CIT Holding Talks With Other Lenders
By Pierre Paulden, Linda Shen and Caroline Salas
July 16 (Bloomberg) — CIT Group Inc., the century-old lender facing a looming bankruptcy after failing to receive U.S. guarantees for its bonds, said it’s in talks with potential lenders to secure financing.
CIT is “continuing to evaluate alternatives,” the New York-based company said today in a statement. Earlier, bondholders held calls to discuss whether to swap some of their claims for equity to reduce indebtedness, according to a person familiar with the situation.
CIT is running short of cash and may need as much as $6 billion to avoid filing for bankruptcy protection, after the U.S. wouldn’t give the firm a second bailout, CreditSights Inc. analysts said. CIT, which has reported $3 billion of losses in the last eight quarters, received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program.
“They are going try to raise capital with any unencumbered assets maybe they will get a couple of billion dollars, but that’s not going to solve the problem,” Sean Egan, president of Egan-Jones Ratings Co., said in a Bloomberg Television interview. “What they really need to focus on is the fact their operating income is a lot less than their cost of funds so there’s going to have to be a restructuring.”
Pimco Call
Pacific Investment Management Co., CIT’s largest bondholder based on regulatory filings, was to host a call, and debt owners are considering hiring financial and legal advisers, said the person, who declined to be identified because the discussions are private. The company hasn’t proposed an exchange offer.
“CIT indicated that it needs at least $2 billion of rescue financing in the next 24 hours or it would likely file,” CreditSights analysts Adam Steer, David Hendler and Pri De Silva wrote in a report. “We believe the figure is in the range of $4 to $6 billion plus, making outside capital sources shy away.”
Steven Vames, a spokesman for Newport Beach, California- based Pimco, declined to comment.
CIT said in the statement it’s continuing to serve customers. CIT spokesman Curt Ritter didn’t respond to a message.
Debt Exchange
If bondholders are able to swap as much as $6 billion, that may reopen talks with the U.S. government for a bailout package, Jeffrey Werbalowsky, chief executive officer of Houlihan Lokey Howard & Zukin, said on another call offering his firm’s services to creditors, according to the person. Werbalowsky said there may not be time to complete a debt exchange before CIT goes bankrupt, the person said. Werbalowsky didn’t immediately return a call seeking comment.
CIT’s debt tumbled and the shares plunged today. CIT shares fell $1.23, or 75 percent, to 41 cents as of 4:15 p.m. in New York Stock Exchange composite trading. New York-based CIT’s $1 billion in floating-rate bonds that mature next month fell 22.5 cents to 61.5 cents on the dollar, according to data from Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Fitch Ratings slashed CIT’s credit rating seven grades to C today, saying in a report that “default of some kind appears imminent or inevitable.”
A failure of CIT, which has almost $76 billion in assets, would be the biggest bank collapse by that measure since regulators seized Washington Mutual Inc. in September and would trigger more credit swaps than any default since Lehman Brothers Holdings Inc. that same month.
“In the short term it may have some devastating impact,” Al Ferrara, head of the retail practice at accounting and consulting firm BDO Seidman LLP, said today in a telephone interview. “You may suck out some liquidity from retailers and vendors when they need their liquidity the most,” before the back-to-school season.
Talks Break Off
Talks with regulators broke off yesterday and “there is no appreciable likelihood of additional government support being provided over the near term,” the firm said in a statement. CIT, once the biggest independent commercial lender, may seek court protection if no U.S. aid emerges, Standard & Poor’s said this week. The company said it is “evaluating alternatives.”
President Barack Obama, “when he came into office, was clear that he would have a very high standard for what companies receive assistance from the federal government and the American taxpayer,” said Bill Burton, deputy White House press secretary, aboard Air Force One today traveling to New York. “A lot of that had to do with whether or not they could show themselves to be sustainable in the long term.”
Burton said Obama didn’t make the call on denying CIT federal help.
Mining Giants Must Curtail Hopes
By ROBERT GUY MATTHEWS
SIMANDOU, Guinea — In a sunbaked field carved into a patch of lush forest here stand a half-dozen hulking mining machines that were shut down earlier this year. Nearby, military barrack-style housing for 200 workers sits abandoned.
“We were building a country-changing project,” says David Smith, head of Guinea operations for mining giant Rio Tinto PLC.
