Higher oil concerns weigh on Wall Street

By Edward Krudy
NEW YORK (Reuters) - Stocks fell on Wednesday, with the Nasdaq dropping 1 percent, on concern that surging oil prices may hurt an economic recovery, pulling down shares of technology companies and big manufacturers.
Gains in the price of oil and other commodities helped to underpin stocks globally on hopes economic activity was picking up, but in the United States investors worried that higher prices may fuel inflation and hamper a recovery.
"It would seem that the oil prices may be too much of a good thing. Oil prices have run so far, so fast, and that could eventually curtail discretionary spending," Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
"It may pinch this recovery. Oil prices really do need to retreat somewhat to (underpin) this recovery."
The Dow Jones industrial average .DJI dropped 20.18 points, or 0.23 percent, to 8,742.88. The Standard & Poor's 500 Index .SPX fell 3.77 points, or 0.40 percent, to 938.66. The Nasdaq Composite Index .IXIC shed 17.45 points, or 0.94 percent, to 1,842.68.
U.S. front-month crude advanced 1.2 percent on the New York Mercantile Exchange, lifting shares of Chevron Corp (CVX.N) by 1.3 percent to $71.12, and Exxon Mobil Corp (XOM.N) by 0.6 percent to $73.62.
Shares in big manufacturer Caterpillar Inc (CAT.N) fell 1.7 percent to $37.60 and were among the top drags on the Dow.
Wal-Mart Stores Inc (WMT.N), the world's largest retailer, fell 1 percent to $50.12, making it the top drag on the Dow.
On Nasdaq, Apple Inc (AAPL.O), a technology bellwether, declined 2.5 percent to $139.17. Google Inc (GOOG.O) dropped 1.5 percent to $429.
(Additional reporting by Ellis Mnyandu; editing by Jeffrey Benkoe)

Source: Reuters

U.S. to name bailout pay czar on Wednesday

U.S. banks to repay TARP money
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By Doug Palmer
WASHINGTON (Reuters) - The Obama administration on Wednesday will name a pay czar with the power to reject compensation plans for top employees at companies receiving "exceptional" government aid, an administration official said on Wednesday.
The administration will also call for "say-on-pay" legislation that would give the Securities and Exchange Commission authority to require public companies to hold non-binding shareholder votes each year on executive pay, the official, who requested anonymity, said.
The pay czar, or "special master," will review compensation structures for the top 100 salaried employees of firms receiving exceptional assistance, such as Bank of America, Citigroup and insurer AIG, the official said.
Kenneth Feinberg, who oversaw the government's compensation to the survivors of the September 11, 2001, terror attacks, will be given the pay czar role, a source familiar with the administration's plan said on Monday.
U.S. Treasury Secretary Timothy Geithner, who has said Wall Street compensation practices became "divorced from reality," met on Wednesday to discuss bank pay with Securities and Exchange Commission Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and other compensation experts.
Geithner was expected to deliver brief public remarks during a brief open portion of the meeting shortly after noon.
President Barack Obama has argued that pay structures at financial firms encouraged excessive risk-taking, sowing the seeds of a financial crisis that drove the United States and many other countries around the globe into recession.
The official said the administration would also propose legislation that would require compensation committee members at companies listed on national securities exchanges to be independent from management and answerable only to the compensation committee and its independent advisers and legal counsel.
Separately, an official said late on Tuesday night that the administration would unveil by the end of the week new rules governing executive pay at firms receiving government aid.
In early February, the administration had said it would put a $500,000 per year cap on the salaries of executives at firms in which it pumped in fresh aid from the government's $700 billion rescue fund. Any compensation above that amount was to have been in restricted stock or a similar long-term bonus incentive.
Officials determined that plan was not optimal after Congress passed legislation requiring that bonuses account for no more than one-third of an executive's compensation. If coupled with the administration's planned salary cap, that would limit annual compensation to $750,000.
The official said the congressional limit on bonuses led the administration to find an alternative way to ensure pay practices were not excessive at companies most heavily reliant on bailout money.
The new rules to be outlined this week would apply to the top five senior executive officers at companies supported by the Treasury Department's Troubled Asset Relief Program, or TARP, plus the next 20 highly paid employees, even if they do not serve in an executive role, the official added.
The push for "pay-or-say" legislation is part of a broader effort by U.S. officials to influence pay practices across the financial industry at large.
The Federal Reserve has said it plans to use its authority to promote healthier compensation structures, and Geithner told lawmakers on Tuesday that the SEC may seek new powers that would allow it to encourage compensation reform at publicly traded companies. Continued...
Source: Reuters

Fiat closes Chrysler deal

Chrysler sale
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By Gilles Castonguay
MILAN (Reuters) - Italian car maker Fiat SpA was set to close its takeover of Chrysler on Wednesday in an ambitious move to survive and grow out of one of the worst crises in global auto industry.
Fiat shares traded 4.1 percent higher at 7.79 euros at 0945 GMT (5:45 a.m. EDT) -- twice the rise in the DJ Stoxx auto sector -- following news that the U.S. Supreme Court had removed the final obstacle to the deal on Tuesday.
In a victory for the U.S. administration driving the restructuring of bankrupt Chrysler, the Supreme Court on Tuesday denied a request from Indiana pension funds to delay the sale.
"The news from the Supreme Court is very good for Fiat," one Milan trader told Reuters.
Fiat is joined by a union-aligned trust and the U.S. and Canadian governments in taking over the best parts of Chrysler. Fiat is expected to close the deal by 1400 GMT, according to two sources familiar with the procedure.
In a statement, Fiat said it would occur shortly.
DROP IN SALES
Fiat began looking for partners to gain scale late last year when the crisis came into full force, leading to a dramatic drop in car sales. This year is expected to be no different.
CSM Worldwide, an industry consultancy, has forecast a 20 percent drop in global production to 52 million vehicles this year as car makers lay off workers and leave their factories idle in the face of a sharp drop in demand.
Others in the industry do not feel the urgency to look for partners. Renault-Nissan Chief Executive Carlos Ghosn, for example, said on Wednesday his group had no problem with scale.
In Fiat's case, CSM Worldwide said it saw a "tremendous amount of risk" in trying to revive Chrysler.
SG Securities analyst Eric-Alain Michelis said turning around Chrysler would prove to be a tougher challenge for Fiat than convincing U.S. authorities of its plans for the U.S. car maker.
Not only did it have to renew an aging product line but also persuade former customers to buy a Chrysler again.
Fiat has sent a team of executives and engineers to Detroit to work with Chrysler to cut costs and prepare for the U.S. launch of the Cinquecento (500), Fiat's popular small car.
Its stake in Chrysler will start at 20 percent and should rise to 35 percent over time. Continued...
Source: Reuters

