A key index of consumer confidence fell more than expected in July as the dismal job market continued to darken the outlook for household spending.
The Conference Board, a New York-based business research group, said Tuesday its Consumer Confidence Index fell to 46.6 in July from a reading of 49.3 in June.
Economists had expected the index to decline to 49, according to a consensus forecast gathered by Briefing.com.
The measure’s present situation index fell to 23.4 from 25 last month. The expectations index slipped to 62 from 65.5.
The overall index, which fell to an all-time low in February, had recovered earlier this year as consumers were heartened by a rally on Wall Street, lower energy prices and new government programs to aid the economy.
But that optimism was premature and has given way to concerns about the weak job market, according to Adam York, an economist at Wells Fargo Economics Group.
"Now it seems we have a renewed sinking feeling," York said in a research report.
In June, the economy lost 467,000 jobs and the unemployment rate rose to 9 business
On the surface, China presents a fiscal study in contrast with the United States, keeping a remarkably low ceiling on debt even as it spends its way out of the financial crisis.
But when Chinese leaders meet their U.S. counterparts this week, they should pause for reflection before venting any criticism, because hidden liabilities mean China’s books are uglier — potentially much uglier — than at first sight.
Thanks to successive years of fast economic growth and even faster government revenue growth, the official debt-to-GDP ratio was 17.7% at the end of last year, far lower than almost any other major economy.
The trouble is that excludes local government borrowing, the current surge in loans backstopped by Beijing and bad assets cleared from the banking system but still floating about.
When all are thrown into the pot, analysts estimate that China’s debt may be closer to 60% of GDP, putting it in virtually the same league as the United States, which was at 70% at the end of 2008 before it launched its massive economic stimulus program.
To be sure, Washington is now set on a path of exploding debt that Beijing will largely avoid. The United States budgeted for a federal deficit of 12.9% of GDP this year, whereas China is aiming for just 2.9%.
But China’s finances are deteriorating more quickly than the government expected, fueling a rise in the stock of both explicit and disguised debt that will constrict its wriggle room.
"It is serious because, one, much of it is hidden and, two, local governments are currently doubling down on their bets," said Stephen Green, economist at Standard Chartered Bank in Shanghai. "As with all fiscal deficits, it limits space for further stimulus."
This is probably a moot point, for now. With China’s economy back on track and private-sector investment kicking in, few think Beijing will need to ramp up spending beyond its existing 4 trillion yuan ($585 billion), two-year stimulus plan. But the narrowing of options still discomfits Chinese leaders.
"Our fiscal work is very grim," Chinese Premier Wen Jiabao told officials last week.
Eroding finances
Government revenues declined 2.4% in the first half compared to a year earlier, well shy of the official goal of an 8% rise. Expenditures were ahead of target and set to surge in the second half on the back of infrastructure projects.
Tax intakes are, of course, closely tied to economic activity, so China’s upturn should deliver cash to government coffers. But improvement in June came mainly from land sales, a one-off revenue source that masks the difficult road ahead.
"Even when we are already factoring in relatively optimistic revenue growth due to the economic recovery, the deficit is quite sticky at around 5 % per year for the next three years," said Isaac Meng, economist at BNP Paribas in Beijing.
But the real worry is the thickening morass of indirect debt immediate payday loans online.
Officials at the Ministry of Finance estimated earlier this year that local government debt already topped 4 trillion yuan, or 16.5% of GDP, much more than previously assumed.
Above and beyond that are 400 billion yuan in bad loans in banks’ hands and at least 1 trillion yuan in non-performing debt hived off their books and assigned to asset management companies. The buck stops with Beijing on all of these.
The record surge in bank lending this year means that its sum of liabilities is about to swell in size.
Banks have showered money on infrastructure projects that are seen as having iron-clad government guarantees. Green said he "conservatively" estimates that Beijing’s bill for covering loans issued this year alone will be 1.75 trillion yuan, enough to push its 2009 deficit to 10% of GDP.
