The Fed Taketh Away, the Fed Giveth
On Dec. 11, Ben Bernanke's band cut the federal funds rate by a quarter-point, to 4.25%, and publicly fretted about the credit markets. Investors who had hoped for a half-point sent the stock market reeling. The next day, however, the Fed unveiled a new way to attack the credit crunch—what it called a Term Auction Facility, essentially another channel for pumping liquidity to banks. What's more, major central banks in Europe agreed to coordinate action. Wall Street regained a bit of ground, figuring the Fed's move lessens the chances of a meltdown. However, most forecasters agree that the Fed will have to cut rates again to avoid a recession.
Citi Picks Pandit
Vikram Pandit has landed the thorniest job on Wall Street: CEO of Citigroup (C). The 50-year-old former investment banking head turned hedge fund manager has been a top contender for the post since former CEO Charles Prince resigned on Nov. 4. Many on the Street lament the Morgan Stanley (MS) veteran's lack of consumer banking experience, but his skill set will aid Citi in rethinking risk management, an area where it's obviously challenged, given its recent mega-losses. In a talk with analysts on Dec. 11, he pledged to consider restructuring the company or selling businesses.
The Subprime Fallout...
It was déjà vu all over again when Swiss bank UBS (UBS) on Dec. 10 announced a $10 billion writedown of subprime holdings following a similar $3.4 billion hit in October. The bank cushioned the crunch by unveiling an $11.5 billion capital injection from Government of Singapore Investment Group and an unnamed Middle East investor. UBS wasn't the only one feeling the pinch, as French bank Société Générale (SCGLY) also said on Dec. 10 it would take on $4.3 billion in assets to bail out its only structured investment vehicle. Washington Mutual (WM) retrenched, slashing its dividend and more than 3,000 jobs in a bid to shore up capital, and buyout firm Warburg Pincus announced a $1 billion investment in bond insurer MBIA (MBI) to calm fears over its ability to pay out claims in the mortgage-backed bond market.
See "UBS: Lose a Few Billion, Win a Few Billion"
The credit crunch spread into the apparently tame realm of cash management. Bank of America's (BAC) Columbia Management moved on Dec. 10 to shut down a $34 billion fund aimed at institutional investors after jittery customers started to flee. A bank spokesman says it should take about 24 months to liquidate the so-called enhanced cash fund, which was pitched as a vehicle that could generate higher-than-money-market returns by ranging into riskier plays such as the now-notorious structured investment vehicles, or SIVs. And speaking of SIVs, banks' moves to absorb their troubled assets may render moot the bailout fund organized by Treasury Secretary Henry Paulson.
Putin Shows His Hand
You'd better learn the name Dmitry Medvedev: On Dec. 10, Russian President Vladimir Putin in effect nominated his youthful First Deputy Prime Minister to succeed him by saying he "fully supported" Medvedev as the ruling party's candidate in the March presidential elections. It's a signal most voters are expected to follow. That's reassuring for Western investors and diplomats, who see Medvedev, 42, as a Kremlin liberal. Don't file away the name Vladimir Putin just yet, though. Medvedev wasted little time before revealing whom he had in mind for his Prime Minister. No prizes for guessing the answer.
See "Dmitry Medvedev on the Record"
Google on Steroids
Barely a year ago a young software programmer at Google (GOOG), Christophe Bisciglia, came up with an idea: He would teach Google programming at the University of Washington. This would soon hatch a major initiative at the company and a joint venture with IBM (IBM). Now, Google, which has the fastest computing network on earth for sifting through data, will let others tap the power of its machinery. The other search engines are joining the rush to what is called "cloud computing." It positions Google, along with the other Net powers, at the computing crossroads of science and business.
China: A Bit More Open
Beijing has been putting aside stocking stuffers for U.S. Treasury Secretary Henry Paulson, who arrived on Dec. 12 looking for more foreign access to the financial sector. On Dec. 9, China tripled the cap that foreign institutions can invest in the stock market, to $30 billion. And state-controlled Founder Securities has signed an agreement with Credit Suisse to set up a joint venture investment bank. The unusual deal could win its license while Paulson is in town.