Home Depot raises profit forecast

NEW YORK (Reuters) - Home Depot Inc said earnings could be flat this year, rather than falling as it previously forecast, saying the worst of the U.S. housing correction had passed.
Shares of the world's largest home improvement retailer, whose sales have suffered from the housing crisis and recession, rose 1.5 percent on Wednesday.
Home Depot expects earnings per share from continuing operations to be flat to down 7 percent this year, compared with its previous forecast of a 7 percent decline.
Based on a profit of $1.37 per share in the fiscal year that ended on February 1, that means a forecast of $1.27 to $1.37, compared with the average Wall Street estimate of $1.33.
Economic indicators are signaling that the worst of the housing downturn is over, Home Depot Chief Executive Frank Blake said in a meeting with analysts.
On an adjusted basis, the company expects earnings per share from continuing operations to fall by 20 percent to 26 percent, compared with its previous forecast of a 26 percent decline. That yields a forecast of $1.32 to $1.42 a share, compared with the analysts' average estimate of $1.41 and last year's profit of $1.78.
Home Depot still expects sales to fall by about 9 percent this year, with sales at stores open at least a year down in a high-single-digit percentage range. It expects gross margins to be flat to slightly higher.
The company said it should be able to achieve an operating margin of about 10 percent and a return on invested capital of about 15 percent over the long term, helped by improvements in customer service, products, productivity and efficiency, and a revival in the home improvement market.
It did not provide a time frame for that long-term operating target.
Home Depot has been upgrading service and products in its stores to win back market share from rival Lowe's Cos Inc.
Earlier this year, Home Depot announced plans to freeze officers' salaries and close certain specialty outlets to save money in the recession and prolonged U.S. housing slump.
The Atlanta-based company, which shed about 7,000 jobs earlier this year, cut operating expenses 16.4 percent in the first quarter, which ended on May 3.
Shares of Home Depot were up 1.5 percent at $24.72 in morning New York Stock Exchange trading, while Lowe's rose 1.2 percent to $20.70.
(Reporting by Jessica Wohl; Editing by Derek Caney and Lisa Von Ahn)

Source: Reuters

U.S. mortgage demand withers as loan rates spike

By Lynn Adler
NEW YORK (Reuters) - Spiking U.S. mortgage rates drove down total home loan applications last week as demand for refinancing shriveled to the lowest level since November, the Mortgage Bankers Association said on Wednesday.
The swift rate rise crimps affordability, likely cutting offer prices on home sales and prolonging a housing turnaround.
Borrowing costs have soared as bond yields have risen, even as the Federal Reserve has sopped up hundreds of billions of dollars in bonds to keep rates low and stimulate the housing market.
The average 30-year fixed mortgage rate jumped 0.32 percentage point in the June 5 week to 5.57 percent. That was nearly a full point, about 100 basis points, above the record low rate of 4.61 percent in March, the trade group said.
"Clearly, 50 or 100 basis points more on mortgage rates is enough to matter. It effects what people can afford to buy," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.
The vast majority of mortgage activity this year has been from homeowners cutting costs with new loans at rock-bottom rates.
The Mortgage Bankers Association's seasonally adjusted index of total applications dropped 7.2 percent to a four-month low of 611.0 in the latest week.
The refinancing index slumped 11.8 percent to a nearly seven-month low of 2,605.7 last week, and refinancing accounted for about 59 percent of all applications, the lowest share since November. As recently as April, refinancings accounted for almost 80 percent of all home loan applications.
Purchasers have been slower to act in the current housing market, with some waiting in hopes that prices will fall further and others paralyzed by unemployment or wage cuts.
"The more you get people making low-ball offers because they can't afford to offer any more, the less willing conventional sellers are to sell at all," Cheney said. "It tends to freeze the housing market for a bit longer."
Demand for loans to buy homes was little changed last week, rising 1.1 percent to 270.7, having basically been stuck in neutral throughout the important spring sales season.
"I'm not optimistic for 2009 or 2010," Mark Goldman, real estate lecturer at San Diego State University and mortgage broker, said on Tuesday.
The swift percentage point rise in mortgage rates cuts the purchasing power of a borrower by about 10 percent, he estimated.
"Employment is still bad, wages are still low, interest rates are up. That's going to hurt the housing market," Goldman added.
The number of U.S. jobs cut in May was the lowest level since September, but the unemployment rate rose to 9.4 percent, the highest since July 1983. Continued...
Source: Reuters

Atten-shun! P&G taps Army vet as new CEO

By Ben Klayman
CHICAGO (Reuters) - Procter & Gamble Co's (PG.N) incoming chief executive may need to call on his West Point training as he tries to lead the consumer products maker through a time when shoppers are increasingly thrifty.
The maker of Gillette razors, Pampers diapers and Tide laundry detergent on Wednesday named Chief Operating Officer Robert McDonald, a 29-year company veteran, as its new chief executive and president effective July 1.
"There's an honor code up here and a way of looking at ethical living," said Col. Robert McClure, CEO of the West Point alumni association, who graduated the U.S. Military Academy at West Point a year after McDonald.
McDonald will immediately face hard decisions as P&G must reignite growth as its leading brands have lost luster as recession-weary consumers trade down to less costly products.
"In the cadet prayer, they say choosing the harder right instead of the easier wrong," McClure said.
Early on, McDonald will have to decide how much the company should promote its lower-priced products such as Gain laundry detergent at the expense of premium brands such as Tide that it has spent billions of dollars to develop and advertise.
The leadership change marks a shift from Navy veteran A.G. Lafley to McDonald, who graduated from West Point in 1975 and served five years in the Army, mostly with the 82nd Airborne Division. During that time, McDonald earned his master's from the University of Utah.
It is the latest in a string of upper management transitions at Cincinnati-based P&G, which has come under pressure as consumers trim spending on everything from makeup to diapers in the recession.
While analysts and investors do not expect drastic changes with McDonald at the helm, they do believe he might bring a greater focus on cutting costs as the company faces slower sales trends, especially in its home market.
"He has been for quite some time really a very strong leader at Procter & Gamble, doing everything from expanding their presence in Asia to pushing on innovation," Sanford C. Bernstein analyst Ali Dibadj said of McDonald.
"He is, in my mind, one of the strongest leaders out there in the business right now," added Dibadj, who has a "market perform" rating on P&G shares.
CHANGING OF THE GUARD
Lafley, who turns 62 later this month, served in the U.S. Navy from 1970 to 1975 before he joined P&G in 1977. He has been CEO since 2000 and chairman since 2002.
Lafley served as McDonald's mentor early on and McDonald in turn has implemented many of Lafley's strategies.
"He's been around it for 29 years," Eric Schoenstein, co-portfolio manager of the Jensen Portfolio, said of McDonald. Continued...
Source: Reuters

U.S. trade gap widens on softening exports

By Glenn Somerville
WASHINGTON (Reuters) - The U.S. trade gap widened to $29.2 billion in April as exports weakened again in a reflection of waning global demand, a U.S. government report on Wednesday showed.
The Commerce Department said total exports fell 2.3 percent to $121.1 billion, the lowest level for foreign sales since mid-2006. Exports have dropped in eight of the past nine months as the world economy struggled through a financial crisis that has sapped consumers' ability and willingness to spend.
The April deficit was in line with Wall Street forecasts.
Imports declined in April for a ninth straight month but by a smaller amount than exports, down 1.4 percent to $150.3 billion. That was the lowest value for imports since September 2004, more evidence that the recession-struck U.S. economy was not generating as much demand as it once did.
Analysts said U.S. reliance on China as its chief supplier was growing and hopes that stronger trade could replace consumer demand as a driver for U.S. growth were fading because the whole world was in a slowdown.
"We are not going to get a big boost from trade," said David Wyss, chief economist fro Standard and Poor's Ratings Services in New York. "We are losing the one good tailwind that we have had."
Wyss said U.S. gross domestic product, the broadest measure of overall economic growth, was likely to contract at a 2.8 percent annual rate in the second quarter after shrinking 5.7 percent in the first three months of this year.
The dollar slipped against a range of currencies, while U.S. Treasury yields rose on Wednesday after Russia's central bank said it will cut the share of its currency reserves invested in U.S. Treasuries and buy bonds issued by the International Monetary Fund.
Imports of industrial supplies and materials, which include minerals, chemicals and lumber used in U.S. manufacturing, fell in April as did imports of new cars and parts. But imports of consumer goods like televisions, cosmetics and pharmaceuticals rose modestly from March levels.
The monthly deficit on goods trade with China climbed to $16.8 billion from $15.6 billion in March and was the largest with any single country. During a visit to Beijing last week, Treasury Secretary Timothy Geithner said U.S. consumers were no longer in a position to keep powering global growth with the United States in recession since late 2007.
U.S. exports to nearly all of its major trading partners fell. Exports to Japan plummeted to a 15 year low of $3.9 billion, while exports to the European Union dropped 9.9 percent to $17.8 billion.
Despite soft demand, oil prices rose to their highest level this year. Imported oil cost $46.60 a barrel in April, up from $41.36 in March.
(Reporting by Glenn Somerville, editing by Neil Stempleman)