"Debt bomb"
Most troublesome of all is the potential for a "debt bomb", in the words of China’s Economic Observer newspaper, at lower levels of government as officials engage in financial engineering that is both opaque and highly leveraged.
Rules prevent Chinese banks from lending to governments the equity capital which they need to obtain further loans for investment. But local officials and banks are now exploiting a vast loophole thanks to intermediaries known as trust companies.
The process is simple enough. Trusts create specially designed "wealth products", which banks sell to their clients. Banks then give the funds to the trusts and they, in turn, funnel them to governments as equity capital.
Local authorities, in short, are piling debt on top of debt. The Chinese banking regulator has started to warn trusts and banks of the growing risks, state media recently reported.
It was not long ago that bad loans in China’s banking system seemed to pose a massive debt threat to the wider economy. The core solution over the past decade was sustained double-digit growth, vastly expanding the denominator in debt-to-GDP ratios and generating the taxes to pay down the numerator.
Beijing is already looking to raise taxes where it can — increasing the levy on cigarettes, for example — but a return to super-charged growth is again its principal debt reduction plan.
In the meantime, China needs to fund its rising deficit.
On that front, at least, the government can be supremely confident, even if it has to issue more than the planned 950 billion yuan in bonds this year and yet more to cover shortfalls in coming years.
"There is so much saving and so much liquidity, so there is definitely not a problem that China will not be able to finance its deficit," said Tao Wang, UBS economist in Beijing.
The Federal Reserve Board Thursday recommended new disclosure rules for homeowners and compensation guidelines for mortgage brokers to correct some abuses of the recent runaway housing market.
Prospective borrowers would receive a one-page notice of key questions about their loan and see a graph comparing their interest rate to that of a low-risk borrower, the Fed said.
Mortgage brokers would not receive greater compensation if they put a borrower into a high-cost loan, under the rules cheap payday loans.
"Consumers need the proper tools to determine whether a particular mortgage loans is appropriate for their circumstances," Fed Chairman Ben Bernanke said during an open meeting of the board.
The government recently refused to bailout one troubled commercial lender. But another is telling regulators that it doesn’t want Washington’s help anymore.
GE Capital, the massive financing arm of General Electric, announced Wednesday morning that it had received approval from the Federal Deposit Insurance Corp. (FDIC) to exit a program that had allowed GE Capital to issue debt at super-low interest rates backed by the government.
This comes on the heels of the government’s refusal to come to the aid of GE Capital competitor CIT Group (CIT, Fortune 500). The good news: CIT bondholders — in other words, the private sector — managed to put together a rescue package.
So is this something to cheer, another sign that the financial markets are finally starting to function as they should? It could be.
"Obviously GE feels that they have strong enough liquidity that they don’t need additional backing to raise capital," said Dan Genter, chief executive officer of RNC Genter Capital Management, a Los Angeles-based money management firm that owns GE stock.
Shares of GE (GE, Fortune 500) were up about 2% Wednesday afternoon.
GE has been the worst-performing stock in the Dow this year largely because of GE Capital’s struggles. GE lost its cherished triple A credit rating earlier this year and also slashed its dividend to preserve cash.
Last week, the company announced that profits in the GE Capital division plunged 80% in the second quarter. That helped lead to a 47% drop in GE’s total profits. GE CEO Jeffrey Immelt maintained though that GE Capital would remain profitable in 2009.
So can GE Capital really get by without assistance from regulators?
Talkback: GE has been the worst performer in the Dow this year. Would you buy it now or is it going to head lower? Leave your comments at the bottom of this story.
GE Capital has been one of the more active participants in the the FDIC’s Temporary Liquidity Guarantee Program, more commonly referred to by its oh-so mellifluous acronym of TLGP.
Since the TLGP was launched in December, financial institutions have issued about $330.5 billion outstanding in debt, according to the FDIC.
The FDIC does not break down issuance by specific companies. But GE spokeswoman Anne Eisele said GE Capital had issued $51 billion in government-backed long-term debt since the program began.
