Global Financial Crisis

If you’re looking for some theme music for the upcoming wave of earnings reports, a funeral dirge is probably most appropriate.

Aluminum giant Alcoa (AA, Fortune 500) unofficially kicks off the deluge of corporate reports when it releases its results on Monday. We already know that the numbers will be awful: analysts are forecasting a loss of 5 cents per share.

What’s more, Alcoa announced Tuesday that it is cutting 13% of its global workforce and will take a $900 million to $950 million charge in the quarter as a result.

It’s only fitting that Alcoa will be the first major company to release fourth-quarter results. That’s because it is not an exception but the rule in what’s shaping up to be one of the worst quarters for corporate profits in recent memory.

Several retailers, including Wal-Mart (WMT, Fortune 500), Macy’s (M, Fortune 500) and American Eagle Outfitters (AEO), all slashed their fourth-quarter profit forecasts Thursday. And those warnings come on the heels of semiconductor kingpin Intel’s (INTC, Fortune 500) reduced sales outlook Wednesday.

Source: CNN Money

An annual 3% raise used to be considered stingy. Now, some employees will be happy if their salary doesn’t go down in the coming year.

It’s not just Citigroup executives that are seeing their compensation cut. More companies are considering salary reductions as a way of cutting costs amid an ongoing recession.

“Companies are looking for ways to keep their business intact without hurting customer service or quality,” according to John Dooney, manager of employment and HR strategy for The Society for Human Resource Management (SHRM). “This is a potential option.”

In the last 12 months, 5% of businesses reduced salaries, according to a recent survey by SHRM. Other cost-cutting measures included reducing work hours or benefit offerings, early retirement options and salary freezes.

In the months ahead, many more employers will consider salary reductions of 10% to 20% as a way of trimming costs in turbulent times, according to Jo Prabhu, CEO of staffing firm International Services Group.

“Companies have to cut costs. If they don’t do that they’ll go out of business,” Prabhu said. “Both the employer and the employee have to accept it as a fact of life.”

For workers though, a salary reduction is a hard pill to swallow, even in a recession.

The No. 1 concern for 69% of American workers is keeping their job, yet only 17% would be willing to take a pay cut to keep their job, according to Adecco USA Workplace Insights survey.

A married mother of two, Tiffany Mason, 37, was working for an airline as a recruiter in Orlando when her employer announced paycuts across the board.

Even though “it was a job I truly, truly loved, at the time I just couldn’t take that cut,” Mason explained, “I was already living paycheck to paycheck.”

Mason decided to quit and now works as a recruiter for a small information technology firm. She says the job is relatively stable but, because of the current climate, she fears for the future.

“I am scared,” she said, “I hustle everyday to think of ways to save the next penny.”

Michelle Schahn, 37, said that when her husband Steve’s salary was cut 20% last year, it meant that the stay-at-home mother of four had to go back to work.

“It’s really frustrating when you work very hard to make it on one income and then you suddenly can’t,” she said.

Even though she says that his job as a project manager at a concrete and masonry company is secure, and her part-time employment as an office manager helps makes ends meet, the Schahn family still had to cut back a lot.

“We’re making it work, but it’s really difficult,” she said.

Employers share that sentiment, said Bernadette Kenny, chief career officer of placement agency Adecco Group North America.

“The first thing every employee should know is that organizations don’t like to do this,” she said.

“This kind of approach of attempting to retain employees as opposed to layoffs is a new phenomenon,” Kenny said. “Organizations appreciate the talent that they have and are doing everything they can to retain that talent.”

Source: CNN Money

NEW YORK (CNNMoney.com) — Stock markets around the world on Monday jumped higher after governments took a series of aggressive steps to address the global financial crisis.

Stocks in Europe were trading up and key markets in Asia closed higher.

“It looks like we’re going to have a nice relief rally today,” said David Buik with BGC Partners in London.

Investors were reacting to several government actions:

* The British government announced a $63 billion investment in three major banks.
* The U.S. Federal Reserve, Bank of England, European Central Bank and the Swiss National Bank revealed coordinated steps to juice short-term funding markets. Bank of Japan said it will mull similar measures.
* On Sunday, 15 European nations agreed to a wide-ranging plan to shore up troubled banks.

