World financial news

Japan may spend about 15 trillion yen ($150 billion) in its next economic stimulus package, according to a ruling Liberal Democratic Party legislator involved in shaping the plan.

The measures would represent about 3 percent of gross domestic product, taking total spending by Prime Minister Taro Aso to spur growth to 25 trillion yen since he took office in September. Aso this week indicated he wanted to spend at least 10 trillion yen in the latest package.

Aso must call elections by September just as Japan heads for its worst recession since World War II, with companies from Toyota Motor Corp. to Sony Corp. slashing production and firing workers. The stimulus will focus on the job market, credit to companies, energy-efficient technology, support for regions and welfare, Finance Minister Kaoru Yosano said this week.

“Japan has had the worst economic deterioration among developed nations, and that’s pushed the government to come up with a package of this size,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. The measures “might actually help the economy, unlike previous ones.”

Bond yields rose today toward the highest since November after Yosano said issuing debt to fund the spending is “unavoidable.” Aso told reporters today that the government may need to sell bonds to pay for the measures, without specifying any amounts. The yield on the benchmark 10-year bond climbed 2.5 basis points to 1.45 percent at the close in Tokyo.

Debt Burden

The government’s ability to revive the economy is constrained by its debt, which is already the world’s biggest and is likely to spiral to 197 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.

“The government needs to make it clear that how they’re going to fund the package, otherwise yields will keep rising,” Nishioka said.

The Finance Ministry will sell debt to pay for most of the spending, Kyodo News reported, without saying where it got the information no fax instant cash advance. Some 3 trillion yen will come from so-called special accounts and 1 trillion yen from reserves, Kyodo said.

The package will be the largest ever for a single year, surpassing former Prime Minister Keizo Obuchi’s 8.5 trillion yen stimulus during the Asian financial crisis in 1998.

The LDP lawmaker said Aso’s plan is likely to total 50 trillion yen when including financial initiatives such as funds set aside to help companies get access to funding.

Plunging Exports

Reports today painted a mixed picture of the world’s second-largest economy.

Exports plunged a record 50.4 percent in February from a year earlier, the Finance Ministry said, and another survey showed bankruptcies rose to a six-year high in March. The Bank of Japan said the economy is deteriorating “significantly.”

Meanwhile merchant sentiment surged to the highest since July, the Cabinet Office said, indicating factory production may recover in coming months, according to Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo.

“One-shot spending for a single year may not be enough to bring Japan’s economy back to a sustainable recovery,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “The government may need to spend more after the election.”

Aso’s approval rating, which fell below 10 percent less than two months ago, has rebounded as he prepares sanctions against North Korea after it launched a missile over Japan earlier this week. He has also benefited from a drop in support for Ichiro Ozawa, leader of the opposition Democratic Party of Japan, whose top aide was charged with campaign-funding violations.

The prime minister’s support rating rose 9.4 percentage points from last month in a Nippon Television survey that was completed April 5, the day North Korea fired its rocket.

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Deutsche Post said it was still in talks over a possible cooperation with United Parcel Service, providing a sought-for update on its drawn-out negotiations.

But a tie-up with other providers was also a viable option, Europe’s biggest mail and express delivery company said in presentation slides on Thursday.

In 2008, Deutsche Post and UPS agreed to cooperate on air freight in the United States, but talks stalled. The exclusivity of talks between the two companies expired at the end of January.

Deutsche Post has since the start of the talks said it planned to shut down its domestic U.S. express delivery business and cut a total 14,900 jobs there. That move would cut its air capacity there to less than 100,000 shipments per day, from 1.2 million previously.

Restructuring in the U.S. was on track, Deutsche Post said, adding it still expected to post an adjusted EBIT loss of $900 million at the business in 2009 payday loan in advance.

In 2008, it booked $2.1 billion of an expected total of $3.9 billion of restructuring costs. Other DHL businesses were not affected by the changes in the United States.

Deutsche Post on Wednesday said the head of its DHL Express business, John Mullen, had resigned and would be replaced by Ken Allen, who most recently headed up the U.S. restructuring project. Mullen had suffered health problems, it said.