Source: Reuters

Stock futures jump on commodities, energy boost

NEW YORK (Reuters) - Stock futures pointed to opening gains of more than 1 percent on Wednesday, following a rally in global stock markets underpinned by higher commodity and energy prices.
* Home Depot Inc (HD.N) raised its 2009 profit forecast and stood by sales expectations on Wednesday ahead of a meeting with analysts and investors, sending its shares up 3.5 percent in premarket trade.
* European shares rose over 2 percent, led by banks, while the Nikkei hit an eight-month closing high as fresh funds flowed into the market on hopes for a recovery in the global economy.
* A weaker U.S. dollar helped push U.S. crude oil futures up more than $1 a barrel to hit a new seven-month high above $71 after data Tuesday showed a steep drop in U.S. crude inventories, and lifted commodity prices like copper and gold.
* "We've got European markets trading up anywhere between 2 to 2.5 percent," said Arthur Hogan, chief market analyst at Jefferies & Co in New York. "Leading the pack seems to be the inflation plays, the basic materials, energy, early-cycle industrials."
* "I think we are certainly in an environment where we will see inflation sooner rather than later, and that seems to be playing out. The follow-through to U.S. futures makes sense where we see a higher open as commodities advance here," Hogan said.
* S&P 500 futures rose 12.70 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones Industrial Average futures jumped 98 points, while Nasdaq 100 futures were up 14.50 points.
* With fears of inflation and recently creeping interest rates, investors will watch a 10-year Treasury note auction at 1 p.m. EDT to gauge the appetite for ever-increasing government debt.
* JPMorgan Securities raised its price targets on Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), saying fixed income would be a big earnings driver this year and next.
* The day's economic agenda includes the Federal Reserve's Beige Book of current economic conditions at 2 p.m. EDT. Also, Commerce Department April international trade is due at 8:30 a.m. EDT.
* The Nasdaq rose Tuesday after an improved outlook from Texas Instruments Inc (TXN.N) lifted technology stocks, but news that 10 big banks will repay TARP funds failed to stir investor enthusiasm.
* Since reaching lows in early March, the Dow is up 35.4 percent and the S&P 500 is up 41.3 percent. Year to date, the Dow is still down 0.2 percent, and the S&P is up 4.3 percent. However, stocks have drifted since early May with the S&P 500 struggling to pass the 950 level.
(Reporting by Edward Krudy; Editing by Jeffrey Benkoe)

Source: Reuters

Fiat to close Chrysler deal, shares rise

Chrysler sale
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By Gilles Castonguay
MILAN (Reuters) - Italian car maker Fiat SpA was set to close its takeover of Chrysler on Wednesday in an ambitious move to survive and grow out of one of the worst crises in global auto industry.
Fiat shares traded 4.1 percent higher at 7.79 euros at 5:45 a.m. -- twice the rise in the DJ Stoxx auto sector -- following news that the U.S. Supreme Court had removed the final obstacle to the deal on Tuesday.
In a victory for the U.S. administration driving the restructuring of bankrupt Chrysler, the Supreme Court on Tuesday denied a request from Indiana pension funds to delay the sale.
"The news from the Supreme Court is very good for Fiat," one Milan trader told Reuters.
Fiat is joined by a union-aligned trust and the U.S. and Canadian governments in taking over the best parts of Chrysler. Fiat is expected to close the deal by 1400 GMT, according to two sources familiar with the procedure.
In a statement, Fiat said it would occur shortly.
DROP IN SALES
Fiat began looking for partners to gain scale late last year when the crisis came into full force, leading to a dramatic drop in car sales. This year is expected to be no different.
CSM Worldwide, an industry consultancy, has forecast a 20 percent drop in global production to 52 million vehicles this year as car makers lay off workers and leave their factories idle in the face of a sharp drop in demand.
Others in the industry do not feel the urgency to look for partners. Renault-Nissan Chief Executive Carlos Ghosn, for example, said on Wednesday his group had no problem with scale.
In Fiat's case, CSM Worldwide said it saw a "tremendous amount of risk" in trying to revive Chrysler.
SG Securities analyst Eric-Alain Michelis said turning around Chrysler would prove to be a tougher challenge for Fiat than convincing U.S. authorities of its plans for the U.S. car maker.
Not only did it have to renew an aging product line but also persuade former customers to buy a Chrysler again.
Fiat has sent a team of executives and engineers to Detroit to work with Chrysler to cut costs and prepare for the U.S. launch of the Cinquecento (500), Fiat's popular small car.
Its stake in Chrysler will start at 20 percent and should rise to 35 percent over time. Continued...
Source: Reuters

Home Depot shares jump on raised profit forecast

NEW YORK (Reuters) - Home Depot Inc raised its 2009 profit forecast and stood by its sales expectations on Wednesday ahead of a meeting with analysts and investors, sending its shares up nearly 4 percent.
The world's largest home improvement retailer, which has been grappling with the economic downturn and a depressed housing market, expects 2009 earnings per share from continuing operations to be flat to down 7 percent from last year, compared with its previous forecast of a 7 percent decline.
Based on a 2008 profit of $1.37 per share,, that means of a forecast of $1.27 to $1.37, compared with the average Wall Street estimate of $1.33
On an adjusted basis, it expects earnings per share from continuing operations to fall by 20 percent to 26 percent, compared with its previous forecast of a 26 percent decline. That yields a forecast of $1.32 to $1.42 a share, compared with the Reuters estimate of $1.41 and last year's profit of $1.78.
Home Depot still expects sales to fall by about 9 percent this year, with sales at stores open at least a year down in a high-single digit range. It expects gross margins to be flat to slightly higher.
The company said it should be able to achieve an operating margin of about 10 percent and a return on invested capital of about 15 percent over the long term, helped by improvements in customer service, products, productivity and efficiency and a revival in the home improvement market.
It did not provide a time frame for that long-term operating target.
Home Depot has been upgrading service and products in its stores to win back market share from rival Lowe's Cos Inc.
Earlier this year, Home Depot announced plans to freeze officers' salaries and close certain specialty outlets to save money in the recession and prolonged U.S. housing slump.
The Atlanta-based company, which shed about 7,000 jobs earlier this year, cut operating expenses 16.4 percent in the first quarter, which ended on May 3.
Shares of Home Depot jumped to $25.29 in pre-market trading after closing at $24.35 on Tuesday. Lowe's shares had not traded.
(Reporting by Jessica Wohl; Editing by Derek Caney)

