CIT on the Ropes
The plot seemed familiar—but the ending was a shocker. Caught in a liquidity squeeze, small business lender CIT Group (CIT) put the full press on Washington policymakers for help, warning that it could fail and "precipitate a crisis" for 300,000 retailer clients. At first, it seemed CIT's lobbying might work, as federal regulators began negotiating an aid package designed to stem the run on the New York-based lender and ensure it could roll over the billions of dollars in loans it has coming due later this year. But on July 15, CIT said it concluded there was "no appreciable likelihood" of immediate government aid. CIT offered no elaboration. But with its liquidity already strained from customer withdrawals and drawdowns of credit lines—and a $1 billion debt repayment due in August—analysts said that a bankruptcy filing was all but inevitable.
Goldman Is Golden
While other financial firms are teetering, Goldman Sachs (GS) is tooling along. Proving it is one of the strongest banks left standing, the New York company reported on July 14 that it netted $3.4 billion in the second quarter, up 89% from its stunning first-quarter performance. The latest surge of profits came from the revival in stock trading and added to all the money Goldman is racking up in bonds. With past competitors either weakened or knocked out of business by last year's panic, Goldman can charge higher markups on its securities inventory.
Britain's Bank Exit Plan
The entity managing the British government's stakes in nationalized banks is warning that exiting from those investments could take years. The agency, called UK Financial Investments, also says in its annual report that the government has logged paper losses of nearly $17 billion on its 70% stake in Royal Bank of Scotland (RBS) and its 43% interest in Lloyds Banking Group (LYG). If strategic buyers can't be found, the government's only option would be to gradually unload shares. (The Daily Telegraph)
Taxes Go Offshore
American consumers send boatloads of dollars overseas for imported goods. Increasingly, U.S. corporations are transmitting tax dollars abroad, too. For the first time, companies in the Standard & Poor's 500-stock index paid more taxes in 2008 to foreign governments ($135.13 billion) than at home ($107.21 billion). The reason behind the shift: Revenue rose 8.5% outside the U.S., while domestic revenue slipped 0.3%. The sector most out of balance is finance, which pays 16 times more taxes internationally than in the U.S.
See "Global Sales Report—It's Not Just Jobs"
New Day for GM
A new General Motors emerged from bankruptcy on July 10 after just 40 days in reorganization, though its leadership comes with more than a touch of gray. Joining CEO Frederick "Fritz" Henderson is 77-year-old product chief Robert Lutz, who has been working as an adviser since April in preparation for retirement at the end of the year. He gets his old title, vice-chairman, and will oversee design, marketing, and public relations. While Lutz is staying on at GM, Steven Rattner, who oversaw President Barack Obama's restructuring of GM and Chrysler, said adios. Rattner, who resigned on July 13, returned to Wall Street, where the investment firm he founded is being investigated.
See "GM's Turnaround Rides on a Successful Chevy"
French Union Threat
With French unemployment up to 9.3%, the country's famously tough unions are getting even more militant. One-upping the groups that engaged in "bossnapping"—taking their bosses hostage—workers at a bankrupt auto-parts factory 200 miles southeast of Paris are threatening to blow up the place on July 31 unless its two principal customers, Renault and PSA Peugeot Citroën (PEUGY), fork over some $14 million in severance payments. France's industry minister has told them, "Be reasonable."
See "French Union: Pay Us, or We'll Blow Up the Plant"
Exxon Funds Biofuels
ExxonMobil (XOM) Chief Executive Rex Tillerson once dismissed corn-based ethanol as "moonshine." Producing a gasoline substitute from algae is a different matter. ExxonMobil said on July 14 that it will sink up to $600 million in an algae-to- fuel startup founded by genomics pioneer J. Craig Venter. The several-year project comes as oil has dropped below $60 a barrel to an eight-week low. Exxon's relatively puny outlay—overall, the oil leviathan will spend $26 billion on capital and development projects this year—doesn't mean it is going green. The company suggests it won't venture into other biofuels, saying that an internal study has found that algae is the only alternative that can be commercially successful.
Lennar's China Price
New-home buyers in Florida, Louisiana, and Virginia have been complaining for months that noxious gases—apparently from bad drywall—have been making them sick and corroding everything from electrical wiring to air-conditioning coils and metal picture frames. On July 10, homebuilder Lennar (LEN) said in a filing with the U.S. Securities & Exchange Commission that it had determined that problems in 400 Florida homes were indeed due to defective Chinese wallboard. The Miami-based company also said it has set aside $20.7 million to cover home repairs.