In early trading, London’s FTSE 100 was up 4.3%. The Cac 40 in Paris had gained 6.4% and the Dax in Frankfurt, Germany, was up 5.8%.

In Asia and the Pacific, most markets on Monday posted gains - some were strong.

Hong Kong’s Hang Seng stock index rallied to close up 10.2%. South Korea’s Kospi index finished 3.8% higher . The Shanghai Composite gained 3.7%. The Taiwan Weighted finished down 2.2%. In Indonesia, the Jakarta Composite was flat.

German leaders were finalizing plans for a rescue package of up to $543 billion to help shore up their banking system.

Stocks in Australia closed the day 5% higher. Markets in Japan were closed on Monday.
Next up: Will U.S. markets keep it going?

Futures for U.S. stocks were sharply higher - indicating a good start when trading begins at 9:30 ET. U.S. bond markets will be closed Monday for the Columbus Day holiday but stock markets will be open.

At 8 a.m. ET Monday morning, Neel Kashkari, appointed last week to oversee the United States’ $700 billion bailout program and the newly created Office of Financial Stability, will make his first public speech. Kashkari, a former executive at Goldman Sachs, is expected to offer details about how the U.S. bailout will be implemented.

Kirby Daley, senior strategist with the Newedge Group in Hong Kong, said investors were reacting positively to the news but remained cautious. “Policymakers around the world are going to target the heart of the credit crisis problem. However, more time is needed to get the implementation right,” he said.

The scope of the U.S. bailout has changed dramatically since passage little more than a week ago. Initially, the centerpiece of the plan focused on the government buying distressed debt - mostly tied to risky mortgages - from troubled banks.

With the bad paper off banks’ books, the hope was that institutions would start lending again - credit markets have been under severe strain in recent weeks as banks have hoarded cash.

But credit markets have remained tight and the U.S. government is now expected to try other measures, such as making direct equity investments into banks.

On Friday, the Dow ended its worst week ever and capped a staggering eight-session selloff that has seen the blue-chip index fall 2,400 points, or 22%.
Governments get together

Investors late last week were demanding coordinated action to stem the credit crisis. Finance officials and central bankers have started to strike more boldly.

Shortly before stocks started trading Monday, the British Treasury said it will pump $63 billion into the Royal Bank of Scotland, HBOS and Lloyds TSB.

“The overall aim of these measures is to support stability in the financial system; to protect ordinary savers, depositors, businesses and borrowers; and to safeguard the interests of the taxpayer,” a statement from the British Treasury said.

A fourth bank, Barclays, said it will forgo the government program and will raise $11 billion on its own by selling new shares of preferred stock.

The British move, which had been telegraphed in advance, followed an emergency meeting in Paris on Sunday at which the leaders of 15 European nations agreed to a wide-ranging plan to shore up troubled banks by adding capital through investment and by guaranteeing inter-bank lending.

The nations also said they would protect individual depositors’ accounts and move to ease accounting regulations that determine how assets are valued, removing a requirement that they be based on market prices - so-called “mark-to-market” accounting.

Source: money.cnn.com

As the economic downturn continues to hit consumers’ wallets, market analysis firm J.D. Power is predicting even bigger drops in U.S. and global auto sales than it had previously thought.

The company forecast that automakers will sell 10.8 million vehicles to retail customers, as distinct from fleet customers, in all of 2008. That will be about 2 million fewer retail sales than the industry had in 2007, for a drop of about 15.6%.

Overall light vehicle sales, including both fleet and retail, will drop by 16% to 13.6 million units, J.D. Power said. And sales are expected to drop even further in 2009. Light vehicle sales, or sales of vehicles other than heavy-duty trucks, that year are seen hitting 13.2 million units.

About two-thirds of the decline in retail sales can be attributed to customers putting off vehicle purchases. Drivers are keeping their vehicles an average of 4 months longer in 2008 than they were in 2007, the company said in a prepared statement.

“Any truly pronounced recovery appears to be more than 18 months away,” Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates, said in a statement.

Credit concerns and the deteriorating value of potential trade-ins, have been keeping Americans out of the new car market, said Schuster.

“The additional decline in expected vehicle sales is a function of growing concerns around availability of credit and leasing, declines in vehicle equity and general economic stress,” Schuster said.