Source: Reuters

Rising U.S. mortgage rates sap loan applications

By Lynn Adler
NEW YORK (Reuters) - A spike in U.S. mortgage rates drove down total home loan applications last week as demand for refinancing shriveled to the lowest level since November, the Mortgage Bankers Association said on Wednesday.
Borrowing costs have soared as bond yields have risen, even as the Federal Reserve has sopped up hundreds of billions of dollars in bonds to keep rates low and stimulate the housing market.
The average 30-year fixed mortgage rate jumped 0.32 percentage point in the June 5 week to 5.57 percent. That was nearly a full point above the record low rate of 4.61 percent in March, the trade group said.
The vast majority of mortgage activity this year has been from homeowners cutting costs with new loans at rock-bottom rates.
The Mortgage Bankers Association's seasonally adjusted index of total applications dropped 7.2 percent to a four-month low of 611.0 in the latest week.
The refinancing index slumped 11.8 percent to a nearly seven-month low of 2,605.7 last week, and refinancing accounted for about 59 percent of all applications, the lowest share since November. As recently as April, refinancings accounted for almost 80 percent of all home loan applications.
Purchasers have been slower to act in the current housing market, with some waiting in hopes that prices will fall further and others paralyzed by unemployment or wage cuts.
Demand for loans to buy homes was little changed last week, rising 1.1 percent to 270.7, having basically been stuck in neutral throughout the important spring sales season.
"I'm not optimistic for 2009 or 2010," Mark Goldman, real estate lecturer at San Diego State University and mortgage broker, said on Tuesday.
The swift percentage point rise in mortgage rates cuts the purchasing power of a borrower by about 10 percent, he estimated.
"Employment is still bad, wages are still low, interest rates are up. That's going to hurt the housing market," said Goldman.
The number of U.S. jobs cut in May was the lowest level since September, but the unemployment rate rose to 9.4 percent, the highest since July 1983.
First-time buyers taking advantage of new tax credits and investors snapping up foreclosed properties at distressed levels have in recent months buttressed the hardest-hit housing market since the Great Depression.
But borrowers will foreclose in record numbers at least for another year, several industry sources, including the Mortgage Bankers Association, predict. Those homes will add to the already large supply of unsold properties and will keep pressuring prices.
Home prices on a national level have tumbled more than 32 percent from the peak three years ago, according to Standard & Poor's/Case-Shiller indexes. Continued...
Source: Reuters

EU to seek rapid progress on financial regulation

By Mark John
BRUSSELS (Reuters) - European Union leaders will call at a summit next week for rapid progress on agreeing and implementing new financial regulations to prevent another global economic crisis, a draft summit declaration showed on Wednesday.
The draft, prepared for the June 18-19 EU summit or Council in Brussels, showed the EU leaders would approve the creation of two new bodies to assess potential threats to financial instability and protect small financial firms and consumers.
The banking sector remains under stress and credit flows are still constrained, so governments should be alert to any need for further measures to stem the crisis, said the draft, obtained by Reuters.
"The European Council calls for rapid progress to be made in the field of regulation of (the) financial market, notably on the regulation on alternative investment funds and on improved capital requirements for banks," said the draft conclusions.
"...The banking sector remains under stress and credit flows continue to be constrained. Governments must therefore stay alert to possible further measures which may be needed. Any further actions must be consistent with single market principles and take into account a credible exit strategy."
The EU wants to show it is acting quickly to stem the crisis following a European Parliament election in which a number of governing parties suffered defeat over their handling of the economy.
The draft said the leaders of the 27 member states would agree to proposals to create a European Systemic Risk Board to monitor and assess potential threats to financial stability and, where necessary, issue recommendations for action.
They will also recommend that a European System of Financial Supervisors be established to safeguard financial soundness at the level of individual financial firms and protect consumers of financial services.
The statement said the leaders wanted the new regulatory framework in place in 2010 and would urge "all parties to accelerate their efforts to support the recovery" before a summit of G20 leading and emerging economies in September.
The leaders will also underline the need to fight unemployment, which has soared during the financial crisis, but say measures must be "coordinated, self-supporting and in line with single market rules."
"The European Union and its member states must assert their will to put people at the center of their recovery plans," the draft conclusions said.
(Writing by Timothy Heritage; Editing by Dale Hudson)

Source: Reuters

Oil tops $71 after large drop in U.S. crude stocks

By David Sheppard
LONDON (Reuters) - Oil topped $71 a barrel on Wednesday for the first time in 7-months on signs demand for crude could be recovering, with U.S. crude stocks falling last week and the Department of Energy (DOE) raising its forecast for global demand.
The American Petroleum Institute (API) reported U.S. crude stocks fell by 6 million barrels in the week ended June 5, topping analysts' expectations for a 400,000-barrel draw, as refiners ramped up production.
The crude stock drawdown in the world's largest energy consumer added to a sense weak demand was bottoming, with the U.S. Energy Information Administration (EIA) -- the statistical arm of the DOE -- raising its 2009 demand forecast for the first time since September.
U.S. light crude for July delivery rose $1.17 to $71.18 a barrel by 1207 GMT (8:07 a.m. EDT), after ending Tuesday at $70.01, the first settlement above $70 since early November. Prices have risen as high as $71.65 on Wednesday.
London Brent crude gained $1.00 to $70.62 a barrel.
"The crude stock draw and the EIA demand revision has bolstered hopes demand is starting to improve," VTB Capital analyst Andrey Kryuchenkov said.
"Markets are also pricing in the fact that high levels of global inventories are going to fall pretty fast in the third and fourth quarter if OPEC can maintain their current output levels."
Oil has more than doubled from the low $30s hit this winter as investors have started to price in hopes for an economic recovery which should boost oil demand.
Output cuts by the Organization of the Petroleum Exporting Countries (OPEC) totaling 4.2 million bpd since September have also helped prices to recover.
The group has succesfully complied with around 80 percent of its cuts, but analysts have cautioned this was likely to slip as prices rise.
Kuwait's oil minister said on Wednesday the producer group -- responsible for more than a third of the world's crude output -- could raise production if oil prices rose toward $100 a barrel.
Economists have voiced concerns the rapid run-up in crude prices could derail any fragile economic recovery.
INVENTORIES
Prices could gain further on Wednesday if the EIA confirms the API's fall in crude inventories, in its own data on Wednesday to be released at 1430 GMT (10:30 a.m. EDT).
"Any EIA reinforcement tonight of the already released API inventory data will serve to underpin $70 as support," Jonathan Kornafel, Asia director of Hudson Capital Energy, said in a report. Continued...
Source: Reuters

Asian shares, oil rally on hopes for China

Asia shares dip
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By Kevin Plumberg and Rafael Nam
HONG KONG (Reuters) - Asian shares rallied on Wednesday as reports of stronger-than-expected industrial output in China raised optimism about the global economy, lifting metals and oil prices at or near multi-month highs.
Gains in shares accelerated after two Chinese papers reported China's industrial production rose by 8.9 percent in May from a year earlier, well ahead of forecasts and the fastest growth since September last year.
The data is not due until Friday, but these same papers had accurately reported the inflation data ahead of the official release.
The prospects of a stronger China's economy, along with the weakening U.S. dollar, are helping buoy prices of key metals like copper, which hit its highest level since Oct 15 on Tuesday. Oil prices rose above $71 for the first time in seven months.
Commodity-related shares such as Rio Tinto (RIO.AX) were among the leading gainers in the region on Wednesday and were set to help European shares gain at the open as well.
"Most of the moves are coming from commodities, not surprising considering how strong commodities were last night. Copper in particular was extremely strong. That's reflected in the market today," said James Foulsham, head of trading at CMC Markets in Australia.
Dealers also chipped away at the U.S. dollar as futures markets reflected second thoughts about a possible Federal Reserve rate hike this year, while the Australian dollar rose further above US$0.80 after an index of consumer confidence in the resource-rich country showed the biggest gain in 22 years.
In Asian equity markets, Australia's benchmark S&P/ASX 200 index .AXJO was one of the biggest gainers, rising 2.3 percent.
Shares of mining giants Rio Tinto (RIO.AX) and BHP Billiton (BHP.AX) outperformed the broader market, rising 3.4 percent and 3.2 percent, respectively.
Japan's Nikkei share average .N225 climbed 2.1 percent, after earlier hitting a eight-month high. Mitsubishi Corp (8058.T), Japan's largest trading house, surged 6.3 percent on the back of higher commodity prices. Shipping firms also rose on hopes for a recovery in the global economy.
The Nikkei largely shrugged off data showed Japan's core machinery orders unexpectedly fell 5.4 percent in April, suggesting any recovery in capital expenditure is still fragile.
The MSCI index of Asia Pacific stocks outside Japan .MIAPJ0000PUS rose 2.7 percent, recouping its entire loss of 2.7 percent over the previous two sessions. The index has risen 57 percent since a global equity rally began on March 9.
Recent indicators have almost consistently shown a global economy that is past its worst. Investors have particularly welcome the positive signals from China, a key buyer of raw materials and commodities, and an increasingly crucial nexus in global trade.
Shanghai copper rose about 2 percent to 41,680 yuan a tonne, tracking London copper's rally in the previous session. But the RSI, or relative strength indices, for copper and aluminum in both London and Shanghai are now above 70, a sign that the markets are overbought.
It is still unclear if signs of improvement in some markets point to the return of sustained consumer demand or if companies are merely replenishing depleted inventories. A solid rebound in end-user demand is needed to ensure a global recovery. Continued...
Source: Reuters