In a statement Wednesday, GE Treasurer Kathryn Cassidy said that GE Capital’s decision to bid TLGP adieu "affirms the strength of GE Capital’s funding and liquidity position, including reduced reliance on government funding programs and our ability to access non-guaranteed debt markets."
Cassidy added that the move "is a positive step in returning the broader capital markets to normal functioning and is in line with GE Capital’s 2009 and 2010 debt issuance and funding cost plans."
FDIC spokesman Andrew Gray also said that GE’s announcement should be viewed as a signal that the credit markets are slowly nursing their way back to health affordable life insurance.
"It’s a positive sign for the private markets that this type of debt can be issued without government backing," he said.
That may be true, though it’s important to note that the TLGP program is set to expire on Oct. 31, so GE Capital would have no choice but to eventually fend for itself anyway (assuming the government didn’t extend it, as it has once already).
One analyst said the news from GE is less about the credit markets returning to normal and more about GE trying to win favor with the FDIC and other regulators, which are pressuring the company to either convert into a bank or cut ties with the GE Capital unit as part of a broader reform plan of the financial services industry.
"When you exit a program like this there should be no band playing. GE decided to announce it to turn this into a sign that everything’s just cool," said Nicholas Heymann, an analyst with Sterne, Agee & Leach.
Heymann points out that if GE is forced to become a bank holding company, it would be costly because it would face much higher capital requirements and would need to buy time to boost its reserves.
Eisele disputed Heymann’s claims though. "There’s absolutely no connection. This has nothing to do with the Obama administration’s regulatory reform plan. It’s totally unrelated," she said.
GE Capital is holding an investor meeting next Tuesday to specifically discuss what’s next for the unit. But regardless of what GE ultimately decides to do, there’s no denying that these are very interesting times for GE Capital.
On the one hand, if the credit markets really are improving, then GE has a chance to really take advantage of CIT’s problems. So it will probably seek to remain an active player in the commercial lending market, particularly to retailers, a segment that has historically been CIT’s bread-and-butter.
Along those lines, GE Capital also announced Wednesday that it was kicking in $290 million of a new $1 billion line of credit for drugstore chain Rite Aid (RAD, Fortune 500).
But at the same time, investors are eager to see the unit pull back on some of its more risky lending practices.
The big challenge for GE Capital is going to be finding a way to keep growing without getting greedy. That will be a delicate balance.
"The ability for GE Capital to capture market share now is something for them to look at as an opportunity," said Genter. "GE Capital has had its share of problems but I think they can take on new liabilities while putting out fires on the home front. They just need to look for lower-risk paths to follow."
Brokerage TD Ameritrade agreed Monday to pay $456 million to settle a lawsuit involving the marketing of a debt class that ended up crippling investors.
But New York State Attorney General Andrew Cuomo, who brought the suit, said another firm, Charles Schwab, has refused to settle claims involving the sale of auction-rate securities (ARS) to individuals, charities, non-profits, small businesses and institutions.
Cuomo’s office said TD Ameritrade joined 11 underwriting securities firms and rival broker Fidelity Investments in settling his allegation that they "misrepresented auction-rate securities as liquid, short-term investments," according to a statement.
The office said the settlements by 20 firms with his office and other regulators have resulted in more than $61 billion in buybacks of the securities.
As part of the settlement, Omaha, Neb.-based TD Ameritrade (AMTD) said it will repurchase all auction-rate securities it sold before Feb. 13, 2008. TD Ameritrade will buy the securities from retail investors with accounts of $250,000 or less within the next 75 days.
The firm said it will repurchase the remaining securities by March 2010, and will reimburse investors who sold at a loss after the market failed.
The auction-rate securities market involved buying and selling long-term bonds that resembled corporate debt. Hospitals, cities and corporations sold the securities at weekly or monthly auctions, where interest rates were reset each time.
Many investors had treated ARS like cash investments, but the $330 billion market collapsed in early 2008 as the credit crisis took a turn for the worse fast cash loans.
