Geithner, Bernanke reject new global currency idea

U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke on Tuesday dismissed suggestions by leading emerging economies that the global economy move away from using the dollar as the main reserve currency.

In a congressional hearing on Capitol Hill, U.S. Rep. Michele Bachmann, a Minnesota Republican, asked Geithner: "Would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested this morning by China and also by Russia, Mr Secretary?"

Geithner replied, "I would, yes."

She posed the same question to Bernanke, who said: "I would also."

Chinese central bank chief Zhou Xiaochuan on Monday urged an overhaul of the global monetary system to allow for wider use of Special Drawing Rights (SDRs) created by the International Monetary Fund as an international reserve asset in 1965.

Zhou's comments followed remarks by Russia last week which said it would put forward a proposal at a meeting of the Group of 20 in London on April 2 for the creation of a new global reserve currency.

Australia's Prime Minister Kevin Rudd also knocked down the idea of dislodging the dollar as the world's main reserve currency, telling an audience in Washington on Monday: "The dollar's position ... remains unchallenged."

Goldman Sachs Said to Be in Talks to Repay TARP Funds

Goldman Sachs Group Inc., once the most profitable firm on Wall Street, is talking with U.S. regulators about repaying the $10 billion it received from the government by mid-April, a person familiar with the matter said.

Goldman Sachs hasn’t formally applied to give back the money, which the New York-based company received as part of the first round of the Troubled Asset Relief Program, the person said, declining to be identified because the talks are private.

Bank executives are chafing under increased scrutiny that accompanied the bailout money, as public outrage over bonuses and executive perks intensifies. The government may be reluctant to let any banks pay back the TARP money now, because it could pressure other companies that still need the cash to return it, according to Peter Sorrentino, who helps manage $13.3 billion at Huntington Asset Advisors in Cincinnati.

“The regulators do want to keep all these guys on the same page,” Sorrentino said in an interview. “It’s like a chain gang, you’ve got them all in handcuffs. If you let some of them out, then you’ve got a couple off the reservation.”

Goldman Sachs doesn’t expect to be allowed to repay the TARP money until the Treasury finishes so-called stress tests of major banks’ financial stability, the person said. Regulators said last month they expected to complete the review in April.

“We’ve indicated our desire to repay TARP capital sooner rather than later, but obviously won’t do anything without the approval of our regulators,” Goldman Sachs spokesman Lucas Van Praag said.

Bonuses Lost

The New York Times reported earlier today that Goldman Sachs was negotiating to return the money. Treasury spokesman Isaac Baker declined to comment.

David Viniar, Goldman Sachs’s chief financial officer, said Feb. 4 that running the company without government money “would be an easier thing to do.” The firm, which set a Wall Street record for pay in 2007, said in November that Chief Executive Officer Lloyd Blankfein, 54, and six deputies would forgo their year-end bonuses.

“We wouldn’t do anything that would potentially weaken the firm in an attempt to address a narrow issue,” Van Praag said on the issue of compensation.

Goldman Sachs is also mulling a potential sale of part of its 4.9 percent stake in Industrial & Commercial Bank of China Ltd. to raise more than $1 billion, the Wall Street Journal reported yesterday.

Predictable Earnings

Investors would likely welcome the sale as a means to raise capital and create a more predictable earnings stream, said William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, which holds Goldman Sachs shares among its $900 million in assets.

As part of the stimulus package, firms are allowed to repay TARP money without replacing the funds at the discretion of regulators.

JPMorgan Chase & Co. CEO Jamie Dimon said Feb. 23 the New York-based bank was planning to pay back TARP “as soon as it is prudent” in consultation with regulators. Richard Kovacevich, chairman of San Francisco-based Wells Fargo & Co., criticized the government’s retroactive curbs on bonuses last month and called the plan for bank stress tests “asinine.”

Goldman Sachs “can legitimately make the argument that it’s getting in the way of doing business since they keep changing the rules,” Sorrentino at Huntington said. “Politically I don’t know how you stop them from giving the money back.”

Bernanke: I Wanted to Sue AIG to Halt Bonus Payments

Federal Reserve Chairman Ben Bernanke told Congress Tuesday that he tried to prevent American International Group from paying out lavish bonuses, and even asked that the company be sued to halt the payments, but was advised against it.

Bernanke told lawmakers at a tense House Financial Services Committee hearing that he found it "highly inappropriate" for the bailed-out insurer to pay $165 million in bonuses to the very division that was "the primary source of AIG's collapse."

He said he was told the payments could not be stopped because of contractual obligations -- but he was also warned that legal action, which he wanted to pursue, could end up awarding the same employees more money in punitive damages.

"I then asked that suit be filed to prevent the payments," Bernanke said. "Legal staff counseled against this action on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail. Legal action does have the perverse effect of doubling or tripling the financial benefits to the (employees)."

Treasury Secretary Timothy Geithner, appearing with Bernanke, also asked Congress for broad new powers Tuesday to regulate nonbank financial companies like the troubled insurer, whose collapse could jeopardize the economy.

"AIG highlights broad failures of our financial system," Geithner said. "We must ensure that our country never faces this situation again."

Geithner acknowledged that the current climate of anger, including the furor over those retention bonuses, will complicate any effort by the Obama administration to get more bailout money from Congress. "We recognize it will be extraordinarily difficult," he said.

AIG has become a symbol of reckless risk-taking on Wall Street. The House last week voted overwhelmingly to slap 90 percent taxes on the largest bonuses and similar, although not as punitive, legislation is before the Senate.The bonuses came even as AIG reported a stunning $62 billion loss, the biggest in U.S. corporate history.

The government has bailed out AIG four times, to the tune of more than $180 billion altogether.
New York Attorney General Andrew Cuomo said Monday that 15 employees who received some of the largest bonuses from AIG have agreed to return them in full, totaling about $50 million.

HK shares rise 4.78 pct on U.S. bank aid plan

Hong Kong shares ended 4.78 percent higher on Monday as the U.S. government's latest plan to help banks get rid of toxic assets helped revive investor appetite for risk.

The benchmark Hang Seng Index .HSI closed 613.9 points higher at 13,447.42.

The China Enterprises Index .HSCE of top mainland firms rallied 6.2 percent to 7,959.91.

Mitsubishi UFJ to cut 1,000 jobs, close 50 branches

Japan's biggest bank Mitsubishi UFJ Financial Group, struggling to return to profit, said Monday that it would cut 1,000 jobs and close 50 branches over three years in a bid to cut costs.

The megabank will shed the jobs through retirement and reducing hiring, said a company spokesman who declined to be named.

The bank will also shut down about 200 automated teller machines, he said.

"This is part of our efforts to streamline our operations in order to maximise the effect of our merger," the spokesman said, denying the cuts were prompted by the global financial crisis.

MUFG was formed in October 2005 through a merger between Mitsubishi Tokyo Financial Group and UFJ Holdings.

The bank, which bought a chunk of troubled Wall Street titan Morgan Stanley last year, lost 42 billion yen (437 million dollars) in the nine months to December, hit by slumping stock markets and the credit crunch.

Daimler saved by Middle Eastern wealth fund

A sovereign fund controlled by the oil-rich sheikhs of Abu Dhabi has become the biggest shareholder in Mercedes owner Daimler, guaranteeing its independence and future with a €1.95bn (£1.8bn) capital injection.

Aabar Investments, wholly owned by the emirate government and funded with oil money, will pay €20.27 per share for a 9% stake in the carmaker. The share issue will not be open to other shareholders - including long-standing investor Kuwait Investment Authority, the world's oldest sovereign fund, which has a 6.9% stake.

Daimler's flagship Mercedes brand is haemorrhaging sales, cash and profits. Having ended its disastrous 10-year marriage with Chrysler two years ago, the company has been consistently linked to a potential merger with German rival BMW.

Both premium carmakers have seen sales plunge by a quarter or more in the credit crunch as consumers shun luxury products. The news of the Middle East investment came as India's Tata launches the world's cheapest car, the "one lakh" or $2,000 Nano, after a six-month delay.

Dieter Zetsche, Daimler's chief executive, said the deal with Aabar Investments, announced late last night, would give the group extra flexibility to invest in new automotive technologies - such as electric vehicles and lighter compoound materials.