According to Thomson Reuters StarMine, which weights analysts’ forecasts according to their track record, the stock trades at 8.7 times its 12-month forward earnings, a discount to both UPS and FedEx as investors worry it is losing ground against its rivals.

Deutsche Post’s stock has lost more than 60 percent of its value in the past twelve months.

(Reporting by Maria Sheahan)

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No time to cruise the drive-thru or wait for a pot of drip to brew? Don't worry, Starbucks Corp. is planning to offer a new instant coffee product.

This week, the Seattle-based coffee retailer will go on the road to New York and other cities, bringing with it the company's latest product, which Starbucks said that it has been working on for 20 years.

In a memo sent to Starbucks (Nasdaq: SBUX) employees, Vivek Varma, Starbucks senior vice president of public affairs, said the product could be in stores by Feb. 18.

Varma said this won’t be your father’s instant coffee instant payday loan. She said Starbucks has developed technology to “absolutely replicate the taste of Starbucks coffee in an instant form.â€

Worldwide, there is a $17 billion market for instant coffee, according to the memo.

There are about 20 Starbucks stores within a 20-mile radius in the Albany, N.Y., area.

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Canadians spent less on auto repairs and maintenance in 2008 than the previous year for the first time in more than decade, according to DesRosiers Automotive Consultants.

Preliminary data show consumers paid $17.56 billion for auto repairs last year, or 1.5 per cent less than in 2007, the consulting firm said yesterday.

"It was a very tough year," said DesRosiers president Dennis DesRosiers.

He attributed the decline to Canadian motorists driving less because of high fuel prices which meant they did not need to visit their repair shops as much installment payday loans.

The data, which do not include revenues from collision repairs and the addition of accessories, also revealed a slight shift to "do-it-yourself" work.

Tony Van Alphen

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With major companies battered by recession, the spotlight is on boards of directors to take more active roles in response to the crisis. But what should their priorities be? Fortune senior editor at large Geoff Colvin talked to two top consultants: management expert Ram Charan, whose latest book is Leadership in the Era of Economic Uncertainty, and Tom Neff, chairman of Spencer Stuart U.S., the executive-search firm. Key excerpts:

Q.: What should be the top items on a board’s agenda in 2009?

Ram Charan: The financial storm is not over. A number of companies I’m looking at are forecasting 10% to 20% declines in revenues. So the first and most important item for the board is to invest time to understand the cash issues, balance sheet issues, leverage issues, and liquidity issues. One- or two-hour presentations are not enough.

Second is rethinking targets for management. You want to motivate management, but you can’t just use the old targets with minor modifications; in this era, survival may be an issue.

Third is reevaluating the peer group against which you compare your company. Some of the old peers may be insolvent or may not be relevant because conditions have changed dramatically.

Fourth is rethinking compensation. Most compensation committee chairmen I’ve met never understood the Black-Scholes model for valuing stock options. If you don’t understand it, think of something else.

Tom Neff: Boards have to spend more time thinking about the unthinkable — scenarios that would have seemed irrational, maybe unimaginable, just a year ago. What if our lead bank disappears? What if we have a liquidity crisis? What if the Dow goes to 6,000? What if our stock keeps dropping and attracts raiders?

The other subject that boards need to focus more on is enterprise risk management. It’s not just risk in the sense that banks need to focus on it, but what are the risks in our business model, what are the global risks that could affect our business? It’s a holistic approach to the subject, and stress testing what we’re doing.

One other thought. Every seat in the boardroom is critically important, and boards need to think about that more strategically. In light of the new challenges and uncertainties, what kind of talent and expertise is needed that isn’t sitting around the table today? More directors will be resigning from boards, particularly active executives who just don’t have the time or the stomach for this anymore. So boards need to be thinking ahead and have a pipeline of people they’re talking to who could be directors.

Q.: Most boards are not very good at imagining all the things that could go wrong payday loans. Have you found any ways to help them expand their thinking?

Ram Charan: Yes, a couple of ways. In industrial companies a broad discussion of the balance sheet does not take place. It should focus on two simple questions: Where is the cash coming from, and where is it going? Boards need to really learn the balance sheet, debate it, get management’s input, see under different conditions what’s the financial risk, which has many, many components. That all needs to come out without the accounting mumbo jumbo. In some places that is happening.