Cuomo’s office said it is pushing auction-rate securities brokers and underwriters to repurchase them from investors who were left with steep losses.
Schwab objects: Cuomo’s office also announced "imminent legal action" against Charles Schwab (SCHW, Fortune 500) for alleged deceptive selling of auction-rate securities as safe.
"It is disturbing that Charles Schwab, who had been holding itself out as an industry expert, has stonewalled its customers," Cuomo said. "Today’s notice should send a signal that if Charles Schwab will not stand by its customers, this office will."
In a statement, Schwab said it did not plan to settle, and that Cuomo presumed the company "somehow knew of a risk that the entire ARS market could seize up at any time, and failed to disclose that risk to its clients, which is preposterous."
Regulators like the Securities and Exchange Commission — and Cuomo’s office itself — did not know the auction-rate market was going to fail, Schwab said, adding it "could not be expected to foresee and disclose market risks that even regulators and market experts did not foresee."
Citigroup surprised Wall Street Friday as the embattled banking giant reported a $4.3 billion profit in the second quarter.
But the results were boosted largely by a $6.7 billion after-tax gain related to the completion of its sale of a majority of its Smith Barney wealth management division to Morgan Stanley (MS, Fortune 500).
On a per share basis, the company said it earned 49 cents a share. Analysts were expecting the New York City-based bank to record a loss of $1.07 billion, or 37 cents a share.
Citigroup CEO Vikram Pandit said that the latest results signaled that the company’s turnaround efforts were finally starting to take hold, but acknowledged that there was still much work to be done, particularly in the company’s consumer-related businesses.
"Sustainable profitability remains our primary goal," Pandit said in a statement.
Citigroup has earned a reputation as one of the nation’s most troubled financial institutions. From the time the credit markets began to unravel in late 2007 up until the end of last year, the company lost more than $28 billion.
The bank’s problems subsequently led the government to take a $45 billion stake in Citigroup in the form of preferred shares and warrants to help stabilize the bank.
Conditions at the company appear to be less dire as of late thanks to a broad recovery in banking stocks and hopes that the economy has hit bottom. But Citigroup still faces a number of difficult challenges.
Regulators have been anxious to steer the bank back towards profitability, and recent reports have suggested that the company still remains under intense scrutiny by regulators, namely the Federal Deposit Insurance Corp.
Pressure from authorities reportedly prompted Ned Kelly to step down as the firm’s chief financial officer last week, with John Gerspach, Citi’s chief accounting officer, taking his place.
The government will soon complete the conversion of its preferred shares in Citi into common stock, which will give American taxpayers more than one-third ownership stake in the company. The conversion was announced in late February as part of an effort to bolster Citi’s capital levels.
Citi also continues to be subject to the strictest government limitations on executive compensation, which some believe will make it tough for the bank to retain key employees.
Pandit downplayed such talk during a conference call with analysts Friday, suggesting instead that the recent departures of some top Citi executives are in line with normal employment trends on Wall Street.
At the same time, the company, along with the rest of the banking sector is now facing what is shaping up to be the most sweeping government reforms for the U.S. financial system since the Great Depression.
A tale of two Citis
Friday’s results, however, mark the first time the company broke out performances for its two divisions - Citicorp and Citi Holdings - since deciding to split the firm in January cheap car insurance.
Both units were profitable during the quarter, with the smaller Citi Holdings, which included the company’s infamous pool of troubled assets, earning $1.36 billion.
Still, those results were driven mainly by the Smith Barney transaction.
"It makes it look like the quarter was not horrible, but the reality is the underlying core operations are still doing quite terribly," said Michael Williams, director of research at research firm Gradient Analytics.
Williams added that JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500), two firms that also delivered blowout quarterly results earlier this week, did so without the help of similar one-time gains.
The more stable Citicorp, which oversees, among other things, its investment bank and consumer banking businesses, earned $3.06 billion during the quarter, a decline of 11% from a year ago.