Mercedes models, despite the growing use of more fuel-efficient models, emit greater emissions of greenhouse gases than BMW. The rivals have teamed up with General Motors to develop new hybrid models linked to modern lithium-ion batteries but are substantially behind the curve compared with Japan's Toyota, Honda and Nissan.

European car firms are struggling to assert their future independence in the face of the worst downturn for more than 50 years. There are forecasts that only two or three of the current crop of 10 or so will survive. The French government has controversially bailed out Renault and Peugeot Citroen, while General Motors's German unit, Opel, is seeking a state-backed €3.3bn rescue plan which would see it and Britain's Vauxhall break away from the rest of GM.

Group says IRS audits of wealthy have plummeted

The Internal Revenue Service has counted auditing the wealthy among its top priorities and successes in recent years, yet the rate of such tax probes dropped significantly in 2008, according to a report by a Syracuse organization that tracks government data.

Using IRS figures, the report by Transactional Record Access Clearinghouse calculated at least a 19 percent drop in the audit rate of people with incomes of $1 million or more between 2008 and 2007 - a statistic confirmed by the IRS.

Beyond that, however, the two organizations' interpretations of these statistics diverge.

TRAC sharply criticized the tax agency in its report out today, noting the IRS had to revise downward the number of millionaire audits it recorded in two earlier years by as much as 35 percent. TRAC also questioned the IRS' methods of accounting and reporting its data.

The IRS, however, explained the revisions of its 2006 and 2007 audits as the result of a "regrettable" coding error that affected its published reports but not its operations. The agency maintains it still holds the scrutiny of millionaire tax returns as a high priority.

The decline in audits for the wealthy took place at the height of the real estate boom and at a time when returns submitted by people with incomes of $1 million or more were increasing, said Susan B. Long, co-director of TRAC.

"They [the IRS] have been really boasting about the need to increase the attention paid to high-income groups," Long said. "The public should know, is the agency achieving its stated goals? What are the facts?'"

TRAC said the IRS had published conflicting figures regarding millionaire audits recently. Using some of these figures, TRAC calculated the decline in such audits may have fallen by 36 percent - far more than the IRS' acknowledged drop of 19 percent.

Long wants to know whether the coding errors affected the IRS' ability to track the audits.

The IRS rejects the criticism. "In addition to our normal responsibilities on service and enforcement, we had to get 117 million additional payments to taxpayers," Bruce I. Friedland, an IRS spokesman said of 2008. "We had a tight budget and slight staffing declines in key enforcement positions."

The IRS says TRAC misinterpreted the data when it concluded that the drop in millionaire audits might be as high as 36 percent.

Tata Nano, World’s Cheapest Car, Won’t Help Pay Debt

Ratan Tata, head of India’s biggest diversified group, is having trouble trading up from his 100,000 rupee ($2,000) car to a new stable of Land Rovers and Jaguars.

Tata Motors Ltd. will begin taking orders next month for its Nano, the world’s cheapest car, after a failed effort to build a new factory for the vehicle delayed production. The low price and late sales mean the car won’t generate enough revenue to refinance by June $2 billion of a bridge loan Tata used to buy Land Rover and Jaguar from Ford Motor Co.

“It won’t solve the cash-flow problem they are having right now,” said Vaishali Jajoo, an analyst at Angel Broking Ltd. in Mumbai. “They will have to take more debt.”

Pushed into its first loss in seven years last quarter, Tata Motors will only build 30,000 to 80,000 Nanos in the fiscal year starting April, according to analysts. Moody’s Investors Service and Standard & Poor’s downgraded the automaker due to slowing sales of the U.K. luxury units and the need to fund the $2.4 billion purchase from Ford last year.

The company has $915 million of bonds and loans due by 2012, according to Bloomberg data. Sales of trucks and buses, the company’s traditional models, have plunged as economic growth in India cools.

“If you try too many things, you may fail,” said Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $3.1 billion. Tata Motors needs “deep pockets to pour in money” into revive Jaguar and Land Rover, he said.

Debt Costs

“Tata Motors is progressing on the refinancing options and in discussions with banks,” Tata Motors spokesman Debasis Ray wrote in an e-mailed response to questions.

The extra yield over government bonds of similar maturity that investors demand to own Tata Motors $490 million convertible bond due in 2012 surged to 3,164 basis points as of March 20, up from 483 basis points on June 2, when the acquisition of Land Rover and Jaguar was completed, according to data compiled by Bloomberg.

Last year, the carmaker began offering the public 11 percent annual interest on three-year deposits as it tried to raise cash. It was the first time in 13 years Tata Motors had turned to the public for funds.

Bookings

Tata Motors will begin accepting bookings for the car between April 9-25 and deliveries will start in early July, Ratan Tata said at a press conference in Mumbai today. The company will guarantee prices for the first 100,000 units. Customers must pay deposits of 95 percent of the car’s price, Managing Director Ravi Kant said at the same event.

Tata said it’s too early to comment on break-even for the Nano project.

Tata Motors shares gained as much as 8.1 percent to 173.85 rupees and changed hands at 167.7 rupees at 2:51 p.m. in Mumbai. The shares have gained 4.9 percent this year.

The company’s plan to start selling the Nano in the last quarter of 2008 was delayed after the company had to shift the location of its factory due to protests by farmers losing their livelihood.

Tata Motors will make profit from the Nano only when annual sales cross 350,000 units, according to India Infoline Ltd. analyst Jatin Chawla, who wrote a report titled ‘The Nano Effect.’ The project will be profitable in three years, he said.

The abandoned factory in eastern India had an annual capacity of 250,000 Nanos.

Family on a Scooter

The company’s factory at Sanand in western Gujarat state will have the same initial annual capacity when it opens by the year-end. The company will supply initial demand from other factories.

Tata, 71, a Cornell University-trained architect, decided to develop the car when he saw a family on a scooter. Almost seven motorcycles are sold for every car in India, a nation of 1.1 billion people. The company first showed the 623-cc car in January 2008. Tata Motors will announce details of the booking process in Mumbai March 23.

As sales in the U.S., Japan, and Europe tumble, Toyota Motor Corp., the world’s largest carmaker, Renault SA, France’s second-biggest automaker, and other automakers plan to build cars for the middle class in emerging markets. Indian annual light vehicle sales will surge to about 2.8 million units by 2014 from about 1.72 million last year, according to Tim Armstrong, director of Global Insight Inc. The Nano could account for as many as 450,000 of that, he said.

Toyota has an early prototype for a model that may be able to compete with the Nano, President Katsuaki Watanabe said in Detroit last year. Renault and Nissan Motor Co. have teamed up with Bajaj Auto Ltd., India’s second-largest motorcycle maker, to build a $2,500 car. They are targeting a middle class population of 50 million in India, where incomes have doubled in the last eight years.

The Nano may end up selling as many as 2 million units annually in 10 years according to India Infoline’s Chawla, who estimates that the cost of owning the Nano may be about $4 a day.

“The only formula that works with the masses in India is compelling value-for-money offering,” Chawla said.

Asian Stocks Rise on Hopes for Treasury Plan

Stock markets in Asia rallied Monday as hopes for the beleaguered American financial system overcame concerns about the still-dire outlook for the global economy.

The gains — more than 3 percent in Japan, Taiwan and India, and more than 2 percent in South Korea, Singapore and Australia and 4.3 percent in Hong Kong — were the latest in the past two weeks as investors around the world took heart from plans by the Obama administration to stabilize the American banking system and from news from leading financial institutions like Citigroup that the year had begun well.

On Monday, the Treasury secretary, Timothy F. Geithner, will announce the details of the administration’s long-awaited plan to purchase troubled assets and remove them from the balance sheets of banks, spurring banks to lend more money to consumers and companies.

Hopes that this plan would begin to resolve the troubles at big financial institutions and set the stage for a gradual recovery in the real economy helped markets across Asia accelerate Monday.

The benchmark Nikkei 225 index in Japan, where markets had been closed for a national holiday on Friday, rose 3.4 percent to a seven-week high.