Second, an industrial company I know now has a chief risk officer, and in the past six months he has laid out nine kinds of risks. He has taken the governance committee through it, and the board has discussed it.

Q.: What were the problems in compensation systems that contributed to a lot of the financial industry problems?

Tom Neff: Some of the management teams at financial firms have a huge equity stake, which used to be thought of as a good thing. But I believe that the motivations for driving profits produced risks that some of these institutions just couldn’t absorb. So you have to argue the measures were not correct. There was too much focus on growth in profits rather than growth in sound earnings. It’s not a good idea to be changing management’s objectives quarterly, but compensation committees will have the challenge of setting correct rewards for [executives] who are trying to hit a moving target.

Q.: Companies need better directors and the right directors, yet it seems inevitable that the demands and challenges of being a director are going to increase considerably, right?

Tom Neff: No question. The time demands have changed significantly. It’s routine now for boards and board committees to hold telephone meetings in between the regular meetings, and as the time commitment increases, the availability of certain people to allocate that time is just not there. And of course there’s the risks associated with it, particularly reputational risks. Boards will be in the spotlight like never before, and nobody wants to be part of a rogue’s gallery in an article about a company that’s failed.

Ram Charan: People are beginning to realize that boards can create value, and that some boards, by commission or omission, can destroy value.

Tom Neff: Board service is not for the faint of heart, particularly for the year we’re entering. 

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NEW YORK — A federal judge on Monday threw a lifesaver to investors who may have been duped in one of Wall Street’s biggest alleged frauds, saying they need the protection of a special government reserve fund set up to help investors at failed brokerage firms.

U.S. District Judge Louis L. Stanton ordered that clients of Bernard Madoff’s private investment business seek relief under a federal statute created to rescue cheated investors. Stanton also ordered that the business be liquidated under the jurisdiction of a bankruptcy court and named attorney Irvin H. Picard as trustee to oversee that process.

Stanton signed the order after the Securities Investor Protection Corp. asked that steps be taken to protect investors in the scheme, which has ensnared several major banks and prominent figures as victims and could result in as much as $50 billion in losses.

The 70-year-old Madoff, well respected in the investment community after serving as chairman of the Nasdaq Stock Market, was arrested Thursday in what prosecutors say was a $50 billion scheme to defraud investors. Some investors claim they have been wiped out, and it is thought many more are yet to come forward.

The list of the funds, firms, foundations and individual investors that have some exposure to the Madoff scandal reads like a Who’s Who. The Royal Bank of Scotland, Steven Spielberg and Sen. Frank Lautenberg are among the victims.

But Madoff’s alleged malfeasance also has affected the less well known.

In Fairfield, Conn., town officials scrambled Monday to get a handle on damage to pension funds held for its police officers and firefighters. The Robert I. Lappin Charitable Foundation, a Salem, Mass., organization that sponsors Jewish educational program is being forced to close it’s doors.

"It’s devastating to people and communities and lives," said Deborah Coltin, executive director of the Lappin Charitable Foundation.

Stanton’s order came just days after federal prosecutors charged Madoff with securities fraud, saying he had admitted to orchestrating a massive Ponzi scheme. Madoff is free on $10 million bail after he was charged with securities fraud last week payday loans for bad credit. Ira Lee Sorkin, Madoff’s lawyer, declined to comment.

Though Stanton’s order could provide some relief to Madoff investors, it will only cover a small percentage of the overall loss they may suffer.

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Congress created the SIPC in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts. Funds can be used to satisfy the remaining claims of each customer up to a maximum of $500,000. The figure includes a maximum of up to $100,000 on claims for cash.

The SIPC will oversee the liquidation of the Madoff funds, but how much will come from that is unknown. SIPC President Stephen Harbeck said in a statement that the fund’s task will be harder than in other bankruptcies because of the size of the misappropriation and the condition of the defunct firm’s records.