Strong trading results and resilience in Citi’s fixed-income operations helped compensate for double-digit revenue declines in the company’s traditional investment banking businesses, including equity underwriting, which was off 33% from the same period last year.
The issue of credit, however, remained front and center for the entire firm, much like its peers. Credit costs skyrocketed in the quarter, climbing to $12.4 billion, due in large part to loan losses. The company added $3.9 billion to its reserves to insulate itself against future loan losses.
With the recession still raging, Citigroup and other banks have been grappling with losses tied to various consumer-related loans.
Pandit and Gerspach indicated Friday that dealing with those losses, particularly in areas such as credit cards and mortgages, remained among their top priorities.
But both men were quick to point out that there were some encouraging signs, including moderation in the pace of mortgage delinquencies.
Some analysts worried, however, about signs of increased deterioration in corporate credit. The value of non-performing loans in Citi’s corporate lending portfolio swelled nearly six fold to $12.4 billion in the latest quarter.
"The consumer continues to get worse, but corporate loans are getting worse at a faster rate," said Williams.
Nonetheless, Citigroup’s results fall in line with the rest of its peers who reported better-than-expected second-quarter numbers this week. In addition to the strong results from Goldman Sachs and JPMorgan Chase, Bank of America (BAC, Fortune 500) revealed earlier Friday it earned $3.2 billion in the latest quarter.
Citigroup (C, Fortune 500) shares finished Friday slightly lower.
CIT and its many borrowers are in limbo.
A day after the cash-strapped small business lender had its bailout hopes deflated, CIT Group (CIT, Fortune 500) appeared headed for a bankruptcy filing.
Credit ratings agency Fitch cut its rating on CIT debt, saying a default appears "imminent or inevitable."
A spokesman for the New York-based company didn’t reply to a request for comment. CIT shares lost three-quarters of their value in trading Thursday and were fetching as little as 31 cents each at one point.
Though the century-old firm has sharply cut back its lending over the past year, a bankruptcy filing could add to the pressure on small businesses at a time when they have been shedding hundreds of thousands of jobs every month.
"Things don’t look good for CIT," said Jerry Reisman, a partner at law firm Reisman, Peirez & Reisman in Garden City, N.Y. "But they look downright perilous for the small businessman."
Small businesses — those employing fewer than 50 people — have cut 1.4 million jobs since December, according to data from payroll processor ADP’s latest monthly employment report. Small and midsize businesses — those employing fewer than 500 people — have lost 3 million jobs over the same period, according to ADP data.
Small and midsize businesses are among CIT’s chief customers, and a lack of access to credit could force many out of business, Reisman said. He said many CIT customers would have trouble getting loans elsewhere in the best of times, but their pain could be acute in a deep recession in which banks aren’t lending and sales have dwindled at many businesses.
"If you assume CIT customers tend to be a little riskier than the typical community bank borrower, then some of them won’t be bankable," said Bill Dunkelberg, chief economist for the National Federation of Independent Businesses.
According to several news reports, CIT is trying to line up a capital infusion from private investors. But observers were skeptical about the company’s chances.
Before Wednesday, Wall Street had assumed the government would provide support to CIT, given its earlier receipt of $2.3 billion in federal funds and its connection to small businesses. Investors took the Treasury Department’s decision not to do so as an indication that its books have taken a sharp turn for the worse no fax needed payday loans.
"Although we had originally thought CIT would have enough liquidity to survive through year-end, the recent negative press appears to have accelerated the liquidity drain with deposits fleeing and clients drawing down as much credit as possible before bankruptcy," Stifel Nicolaus analyst Chris Brendler wrote in a note to clients Thursday. "We think CIT’s poor credit quality ultimately led to its demise."
Complicating CIT’s outlook is the tepid market for lending to bankrupt companies, known as debtor in possession, or DIP, financing.
Getting DIP financing has become more difficult since the credit markets collapsed in mid-2007. Ironically, CIT has been a leading DIP lender. Last week it, along with GE (GE, Fortune 500) Capital and Bank of America (BAC, Fortune 500), provided a $100 million line of credit to retailer Eddie Bauer (EBHIQ), which filed last month for its second Chapter 11 reorganization in six years. A spokesperson from Eddie Bauer didn’t comment.