Banks were among the main beneficiaries, with the top Japanese lender, Mitsubishi UFJ Financial Group, jumping 4.7 percent, Sumitomo Mitsui Financial Group 7.3 percent and Mizuho Financial 5.3 percent.

Mitsubishi UFJ announced it planned to close 50 branches and cut 1,000 jobs to slim down its operations as Japan’s recession and the sharp fall in the stock market eroded its earnings.

Still, analysts remained divided as to whether the rallies seen around the world this month represented a sustained recovery or not.

Many caution that the economic outlook — and thus the outlook for a recovery in corporate earnings — remains dim. Exports, the mainstay for many Asian economies, have slumped, while domestic spending in many parts of the region remains anemic.

A Japanese government survey released Monday showed big Japanese manufacturers were much more pessimistic about business conditions in the first three months of 2009 than they were in the previous quarter. The tankan, a closely watched quarterly survey by the Bank of Japan, which will be released on April 1, also is expected to make for grim reading.

“Is the new bull market starting?” asked analysts at Citigroup in Hong Kong in a research note on about Asia, excluding Japan, on Monday. “We remain skeptical — no one knows if this is a bear or a new bull market.”

Others have begun to turn cautiously optimistic.

Garry Evans, Asia strategist at HSBC in Hong Kong, in a note last week said that “history shows that bear markets end when monetary policy is eased aggressively and the banking system is sorted. The former has now happened; the latter may soon. There seem more upside than downside for stocks.”

“We understand the taboo in the U.S. on nationalizing banks, but we see the chances of a comprehensive bailout plan as quite high now,” Mr. Evans said.

Goolsbee To AIG Execs: Give The Money Back

Appearing on Face The Nation Sunday, Austan Goolsbee, a member of the White House Council of Economic Advisors, told CBS News' Harry Smith that while the President is angered at the bonus situation at AIG, "We don't want to govern out of anger."

Asked how the White House plans to recover taxpayer money lost in the retention bonuses given to AIG executives (including some not retained by the company), he said President Obama is "going to look at what comes out of the House, what comes out of the Senate, see what ideas we have. At the least there is public pressure and there should be public pressure on those people at A.I.G. who aren't being paid for performance but are being paid for having lost $170 billion.

"Give the money back," Goolsbee said.

Goolsbee said the president is aware of the severity of the breach of public trust caused by the AIG scandal.

"It's one thing to be a gambler and to gamble with your own money. But here they're gambling with the retirement accounts of our parents and the college funds of our children."

Companies receiving bailouts "would not exist if it weren't for the U.S. Government. Now that makes them different than some of the other institutions which I'm sure we'll talk about with the financial rescue. But we can't let our anger over mistakes that happened last year block the fact that we've got to save the economy."

Goolsbee confirmed that the White House toxic asset plan will be released tomorrow, and in a quick preview he told Smith, "the basic idea is outlining the details of a public-private partnership so that we leverage money from the government with the private sector, so that the government doesn't get in the business of overpaying for assets and things like that."

The economic advisor was skeptical of the theory that private sector business would be turned off by the amount of government involvement in the Obama administration's plan.

"What we saw this week and what we have seen in our discussions with people is that if you lay out clear rules that are responsible, people want to participate if there's a business reason to participate. In this circumstance where we're trying to encourage the private sector to participate, that's going to be treated totally differently than companies like AIG or Fannie Mae where they are only in business because the government saved them."

He argued, however, that the President does not advocate putting controls on executive compensation.

"The president has, for more than a year, been calling for financial regulatory reform. And the centerpiece of that regulatory reform is to prevent the $170 billion bailout of AIG type where a life insurance company morphs into a hedge fund, turns into a loss that is too big to fail and the government has to come in. The point of regulatory reform is to prevent that," he said.

"Everybody has skin in the game" Goolsbee said, describing the relationship between private and public companies and the government.

Finally, he said that the gloomy Congressional Budget Office's economic forecast was "much more pessimistic about the long-run strength of the U.S. economy" than were those of private analysts and the White House.

Goolsbee reiterated that Mr. Obama is committed to cutting the deficit in half by the end of his term while investing in health care, clean energy and education. "He'll be working with Congress and he's outlined a budget program and these principles of making those three key investments and cutting the deficit in half, and I believe he's going to be able to do that," Goolsbee reasoned.

NY lawyer Dreier indicted for money laundering

* Money laundering added to investment fraud charges

* U.S. seeks $700 mln in forfeiture from Dreier (Adds comment by Dreier's lawyer)

High-profile New York lawyer Marc Dreier, under house arrest on charges of running an investment fraud involving as much as $700 million, was indicted on an additional charge of money laundering on Tuesday.

Papers filed in U.S. District Court in Manhattan detailed money laundering and other charges against Dreier, and showed that prosecutors are seeking about $700 million in forfeiture from the lawyer, who once ran a 250-member law firm. The indictment indicated that fraud victims were owed about $400 million.

Dreier's lawyer Gerald Shargel said the money laundering indictment did not change his view of the case.

"We are looking for a fair resolution and will continue with that effort," Shargel said. He said Dreier has been working with a court-appointed trustee and a receiver for the bankrupt firm Dreier LLP.

Dreier, previously indicted by a U.S. grand jury on Jan. 30 on charges including securities fraud, conspiracy and wire fraud, was released from jail on bail last month into house arrest and under armed guard in his apartment.

The 58-year-old lawyer has pleaded not guilty to charges he lied to hedge funds and investment funds that he was selling promissory notes on behalf of a New York developer and a pension fund in Canada.

Harvard-educated and a lawyer for 30 years, Dreier was arrested on a charge in Canada, but granted bail there. He was arrested upon his Dec. 7 return to New York.

The superseding indictment said that from 2004 to December 2008, Dreier "sold to funds and others approximately $700 million worth of Fake Developer Notes and Fake Pension Plan Notes."

It said that "as a result of committing the money laundering offense, Marc Dreier shall forfeit to the United States all property, real and personal, involved in the offense."

Adobe Systems profit drops 29%

Adobe Systems Inc. posted a 29% decline in its fiscal first-quarter profit.

For the December-February period, Adobe, based in San Jose, earned $156.4 million, or 30 cents a share, compared with $219.4 million, or 38 cents, a year earlier.

Excluding one-time items, adjusted earnings were 45 cents a share, beating average analysts' estimates by a penny.

Revenue declined 12% to $786.4 million, roughly in line with analysts' estimates of $784.2 million, according to a survey by Thomson Reuters.

New home construction logs unexpected gain

The number of new housing projects that builders broke ground on in February rose sharply, defying economists' forecasts for yet another drop in activity.

The Commerce Department reported Tuesday that construction of new homes and apartments jumped 22.2 percent from January to a seasonally adjusted annual rate of 583,000 units. Economists were expecting construction to drop to a pace of around 450,000 units.

February's pickup was led by a big increase in apartment construction.

By region, all parts of the country reported an increase in overall housing construction, except for the West, which led the housing boom and has been hard hit by the bust.

Some economists said the new housing figures offered a glimmer of hope.

"While it may be premature to call an absolute bottom in residential construction, we are clearly getting close," said Adam York, economist at Wachovia.

Overall housing construction activity fell to a pace of 477,000 units in January, according to revised figures. That was a little higher than first reported but still marked a record low.

Applications for building permits, considered a reliable sign of future activity, also rose in February by 3 percent to an annual rate of 547,000. Economists were expecting permits to fall to a pace of 500,000 units.

Even with February's rare burst of activity, housing construction is down a whopping 47.3 percent from a year ago.

"This is a temporary rebound, not a recovery," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The collapse of the once high-flying housing market has been devastating to the United States' economic health.

Its spreading fallout has contributed to big pullbacks by consumers and businesses alike, plunging the economy into a recession now in its second year.

The Obama administration has announced a $75 billion program to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.

More than 2 million American homeowners faced foreclosure proceedings last year, and that number could soar as high as 10 million in the coming years depending on the severity of the recession, according to a report last month by Credit Suisse.

Home mortgages are harder to come by because of the credit crisis and unemployment is at a quarter-century peak of 8.1 percent, factors that will make it difficult for the depressed housing market to snap back to full health.

Builders aren't optimistic that will happen any time soon.