Japan: A Merger Brewing
What goes well with fruit juice? If you've got Suntory Holdings' appetite, it's beer. The privately held Japanese brewer, which paid some $835 million for Danone's Frucor juice unit last year, said on July 13 that it's weighing a merger with its larger competitor, Kirin Holdings, Japan's top beer and soft-drink company. The combo would create one of the world's largest beer companies, with annual revenue of more than $40 billion. With little growth prospects in its home beer market, Kirin has been on an acquisition spree, too, buying nearly half of the Philippines-based San Miguel Brewery in May.
The Chicago Cubs may earn a place in the record books for something other than its World Series drought. The baseball team, which Tribune Co. aims to sell to help lift itself out of Chapter 11 reorganization, may be put under bankruptcy protection to facilitate a sale, according to a July 13 chicagotribune.com report. Tribune is close to a Cubs deal with the family of TD Ameritrade founder Joe Ricketts for about $900 million, but is talking with New York investor Marc Utay, too. The Cubs would be the first club to go bankrupt in four decades.
Confirming weeks of chatter, The McGraw-Hill Companies (MHP) issued a statement on July 13 that it is evaluating "strategic options" for its 80-year-old magazine, BusinessWeek, a statement that generally implies a company is seeking a buyer for a property. Individuals familiar with the matter say McGraw-Hill had held unsuccessful sales discussions earlier this year with Bloomberg. While BusinessWeek's circulation remains solid, the magazine has been suffering serious ad losses, like rivals Forbes and Fortune. According to Publishers Information Bureau, BusinessWeek's ad pages are down 36.8% in 2009's first half, vs. 38.2% at Fortune and 30.2% at Forbes. A McGraw-Hill spokesman declined to comment beyond the company statement.
Intel Sees an Upturn
Three months ago Intel (INTC) Chief Executive Paul Otellini seemed audacious when he called a bottom to the PC market. On July 14 he proved he's a pretty good forecaster. Thanks to U.S. consumers' buying more notebooks, the computer chipmaker reported a profit of $1 billion on sales of $8 billion for its fiscal second quarter before one-time items. But there was the matter of Intel's $1.45 billion antitrust fine levied by the European Commission. With the fine, the Santa Clara (Calif.)-based company wound up with a $398 million loss, its first in more than 20 years. Otellini's latest prediction: a strong second half.
See "Intel Aided by Consumer PC Buying"
Microsoft Steps It Up
Steve Ballmer has got to be winded by now. In the third product announcement in less than seven weeks, Microsoft (MSFT) on July 13 unveiled a major overhaul of its business software suite, with Office 2010. The attention grabber: Microsoft will offer free, ad-supported versions of popular programs such as Word, Excel, and PowerPoint to consumers. That introduction followed word that Windows 7, Microsoft's well-reviewed new PC operating system, would go on sale on Oct. 22. And in late May, the company unveiled its new search engine, Bing, which has surprised skeptics by gaining share in the software giant's battle with archrival Google (GOOG).
See "Microsoft Windows 7: Getting More Bullish"
Why U.S. Manufacturer's Need to Find Common Ground
Protectionists may have had it right when they decried the loss of manufacturing jobs in the U.S. After decades of outsourcing factory work to low-wage countries, the nation has shed not only millions of low-skill jobs; it no longer can make many of the high-value goods that matter in the 21 century. The not-made-in-the-U.S. list ranges from light-emitting diodes, flat-panel displays, and electric-car batteries to the carbon-fiber components of Boeing's 787 Dreamliner and Amazon.com's Kindle e-reader.
More alarming, the U.S. is losing its ability to create big-impact products as research and development is increasingly transferred to foreign lands that have become manufacturing leaders in, say, computers or telecom gear. Except for Apple's products, for instance, every U.S. brand of notebooks is now designed in Asia.
What to do? Government and private industry must work together to rebuild what can be called the nation's industrial commons. This is akin to the grazing land that farmers shared for their herds. Industrial commons would include R&D that could be housed in universities or consortiums, often centered in a particular city or region to make sharing easier. Skills would be retained while innovations would recharge the U.S. economy. (Harvard Business Review)