Fiat closing in on Chrysler deal, shares rise

White House: Chrysler a "concern"
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By James Vicini and Poornima Gupta
WASHINGTON/DETROIT (Reuters) - The U.S. Supreme Court on Tuesday cleared the way for the sale of Chrysler LLC to Italy's Fiat, while General Motors began to revamp its widely criticized board by naming former AT&T Inc chief executive Ed Whitacre as chairman.
In a victory for the Obama administration driving the restructuring of bankrupt Chrysler, the court denied a request from Indiana pension funds to delay the sale to a group led by Fiat, a union-aligned trust and the U.S. and Canadian governments.
The White House welcomed the high court's action.
"We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker," said a White House official, speaking on condition of anonymity.
Indiana State Treasurer Richard Mourdock said in an emailed statement he was "disappointed" with the verdict.
"The future ramifications of the court's decision on the capital markets remain to be seen," Mourdock said.
A spokeswoman for Chrysler had no immediate comment.
According to a person familiar with Chrysler's plans, the company is aiming to close the sale early Wednesday morning.
The person declined to be named because the plans are not yet public.
"Today's decision is good news for the country," said U.S. Representative Gary Peters of Michigan, whose district includes Chrysler headquarters. "Chrysler's swift emergence from bankruptcy has put the company in position to become more globally competitive."
Erich Merkle, independent auto analyst based in Grand Rapids, Michigan, said the choices were "approval of the sale or liquidation."
Moreover, Merkle said the court's decision to stand back was good news for GM, which is using a similar quick-sale strategy to facilitate its government-backed trip through bankruptcy.
"The stakes here were immense. Both GM and Chrysler need to get out of bankruptcy. They can't stay in," Merkle said, noting that Chrysler still had to demonstrate viability once it steps out of court protection.
John Casesa, managing partner at Casesa Shapiro Group, said at a conference at Oakland University in Rochester, Michigan, on Tuesday that both GM and Chrysler will be salvaged but it is unclear if they can be saved.
"The government can't assure long-term viability," he said, adding that Chrysler will shrink under Fiat ownership and GM's future is hard to forecast. Continued...
Source: Reuters

Oil tops $71 after large fall in U.S. crude stocks

By Maryelle Demongeot
SINGAPORE (Reuters) - Oil topped $71 a barrel on Wednesday, after settling above $70 for the first time in seven months on a larger-than-expected fall in crude oil stocks and a forecast that falling oil demand may have bottomed.
The American Petroleum Institute (API) reported a deep fall of 6 million barrels in U.S. crude stocks in the week ended June 5, beating analysts' expectations for a 400,000-barrel draw, and steady products inventories versus forecast builds.
U.S. light crude for July delivery rose $1.08 cents to $71.09 a barrel by 0629 GMT, after ending Tuesday at $70.01, the first settlement above $70 in seven months.
London Brent crude gained 85 cents to $70.47.
"The statistics are another sign that we may have reached bottom. Relatively speaking, it seems that things are getting better and it should be bullish from there," said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo.
Oil has more than doubled from the low $30s hit this winter on optimism of an economic recovery that would lead to higher oil demand, although prices are still more than 50 percent below a record high of $147.27 touched last July.
Strengthening hopes of a recovery, the U.S. Energy Information Administration (EIA) on Tuesday raised its 2009 demand forecast by 10,000 barrels per day in its June outlook, the first time since September that it has increased the demand estimate in its rolling monthly forecast.
Prices could gain further on Wednesday if the EIA confirms the API's fall in crude inventories, in its own data on Wednesday to be released at 1430 GMT.
"Any EIA reinforcement tonight of the already released API inventory data will serve to underpin $70 as support," Jonathan Kornafel, Asia director of Hudson Capital Energy, said in a morning report.
A Reuters expanded inventory poll from 13 analysts called for a 400,000 barrel drawdown in crude stocks, a 1.4 million barrel build in distillate stocks and an 800,000 barrel increase in gasoline stocks. Refinery utilization was seen rising 0.3 percentage point to 86.6 percent of capacity.
The U.S. dollar, whose weakening contributed to pushing prices up $1.92 on Tuesday, steadied on Wednesday after investors questioned whether the economy had improved enough to justify talk of a Federal Reserve rate hike by year-end.
Investors tend to flock to commodities as a hedge against inflation when the dollar falls.
(Editing by Clarence Fernandez)

Source: Reuters

Higher commodities support Asia resource stocks

Asia shares dip
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By Kevin Plumberg
HONG KONG (Reuters) - Commodity-related shares led Asian stocks higher on Wednesday, snapping a two-day decline, after metals and oil prices rallied on a decline in the U.S. dollar and as hopes grew for stronger Chinese industrial demand.
Investors are scouring fresh Chinese data this week for signs that the economy remains on the road to recovery. Expectations that the economy is picking up have helped buoy prices of key metals like copper, which hit its highest level since Oct 15 on Tuesday.
"Most of the moves are coming from commodities, not surprising considering how strong commodities were last night. Copper in particular was extremely strong. That's reflected in the market today," said James Foulsham, head of trading at CMC Markets in Australia.
Dealers also chipped away at the U.S. dollar as futures markets reflected second thoughts about a possible Federal Reserve rate hike this year, while the Australian dollar rose further above US$0.80 after an index of consumer confidence in the resource-rich country showed the biggest gain in 22 years.
In Asian equity markets, Australia's benchmark S&P/ASX 200 index .AXJO was one of the biggest gainers, rising 1.7 percent.
Shares of mining giants Rio Tinto (RIO.AX) and BHP Billiton (BHP.AX) outperformed the broader market, rising 3.2 percent and 3.4 percent, respectively.
Japan's Nikkei share average .N225 climbed 1 percent, with Mitsubishi Corp (8058.T), Japan's largest trading house, up 4.2 percent, on the back of higher commodity prices. Shipping firms also rose on hopes for a recovery in the global economy.
The Nikkei largely shrugged off data showed Japan's core machinery orders unexpectedly fell 5.4 percent in April, suggesting any recovery in capital expenditure is still fragile.
The MSCI index of Asia Pacific stocks outside Japan .MIAPJ0000PUS rose 1.6 percent, with the materials sector by far the largest riser, while the defensive utilities sector underperformed the market.
Shanghai copper rose more than 2 percent to 41,950 yuan a ton, tracking London copper's rally in the previous session. But the RSI, or relative strength indices, for copper and aluminum in both London and Shanghai are now above 70, a sign that the markets are overbought.
It is still unclear if signs of improvement in some markets point to the return of sustained consumer demand or if companies are merely replenishing depleted inventories. A solid rebound in end-user demand is needed to ensure a global recovery.
DOLLAR PAUSES
The ICE Futures U.S. dollar index .DXY, a measure of its value against a basket of six other major currencies, was largely unchanged on the day, after falling about 1.2 percent on Tuesday.
The dollar has been propelled by speculation the Fed may have to raise interest rates sooner than previously thought if economic numbers such as last Friday's U.S. payrolls figure keep surprising to the upside.
However, the December three-month eurodollar contract, a way for traders to bet on short-term interest rates, has clawed back about half the losses endured since last Friday, putting pressure again on the dollar. Continued...
Source: Reuters