Mark Sunshine, president of First Capital, a lender in Boca Raton, Fla., said Treasury could support small businesses without bailing out CIT investors by providing DIP financing in the event of a CIT bankruptcy filing.
Sunshine said federal financing of the bankruptcy loan could enable an orderly workout at CIT over two years or so. Without such a backstop, he said, small business customers that sold their accounts receivable to CIT in exchange for upfront cash — a transaction known as factoring — could find themselves in the unenviable position of seeking repayment in court along with other creditors.
"Without Treasury, it isn’t going to happen," Sunshine, whose firm is a CIT competitor, said of the DIP loan.
Whether the problems at CIT end up taking another bite out of the economy will depend on how the company’s case is resolved. Dunkelberg noted in a report last week that data from the NFIB’s small business survey don’t support talk of a credit crunch — though that was before CIT’s brush with failure.
"This could certainly contribute to a constriction of credit, but we’ll just have to see how it plays out," he said.
The unemployment rate could top 10% later this year, the Federal Reserve said Wednesday, but the central bank also said it believes the end of the recession could be in sight.
These forecasts were included in the minutes of the central bank’s June 24 meeting. At that meeting the Fed left its key interest rate near zero percent, but said there were signs of a recovery in some sectors, including the financial markets.
According to the minutes, members of the Fed’s rate-setting committee generally agreed that "the decline in [economic] activity could cease before long."
The current recession, which started in December 2007, is the longest downturn in the U.S. economy since the end of World War II.
Fed policymakers now believe that the unemployment rate will rise to between 9.8% and 10.1% in 2009 before declining modestly next year. The Fed had forecast in April that unemployment would top out in a range of 9.2% to 9.6% this year, but the rate reached 9.5% in June.
The Fed also issued a slightly more optimistic forecast for the economy. The Fed said the nation’s gross domestic product, the broadest measure of economic activity, should decline by between 1% and 1.5% in 2009, compared to an earlier forecast of a drop of between 1.3% to 2%.
Policymakers also raised their forecast for GDP growth in 2010 and 2011, calling for growth of between 2.1% and 3.3% next year and growth of 3.8% to 4.6% the following year.
The Fed said in its forecast that it expected a "sluggish" recovery in the second half of this year, and that problems in the credit markets would allow for only gradual improvement in the economy next year.
The central bank also said most of its members believe it could take as long as five or six years for the economy to achieve a sustainable growth rate and for desired levels of unemployment and inflation to meet the central bank’s objectives payday loan online.
Rich Yamarone, director of economic research at Argus Research, said the Fed minutes showed that the central bank is still concerned about the state of the economy and any possible recovery.
He pointed out that even as the Fed talked of signs of a possible turnaround, it warned that the economy is "still quite weak and vulnerable to further adverse shocks." And he said some of those shocks, including rising job losses and the threat of bankruptcy at leading small business lender CIT Group (CIT, Fortune 500), still loom.
"I don’t think the Fed is about to hang the ‘Mission accomplished’ sign," he said.
Brian Bethune, chief U.S. financial economist at Global Insight, agreed that the Fed is still very worried about the economy. He said the Fed is likely to keep rates low and maintain various programs designed to spur spending and lending for an extended period of time.
Bethune noted that the Fed is still expecting the unemployment rate to be in the 8.4% to 8.8% in 2011, well above the expected longer-term unemployment rate of 4.8% to 5%.
"There seems to be a Grand Canyon in between those two numbers," he said.
But David Wyss, chief economist at Standard & Poor’s, said that it’s also clear that the central bank is less worried now than it was at its April meeting.
"They’ve shifted to a more neutral stance from a downbeat one," he said. "That’s an important change."
Johnson & Johnson’s second-quarter earnings fell almost 5%, but profit and revenue beat analyst forecasts helped by surprisingly resilient pharmaceutical and consumer product sales.
