 percent from September’s 9.8 percent. A wider gauge of labor-market slack that includes unemployed Americans who have given up looking for work hit a record 17.5 percent.
Speaking at the White House, President Barack Obama said the administration was considering infrastructure investments and business tax cuts to aid the economy’s recovery.
“I can promise you that I won’t let up until the Americans who want to find work can find work and all Americans can earn enough to raise their families and keep their businesses open,” he said. For a graphic of the jobless rate over time, please see: here
Stocks on Wall Street ended higher after initially falling as investors looked past the jump in the jobless rate and focused instead on the moderation in payroll losses. .N
U.S. Treasury debt prices rose as traders saw the data as supporting a prolonged period of low interest rates.
“Unfortunately, the problem is becoming deeper and more protracted,” Mohamed El-Erian, chief executive of bond giant Pacific Investment Management Co (PIMCO) told Reuters.
“It’s not just the increase in the headline number,” he said. “It’s also about the longer-term nature of unemployment, the increase in underemployment and the prospect for only a very gradual recovery,” he said.
While Obama sees job creation as his top priority, the scope for further steps to boost the economy is limited by record budget deficits.
Rising unemployment could pose problems for the Democrats who control Congress as they head into elections in November 2010. This week, Republicans wrested control of two state governorships away from Democrats in races where the weak economy figured prominently.
“President Obama promised jobs during his campaign for president and the elections in Virginia and New Jersey on Tuesday were a clear referendum on his failure to deliver on this promise,” Republican National Committee Chairman Michael Steele said in a statement reacting to the jobs report.
ECONOMY GROWING, LABOR MARKET LAGS
The U.S. economy grew at a 3.5 percent annual rate in the third quarter, likely ending the most painful recession in 70 years, but the jobs data suggested employers are wary of the prospects for a strong, sustained recovery.
Gold slipped on Thursday, retreating from a record high it hit last session as disappointment over the metal’s failure to breach $1,100 an ounce prompted investors to cash in some gains.
Gold’s strength despite a relatively firm dollar this week suggests that bullion could be driven by other factors, such as renewed interest among central banks and inflation worries.
“The gold market has de-coupled itself from the dollar for the time being,” said George Nickas, commodities broker at FC Stone.
On Tuesday, gold rallied $30 in the face of a broadly higher dollar, largely driven by improved sentiment after India’s purchase of 200 tons of bullion from the International Monetary Fund.
Yet, analysts warned of possible short-term pullbacks in overbought market conditions.
“The market has run out of steam as we end the week. This market has to do some backing and filling to justify at these levels,” Nickas said.
Spot gold was at $1,088.95 an ounce at 2:08 p.m. EST (1908 GMT), against $1,092.35 late in New York on Wednesday, when the precious metal hit a record high of $1,097.25 an ounce.
U.S. December gold settled up $2 at $1,089.30 an ounce on the COMEX division of the New York Mercantile Exchange payday loans for bad credit.
Further gains were capped after the metal failed to decisively break above $1,100 an ounce.
“The fact that we didn’t manage to go through $1,100 might lead some investors to reconsider their positioning in the sector,” said Commerzbank analyst Eugen Weinberg.
“Should the dollar become stronger over the coming days I would expect to see more profit taking,” he added. “I think… we will see a prolonged correction, because the trend of the last few weeks is becoming a bit too pronounced.”
Friday’s U.S. October non-farm payrolls data could give a clear direction to the dollar and set the tone for the gold market.
CENBANKS EYED
Speculation continued over the prospect of further central bank gold acquisitions, after India’s purchase of 200 tons of bullion from the International Monetary Fund on Monday. The report helped push gold to record highs.
Sri Lanka’s central bank said it had been buying gold for the last five or six months as it diversifies its reserves amid volatile markets.
The Federal Reserve should lose its authority to bail out big, failing financial firms like AIG and Bear Stearns under proposed reforms aimed at limiting the collateral damage from such failures, U.S. Treasury Secretary Timothy Geithner said on Thursday.
Geithner, in testimony to the U.S. House of Representatives Financial Services Committee, said the Fed should keep its ability to act as an emergency lender of last resort, but only to solvent firms in times of severe stress in financial markets — with Treasury consent.
“Any firm that puts itself in a position where it cannot survive without special assistance from the government must face the consequences of failure,” Geithner said. “The proposed resolution authority would not authorize the government to provide open-bank assistance to any failing firm.”
Geithner said a bill by the Financial Services Committee’s chairman, Representative Barney Frank, meets the tests for key elements of a resolution authority that the Obama administration would like to see passed.
It is a “comprehensive coordinated answer to the moral hazard problem” and does not provide any implicit guarantees for financial institutions, he said.
“We cannot put taxpayers in the position of paying for the losses of large private financial institutions,” Geithner said cheap payday advance. “We must build a system in which individual firms, no matter how large or important, can fail without risking catastrophic damage to the economy.”
Geithner said large failing firms should be put into a receivership managed by the Federal Deposit Insurance Corp that would seek to “unwind, dismantle, sell or liquidate the firm in an orderly way” where losses would be borne by shareholders and creditors of the firms.
The costs of such shutdowns would be borne by other large financial firms, imposed afterward, Geithner said. This would eliminate a standing insurance fund that creates expectations that the government would step in to protect creditors and shareholders.
Regulators also must impose tougher capital and liquidity standards on large firms that take on more risk, Geithner said, to reduce the probability of a larger firm experiencing financial distress.
But Geithner said there would not be a set list of large firms held to higher standards, adding that the government did not want to provide a false impression that such firms would be protected from failure by the government in times of stress.
(Reporting by David Lawder; Editing by Andrea Ricci)
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