See "Henry Paulson?s Wish List"
Reverses for Cerberus
Secretive private equity powerhouse Cerberus Capital Management stepped out of the shadows when it did deals to grab majority stakes in General Motors Acceptance Corp. and Chrysler. And its outsize returns have made it a darling of pension funds and hedge fund managers. But lately a few deals have gone sour, while others have fallen through. And its two biggest captures, Chrysler and GMAC, are proving troublesome. The company has a lot of cash tied up in the autos and financial services, both under pressure of late. It just goes to show that even smart money has bad days.
Tough Fannie and Freddie
The costs of homeownership just went up. Government-chartered mortgage investors Fannie Mae (FNM) and Freddie Mac (FRE) quietly told lenders on Dec. 5 and Dec. 11, respectively, that both plan to charge an up-front fee of 0.25% on mortgages they buy or guarantee, beginning this spring. On a $400,000 loan, that amounts to roughly $1,000 in extra costs that will surely get passed on to consumers—and it comes on top of new risk-based surcharges. Fannie and Freddie also said on Dec. 11 that they won't be as quick to buy back bad loans that they guaranteed and packaged into securities. They say that'll give the loans more time to recover. Analysts opine it allows the two to delay recording losses.
Banking Deals Slow Down
Who can sustain the urge to merge when everyone's feeling the hurt? The subprime crisis has brought M&A in the U.S. banking industry to a standstill. Nine deals have disintegrated since August, and at least two others may follow. Among the casualties: Sterling Financial's $196 million acquisition of North Valley Bancorp. Sure, with bank stocks off some 20% this year, there are bargains out there. But funding for deals is meager, and banks are leery of the bad debts that may lurk on balance sheets. (americanbanker.com_
How Much Green in Green?
"Green tech" may be the top business buzz-phrase of 2007—and that could signal a problem. Venture capitalists have been piling into biofuels, solar power, and wind farms, investing $2.6 billion over the first three quarters, compared with $3.9 billion in Web outfits. The question is whether that's too much money chasing too few good ideas. Already, some experts are predicting a shakeout. (wired.com)
Kent Is It at Coke
For the past decade, CEO successions at Coca-Cola (KO) were akin to a relay race where each of the runners dropped the baton. Since the 1997 death of legendary CEO Roberto Goizueta, Coke has twice hastily named a successor who proved to be not right for the job. Well, this time the transition is going down as easy as an icy soda on a sweltering day. On Dec. 6, Coke said Muhtar Kent will succeed current CEO Neville Isdell when he retires next July. A 20-year-plus Coke veteran—with nearly all that time spent working abroad—Kent made his name as an operations whiz who's expert at wringing out inefficiencies.
A Dynasty Expands
The Orascom business empire, run by Egypt's Sawiris family, on Dec. 10 extended its global reach with the $13 billion sale of Cairo-based Orascom Cement to French building-materials goliath Lafarge. The deal hands the Sawiris, whose other outfits include fast-growing phone group Orascom Telecom Holding, an 11.4% stake in Lafarge and two seats on its board. It also looks like a winner for the French company, giving it access to roaring Mideast construction markets. Lafarge shares climbed more than 15% on the news.
See "Lafarge Sets Mideast Cement Deal"
Chip Off the Old Mogul
Rupert Murdoch has all but named his successor. On Dec. 6 he said his 34-year-old son, James, would switch from running the BSkyB satellite service, 39% owned by News Corp. (NWS), to handling the company's sprawling newspaper and TV operations throughout Europe and Asia. Like dad, James is a tough businessman with an eye for worlds to conquer—he pressured the elder Murdoch to buy MySpace (NWS), for instance. Rupert also announced he'll dispatch top aides Leslie Hinton and Robert Thomson to New York when his $5 billion acquisition of Dow Jones (DJ) closes after a shareholder vote on Dec. 13. Current Dow CEO Richard Zannino says he'll resign at that time.