The National Association of Home Builders' housing market index was flat in March at a reading of nine. That was one point above the all-time low reached in January. Readings lower than 50 indicate negative sentiment about the market. The index has been below 10 since November, reflecting the toughest market conditions in a generation.

Tighter lending standards for home mortgages, rising defaults and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.

Caterpillar To Idle Nearly 2,500 More US Workers

Caterpillar Inc. (CAT) said it will lay off nearly 2,500 U.S. employees and close a plant in Georgia because of slumping demand for its construction equipment.

The bulk of the cuts are on top of 22,100 layoffs that the company announced in January. The company has already offered buyouts to about 25,000 U.S.-based employees, a reduction in work hours at some plants and pay cuts for management employees.

The Peoria, Ill.-based company said Tuesday it plans to close its Jefferson, Ga., plant, which employs 89 workers. Fuel-system production done at the plant will be moved to company facilities in Thomasville, Ga., and Pontiac, Ill.

In Griffin, Ga., 200 employees will be idled at an engine plant. In addition, the company plans to lay off 911 workers at its East Peoria, Ill., plant where bulldozers are built and 815 employees at an Aurora, Ill., plant for assembling wheel loaders and excavators.

In Lafayette, Ind., where Caterpillar manufactures large engines, 439 employees received layoff notices.

Tuesday's announced layoffs include 245 white-collar and support positions that are part of the 5,000 salaried positions already targeted for layoffs.

Mark Patton, president of United Auto Workers Local 145, which represents hourly workers at the Aurora plant, described the latest layoffs as " devastating." Of the 815 employees receiving layoff notices in Aurora, 665 are hourly.

Patton said the 500 Aurora employees who received layoff notices in January have yet to vacate their jobs. He said about 2,000 hourly employees worked at the suburban Chicago plant before the cutbacks started.

"It's a bad time," Patton said.

UPDATE 2-World Bank cuts China 2009 GDP forecast to 6.5 pct

* China 2009 GDP forecast lowered by a percentage point

* China urged not to lose sight of rebalancing goals

* World Bank downplays social repercussions of slower growth

The World Bank lowered its forecast for China's 2009 economic growth on Wednesday but warned Beijing that it would be thwarting its own medium-term goals if it tried to offset the slowdown by further boosting investment.

In a quarterly economic update, the bank cut its projection of gross domestic product growth this year to 6.5 percent from the 7.5 percent outcome it had forecast in November. It said there were both upward and downward risks to its outlook.

The global crisis would be a drag both this year and next, mainly via weaker exports and non-government investment, but the bank said China's economic fundamentals were still strong enough to give policymakers the luxury of looking well beyond 2009.

The bank welcomed the inclusion of steps to boost consumption in the government's 4 trillion yuan ($585 billion) stimulus package since over-reliance on capital-intensive investment could damage the pace of job creation and the quality of growth.

Indeed, it said there was room for a further shift towards consumption and for less emphasis on capital spending in order to rebalance the economy so that growth is more sustainable economically, socially and environmentally.

"The fundamentals for China are strong enough to ride out this storm, and it may be just as appropriate to shift the focus as much as possible to the medium and long-term challenges instead of a very narrow focus on short-term growth objectives," Louis Kuijs, the senior economist in the bank's Beijing office, said at a news conference to launch the report.

The bank said it expected 16-17 million non-farm jobs to disappear this year but it played down the social repercussions.

"Somewhat lower overall growth is not likely to jeopardise China's economy or social stability, especially if the adverse consequences of dislocation and layoffs are alleviated by using and expanding the social safety net," the report said.

The median forecast in a Reuters poll of economists published on Wednesday is for GDP to expand by 7.8 percent this year, narrowly missing Beijing's target of 8 percent. [ID:nPEK164391]

For a table with details of the World Bank's forecasts, see [ID:nPEK319067]

For a graphic on China's growth over the past three decades, click on: here

COULD BE WORSE

The bank's advice flies in the face of the ruling Communist Party's determination to do whatever is necessary to meet its self-imposed target of 8 percent growth this year.

Last Friday, Premier Wen Jiabao said the government was ready to roll out extra stimulus measures if needed.

But the World Bank said Beijing should keep some of its powder dry in case growth next year proves even weaker.

What's more, the government cannot hope to take up all the slack left by the collapse in exports and knock-on drop in private investment; for a start, there may be limits to how much money can be spent efficiently on traditional investment schemes.

As it is, the bank already expects 4.9 percentage points of its projected 6.5 percent growth this year to stem from government-influenced investment and public-sector consumption.

"China's economy cannot escape the impact of the global weakness. Government-influenced activity makes up a modest share of the total: it cannot and should not offset fully the downward pressures on market-based activity," the report said.

The bank tempered this message of resignation with the assurance that China would continue to grow substantially faster than most other countries this year and next.

Indeed, the stimulus is already supporting activity and sentiment, even if it is too early to expect a sustained rebound, the World Bank said.

The bank said it expected the yuan to keep strengthening in the next decade given China's prospective balance-of-payments and productivity trends.

Kuijs described the outlook for exports this year as "grim" and "sombre". But he said depreciating the currency in the short term would not help revive exports, because global demand is so weak, and would slow China's switch to consumption-led growth.

IBM bids for Sun Microsystems

According to media reports, IT giant IBM is in takeover talks with Sun Microsystems. The deal could be closed as early as this week, writes Wall Street Journal.

In its online issue, WSJ quotes "persons familiar with the matter" saying that IBM is offering $6.5 billion for its smaller rival, about twice the current market value.

Both companies are offering large server computers. They have several aspects in common: They pursuit a strategy to stay independent from IT market giants Microsoft and Intel, and both are supporting open software universes such as Linux and Java. A possible takeover would strengthen the position of the companies against Hewlett-Packard.

The deal is however far from being set and done, the paper writes, adding that the companies involved declined to comment.

Genentech-Roche Deal Shows Attraction Of Biotech Assets

Genentech Inc.'s (DNA) ability to leverage a higher price tag from Roche Holding AG (RHHBY) in an otherwise downtrodden market demonstrates the attractiveness of biotech assets, especially for the right buyer.

However, it remains to be seen if the deal - and its hefty valuation - will prompt additional large biotech acquisitions, even at a time when the health- care industry is remaking itself in the face of government-led changes. In the mean time, smaller and cheaper biotech purchases remain more likely.

Biotech drugs are attractive because they have better margins generally and, currently, no method for generic threat. In addition, biotech companies have unique expertise and facilities, making it tough for others to invade their turf.

As a result, the more successful biotech companies carry large market caps and still-healthy valuations. The industry's advantages are likely why investors may be leaving Genentech shares in the hands of arbitrage traders and putting their money to work in other areas of sector, prompting a 5.6% gain in the Amex Biotechnology Index.

Traditional pharmaceutical companies, most of which are ailing from poor pipelines and generic competition, are turning increasingly to biotech drugs; however, most of Big Pharma's moves have been limited to licensing agreements or acquisitions of smaller biotech companies.

Roche's large purchase of Genentech goes against that trend, but the Swiss giant had a discernible advantage - it already owned 56% of Genentech. That enabled Roche to buy the rest of Genentech for "only" $46.8 billion.

If Roche had to buy all the shares outstanding, the total purchase price would have been around $100 billion, assuming it would have been able to get Genentech to agree to $95 a share without having the advantage of already being the majority owner.

While the price of $95 a share offers only a 16% premium to Genentech's price before Roche's initial July offer, it commands a price-to-earnings multiple of about 25 times the South San Franscisco-based company's projected 2009 earnings. In comparison, biotech bellweathers Amgen Inc. (AMGN), Biogen Idec Inc. (BIIB) and Genzyme Corp. (GENZ) trade at between 10.5 and 12 times 2009 earnings estimates.

In addition, Roche's willingness to raise its original offer by 6.7% - over a time frame in which the S&P 500 fell 43% and the Amex Biotechnology Index lost 30% - indicates the value biotechs maintain.

Because of Genentech's strong price tag, biotech stocks rose Thursday. One of the biggest gainers being Celgene Corp. (CELG), up 12% to $47.17. Celgene has strong products in the blood-cancer drug Revlimid and the blood-disorder treatment Vidaza, and an intriguing pipeline.

