Tag Archives: Company coverage
by Liz Hester
Deutsche Bank shocked the market with its surprise week-early earnings announcement, which was more than a $1 billion loss.
The Wall Street Journal had this story by Ulrike Dauer, David Enrich and Eyk Henning:
Deutsche Bank AG’s surprise €1 billion ($1.35 billion) fourth-quarter loss suggests that a new phase of banking cleanups is getting under way in Europe, a likely precursor to other European lenders absorbing financial hits.
European regulators, trying to douse the Continent’s banking crisis, are working on a round of examinations of banks’ books, scheduled for completion later this year. The goal is to identify lurking losses and force banks to set aside more money to cover future bad loans and, where necessary, to raise more capital.
Deutsche Bank’s loss appeared to partly reflect the bank acting in anticipation of the greater regulatory scrutiny, analysts said. The bank announced its quarterly results late Sunday, more than a week earlier than planned. On Friday, The Wall Street Journal had reported about the bank’s lackluster financial performance. In Frankfurt, Deutsche Bank’s shares fell 5.4% on Monday.
The loss, compared with analysts’ expectations of a nearly €700 million profit, is the latest blow to Deutsche Bank’s management, led by co-CEOs Anshu Jain and Jürgen Fitschen.
It marks the third time in the past five quarters that Deutsche Bank’s results have missed market expectations. And the bank, one of Europe’s largest by any measures, is facing an array of government investigations into the conduct of the bank and its employees.
Jack Ewing wrote for the New York Times that an economic turnaround in Europe isn’t likely to help the bank anytime soon:
Anshu Jain, the co-chief executive of Deutsche Bank, argued during a conference call on Monday that, despite the loss, “2014 will represent the turning point” in dealing with lingering problems of the financial crisis, which include a long list of legal woes and pressure from regulators to reduce risk.
If so, and if Deutsche Bank were part of a turnaround among European banks, it would be good news for the euro zone economy, which is barely growing, in part because credit is scarce.
But it may be more likely that any revival of Deutsche Bank and its big competitors, like Barclays and HSBC, will be based on growth in Asia or the United States and pass Europe by, said Kern Alexander, a professor of law and finance at the University of Zurich. The midsize banks that do much of the business and consumer lending in Europe will continue to struggle, Mr. Alexander said.
“The big global banks that are more multinational and more diverse are able to weather the storm,” he said. “The big question is, Will the banks be able to make loans and help the economy turn the corner?”
The Reuters story by Thomas Atkins emphasized the legal troubles the bank is having, something that is plaguing the entire industry as it works to recover from the financial crisis:
The unexpected loss is likely to compound the problems that have dogged the bank over the past year, especially a lengthening list of lawsuits and regulatory matters, and to redouble pressure on co-chief executives Anshu Jain and Juergen Fitschen to prove their turnaround plan is on track.
In a statement, the German bank said it would meet its 2015 targets but warned that 2014 would again be tough: “We expect 2014 to be a year of further challenges and disciplined implementation.”
The bank said that litigation cost it 528 million euros in the quarter, bringing the year’s bill for fines and settlements to 2.5 billion euros and lowering its litigation reserves to 2.3 billion euros at year-end.
Deutsche Bank was fined $1.9 billion in December by the U.S. Federal Housing Finance Agency to settle claims that it defrauded two U.S. government-controlled companies in the sale of mortgage-backed securities before the 2008 financial crisis.
It was also fined 725 million euros by EU antitrust regulators for rigging interest rates.
The lender has suffered a hailstorm of criticism in recent weeks, fanning a sense of crisis at Germany’s flagship lender as the list of scandals, investigations and negative headlines lengthens, while costly settlements and a downturn in trading revenue weigh on profit.
Bloomberg had this story by Nicholas Comfort, which had some analysts praise for investors:
The bank agreed to pay U.S. financing companies Fannie Mae (FNMA) and Freddie Mac 1.4 billion euros to settle claims that it didn’t provide adequate disclosure about mortgage-backed securities. The European Commission fined Deutsche Bank 725 million euros on Dec. 4 for its part in rigging interest rates linked to the London interbank offered rate. The company said Dec. 19 that it reached a settlement to forfeit 221 million euros to end a derivatives contract with Italian bank Banca Monte dei Paschi di Siena SpA.