A-Star' Is Born
The latest globalization milestone: a Japanese carmaker turning out a "world car" in India for European consumers. Suzuki on Dec. 11 announced that its joint venture, Maruti Suzuki India, will build the compact at a plant in Manesar. Dubbed the A-Star, it'll be made only in India and will go into production next fall. Suzuki aims to drive 150,000 A-Stars off the assembly line each year. (The Hindu)
Sweden hopes to ring in the new year with giddy bidding for state-owned Absolut vodka owner V&S Group, and it announced the official launch of the process on Dec. 11. The maker of the world's best-selling vodka and other brands, including Level vodka and Cruzan rum, could go for as much as $7 billion. That puts V&S at the heart of Sweden's ambitious $31 billion privatization program. Interested partygoers include the world's biggest hooch purveyors: France's Pernod Ricard, Bacardi, Britain's Diageo, and U.S.-based Fortune Brands (FO).
McGuire Makes a Deal
Dr. William McGuire, a lung specialist who was ousted as chief of UnitedHealth (UNH) in the stock options scandal, coughed up $419 million to bring his tally of surrendered options and benefits north of $600 million. The deal, announced on Dec. 6, settles a shareholder suit. The former CEO, who built UnitedHealth into the nation's second-largest health insurer, also agreed to pay $7 million to the SEC in a settlement. UnitedHealth still faces a criminal probe by the Justice Dept. and other investor suits. McGuire is expected to keep some $800 million worth of stock options.
Pursuing the Poor
Micro-lending has gotten plenty of positive press, but there are downsides to the business of making tiny loans to the poor in emerging markets. By doing the lending, or by investing in the lenders, Citigroup and HSBC (HBC) as well as players such as Deutsche Bank (DB) and U.S. pension colossus TIAA-CREF say they're helping both developing nations and their own bottom lines. In Mexico, Wal-Mart is one of the latest to enter the fray. But Mexico's government imposes no limits on interest rates, which often top 100%. The result can be devastating for some of the customers.
Stalemate in Tinseltown
It looks as if film and TV writers will mostly be penning picket signs for a while. Hopes for an end to the six-week strike crashed on Dec. 7 when studio negotiators shot down the writers' proposal as "an absolute roadblock to any further progress" and broke off talks. Studio suits had proposed some sharing of revenues from new media use of TV shows, but writers proposed a more expansive formula plus provisions that would have added animators and reality show writers to the union rolls for the first time.
Harvard Makes It Easier
It's a pretty good school, and now you won't have to take out a second mortgage to send your kid there. Harvard University on Dec. 10 boosted the aid it offers to middle- and upper-middle-class families. Households earning up to $180,000 will be asked to come up with no more than 10% of their income to cover college fees, which total $45,620 this year. Harvard will also eliminate loans from aid packages and ignore home equity when calculating aid. The university figures the moves will cut the cost for half of its undergrads by 33% to 50%.
Natural Gas Off Jersey?
The U.S. needs liquefied natural gas, but few people want an LNG terminal in their backyard. So ExxonMobil (XOM) on Dec. 12 proposed to build a floater off the coast of New Jersey. The $1 billion project would supply gas for cooking and heating to 5 million homes. Exxon says its platform, 20 miles offshore, will sit outside shipping lanes and use double-hulled tankers, safer than those with single hulls. Natural gas, Exxon notes, is cleaner-burning than heating oil, a major source of energy in the Northeast.
Jail Time for Black
On Dec. 10 a federal judge in Chicago sentenced Conrad Black to 6 1/2 years in prison, which is at the low end of sentencing guidelines. The onetime top honcho of Hollinger International was convicted of looting his media company of $6.1 million. Caught on security cameras removing boxes from his Toronto office, Black was also found guilty of obstruction of justice. Prosecutors had sought to send the British Lord away for as much as 20 years. Black, 63, plans to appeal his conviction.
Used to be that the goal of every ambitious young Asian entrepreneur was to make it big—in the U.S. Now more and more Western-educated Asians are returning home to hatch new businesses. One reason: Venture capitalists from Silicon Valley and elsewhere are showering money on Asian startups. In its Dec. 19 cover story, BusinessWeek Indonesia identifies 25 up-and-coming entrepreneurs in the region, all 30 and under. They range from an Australian duo that founded an online task-management service called Remember the Milk to a young Japanese designer who produces high-quality products in developing countries for sale in Japanese department stores and on the Web.