Supreme Court clears path for Chrysler sale

White House: Chrysler a "concern"
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By James Vicini and Poornima Gupta
WASHINGTON/DETROIT (Reuters) - The U.S. Supreme Court on Tuesday cleared the way for the sale of Chrysler LLC to Italy's Fiat, while General Motors began to revamp its widely criticized board by naming former AT&T Inc chief executive Ed Whitacre as chairman.
In a victory for the Obama administration driving the restructuring of bankrupt Chrysler, the court denied a request from Indiana pension funds to delay the sale to a group led by Fiat, a union-aligned trust and the U.S. and Canadian governments.
The White House welcomed the high court's action.
"We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker," said a White House official, speaking on condition of anonymity.
Indiana State Treasurer Richard Mourdock said in an emailed statement he was "disappointed" with the verdict.
"The future ramifications of the court's decision on the capital markets remain to be seen," Mourdock said.
A spokeswoman for Chrysler had no immediate comment.
According to a person familiar with Chrysler's plans, the company is aiming to close the sale early Wednesday morning.
The person declined to be named because the plans are not yet public.
"Today's decision is good news for the country," said U.S. Representative Gary Peters of Michigan, whose district includes Chrysler headquarters. "Chrysler's swift emergence from bankruptcy has put the company in position to become more globally competitive."
Erich Merkle, independent auto analyst based in Grand Rapids, Michigan, said the choices were "approval of the sale or liquidation."
Moreover, Merkle said the court's decision to stand back was good news for GM, which is using a similar quick-sale strategy to facilitate its government-backed trip through bankruptcy.
"The stakes here were immense. Both GM and Chrysler need to get out of bankruptcy. They can't stay in," Merkle said, noting that Chrysler still had to demonstrate viability once it steps out of court protection.
John Casesa, managing partner at Casesa Shapiro Group, said at a conference at Oakland University in Rochester, Michigan, on Tuesday that both GM and Chrysler will be salvaged but it is unclear if they can be saved.
"The government can't assure long-term viability," he said, adding that Chrysler will shrink under Fiat ownership and GM's future is hard to forecast. Continued...
Source: Reuters

U.S. clears 10 big banks to repay bailout funds

US banks to repay TARP money
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By Glenn Somerville
WASHINGTON (Reuters) - JPMorgan, Goldman Sachs and eight other top U.S. banks won clearance on Tuesday to repay $68 billion in taxpayer money given to them during the credit crisis, a step that may help them escape government curbs on executive pay.
Many banks had chafed at restrictions on pay that accompanied the capital injections. The U.S. Treasury Department's announcement that some will be permitted to repay funds from the Troubled Asset Relief Program, or TARP, begins to separate the stronger banks from weaker ones as the financial sector heals.
Treasury didn't name the banks, but all quickly stepped forward to say they were cleared to return money the government had pumped into them to try to ensure the banking system was well capitalized
Stock prices gained initially after the Treasury announcement but later shed most of the gains on concern the money could be better used for lending to boost the economy rather than paying it back to Treasury.
"If they were more concerned about the public, they would keep the cash and start loaning out money," said Carl Birkelbach, chairman and chief executive of Birkelbach Investment Securities in Chicago.
Treasury Secretary Timothy Geithner told reporters the repayments were an encouraging sign of financial repair but said the United States and other key Group of Eight economies had to stay focused on instituting measures to boost recovery.
MUST KEEP LENDING
Earlier this year U.S. regulators put the 19 largest U.S. banks through "stress tests" to determine how much capital they might need to withstand a worsening recession. Ten of those banks were told to raise more capital, and regulators waited for their plans to do so before approving any bailout repayments.
As a condition of being allowed to repay, banks had to show they could raise money on their own from the private sector both by selling stock and by issuing debt without the help of Federal Deposit Insurance Corp guarantees. The Federal Reserve also had to agree that their capital levels were adequate to support continued lending.
American Express Co, Bank of New York Mellon Corp, BB&T Corp, Capital One Financial Corp, Goldman Sachs Group Inc, JPMorgan Chase & Co, Morgan Stanley, Northern Trust Corp, State Street Corp and U.S. Bancorp all said they had won approval to repay the bailout funds.
In contrast, neither Bank of America Corp or Citigroup Inc, which each took $45 billion from the government, received a green light to pay back bailout money.
The government is in the process of taking as much as a 34 percent equity stake in Citigroup, while Bank of America has indicated it would like to begin repayment later this year.
Treasury said banks repaying bailout funds also can repurchase warrants that the government holds in their firms "at fair market value," and many of the approved banks said they intended to do so.
The warrants give the government the right to buy common stock at a predetermined price for up to 10 years and were intended to give taxpayers a chance to share in the profits of healthy banks. Geithner said some of the warrants were now valued in "the several billion dollar range."
On Tuesday, the head of a U.S. financial bailout oversight panel, Elizabeth Warren, indicated she planned to ensure taxpayers were getting a fair deal. Continued...
Source: Reuters

U.S. to unveil TARP pay rules by week's end: official

By Tim Ahmann
WASHINGTON (Reuters) - The Obama administration will unveil executive pay rules for firms receiving government aid by the end of the week and will name a pay czar with power to reject compensation plans at firms getting "exceptional assistance," an administration official said late on Tuesday.
"In the case of a company receiving exceptional assistance, the special master would have the authority to disapprove of a company's compensation plan if he determined they were paying excessive and unjustified salaries to their top executives," the official said.
In early February, the administration had said it would put a $500,000 per year cap on the salaries of executives whose firms were being supported with money from the government's $700 billion rescue fund. Any compensation above that amount was to have been in restricted stock or a similar long-term bonus incentive.
Officials determined that plan was not optimal after Congress passed legislation requiring that bonuses account for no more than one-third of an executive's compensation. If coupled with the administration's planned salary cap, that would limit annual compensation to $750,000.
The official said the congressional limit on bonuses led the administration to find an alternative way to try to ensure pay practices were not excessive at companies most heavily reliant on government bailout money, such as Bank of America, Citigroup and insurer AIG.
Kenneth Feinberg, who oversaw compensation to the survivors of the September 11, 2001, terror attacks, would be given the role of pay czar, according to a source familiar with the administration's plan.
President Barack Obama has argued that Wall Street's pay structures were short-sighted and pushed banks to take excessive risks that led to the financial crisis which has pushed much of the world into recession.
U.S. Treasury Secretary Timothy Geithner, who has said compensation practices became "divorced from reality," will meet on Wednesday to discuss bank pay with Securities and Exchange Commission Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and other compensation experts.
While the administration had been expected to lay out its new rules on Wednesday, Geithner is only slated to make brief public remarks during the open portion of that meeting.
The administration official said late on Tuesday night that the new rules to be outlined this week would apply to the top five senior executive officers at companies supported by the Treasury Department's Troubled Asset Relief Program, or TARP, plus the next 20 highly paid employees, whether or not they serve in an executive role.
In addition to the new rules for TARP recipients, the administration is pushing a broader effort to influence pay practices across the financial industry at large.
The Federal Reserve has said it plans to use its authority to promote healthier compensation structures, and Geithner told lawmakers on Tuesday that the SEC may seek new powers that would allow it to encourage compensation reform at publicly traded companies.
"As you'll hear from us in the next few days, the SEC has some important responsibilities and obligations in this area, and some tools and authorities they may seek," Geithner told a Senate Appropriations subcommittee.
(Additional reporting by Karey Wutkowski, Editing by Sandra Maler)