Harbeck said it would be unlikely that the trustee can transfer the firm’s customer accounts to a solvent brokerage firm. He added that it was impossible at this point to determine what share each investor might hold in any remaining assets.

The impact of Madoff’s arrest wasn’t only felt in the U.S. Among those overseas confirming exposure on Monday, Banco Santander, the largest bank in the euro zone by market capitalization, said its clients have $3.07 billion invested with Madoff, mostly through a fund called Optimal Strategic US Equity.

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U.S. car giant General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) announced a two-month shutdown at its Thai plant on Thursday, the latest move by global automakers seeking to slash costs in the face of weak sales and deepening economic gloom.

GM Thailand said its 130,000-unit-a-year factory at Rayong would close for two months from mid-December, and it planned to cut 258 jobs at the plant 150 kms (90 miles) southeast of Bangkok.

“We plan to close the plant to help control costs and our 2,000 workers will be paid 75 percent of their monthly salary during the shutdown,” director of public relations Chartchai Suwanasevok told Reuters, without giving details on the production impact.

The plant produced about 100,000 pickup trucks, SUVs, sedans and compact cars for Thailand, Southeast Asia and Australia in 2007, representing only a fraction of the Detroit-based firm’s global output of 9.28 million vehicles last year.

But the shutdown was the latest measure taken by an international auto firm to stave off the impact of a massive slowdown in sales due to the global economic slowdown.

General Motors and its U.S. rivals, Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) and Chrysler LLC, are seeking a $25 billion U.S. government bailout to avoid bankruptcy, but the prospects for a rescue package this week appeared dim.

Last week, GM’s South Korean unit said it would halt production for two weeks, due to sluggish demand cash advance in one hour.

The company had no plans to halt production at its vehicle manufacturing ventures in China, a spokesman said, despite slowing growth in the world’s second-largest auto market.

TOYOTA CUTS TOO

Japanese automakers, many of which had enjoyed steady to rapid growth in recent years, are also scaling back production and workforce in many markets due to a sharp, broad-based slide in vehicle sales.

Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) also planned a cutback at its 200,000-unit-a-year plant in Thailand, a company spokeswoman said, without giving details.

Japan’s top automaker is also seeking early retirement for 340 of its 1,850 temporary workers at the Gateway plant, which builds the Camry, Corolla, Yaris and other cars for Thailand and markets in the region.

Toyota is the top brand in Thailand, but its sales dropped 21 percent in October compared to a year ago, worse than the market’s 15 percent slide due to a slowing economy and a long-running political crisis eroding consumer confidence.

“There are signs of a slowdown not just in Thailand, but in the markets of export destinations,” the spokeswoman said.

Most of the world’s major automakers have plants in Thailand, which produced 1.29 million vehicles last year, of which 690,000 units were exported worldwide. 

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Amtrak says Chief Executive Alex Kummant is resigning after about two years in the top job.

Amtrak spokesman Cliff Black says Kummant’s resignation is effective immediately.

Chairwoman Donna McLean thanked Kummant for his service in a statement released Friday. She says the passenger railroad has experienced strong ridership and revenue growth under his leadership freecreditscore.

Kummant is also credited with overseeing the completion of labor agreements with all of Amtrak’s union employees.

Kummant says he will help with a transition to new leadership. 

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Mohammed El Rhazi, a worker at mattress-maker Dunlopillo, calls the credit crisis the “new plague'' in his impoverished Paris suburb of Mantes-la-Jolie, after riots tore through there in 2005.

“French suburbs are hit by this global crisis like everyone else,'' said the 43-year-old father of four, whose company is under court protection since its parent faced a cash shortage. “The difference is that our suburbs carry scars. The crisis comes on top of an open wound.''

Three years ago this month, young people in poor French neighborhoods rioted for 21 days, burning cars and destroying property. The violence in those areas — with large immigrant populations packed into concrete high-rise buildings and youth unemployment of about 40 percent — prompted President Nicolas Sarkozy to create a plan to revive the suburbs, known as “banlieues'' in French.