Despite its attractive portfolio, Celgene also comes with significant hurdle - its market cap of $21.6 billion. That means a deal with a 40% premium, not uncommon in biotech acquisitions, would put the price tag at $30 billion. A deal at half the premium still would be about $26 billion.

That's a lot for any buyer to swallow and why Big Pharma, which can afford such deals, has preferred more modest biotech deals, such as AstraZeneca PLC ( AZN) buying MedImmune for $15.6 billion or Eli Lilly & Co.'s (LLY) $6.5 billion acquisition of Imclone Systems Inc.

When Big Pharma is ready to spend big, they have stayed within the family, such as Pfizer Inc. (PFE)/Wyeth (WYE) and Merck & Co. (MRK)/Schering-Plough Corp. (SGP). In those cases, the acquiring company can leverage more natural synergies and big job cuts to produce profits from the deal faster.

Nonetheless, interest in acquiring biotech assets appears to be rising. Last year, according to Dealogic, the amount spent purchasing biomedical and genetic companies totaled $68.4 billion, matching the amount spent on the group during the decade's first eight years and roughly equal to the total spent on pharmaceutical purchases, marking the first year those figures were on similar levels.

Analysts say that among large biotechs, the most likely takeover targets are Amgen, which has a market cap of $51 billion, or, more reasonably priced, Biogen and its $14.5 billion market cap.

The busier biotech market is likely to be for smaller companies suffering from depressed values and the difficult finding environment. Cowen & Co analyst Eric Schmidt names Acorda Therapeutics Inc. (ACOR), Cougar Biotechnology Inc. (CGRB) and Cadence Pharmaceuticals Inc. (CADX) as possible targets because they offer products in late-stage development and the buyer may have some negotiating leverage.

"Those are clearly the types of companies that large pharma and biotech have found attractive in the past," he said.

Senior Google Executive Leaves for AOL...Why?

Time Warner (TWX) has hired one of Google's most senior executives to run AOL. Tim Armstrong was a member of Google's Operating Committee and President of Americas Operations. Armstrong also has a background in traditional media including developing internet properties at traditional media companies.

Armstrong is undoubtedly totally loaded due to his 8 plus years at Google (GOOG), so this seems like an odd move given AOL's declining relevance and very poor financial returns. From that perspective alone, this has to be considered a positive for TWX. Obviously, Armstrong sees something at AOL from which he can create value.

Maybe more important, it seems unlikely that he would move to AOL unless he was given a very clear plan for the future of the division including the possibility that he will either become Chairman of a public company when AOL is spun out or that he will get a big golden parachute when AOL is divested. Either would be bullish for TWX shares.

I've commented extensively that any separation of AOL from TWX is bullish even if value realized for shareholders is not much above $0. That is unrealistic of course. Even after writing down its AOL investment last month, Google's valuation implies a $5 billion valuation, or over $1 per TWX share. Earthlink (ELNK) still has a market cap of $700 million, a reasonable looking stock price chart, and free cash flow machine in its dial-up business (half of AOL).

TWX has said repeatedly that it would directly address AOL's structure after it completed the split from Time Warner Cable (TWC). That will occur at the end of March so I view the new management at AOL as a positive that some resolution is coming in 2009. Once again, almost any resolution is a bullish for TWX.

Iran oil minister: Too much oil on the market

Iran's oil minister suggested Saturday that a weekend OPEC meeting should decide to cut back on crude output, adding his voice to those in the organization who think supply has outstripped demand.

"There is too much oil on the market," Gholam Hossein Nozari told reporters on the eve of a ministerial meeting of the 11-nation Organization of the Petroleum Exporting Countries.

Other influential OPEC members have also said the group should reduce production.

Still their statements have left open whether they want to lower output quotas or if they favor a solution less likely to impact on the struggling global economy by simply seeking to end overproduction by some nations above levels allotted to them.

OPEC cuts agreed on since September were meant to take a daily 4.2 million barrels off the market. But there is general agreement that the 10 members of the group under production quotas are still overshooting their joint target level of just under 25 million barrels by about 800,000 barrels a day.

There is no question the ministers want to bolster prices. While prices are off their low of around $30 just a few weeks ago, a barrel of crude still fetches less than a third of what it did over the summer. That is well below the break-even point for producing nations, which could affect not only their national budgets, but oil production as well.

But as the world grapples with the worst recession in decades, OPEC ministers realize they have to tread lightly.

Cheap crude has been one of the few bright spots in a world economy reeling from the financial meltdown that has led to the deepest and most stubborn global recession in decades. While a substantial output cut could cause prices to spike and increase OPEC revenues, it could prolong economic woes in the U.S. and other major oil consumers.

And such a reduction could not only deepen the perception that OPEC is out for profits, whatever the global costs. It could ultimately backfire in real terms, by further depressing demand and driving down prices.

"They don't want to be seen as fueling recession further, which is what they're going to be seen as doing if the reduce production more," said London-based analyst John Hall.

But if OPEC can't bring in enough money to expand production, there is a danger of a price spike when the global economy recovers.

Two reports published Friday were expected to support traditional OPEC hard-liners such as Venezuela in their arguments that a further output cut is needed.

At the same time, they served as an indirect warning: drive up prices more and face even less demand in a sputtering global economy that already has cut back on consumption.

The International Energy Agency said world demand would drop for a second consecutive year for the first time since 1982-1983. In its closely watched monthly survey, the IEA cut its earlier forecast for demand this year by 270,000 barrels a day to 84.4 million barrels a day — 1.5 percent lower than a year earlier.

"The eventual resumption of global demand growth will largely depend upon much stronger economic performance than is currently the case" among the world's biggest energy consumers, said the agency, adding that the latest indicators are "not encouraging."

An OPEC report, meanwhile, noted that demand for oil produced by the cartel — which can supply more than a third of total world output — was expected to fall this year to 29.1 million barrels. That would be a substantial decline of 1.8 million barrels a day compared to 2008.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said OPEC is in a very bad spot.

"It would be unthinkable that anything can happen at this meeting that would lead to major sort of (upward) move in fuel prices, at least the kind of jolts we became accustomed to from 2005 to 2008," Kloza said. "This isn't the year for it. The world is broke and it's not using energy."

The OPEC meeting comes as the world takes at least a breather from the usual relentless slew of bad news since the financial crisis became most acute last October. The Dow Jones industrial average is up around 10 percent and most Asian and European markets also are climbing.

However, governments and investors are wary of calling the end to the downturn. A failure by the G-20 finance ministers and central bankers to provide a united front at this weekend's meeting in southern England could be one catalyst for a renewed bout of pessimism and market turmoil.

Some OPEC ministers were calling for cuts, nonetheless — either by setting lower target levels or through an end to overproduction.

"In the short term, we need to reach a base price of $70 a barrel," Venezuela's Rafael Ramirez said on arrival Friday to Vienna, adding OPEC will look at depressed demand, growing inventories and compliance with previous production cuts.

"Evidently there still exists a lot of (excess) production in the market and we are going to meet to discuss how we can drain it," he said, in comments released by Venezuela's oil ministry. At the same time, he noted that OPEC needed to be "watching the world economic situation very carefully — it has become much worse than anybody ever imagined."

In an even more direct call for cuts, Algerian Energy and Mining Minister Chakib Khelil said OPEC viewed $75 a barrel as a fair price both for consumers and producers.

"If we do not reduce, prices will fall," he said Wednesday.

But continued concern about the world economy — and apparent pressure within OPEC from oil powerhouse Saudi Arabia to eliminate overproduction by individual members such as Iran and Venezuela — suggest the ministers might opt for a small, symbolic cutback; or perhaps just issue a call for quote compliance.

A relatively strong comeback in prices may help the Saudis and other Gulf producers make their case. Prices have rallied from below $35 a barrel last month, with a barrel of benchmark crude fetching over $46 a barrel on the New York Mercantile Exchange Friday. Earlier in the session, prices peaked at $48.14.

"They're likely to keep the production target at the present level," said Ehsan Ul Haq, chief analyst at Vienna's JBC Energy. To compensate for overproduction by others, "Saudi Arabia has gone below its production target, and they expect 100 percent compliance from others" before considering cutbacks, he added.