“Deutsche Bank management deserves credit,” Kian Abouhossein, an analyst with JPMorgan Chase & Co. (JPM) in London who has an overweight recommendation on the stock, wrote in an e-mailed report today. The firm “is still in restructuring mode but management has delivered on our wish-list of aggressive exposure reduction, bringing forward of cost savings and settlement of some litigations.”
It looks like management still has a lot of work to do. Deutsche Bank’s exposure to bond markets and the European economy were big drags for the quarter. The New York Times story pointed out that the European economy is more credit dependent than the U.S. and that financial firms are caught in a tough spot of needing to make more loans in a down market. It’s a hard cycle to break.
by Liz Hester
Taking over one of the top oil jobs would never be easy, but for Shell CEO Ben van Beurden announcing a drop in earning for his company was likely difficult. It’s never a good sign for the global economy when energy companies are seeing earnings decline.
The Wall Street Journal’s Justin Scheck had this story about the announcement:
The steep costs of oil and gas development from Canada to Kazakhstan, sometimes with little to show for the giant investments, came back to haunt Shell on Friday when it announced its first profit warning in 10 years.
The Anglo-Dutch company said it now expects fourth-quarter earnings of $2.2 billion, down about 70% from $7.3 billion a year earlier. Full-year earnings are expected to total about $16.8 billion, down from $27.2 billion in 2012. “Our 2013 performance was not what I expect from Shell,” said Mr. van Beurden, who took over as Shell’s CEO just three weeks ago.
The bad news is the latest sign of profit pressure squeezing the world’s largest oil firms, including Shell, Chevron Corp. and Exxon Mobil Corp. All of them invested heavily on remote projects in places like deep water, frozen tundra and mountainous jungles. A surge in development costs and flat oil prices have made it harder to justify the costs of such projects, and the industry’s giants arrived late to the shale boom in North America, overpaying for assets.
Shell, the world’s second-largest publicly traded oil company by output, has been an especially big spender for the past decade. Shell estimated that its net capital-spending costs hit $44.3 billion in 2013, up nearly 50% from 2012.
But some of the company’s investments are struggling. Shell owns a stake in a Kazakh oil field that has cost more than $30 billion and is more than eight years overdue. Shell wrote down by more than $2 billion last year the value of its shale assets in North America. Sea ice and an oil-rig crash hurt an Arctic exploration project after an investment of more than $4 billion.
The New York Times Stanley Reed reported that many investors and analysts were surprised by the news:
“We’re a bit shellshocked this morning after this profit warning, which is highly unusual for an integrated oil company,” analysts at Sanford C. Bernstein in London wrote in a research note.
Analysts had expected $4.9 billion in adjusted earnings for the quarter, according to Bloomberg News. Shell also took a $700 million impairment write-down.
Shell’s shares fell more than 4 percent as markets opened in London, though they recovered some ground and closed the day down 0.9 percent.
Mr. van Beurden, who was head of refining at Shell when he took over the top job at the beginning of the year from Peter Voser, who has retired, seems to have inherited a situation that has grown more difficult since his promotion was announced last year.
Neill Morton, an Investec analyst, wrote in a note that “Shell has broken with its recent custom of disappointing on earnings day. It is now dishing up the bad news ahead of time.”
Mr. van Beurden said that “our focus will be on improving Shell’s financial results” and “achieving capital efficiency.”
Improving the finances is important, but some believe that management should focus on itself, according to a CNBC story:
Ishaq Siddiqi, a market strategist at London-based broker ETX Capital said it was worrying news from an oil major which is clearly suffering from management’s inability to get on top concerns regarding capital discipline.
“This is unlikely to change this year leaving markets worried about the group’s outlook,” he said in a morning note.
“Shell is not an isolated case however, as weak industry conditions for downstream oil are likely to hit sector peers too. For Shell itself, management must now implement more aggressive targets for group strategy in order to turn a page and improve capital efficiency which would go some way in improving operational performance.”
Shell said that a high level of maintenance activity during the last quarter affected high value oil and gas production volumes. A weak Australian dollar also hit earnings. It added that its Upstream Americas unit continued to incur a loss and the security situation for its Nigeria operation continued to remain challenging. Upstream oil operations search for and recover crude oil and natural gas, whilst downstream production processes the materials collected during the upstream stage.