Given the rate of economic change, the forecast could be off by as much as 200,000 units, the company said.

European sales are also projected to decline, but less than those in the U.S. J.D. Power sees European sales of 21.3 million units, a decline of 3.1%. An increase in sales in Eastern Europe would partly offset a 7.5% decline in Western European sales.

Developing auto markets are also expected to be hard-hit, J.D. Power said. The Chinese auto market will still see an increase, rising by 9.7%, the company said, but that’s much less than the 24.1% increase seen in 2007.

Growth will also slow greatly in India, the company projects.

“While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse,” said Schuster. “While mature markets are being impacted more severely than emerging markets, no country or region is completely immune to the turmoil.”

Both Ford (F, Fortune 500) and General Motors (GM, Fortune 500) stocks have been under pressure, with GM stock down 20% at one point Thursday morning.

Source: http://money.cnn.com

Thai stocks posted a modest rebound yesterday, gaining 1.55% as most Asian equity markets closed higher after central banks across the world slashed interest rates and pumped tens of billions of dollars into the money markets to break the current crisis.

The Stock Exchange of Thailand index closed just off the 500-point barrier, ending trade at 499.99, up 7.65, in trade worth 20 billion baht. The index had fallen to a low of 473.94 points before rebounding in afternoon trade.

Energy stocks rose 4.31%, banks gained 2.06% and tech stocks dropped 1.55%.

But analysts cautioned that the gains, which followed four straight days of losses, were likely to be short-lived as the global economy looked more likely to fall into a recession going into 2009.

The Securities and Exchange Commission, meanwhile, directed local brokers to report their financial positions and margin lending activity on a daily basis.

Brokers must detail the status of their client cash, margin and futures accounts, including data on customer settlement defaults or accounts for which collateral has fallen under limits.

The SEC also wants brokers to disclose details about their proprietary trading portfolios, including holdings in stocks, bonds and derivative instruments.

SEC officials insist that the financial status of the local brokerage system remains sound, with capital funds comfortably in excess of minimum requirements.

But the rapid decline in the market - down 26% over the past month and over 42% since January - has raised potential risks as client asset portfolios have fallen sharply in value.

Prasit Srisuwan, the chief executive officer of BFIT Securities, said brokers were aware of the rising clearing and settlement risks in the current environment.

He said BFIT Securities had outstanding margin loans of just 250 million baht, out of credit lines of one billion and capital funds of 528 million.

BFIT Securities and other brokers impose strict rules on margin trading, with clients required to post additional collateral if their portfolio value falls with share prices. Heavy declines in values can lead to forced selling of shares to limit losses and potential credit risks.

Market regulators and participants plan to hold talks today to discuss the current global crisis.

SET president Patareeya Benjapolchai said the meetings would include representatives of the Association of Securities Companies, the Securities Analysts Association, the Association of Investment Management Companies and the Foreign Brokers Association.

She said that margin-forced sales and short-selling were not major problems for the SET. Outstanding margin loans for the system were just over 20 billion baht, a relatively small figure when compared with the overall size of the market. Forced selling activity accounted for just 0.6% of total trading volume.

Short-selling, or securities borrowing and lending, also represented a minor proportion of total trading.

Some exchanges, including the New York Stock Exchange, have over the past three weeks imposed short-selling bans on certain stocks, particularly financial institutions, to help curb share volatility as prices have fallen on panic sales by investors. Other markets, including Indonesia, France and Russia, have relied on circuit-breakers and temporary trading suspensions to help reduce volatility.

While analysts caution that short-term trends remain bearish, the recent slide in share prices means many solid stocks are trading at bargain prices.

Robert Penaloza, the chief executive officer for Aberdeen Asset Management, said he saw huge long-term opportunity for not just the Thai stock market, but global capital markets in general.

“Many stocks now are priced under their fundamental value,” he said, adding that for the near-term, market volatility was expected to remain high.

Reungvit Nandhabiwat, the secretary of the Thai Financial Planners Association, agreed.

For investors with a time horizon of less than one year, expect no real improvement in trends, he said.

“But you can start planning for medium- and long-term prospects. Over a four- to five-year period, you should see returns,” Mr Reungvit said.

Source: http://www.bangkokpost.com