IMF Bailout Pool May Be More Than Doubled, G-20 Officials Say

Group of 20 finance ministers pledged to at least double the International Monetary Fund’s bailout pool as the economic crisis forces more countries to seek its support.

“My forecast was that we needed to double our resources,” IMF Managing Director Dominique Strauss-Kahn told reporters after a G-20 meeting near London today. “A commitment to do so has been made. It may even go further.

Strauss-Kahn has lobbied for the fund’s cashpile to rise to $500 billion from $250 billion after being inundated with loan requests from Pakistan to Hungary. A European government official said they agreed to “more than double” the pool, though ministers have yet to say how much they will increase it by.

“It takes months to get the technical details worked out,” said Strauss-Kahn and they may not be agreed by the time heads of government meet in London next month. Still, “the resources we have now are enough to wait.”

The U.S. Treasury has also sought an expansion of the IMF’s supplementary borrowing program by up to $500 billion.

“The G-20 supports our proposal for a substantial increase to emergency IMF resources,” Treasury Secretary Tim Geithner said.

The fund is currently able to borrow about $50 billion -- from 26 mostly wealthy member countries -- through these special financing arrangements. If that proposal won international support, the IMF could have the ability to lend $750 billion and possibly more.

In the past six months, the IMF has approved $16.4 billion for Ukraine, $15.7 billion for Hungary, $10.4 billion for Latvia, $2.5 billion for Belarus, $2.1 billion for Iceland, $7.6 billion for Pakistan and $516 million for Serbia -- a total of about $55 billion. Turkey is negotiating an IMF loan accord, and Romania has expressed an interest in borrowing.

Following The Madoff Money Trail

Bernard Madoff's attorneys filed an appeal to get the convicted swindler out of jail until his June 16 sentencing date. An appeals court will hear the case next Thursday. Meantime, more financial details came to light.

Court documents show that Bernie Madoff and his wife, Ruth, are worth about $823 million.

The assets include his $7 million penthouse in Manhattan, an $11 million mansion in Palm Beach and possessions such $2.6 million in jewelry, $65,000 in silverware, a $7 million yacht named “Bull” and a $39,000 Steinway piano.

The question is how much of this goes back to Madoff’s victims when the disgraced financier is claiming some of his money is legitimate and not dirty?

Fox legal consultant Peter Johnson told John Deutzman, “It's tough to separate a criminal enterprise from a legitimate business and the burden is going to be on Bernie Madoff and his wife to show that the two are not linked.”

Johnson said, “You have to take everything he says with a grain of salt.”

Meantime, Madoff’s attorneys are trying to get him out of jail before he is officially sentenced.

Madoff’s legal team is apparently contending that their client’s financial mess is so complex that they really need to talk to him at the penthouse rather than in jail.

Johnson said, ”There's nothing so complicated about going down to the federal correctional facility and speaking to your client. They've had 3 or 4 months to speak to Mr. Madoff is what the federal government is going to say.

“I expected the court of appeals are going to say to Bernie Madoff, ‘Bernie you gotta stay in prison. I don't see any movement from the federal correctional facility from here to eternity,” he added.

After Madoff goes up the river for good it doesn't mean it's all over for his family and associates. Expect investigation after investigation and lawsuit after lawsuit from all the victims.

Monaco to join tax haven shift

Monaco will soon join moves to relax bank secrecy, following Switzerland, Austria, Luxembourg and representing a quantum leap in the fight against tax fraud, the head of the OECD said on Saturday.

It is even better news for governments at the moment because they need every cent they can get because the worst downturn in decades is shrinking state revenue and bloating outgoings, Angel Gurria, secretary general of the Organisation for Economic Co-operation and development, told Reuters in an interview.

After Belgium and others, Switzerland, Austria and Luxembourg offered on Friday to relax strict bank secrecy in some tax evasion cases in a response to international pressure on tax havens, which is rattling the offshore banking industry.

The OECD spearheaded a campaign with limited success in the earlier half of the decade but its efforts have been given a new lease of life by governments responding to the global financial crisis, notably the G20 economic powers.

Gurria, who attended a meeting tagged to the end of talks among G20 finance ministers in Horsham, south of London, on Saturday, said the international pressure had triggered a "dramatic transformation in just a few days".

The OECD has supplied the G20 governments with information showing which countries met its standards on cooperation in tax matters. G20 finance ministers were preparing a G20 summit due to take place on April 2 and considering whether or not to revise a blacklist of tax havens they would move against.

As far as some still recalcitrant tax havens in places such as the Caribbean were concerned, Gurria said:

"It's going to be difficult to stay out of the loop now".

TALKS ON MONDAY

Among the large financial centres, Gurria said, the likes of Singapore and Hong Kong were now looking to adhere to standards of disclosure established by the Paris-based OECD and Andorra and Liechtenstein had gone public with similar intentions.

Then the Belgians budged on bank secrecy, followed on the eve of the G20 meetings in England by the Swiss, Austrians and Luxembourg, he said.

"We're now working with Monaco," he said, noting that he had been in touch with "the highest authorities" there in the issue and that further contacts were due on Monday to clear the way for similar moves.

A small principality on the Mediterranean, Monaco is famed for its wealthy residents and casino.

Estimates of how much is stored in offshore accounts range from one or two to more than 10 trillion dollars, according to various estimates made in the past decade and cited by the OECD in various reports.

Gurria said it was hard to put a price tag on it just as it was impossible to price the size of the parallel economy in general, but that governments would in any case be delighted to see things moving after years of inertia.

"Clearly governments need every penny they can get into the coffers of their national treasuries due to the recession," he said.

German Finance Minister Peer Steinbrueck told Der Spiegel, a German weekly, his country was happy about the announcements in neighbouring countries where Germany is worried many nationals park money to duck tax. But he remained cautious.

"We're happy about the positive developments. But declarations of intent have to be backed by concrete acts," he said.

So far, Switzerland was not talking about providing names of bank account holders, he said.

Gurria's response was that the pledges to start to lift the lid on decades of strict bank secrecy were a stating point.

"It's early days. This is happening as we speak," he said.

Obama Administration Tries to Reassure China on Treasury Debt

The U.S. sought to ease Chinese Premier Wen Jiabao’s concern about the security of his country’s investments in U.S. government debt, reiterating pledges to cut the budget deficit in half in four years.

“There’s no safer investment in the world than in the United States,” White House Press Secretary Robert Gibbs said yesterday at a briefing in Washington.

Gibbs was responding to comments from Wen that China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe. “I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets,” Wen said at a press briefing in Beijing.

President Barack Obama is relying on China to sustain buying of Treasuries amid record amounts of U.S. debt sales to fund a $787 billion stimulus package and a deficit this year forecast to reach $1.5 trillion. Investors abroad own almost half of all U.S. debt outstanding, and China last year overtook Japan as the biggest foreign buyer.

Wen’s comments contributed to a decline in Treasuries yesterday. Yields on benchmark 10-year notes rose as high as 2.96 percent, from 2.85 percent a day earlier, and closed at 2.89 percent.

White House National Economic Council Director Lawrence Summers, asked yesterday about Wen’s remarks, said overseas “confidence” in Treasuries would be hurt without the administration’s steps to end the economy’s decline.

Japan, China

China held $696 billion in U.S. Treasury debt as of Dec. 31, more than Japan’s holdings of $578 billion. Foreign holdings of U.S. Treasury debt at the end of last year totaled $3.1 trillion.

The Treasury also offered a response that sought to reassure investors.

“The U.S. Treasury market remains the deepest and most liquid market in the world,” Treasury spokeswoman Heather Wong said in an e-mailed statement. “President Obama is committed to taking the steps necessary to restore growth and put this country on the path of fiscal sustainability, including cutting the long-term deficit in half over the next four years.”

During the first five months of fiscal 2009, which began Oct. 1, the U.S. budget deficit swelled to a record $764.5 billion for the period, compared with a $265 billion shortfall during the same period a year earlier. The shortfall this year already has exceeded the record $459 billion gap for all of 2008.