Now, as his government focuses on containing a banking crisis and countering a possible recession, the plan is taking a backseat. Without what Sarkozy once called a suburban “Marshall Plan'' — similar in spirit to the effort that rebuilt Europe after World War II — the financial turmoil will hit these areas the hardest and may make an already fragile situation worse, social analysts and businessmen said.

“People from the wealthy Neuilly suburb are less likely than the ones in Mantes or Clichy to lose jobs,'' said Aziz Senni, 31, who created ATA SA, a minicab company in Mantes, and heads a group trying to help boost employment. “Suburban workers live on construction, small services and temporary jobs, and these are the first ones to go.''

Auto-Plant Layoffs

PSA Peugeot Citroen, Europe's second-biggest carmaker, cut 700 temporary jobs at its Poissy plant in September. Many of the now-unemployed workers live 30 kilometers (19 miles) from there, in Mantes. Renault SA's Flins factory, which produces the Clio 3 car, said it may soon lay off assembly-line workers, most bussed in daily from Mantes and Les Mureaux, another suburb.

Signs of frustration are already evident. Luc Besson's movie-production company, Europacorp SA, was forced last month to cancel filming of “From Paris With Love,'' starring John Travolta, in the Paris suburb of Montfermeil after youths torched its cars and threatened the crew.

“It really saddens me,'' Besson, the director of such films as “The Big Blue,'' told Le Parisien. “We created 200 jobs. The problem always comes with the 201st person, who says `Why my brother, my cousin? And I, I get nothing?'''

November Rampage

Such hostility has largely been contained. Still, rioters in Villiers-le-Bel, north of Paris, went on a rampage in November for a few nights, this time with guns. Things are “much more violent than in 2005,'' Patrick Ribeiro, head of the Synergie Officiers police union, said at the time bad credit cash loan. “The youths are shooting at us with handguns and hunting rifles.''

The 2005 clashes started after two boys in the Paris suburb of Clichy-sous-Bois were electrocuted in a power substation where they were hiding from the police. About 10,000 cars were burned across France and damages reached 200 million euros ($255 million).

In the three years since then, “nothing was really done to help the suburbs become strong enough to face the kind of tsunami arriving now,'' Senni said.

`National Priority'

When Sarkozy, who was elected president in May 2007, presented his “Suburb Hope'' plan in February, he called it a “national priority'' that would “break intellectual, cultural, social and psychological ghettoes,'' earmarking 1 billion euros for the program.

Forty-eight companies — including road builder Eiffage SA; Areva SA, the world's biggest builder of nuclear reactors; and Total SA, France's biggest oil company — pledged to create 40,000 jobs by 2010. About 11,800 have been generated so far.

Now, “the target does not seem very realistic,'' said Laurence Boone, an economist at Barclays Capital in Paris. “This plan needs to be revised. If a company has no business in the near future, like in this crisis, why would it hire, even if it's a state-subsidized job?''

The pessimism comes after the national statistics institute said last month that France slipped into a recession in the third quarter, the first in more than 15 years. The number of job seekers rose by 42,000 in August, the most since at least 1993. The International Monetary Fund says France's economy will grow 0.2 percent in 2009.

Urgent Attention

The government has set aside 360 billion euros to boost the capital of French banks and help them step up lending. While it tries to rekindle the economy, it is underplaying concerns that suburban projects may need immediate, urgent attention.

“The tensions in the projects have existed for 30 years,'' Fadela Amara, the secretary of state for urban affairs in charge of the projects plan, told reporters Oct. 29. “It's not in 48 hours that you are going to solve the problems.''

For Dunlopillo's El Rhazi, the financial turmoil dashes any hope conditions in his neighborhood will improve soon.

“Project or no project, this crisis is bad news for all of us,'' he said. “More jobless people, more impoverished families will just make things here more unpredictable.''

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The Bank of Canada reduced its main interest rate by a quarter of a point, less than economists predicted, saying it will probably need to act again to fend off the effects of a credit crisis and global recession.

Governor Mark Carney and his five deputies trimmed the target rate for overnight loans between commercial banks to 2.25 percent, the lowest since October 2004. Seven of 24 economists surveyed by Bloomberg predicted the move, with 13 calling for a cut twice as deep and four expecting no change.