Source: Reuters

House panel to subpoena Fed over BofA-Merrill deal

By Kim Dixon
WASHINGTON (Reuters) - A House of Representatives committee on Tuesday said it would subpoena the Federal Reserve to force the central bank to surrender documents regarding its role in Bank of America's takeover of Merrill Lynch last year.
The subpoena comes two days before Bank of America Chief Executive Ken Lewis is set to testify before the House Oversight Committee, which is probing the transaction, what Lewis knew about Merrill's financial condition and potential regulatory pressure to complete the deal.
Lewis, in testimony prepared for the hearing, said he became aware of "significant, accelerating losses" at Merrill in mid-December after the shareholder vote. Lewis has consistently maintained in statements that he did not realize the severity of Merrill's problems until after that vote.
The CEO, who has since been ousted as chairman, also said he told Treasury and Fed officials he was considering declaring a "material adverse change" which would have allowed it to walk away from the acquisition.
"Treasury and Federal Reserve representatives asked us to delay any such action, and expressed significant concerns about the systemic consequences," Lewis said in the testimony.
Fed chairman Ben Bernanke has denied previous assertions by Lewis about pressure. A spokeswoman for former Treasury Secretary Henry Paulson has said Paulson told Lewis there was no need to terminate the deal.
Chairman Edolphus Towns was joined by the ranking Republican Darrell Issa in agreeing to serve the subpoena on the Federal Reserve.
The lawmakers said the Fed would only allow committee staff to review documents at the Federal Reserve's Washington offices, which they did for several days, according to a letter dated June 3 to Fed chairman Ben Bernanke.
"Following the staff review, we conclude that we will need copies of these documents," they wrote.
The Fed has been under intense pressure from Congress to make public more information about its lending programs, during a time when it has taken an unprecedented role in bailing out financial firms and other companies.
A Fed spokeswoman said the bank was concerned that documents sought by the committee contained information that financial institutions supply regulators on the condition they maintain confidentiality.
Faced with the subpoena, the Fed will now hand over the documents, the spokeswoman said.
Among the documents sought are handwritten notes from a December 19 meeting between Bernanke, Bank of America chief executive Ken Lewis and others.
Lewis has said the government pressured him to pursue the deal and to withhold information about losses at Merrill from investors, but regulators have disputed this characterization.
Bernanke in May resolutely refuted that claim. Continued...
Source: Reuters

Judge OKs Chrysler's bid to cut U.S. dealers

Fiat won't walk from Chrysler deal
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By Tom Hals and Phil Wahba
NEW YORK (Reuters) - Chrysler LLC won court approval on Tuesday to cut a quarter of its U.S. dealerships and the bankruptcy court judge overruled requests to delay the order until the U.S. Supreme Court rules on the sale of the company.
Judge Arthur Gonzalez said his order, which allows Chrysler to reject 789 dealer contracts, was effective immediately.
"No dealer wants to be rejected. We understand that," Chrysler lawyer Kevyn Orr told the judge, adding that the bankruptcy law did give dealerships special protections.
The dealers would be able to file damage claims against Chrysler within a certain timeframe yet to be determined, the judge said.
The dealers had wanted more time to keep their businesses open in order to clear inventory and continue providing warranty services. With the order, the affected dealers will no longer be able to sell new Chrysler cars, provide repairs or use the Chrysler name or trademark.
"We are extremely disappointed particularly as we felt there was room to delay the decision until after the sale," said Andrew Entwistle, a lawyer representing a New York dealership.
Entwistle said his clients would appeal.
The U.S. Supreme Court on Monday delayed the automaker's sale to a Fiat-led group pending further review.
Gonzalez, who sits on the U.S. Bankruptcy Court for the Southern District of New York in Manhattan, had indicated last week he would approve the motion, largely because the dealers were not part of the sale to Fiat.
Chrysler's bankruptcy financing is providing marketing funds to the dealers, allowing them to offer incentives to potential buyers.
Chrysler wanted to consolidate its network around dealers that offer all three of its brands -- Dodge, Jeep and Chrysler -- and wants fewer, more profitable dealers that can invest in their locations.
About 98 percent of the vehicles at rejected dealers have been reallocated to stores that will be carried to the new Fiat-led Chrysler, the Chrysler attorneys said Tuesday.
In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.
(Editing by Gerald E. McCormick)

Source: Reuters

Ex-AT&T CEO Whitacre to become new GM chairman

By Poornima Gupta
DETROIT (Reuters) - General Motors Corp on Tuesday took a step toward restructuring its widely criticized board by naming former AT&T Inc CEO Ed Whitacre to become chairman of the reorganized automaker when it emerges from bankruptcy under U.S. government oversight.
Whitacre, an engineer by training who guided Texas-based Southwestern Bell through a decade of transformative mergers, will take over as chairman when a new GM is launched out of bankruptcy, the company said.
GM, which filed for bankruptcy on June 1, plans a quick sale process that would allow a much smaller automaker to emerge from court protection in as little as 60 days under the majority ownership of the U.S. Treasury.
By picking Whitacre as chairman for the new GM, the White House-appointed autos task force took the first step toward establishing a restructured board to oversee the government's $50 billion investment in reshaping an American industrial icon.
"He is coming into an industry that is accustomed to heavy regulations. He knows how to grow a company. He gives a lot of credibility to GM's restructuring," said Stephen Spivey, an auto analyst with Frost & Sullivan.
Former GM Chairman and Chief Executive Rick Wagoner, who had staked his reputation on keeping the company out of bankruptcy, was ousted by the Obama administration at the end of March.
In announcing Whitacre's selection, GM also confirmed that the longest-serving board members and those most closely associated with Wagoner's tenure would be leaving.
Kent Kresa, former chief executive of Northrop Grumman Corp who has been serving as GM's interim chairman, will stay on in that position until Whitacre takes over, GM said.
Whitacre and Kresa, along with current board members Philip Laskawy, Kathryn Marinello, Erroll Davis Jr, E. Neville Isdell and Chief Executive Officer Fritz Henderson, will serve as the "nucleus" of the restructured board, GM said in a statement.
GM's board has come under fire before as efforts to restructure and turnaround a long-running slide in its business faltered. In the late 1980s, Texas tycoon Ross Perot dubbed his fellow GM directors "pet rocks" who sat silently by then-CEO Roger Smith.
In 2006, Jerry York, a director representing billionaire investor Kirk Kerkorian, resigned from the GM board and said that directors were unwilling to challenge Wagoner.
York had urged GM without success to drop unprofitable brands such as Saab and Hummer, steps that it only took later as its financial crisis deepened.
Three of the GM outside directors staying on at the reorganized company -- Marinello, former chief executive of Ceridian Corp; Davis, a former chief executive of Alliant Energy Corp, and Isdell, a former chief executive at Coca-Cola Co -- joined the board after that dispute.
Davis and Marinello joined in 2007. Isdell joined in 2008. Laskawy, former chief executive of Ernst & Young LLP, joined the GM board in 2003.
Other board members with more than a decade of experience were expected to retire in the coming weeks, GM said. That includes George Fisher, a former Eastman Kodak chief executive, who had been a steady ally of GM management under Wagoner. Continued...
Source: Reuters