‘Stronger Position’

The administration is “tackling many long-ignored problems, ensuring that the U.S. will be in a stronger position than ever,” Wong said. “We are facing whatever challenges come up and will continue to do so.”

Treasuries have handed investors a loss of 2.7 percent in yuan terms this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index. Chinese holdings of the securities surged 46 percent last year, according to Treasury Department data.

“Of course we are concerned about the safety of our assets,” Wen said after an annual meeting of the legislature. “To be honest, I am a little bit worried.”

Diversifying Reserves

China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves, Wen said. Yu Yongding, a former adviser to the central bank, said in an interview on Feb. 10 that the nation should seek guarantees that its Treasury holdings won’t be eroded by “reckless policies.”

Treasuries have benefited from demand as a haven in the past two years as financial companies reported $1.2 trillion in credit losses. China boosted holdings of government debt as it lost more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007.

“China won’t sell the U.S. debt now as that will only drive down Treasury prices, hurting not only the U.S. but also the value of its own investments,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., an investment bank partly owned by Morgan Stanley.

U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.”

U.S. Treasury Demands Changes in AIG Plans for Bonus Payments

The U.S. Treasury ordered American International Group Inc., the insurer saved from collapse by taxpayer bailouts, to overhaul plans to give out multimillion- dollar bonuses and repay the government for some 2008 payments, according to a person briefed on the matter.

Treasury Secretary Timothy Geithner telephoned Chief Executive Officer Edward Liddy on March 11 to demand changes to AIG’s bonus payments, an administration official said separately.

AIG was rescued by the government in September after its bets in the derivatives market threatened to bankrupt the insurer.

Madoff Jailing Prompts Cheers From Investors in Courtroom

Dozens of investors, after hearing Bernard Madoff’s admission that he ran a $65 billion Ponzi scheme in which he lied and stole for decades, applauded in federal court in New York as he was handcuffed and led to jail.

Investors filled three rows of seats in Courtroom 24B, where Madoff said he was “deeply ashamed and sorry” for defrauding individuals, charities, trusts, pensions and hedge funds. At the hearing on March 12, U.S. District Judge Denny Chin asked victims to say whether he should reject Madoff’s guilty plea to 11 counts, including fraud, perjury and money laundering.

“If we go to trial, we will show people in this struggling country and the world who look to us as the global moral leader, that we will hold all people accountable,” investor Maureen Ebel told Chin. “We can show the world that all crimes, all crimes, including crimes of greed, can be dissected, ruled upon and punished.”

Ebel and two other investors spoke to Chin before he accepted Madoff’s plea and set sentencing for June 16, when he could impose a prison term as long as 150 years. The judge then revoked Madoff’s bail and ordered him to jail, prompting U.S. marshals to handcuff him and lead him out of the courtroom. Investors applauded and one said: “Bye, bye Bernie.”

At the start of the hearing, Assistant U.S. Attorney Marc Litt detailed the legal elements of each of crime, prompting a seated Madoff to interlock his fingers and look down.

‘Look at the Victims’

Chin then invited investors to speak. George Nierenberg stood at the podium and stared at Madoff, who wore a charcoal gray suit and tie, and rimless glasses.

“I don’t know whether you had a chance to turn around and look at the victims,” said Nierenberg, who took a step toward Madoff. The judge admonished Nierenberg to remain at the podium.

Madoff, whose silver hair was swept back, finally leaned back in his chair and cast a glance in Nierenberg’s direction.

Another victim, Ronnie Sue Ambrosino, said she objected to the plea, saying the judge had a chance to “find out information as to where the money is and to find out who else may be involved in this crime.”

After Ambrosino spoke, Ebel said: “At trial we can hear and bear witness to the pain that Mr. Madoff has inflicted on the young, the old and the infirm. No man, no matter who he knows or who he is able to influence, is above the law.”

Deeply Sorry and Ashamed

The judge said that victims couldn’t talk about what effect Madoff’s crimes had upon them.

“Victims will have a chance to speak at sentencing,” Chin said.

Madoff, who was arrested Dec. 11, spoke for the first time about his crimes. He stood at the defense table and spent about 12 minutes reading from a double-spaced typed statement.

“I am actually grateful for this opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed,” Madoff told a hushed courtroom. “As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal.”

Madoff described how he “deeply hurt many, many people, including the members of my family, my closest friends, business associates, and the thousands of clients who gave me money.”

At several points as he told of his deceits, Madoff blinked his eyes rapidly. Later in the hearing, he stood as Chin asked him how he pleaded to each of 11 counts filed by the U.S. Attorney’s Office in Manhattan. Madoff pressed his thumbs and fists into the defense table as he said “guilty” 11 times.

Victims’ Laughter

Chin rejected a request by defense attorney Ira Sorkin to allow Madoff to remain confined to his Manhattan apartment on $10 million bail, with a private security firm watching him. When Sorkin began to say that Madoff’s wife, Ruth, had paid for the guards with her own money, victims burst into laughter.

“Would the audience remain quiet,” Chin said.

After Madoff was led away, investors applauded. One said: “Thank you, Mr. Litt.”

Outside the courtroom, attorney Helen Chaitman, an investor who also represents 300 Madoff customers seeking to recover money, said she was glad to see him in person.

“He doesn’t have four heads,” Chaitman said. “It’s hard to imagine swindling his best friends. You can understand someone stealing from strangers. But you can’t understand someone stealing from their friends.”

Lost Millions

Several investors said they believe Madoff couldn’t have acted alone.

“I don’t think for a minute that he has any remorse,” said Bennett Goldworth. “He’s a psychopath.”

Goldworth, 52, said he invested with Madoff for about 10 years and lost 97 percent of his investment.

“I’ve lost millions,” said Goldworth, a senior vice president at the Corcoran Group, a real estate brokerage company. “I’m happy that he went to prison.”

Outside the courtroom, another investor, Adriane Biondo, said she and her family members were angry at Madoff.

“I think it’s quite appropriate that he goes to jail,” said Biondo, 41, a concert promoter from Los Angeles. She said some family members had been denied food stamps.

Asked if the guilty plea gave her a sense of vindication, she said, “I’m more interested in restitution.”

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).

Stanford Judge Extends Freeze on Investor Accounts

A U.S. judge extended a freeze on some investor accounts as investigators probe an alleged $8 billion fraud at companies controlled by Texas financier R. Allen Stanford.

Hundreds of investors in Stanford Group Co. asked U.S. District Judge David Godbey in Dallas to unlock funds frozen last month, when regulators accused Stanford and his companies of devising a massive Ponzi scheme. Godbey today granted the U.S. Securities and Exchange Commission’s request for a restraining order that would apply to about 16,000 accounts, or half the total, valued by receiver Ralph Janvey at more than $1 billion.

The SEC sued Stanford, two associates and three affiliated companies on Feb. 17, claiming they orchestrated an $8 billion fraud through the sale of high-yield certificates of deposit through Antigua-based Stanford International Bank. Godbey froze all of Stanford’s corporate and personal assets and appointed Janvey, a Dallas lawyer, as receiver for the companies.

In court papers filed this morning, Janvey asked Godbey to formally release a second wave of accounts, including those “of any size,” so long as they aren’t linked to the suspected fraud or certain Stanford executives or employees. Janvey estimates this will allow roughly 16,000 accounts valued at $4.1 billion to be retrieved by investors.

About 12,000 Stanford customers began retrieving an estimated $500 million in frozen funds on March 9, when Godbey ordered Janvey to release accounts valued at less than $250,000 that weren’t tied to the suspected fraud.

Godbey originally set the freeze on all accounts to expire tonight. He ordered Janvey to submit a plan addressing investor concerns regarding the remaining frozen accounts by March 16.

‘Far Short’

Janvey’s request “falls far short of what the receiver says he is trying to accomplish,” attorney Michael Quilling said in a motion filed March 9 on behalf of investors whose accounts remain frozen. “The litmus test is not size. Size is meaningless. The only true litmus test is ‘tainted’ versus ‘not tainted.’”

Janvey and the SEC were sued March 4 by more than 30 former Stanford financial advisers and clients who claim their rights under the U.S. Constitution were violated when their assets were seized even though they hadn’t been accused of wrongdoing.