The New York Times pointed out that it takes years to develop an oil field or other operation and make it profitable:
The company has now reported three straight quarters of disappointing earnings, and it may be tough for a new chief to turn things around quickly. The oil industry is a long-term business and it takes years to develop oil fields and other installations that, which, once completed, usually operate for decades.
The disappointing earnings “won’t just stop because of a new guy” at the helm, said Oswald Clint, an analyst at Sanford C. Bernstein, in an interview by telephone on Friday.
Obviously putting a new CEO in place doesn’t change past performance, but it will determine if the company is able to turn around its recent investments. But in the short-term it looks like van Beurden will have some explaining to do.
by Liz Hester
It looks like turning around an Internet behemoth isn’t as easy as it sounds. Yahoo Chief Executive Officer Marissa Meyer ousted her No. 2 executive Henrique de Castro, indicating the company isn’t turning around as fast as expected.
Douglas MacMillan and Joann S. Lublin had this story in the Wall Street Journal:
Henrique de Castro, the chief operating officer Ms. Mayer poached from Google Inc.GOOG +0.66% in 2012, is departing this week. One of the highest-paid executives in Silicon Valley, Mr. de Castro exits after about a year on the job with a severance package that could be worth more than an estimated $42 million.
The departure is a further sign yet that Ms. Mayer is struggling to revive growth in Yahoo’s advertising business, which has continued to lose share to rivals Facebook Inc. FB +0.10% and Google. Mr. de Castro, functioning as the company’s top ad executive and liaison to marketers on Madison Avenue, failed to convince advertisers to spend more money to reach visitors to its websites and mobile apps.
“There’s been no sign of a turnaround at the company,” said Mark Mahaney, managing director at RBC Capital Markets.
A spokeswoman for Yahoo declined to comment on the circumstances of Mr. de Castro’s departure. She also declined to comment on the size of the package except to say that a performance-based portion of the package hasn’t been determined.
The Associated Press reported that de Castro would leave with restricted stock that hadn’t yet vested in a story by Michael Liedtke:
It’s doubtful de Castro would be leaving if he were bringing in the revenue that Mayer envisioned, said BGC Financial analyst Colin Gillis.
“This was one of her key hires and he is already gone,” Gillis said. “It doesn’t look good.”
Mayer, who knew de Castro from the days when both executives worked at Google, will likely be questioned about what went wrong when she reviews Yahoo’s financial results for the fourth quarter, scheduled to come out Jan. 28. The Sunnyvale, Calif., company hasn’t warned that it missed its revenue forecast for the three-month period ending in December, an indication that Yahoo must have at least been reasonably close to hitting that financial target set by Mayer. Yahoo had projected fourth-quarter revenue of about $1.2 billion after paying commissions to its ad partners, unchanged from the previous year.
De Castro, 48, will leave Yahoo with much of the money and stock that he got when Mayer lured him to California from a Google advertising job in Europe. His severance package includes $20 million of restricted stock that wasn’t scheduled to fully vest until late 2016. He also will receive $1.2 million to cover the next two years of his salary. His rights to another batch of restricted stock valued at $9 million also have vested.
Brian Womack of Bloomberg estimated that de Castro was leaving Yahoo $109 million richer. That’s an excessive annual salary by any standard:
De Castro, Mayer’s top lieutenant, joined Yahoo in November 2012 from Google. He will receive severance benefits and equity awards in line with his contract, Yahoo said yesterday. He made an estimated $109 million from his stint at Yahoo, including salary, bonus, stock awards, compensation for leaving Google and severance payments, according to Equilar Inc., a compensation researcher based in Redwood City, California.
The firing is another sign of Mayer’s struggle to get the company on track as Yahoo searches for more users and ad dollars amid rising competition from younger rivals.
“This is going to be a very challenging turnaround,” said Ben Schachter, an analyst at Macquarie Securities. “When we talk to advertisers, we don’t hear a lot of excitement for traditional display ads — be it on Yahoo or others.”