“Surprisingly they didn't cut by more, but the statement itself is awfully gloomy, leading me to believe there is an awful lot more to come,'' said Eric Lascelles, chief economics and rates strategist at TD Securities Inc. in Toronto.

The credit squeeze spurred by the subprime mortgage meltdown is sapping demand for Canadian shipments of automobiles and lumber to the U.S., Canada's main export market. The global financial crisis also may crimp the domestic spending that's propped up Canada's economy, policy makers said. Today marked the first scheduled decision by a central bank within the Group of Seven major economies since a coordinated rate cut on Oct. 8.

The central bank may have been reluctant to ease by half a point after already doing so this month, Lascelles said.

“These actions provide timely and significant support to the Canadian economy,'' policy makers said in a statement from Ottawa, referring to their own rate cuts and the joint move. “Some further monetary stimulus will likely be required.''

Currency Fell

The Canadian dollar weakened 1.6 percent to C$1.2105 per U.S. dollar at 11:06 a.m. in Toronto from C$1.1909 yesterday. The currency's drop from a record 90.58 Canadian cents per U.S. dollar set last Nov. 7 will help exporters, the bank said.

Policy makers cut their forecast for economic growth this year to 0.6 percent from a July prediction of 1 percent. Next year's gross domestic product will also grow 0.6 percent, compared with a July forecast of 2.3 percent.

Canadian exporters will be hobbled by a U.S. recession, a world economy that “appears to be heading into a mild recession,'' and lower prices for the country's exported commodities, the Bank of Canada said. Domestic spending will also be curbed by tougher lending conditions, the bank said.

Policy makers didn't say Canada's economy is headed for a recession, unlike assessments by BMO Capital Markets, Bank of Nova Scotia, Credit Suisse Holdings Inc. and UBS AG.

`Not Done'

“They firmly signaled they are not done,'' said Derek Holt, an economist at Scotia Capital in Toronto, adding the rate will be lowered to 1.75 percent at the next meeting http://payday-4all.com. “You could have taken that statement today and easily changed the headline to have a 50- or 75-basis point cut.''

Canada's key rate hasn't been below 2 percent since 1960, and its record low was 1.12 percent in 1958, a time when it was based on treasury yields rather than actions by policy makers.

Canadian banks, rated the soundest in the world this month by the World Economic Forum, are still reluctant to lend after the worst financial malaise since the Great Depression toppled institutions such as Lehman Brothers Holdings Inc. in the U.S. and Fortis in Europe.

The biggest commercial banks in Canada failed to quickly match the central bank's Oct. 8 move, the first time that's happened since 1997. Some matched the full 50-basis point cut only after the government created a program to purchase up to C$25 billion of their mortgages.

`Longer Downturn'

Prime Minister Stephen Harper, who won re-election on Oct. 14 by arguing he was a better economic manager than his rivals, has said he'll meet with provincial leaders in the coming months to discuss the economy. Harper last week also backed French President Nicolas Sarkozy's call for international meetings on restoring confidence in financial markets.

“We're looking at a much longer downturn in the American economy than anyone was thinking a year ago,'' British Columbia Premier Gordon Campbell said after a meeting of provincial leaders in Montreal yesterday to discuss the economy. British Columbia is Canada's top lumber-exporting province.

Canfor Paper Corp., Canada's second-largest lumber producer by market value, said Oct. 8 it will close a plywood plant in Fort Nelson, British Columbia. The 290-worker factory was shut because of “unprecedented and challenging market conditions,'' Chief Executive Officer Jim Shepard said in a statement.

Commodity Prices

Carney, 43, has room to cut rates further because the economic slowdown is pushing commodity prices down from record highs set earlier this year. Those higher prices drove inflation above the central bank's 2 percent target and boosted business profits and consumer incomes in provinces such as British Columbia and Alberta, which is home to the world's second-largest crude oil deposits.

Inflation peaked in the third quarter of this year and will fall below 1 percent in the middle of next year, the central bank said today. In July, policy makers said prices would accelerate to 4.1 percent between October and December.

The bank will provide a new detailed economic forecast paper in two days, and its next scheduled decision is Dec. 9.

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