Oil rises near $71 after large fall in U.S. crude stocks

By Maryelle Demongeot
SINGAPORE (Reuters) - Oil raced toward $71 a barrel on Wednesday, after settling above $70 for the first time in seven months on a larger-than-expected fall in crude oil stocks and a forecast that falling oil demand may have bottomed.
The American Petroleum Institute (API) reported a deep fall of 6 million barrels in U.S. crude stocks in the week ended June 5, beating analysts' expectations for a 400,000-barrel draw, and steady products inventories versus forecast builds.
U.S. light crude for July delivery rose 84 cents to $70.85 a barrel by 0203 GMT (10:03 p.m. EDT on Tuesday), off an earlier high of $70.94 after ending Tuesday at $70.01, the first settlement above $70 in seven months.
London Brent crude gained 55 cents to $70.17.
"The stats are another sign that we may have reached bottom. Relatively speaking, it seems that things are getting better and it should be bullish from there," said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo.
Oil has more than doubled since the low $30s hit this winter on optimism of an economic recovery that would lead to higher oil demand, although prices are still more than 50 percent below a record high of $147.27 touched last July.
Strengthening hopes of a recovery, the U.S. Energy Information Administration (EIA) on Tuesday raised its 2009 demand forecast by 10,000 barrels per day in its June outlook, the first time since September that it has increased the demand estimate in its rolling monthly forecast.
Prices could gain further on Wednesday if the EIA confirms the API's fall in crude inventories, in its own data on Wednesday to be released at 1430 GMT (12:30 a.m. EDT).
"Any EIA reinforcement tonight of the already released API inventory data will serve to underpin $70 as support," Jonathan Kornafel, Asia director of Hudson Capital Energy, said in a morning report.
A Reuters expanded inventory poll from 13 analysts called for a 400,000 barrel drawdown in crude stocks, a 1.4 million barrel build in distillate stocks and an 800,000 barrel increase in gasoline stocks. Refinery utilization was seen rising 0.3 percentage point to 86.6 percent of capacity.
The U.S. dollar, whose weakening contributed to pushing prices up $1.92 on Tuesday, steadied on Wednesday after investors questioned whether the economy had improved enough to justify talk of a Federal Reserve rate hike by year-end.
Investors tend to flock to commodities as a hedge against inflation when the dollar falls.
(Editing by Clarence Fernandez)

Source: Reuters

Steep climb ahead for U.S. financial reforms

By Kevin Drawbaugh
WASHINGTON (Reuters) - The Obama administration and congressional Democrats got a clear view on Tuesday of the uphill political path they face in pushing for tighter regulation of U.S. banks and financial markets.
With the economy showing some signs of recovery, Treasury Secretary Timothy Geithner told a Senate committee that President Barack Obama next week will unveil his long-awaited plan for sweeping financial regulation reform.
Targeting not only banks and markets for change, but also executive pay, hedge funds and so-called "systemic risk" to the economy, the Obama plan has been evolving for six months.
Some of its most ambitious proposals have softened amid aggressive lobbying by the financial services industry and intractable political realities in Congress.
A key pullback involves monitoring systemic risk, which Geithner said on Tuesday will not be concentrated at the Federal Reserve, but may fall to a council of regulators.
Minutes after Geithner spoke, Senate Banking Committee Chairman Christopher Dodd said healthcare issues will take priority for now over financial reforms, which he said he may not take up until after Congress' August recess.
He said he remains committed to sending a financial regulation package to the White House by the end of 2009, a goal set by Obama.
In the meantime, Republicans plan soon to unveil a counter-proposal to the Obama plan, with some proposals that are more modest, possibly undercutting support on Capitol Hill for the administration's program.
"Regulatory reform will center mostly on turf fights and political infighting," said Jaret Seiberg, financial services policy analyst at research firm Concept Capital.
"The odds are less than one-in-five that a massive financial reform bill will be enacted."
If past problems such as the savings-and-loan crisis of 1989-1990 could not trigger comprehensive reform, he said, "No crisis is likely to overcome the entrenched interests that favor the status quo. Yet we do believe the odds are north of 75 percent for more limited reform.
"Either way, this fight is going to dominate the headlines through the mid-term election."
OTC DERIVATIVES DEBATED
For instance, the administration on May 13 proposed a crackdown on the unregulated over-the-counter (OTC) derivatives market. Exotic financial instruments traded in that market, such as credit default swaps, have been widely implicated in the global credit crisis that brought down firms such as Lehman Brothers and American International Group.
The administration wants to push more trading in OTC derivatives onto exchanges and central clearinghouses, while some Democrats in Congress have proposed moving the entire market onto more transparent and accountable platforms. Continued...
Source: Reuters

Countrywide exec warned on loans at Fed '06 meeting

By Steve Eder
NEW YORK (Reuters) - The chief risk officer of Countrywide Financial Corp, the poster-child company for the loose U.S. home loans that staggered the world economy, was warning against them even when it put him at odds with his own company -- and with Fed chairman Ben Bernanke.
At a time when many in the U.S. home loan industry were offering money to almost anyone who walked in the door, John P. McMurray publicly warned about the risks of such lax lending.
McMurray pointed out the risks at the Federal Reserve Bank of Chicago's annual conference on bank structure and competition on May 18, 2006 -- less than a year before the housing sector and mortgage lending industry began collapsing, leading to a credit crunch that spread around the world.
Such lending practices also eventually collapsed Countrywide into a fire sale takeover and led to charges of fraud and insider trading being brought against company co-founder Angelo Mozilo.
McMurray's presentation on the home lending boom contrasted with comments Federal Reserve Chairman Bernanke had made in the event's keynote address about 90 minutes earlier.
Bernanke said home finance innovation did carry risk but provided significant net benefits.
"Borrowers have more choices and greater access to credit; lenders and investors are better able to measure and manage risk; and, because of the dispersion of financial risks to those more willing and able to bear them, the economy and the financial system are more resilient," Bernanke said, according to a transcript of his speech.
A LOSING BATTLE
McMurray, who was on a panel about home finance innovation, had a different view, highlighting an internal Countrywide study that showed the realities of mortgage delinquency and the dangers of lending to people who couldn't afford to take on their loans.
But even as he cautioned the world, emails show, McMurray was losing a battle in his own office to convince top brass at the largest U.S. mortgage lender to curb its lending practices.
Last week, the Securities and Exchange Commission charged Mozilo with securities fraud and insider trading, and McMurray's emails were a critical element in the lawsuit. Countrywide's former president David Sambol and chief financial officer Eric Sieracki were also charged with fraud.
McMurray has been called a "hero" by at least one advocate for whistleblowers for trying to raise red flags in Countrywide as its lending standards rapidly went downhill.
The deterioration in its credit quality eventually triggered big losses that forced it into the arms of Bank of America (BAC.N), which bought it at a fraction of the price it was once worth.
Some of the same warnings McMurray gave to higher-ups at Countrywide about relaxed lending practices bled into his presentations at the 2006 conferences, which were attended by industry leaders, academics, investors, economists and the media, as well as Fed officials.
"He got it," said Jim Callahan, the executive director of Connecticut-based PentAlpha Capital Group, who moderated a panel that included McMurray at an American Securitization Forum in January 2006 in Las Vegas. "He was not trying to oversell a positive story." Continued...
Source: Reuters