Sales took a hit from patent expirations on its drugs for schizophrenia and epilepsy, but sales of its arthritis drug Remicade were better than expected.
"They went through a cost-cutting exercise about a year and a half ago, and it’s definitely helping them with their earnings to date," said Jan Wald, an analyst with Noble Financial Group. "The surprise is more on the revenue side … and that bodes well."
The diversified health care company, whose products range from Band-Aids to arthritis treatment Remicade, earned $3.21 billion, or $1.15 per share. That compared with $3.37 billion, or $1.18 per share, in the year-earlier period.
Analysts on average expected $1.11 per share, according to Reuters Estimates.
J&J’s (JNJ, Fortune 500) quarterly revenue fell 7.4% to $15.24 billion, but was $190 million higher than the Reuters Estimates forecast.
Sales would have been 6 percentage points higher if not for the stronger dollar, which hurts the value of overseas sales.
The company reaffirmed its full-year profit forecast of $4.45 to $4.55 per share, which excludes special items.
Sales of prescription drugs fell 13.3% to $5.5 billion, as patients opted for cheaper generic forms of J&J’s Risperdal schizophrenia treatment and Topamax, an epilepsy pill that lost U individual health insurance.S. patent protection in recent months.
Topamax sales plunged 73% to $182 million, while Risperdal fell 66% to $239 million.
Even so, analysts said they had been girding for an even bigger decline in the pharmaceuticals business, amid the erosion of Risperdal and Topamax sales.
"The pharmaceutical business looked especially strong to us," Noble’s Wald said. He pointed to arthritis drug Remicade, whose quarterly sales jumped 24% to $1.1 billion. Declines for Procrit and Eprex — anemia drugs strapped with safety concerns, were not as bad as feared, he said.
Global sales of consumer products fell 4.5% to $3.85 billion, while sales of medical devices and diagnostics slipped 3.1% to $5.89 billion. Growing demand for the company’s surgical products and orthopedics products was partly offset by lower sales of stents, tiny devices used to prop open coronary arteries that have been cleared of plaque.
"Consumer sales were strong as well, which is promising because that’s the closest thing to the general public that Johnson & Johnson has so that might say something about the economy," Wald said.
J&J shares rose 63 cents to $58.35 in premarket trading, but slipped 6 cents to $57.66 at the start of trading.
Ken Lewis should get out his checkbook. The Bank of America boss never signed the deal he cut in January for the U.S. to backstop some $118 billion in Merrill Lynch assets. But that didn’t become known until May, when the firm announced it wouldn’t be taking the guarantee.
In the interim, BofA (BAC, Fortune 500) benefited from investors’ belief that it had government backing. It owes U.S. taxpayers something for that.
The question is, how much? The bank is trying to wriggle out of paying anything, saying the deal was never consummated, according to Bloomberg. But the widely held understanding that the backstop was in effect probably had a calming influence on investors that helped the Charlotte, N.C.-based bank weather the worst of the first-quarter tumult.
So the government is pushing back, arguing that it is owed at least some of the $4 billion fee that the bank had provisionally agreed to pay in preferred stock and warrants.
Some have argued that BofA should pay a third of the original fee, or $1.3 billion, since the bank benefited from the arrangement for a third of the year online cash advance. That may be too steep - not least since the preferreds and warrants were to pay for 10 years’ coverage.
There are a couple of other options: One would be to charge BofA an M&A-like break fee of, say, 5% of the consideration that would have changed hands — or $200 million. Another would be to charge the bank a fee for having what was effectively a $100 billion undrawn line of credit.
At the full annual rate of around 20 basis points, that too would put the bill at $200 million. That seems a tad cheap for what might have been life-saving U.S. government help. Perhaps a better answer for the government is to split the difference, sending BofA a bill for nearer $750 million.
That would let the bank off relatively easily, provide some compensation for the risk shouldered by taxpayers — and send a message that Uncle Sam’s warm embrace comes with a price.
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