But that was before the global commodity boom went bust. Late last year, the Guinean government stunned the mining industry by telling Rio Tinto that it wasn’t moving quickly enough on its $6 billion project to develop the world’s largest iron ore reserve in the west African nation. It stripped Rio Tinto of the rights to develop 50% of the mine and gave them to another company.
It’s just one example of the fight breaking out for control of the world’s mineral riches in the wake of the economic downturn. Mining companies that were scouring the globe 18 months ago to satisfy China’s hunger for metals and minerals are now in retreat. That has set the stage for growing conflict as resource-rich countries, complaining of slowing revenue streams, pressure companies to maintain production. In some cases, countries are seeking to rewrite mining contracts and reclaim property.
In addition to its Guinea troubles, Rio Tinto faces a growing diplomatic battle in China, where authorities arrested four Rio employees on espionage charges earlier this month. The move came in the middle of negotiations with Chinese steelmakers over the price of iron ore. (See related story.)
Last Friday, Russian government officials threatened to revoke the coal licenses of ArcelorMittal, a steel and mining company, after it warned of job cuts.
On July 2 in Zimbabwe, an increasingly impatient government said it will review all mining contracts and impose strict “use it or lose it” deadlines for companies to produce minerals and generate revenues for local communities.
In South Africa, the country’s largest trade union called for nationalization of the nation’s mines to maintain greater control over its resources. Zambia wants to boost its stakes in existing and new foreign-owned copper mines to 35% from between 10% and 20% to give it more say in protecting mining jobs during the downturn.
The flashpoints come as both mining companies and countries rich with minerals struggle with a bottoming commodity market. Companies are less interested in investing in risky projects. Countries, desperate for revenues, are exacerbating the situation by imposing additional taxes and covenants on existing mining ventures.
WASHINGTON — Former Treasury Secretary Henry Paulson was assailed by Congress for his role in the government’s rescue of Bank of America Corp. and for his broader response last year to the financial crisis.
Mr. Paulson, making his first appearance on Capitol Hill since leaving office in January, defended the government’s response and his role in ensuring that Bank of America closed its transaction for Merrill Lynch & Co. At times, he was visibly irritated at having to repeat the same answer multiple times.
But lawmakers from the House Committee on Oversight and Government Reform, who repeatedly interrupted Mr. Paulson and asked him to move closer to his microphone, showed little faith in his answers.
“I don’t think anyone’s buying what you’re saying,” Rep. Dan Burton (R., Ind.) said.
Rep. Edolphus Towns (D., N.Y.), the panel’s chairman, described the negotiations with Bank of America as a “good old-fashioned Brooklyn shakedown” at the expense of taxpayers. Rep. Jim Jordan (R., Ohio) accused Mr. Paulson and Federal Reserve Chairman Ben Bernanke of a “clear pattern of deception and intimidation.”……
CEO of CBOE Says SEC & CFTC Should Merge
WASHINGTON (Reuters) – The two main regulators of U.S. financial markets should merge, the chief executive of America’s largest options exchange says in remarks to be delivered to a congressional panel on Friday.
William Brodsky, CEO of the Chicago Board Options Exchange (CBOE), says in a written statement that there is a “compelling need for the merger” of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
CBOE is the largest U.S. options exchange and Brodsky is a veteran of the bustling Chicago financial markets.
He is scheduled to testify at a House of Representatives Financial Services Committee hearing on Friday on the Obama administration’s plan to reshape financial regulation amid the worst banking and capital markets crisis in generations.
A few months ago, the administration had been expected to seek an SEC-CFTC merger as part of its push for reform.
But in the face of political resistance in Congress and from the agencies themselves, the administration’s reform plan released on June 17 did not seek the combination.
“We support the reform proposal’s recommendation for the creation of a Financial Regulatory Oversight Council, chaired by Treasury, to resolve disputes between” the SEC and CFTC, Brodsky says in the statement released by the committee.
He says the CBOE also supports the administration’s goal of harmonizing the underlying statutes of SEC and CFTC. But he says harmonization can only go so far.
“Consolidation of the agencies is the only truly comprehensive solution,” he says.
Brodsky also says the CBOE agrees with the administration’s proposal that the Federal Reserve should take on the duty of regulating systemic risk in the economy…..
Samsung Expected To Invest $790mln Into Chip Maker Facility
SEOUL, July 17 (Reuters) – Samsung Electronics (005930.KS), the world’s largest memory chipmaker, is expected to invest at least 1 trillion won ($790 million) in a semiconductor production facility in the second half, a newspaper reported on Friday.