In addition to the SEC, the Federal Bureau of Investigation, Internal Revenue Service and U.S. Postal Service are investigating Stanford Financial Group companies and officials.

Neither Chairman Allen Stanford nor Chief Financial Officer James M. Davis has been charged with a crime. Chief Investment Officer Laura Pendergest-Holt, who also was sued by the SEC, was charged with criminal obstruction and released on $300,000 bond. Her lawyer, Dan Cogdell, said she is innocent and was cooperating with investigators when she was arrested Feb. 25.

Lawyer Withdraws

Stanford and Davis didn’t send lawyers to today’s hearing or appear in court. Godbey said Dallas lawyer Charles Meadows, who represented Stanford at a previous hearing, had contacted the court to withdraw from the case.

Godbey asked the receiver when he might file bankruptcy petitions for any of the Stanford entities. In court papers filed yesterday, Janvey asked for sole authority to seek creditor protection for any of the Stanford entities or defendants if he decides it is necessary.

“We don’t have any active plans” for filing bankruptcy, Janvey’s lawyer, Kevin Sadler, replied. “Our reason for not filing so far has been driven by a strong desire to get through this early process of releasing investors bank accounts.”

Jeffrey Tillotson, a lawyer for Pendergest-Holt, said in an interview after the hearing that Janvey agreed to return personal belongings and mail improperly seized from her Mississippi home. The receiver also agreed not to share any information gathered in the search with government investigators, Tillotson said.

The case is SEC v. Stanford International Bank, 3:09-cv- 00298-N, U.S. District Court, Northern District of Texas (Dallas).

The world's billionaires

The world has become a wealth wasteland.

Like the rest of us, the richest people in the world have endured a financial disaster over the past year. Today there are 793 people on our list of the World's Billionaires, a 30 percent decline from a year ago.

Of the 1,125 billionaires who made last year's ranking, 373 fell off the list-355 from declining fortunes and 18 who died. There are 38 newcomers, plus three moguls who returned to the list after regaining their 10-figure fortunes. It is the first time since 2003 that the world has had a net loss in the number of billionaires.

The world's richest are also a lot poorer. Their collective net worth is $2.4 trillion, down $2 trillion from a year ago. Their average net worth fell 23 percent to $3 billion. The last time the average was that low was in 2003.

Bill Gates lost $18 billion but regained his title as the world's richest man. Warren Buffett, last year's No. 1, saw his fortune decline $25 billion as shares of Berkshire Hathaway fell nearly 50 percent in 12 months, but he still managed to slip just one spot to No. 2. Mexican telecom titan Carlos Slim Helú also lost $25 billion and dropped one spot to No. 3.

It was hard to avoid the carnage, whether you were in stocks, commodities, real estate or technology. Even people running profitable businesses were hammered by frozen credit markets, weak consumer spending or declining currencies.

The biggest loser in the world this year, by dollars, was last year's biggest gainer. India's Anil Ambani lost $32 billion - 76 percent of his fortune - as shares of his Reliance Communications, Reliance Power and Reliance Capital all collapsed.

Ambani is one of 24 Indian billionaires, all but one of whom are poorer than a year ago. Another 29 Indians lost their billionaire status entirely as India's stock market tumbled 44 percent in the past year and the Indian rupee depreciated 18 percent against the dollar. It is no longer the top spot in Asia for billionaires, ceding that title to China, which has 28.

Russia became the epicenter of the world's commodities bust, dropping 55 billionaires - two-thirds of its 2008 crop. Among them: Dmitry Pumpyansky, an industrialist from the resource-rich Ural mountain region, who lost $5 billion as shares of his pipe producer, TMK, sank 84 percent. Also gone is Vasily Anisimov, father of Moscow's Paris Hilton, Anna Anisimova, who lost $3.2 billion as the value of his Metalloinvest Holding, one of Russia's largest ore mining and processing firms, fell along with his real estate holdings.

Twelve months ago Moscow overtook New York as the billionaire capital of the world, with 74 tycoons to New York's 71. Today there are 27 in Moscow and 55 in New York.

After slipping in recent years, the U.S. is regaining its dominance as a repository of wealth. Americans account for 44 percent of the money and 45 percent of the list's slots, up seven and three percentage points from last year, respectively. Still, it has 110 fewer billionaires than a year ago.

Those with ties to Wall Street were particularly hard hit. Former head of AIG Maurice Greenberg saw his $1.9 billion fortune nearly wiped out after the insurance behemoth had to be bailed out by the U.S. government. Today Greenberg is worth less than $100 million. Former Citigroup Chairman Sandy Weill also falls from the ranks.

Last year there were 39 American billionaire hedge fund managers; this year there are 28. Twelve American private equity tycoons dropped out of the billionaire ranks.

Blackstone Group's Stephen Schwarzman, who lost $4 billion, and Kohlberg Kravis & Roberts' Henry Kravis, who lost $2.5 billion, retain their billionaire status despite their weaker fortunes.

Worldwide, 80 of the 355 drop-offs from last year's list had fortunes derived from finance or investments.

While 656 billionaires lost money in the past year, 44 added to their fortunes. Those who made money did so by catering to budget-conscious consumers (discount retailer Uniqlo's Tadashi Yanai), predicting the crash (investor John Paulson) or cashing out in the nick of time (Cirque du Soleil's Guy Laliberte).

So is there anywhere one can still make a fortune these days? The 38 newcomers offer a few clues. Among the more notable new billionaires are Mexican Joaquín Guzmán Loera, one of the biggest suppliers of cocaine to the U.S.; Wang Chuanfu of China, whose BYD Co. began selling electric cars in December, and American John Paul Dejoria, who got the world clean with his Paul Mitchell shampoos and sloppy with his Patrón Tequila.

Nationalizing banks would be nightmare

Bank of America Corp's (BAC.N: Quote, Profile, Research, Stock Buzz) chief executive said on Thursday it would be a "nightmare" for U.S. banks to be nationalized, wiping out shareholders and perhaps bondholders, and further damaging an economy that might begin to recover as soon as this year.

Speaking to the Chief Executive Officers Club of Boston, CEO Kenneth Lewis also said he is confident that Bank of America, the largest U.S. bank, will pass the government's pending "stress test," and would not need more government capital. Bank of America took $45 billion from the U.S. Treasury Department's Troubled Asset Relief Program (TARP), including some funds in a January bailout to help absorb debt-ravaged Merrill Lynch & Co.

Lewis faces heavy pressure from investors to show that Bank of America can make it through the recession on its own, and is in much better shape than rival Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz). Some critics have called for his removal in the wake of the rushed --and so far troubled -- Merrill purchase.

Lewis praised government efforts to revive banks hurt by hundreds of billions of dollars in writedowns and credit losses, but agreed with Federal Reserve Chairman Ben Bernanke that full takeovers are the wrong way to go.

Nationalization "would be a nightmare" and "send shudders" through investors, he said.

"It would give the false impression that all banks are insolvent, and investors would immediately start betting on which banks would be next, possibly creating a self-fulfilling prophecy," he said. "And government control of large banks would politicize lending decisions and the capital allocation process, damaging the economy."

Lewis said government efforts so far to spur lending and consumer spending should turn the economy around. "We are going to break the back of this thing, and I still believe we'll do it this year," Lewis said. "There is too much ammunition being fired from too many directions to not bring this beast down."

He also said banks have to reassess how they manage risk, but that TARP has "worked very well" and enabled banks to lend more. "What's gone is the easy credit that got us into this mess, as unregulated nonbank lenders have failed," he said.

Lewis also touched on two areas that have drawn fire from politicians and banking industry critics: executive pay and sponsorships of sports teams.

Alluding to a provision in February's government stimulus package, Lewis said it is wrong to require TARP recipients to cap pay of executives who are just below the top level and produce high amounts of revenue. He said they could be lured by foreign banks or boutique firms not subject to such limits.

He also said Bank of America's sports marketing efforts generate $3 of profit and $10 of revenue for every dollar spent. The bank has a wider array of sports sponsorships than any other lender. It is the official bank of Major League Baseball and NASCAR, and has the naming rights to the Carolina Panthers football team in its hometown, Charlotte, north Carolina.