Electronics industry paper ETnews said Samsung spent about 800 billion won in capital expenditure for the chip business in the second half, without specifying sources.
Kwon Oh-hyun, president of Samsung’s semiconductor division, said at an industry event on Thursday that Samsung expected its investment in the second half to rise “slightly” from the first half.
The company has repeatedly declined to disclose the size of capital investments planned for this year or already made so far.
ETnews said the chip division investment in the second half would focus on introducing more advanced production technology, such as 40-nanometre circuitry for DRAM (dynamic random access memory) chips and 30-nanometre for NAND flash memory.
However, Samsung would be more cautious in capacity expansion as the memory chip industry was not yet completely out of the woods despite recent signs of improvement, ETnews quoted Kwon as saying.
Kwon said Samsung’s chip business would record a profit in the second quarter, confirming widespread market expectations, but he declined to disclose figures, the paper added. (Reporting by Rhee So-eui; Editing by Chris Lewis)
China’s June Copper Output Rises To 335k Tonnes
BEIJING, July 17 (Reuters) – China’s production of refined copper rose 1.1 percent on the year to 335,000 tonnes in June, the National Bureau of Statistics said on Friday.
Primary aluminium production fell 5.7 percent on the year to 1.05 million tonnes. China is the world’s top producer of aluminium, and the biggest consumer of copper and aluminium.
The United States wants China to move more quickly to a freely floating exchange rate, U.S. Commerce Secretary Gary Locke said on Friday.
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“Clearly, progress has been made. We simply want the currency to float freely,” Locke told the U.S. Chamber of Commerce in Shanghai.
Locke, who was in China this week for talks on clean energy cooperation and trade with senior Chinese officials, declined to say what an appropriate U.S.-China exchange rate would be.
“Clearly every country is suffering from economic woes. There’s been a lot of government intervention in each of their individual economies and monetary policies. But ultimately we need to see a freer floating exchange rate,” Locke said.
His comments follow a decision by President Barack Obama’s administration not to label China as a currency manipulator, despite concerns Obama raised about Beijing’s exchange rate policies during last year’s presidential election campaign.
Many U.S. lawmakers and manufacturers complain that China artificially depresses the price of its currency against the dollar to give Chinese companies an unfair trade advantage.
The yuan rose more than 20 percent against the dollar in the three years after China scrapped the currency’s fixed peg in July 2005.
In the past 12 months, however, Beijing has effectively repegged the yuan, keeping the currency in very narrow ranges and preventing any further appreciation that would hurt Chinese exporters who have been hit hard by a slump in global demand.
Roubinis Rally Today Was A Mistake; He Later Said That His Words Were Taken Out of Context
Nouriel Roubini, the economist whose dire forecasts earned him the nickname “Doctor Doom,” said after markets closed Thursday that earlier reports claiming he sees an end to the recession this year were “taken out of context.”
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“It has been widely reported today that I have stated that the recession will be over ‘this year’ and that I have ‘improved’ my economic outlook,” Roubini said in a prepared statement. “Despite those reports … my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.”
Several business news outlets, picking up on a report initially from Reuters, earlier Thursday cited Roubini as saying that the worst of the economic financial crisis may be over.
The New York University professor was quoted by Reuters as saying that the economy would emerge from the recession toward the end of 2009.
Reports of his comments helped trigger a late rally in the stock market.
Roubini added late Thursday that he sees no economic growth before the end of 2009.
“I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If as I predicted the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year’s end.”
Roubini predicts a shallow recovery with average growth will average about 1 percent over the next few years. He also sees the possibility, he reiterated, of a “double-dip” recession toward the end of next year.
“On one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant,” Roubini said. “On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long term interest rates … and thus would lead to a crowding out of private demand.
“While the recession will be over by the end of the year the recovery will be weak given the debt overhang in the household sector, the financial system and the corporate sector; and now there is also a massive re-leveraging of the public sector with unsustainable fiscal deficits and public debt accumulation.”
Joe Biden ” We have to spend $ in order not to go bankrupt. “
(CNSNews.com) – Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money.
“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”
“We’re going to go bankrupt as a nation,” Biden said.
“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that’s what I’m telling you.” (Listen to Audio)
The event, sponsored by the AARP – which supports the Obama administration’s plan – was attended by mostly AARP members who were bussed in for the meeting……
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