While the stock has surged, some investors have attributed the gains to optimism regarding Yahoo’s stake in Chinese e-commerce company Alibaba Group Holding Ltd., rather than faith in Mayer’s turnaround. Alibaba, which plans to sell shares to the public, more than doubled profit in the second quarter to $707 million.
Reporting for the New York Times, Vindu Goel pointed out that there was no ceremony around his departure:
There was none of the usual corporate boilerplate that typically sugarcoats such departures — no praise for his service from Yahoo’s chief executive, Ms. Mayer, no mention of a sudden interest that Mr. de Castro had taken in spending more time with his family. A Yahoo spokeswoman said the company had no further comment on the matter.
But Ms. Mayer, who left Google to become Yahoo’s chief executive in mid-2012, was clearly displeased with Mr. de Castro’s performance.
In a memo announcing the leadership reorganization to Yahoo’s staff, she wrote, “I made the difficult decision that our COO, Henrique de Castro, should leave the company. I appreciate Henrique’s contributions and wish him the best in his future endeavors.”
Meyer is juggling unhappy analysts and investors who are waiting for some good news about the company. It’s yet another black mark on her tenure at the top that de Castro was able to negotiate such a huge severance package. There must be more to the story than simply stagnant growth to throw money at him to leave. Here’s hoping some enterprising reporter can get to the bottom of it.
by Liz Hester
The grand experiment of hyper-local journalism being conducted by an online company is over. AOL announced today that it would sell a majority of Patch.
William Launder wrote in the Wall Street Journal that the deal would be especially hard for AOL CEO Tim Armstrong since he founded Patch:
The deal marks AOL’s effective exit from Patch, after years of trying to make the venture and its 900 local news sites profitable. For AOL Chief Executive Tim Armstrong, the deal has particular significance, as he helped found Patch before joining the Internet company, which acquired Patch around the time Mr Armstrong became CEO in 2009.
Under the deal, which is expected to close in the first quarter, AOL will transfer Patch to a new company majority owned and operated by Hale Global. AOL will retain a minority interest. Financial terms weren’t disclosed.
Hale Global describes itself as a “technology holding company” that specializes in turning around distressed businesses. The firm has a low profile in the world of digital media, but counts executives including Bobby Figueroa, a former executive at Google Inc. and Yahoo Inc., YHOO -0.17% among its staff.
In a joint statement, the companies said that Hale Global had “substantial experience in the areas of online media, local marketing, mobile, retail and advertising.” The companies said they planned to relaunch Patch, with changes aimed at making the sites appeal to mobile users and across social media.
The Financial Times story by Emily Steel outlined the weight Patch has been on Armstrong’s tenure:
Patch has been a lightning rod for criticism throughout Tim Armstrong’s nearly five-year tenure as AOL’s chief executive. Mr Armstrong was a co-founder of Patch, which AOL acquired for less than $10m in 2009 as part of a broader strategy to capitalise on predictions for fast growth in local digital media markets.
“Patch is an important source of information for communities, and the joint venture we created has a unified mission to provide local platforms and hyper-local content,” Mr Armstrong said.
Mr Armstrong saw Patch as a community news outlet that could prosper as traditional local media, such as newspapers, suffered steep declines in advertising and subscriptions.
But the strategy came under fire, particularly amid a 2012 proxy battle with Starboard, the activist investor that lambasted the investment. Mr Armstrong promised that Patch would be profitable by the end of 2013 or that AOL would sell it, seek partners of shut it down.
Struggles at Patch have weighed on AOL and Mr Armstrong as he pushes the company through its transformation from its roots as a subscription-based internet provider into an advertising-supported digital media company.
The New York Times story by Leslie Kaufman pointed out that AOL could see some revenue if Patch becomes profitable:
The financial terms of the deal were not disclosed. But the companies said that AOL would put Patch into a new limited liability company, which will be majority owned and operated by Hale. The deal effectively removes Patch from AOL’s financial books.
However, as a minority stake holder, AOL could benefit if Hale were able to make Patch profitable. Patch’s traffic continues to grow and in November passed 16 million unique visitors.
Patch has been a personal passion of Mr. Armstrong’s, and also a bit of an albatross. He helped create the network while at Google in 2007 and, upon arriving at AOL, was behind the decision to buy it in 2009. But Patch expanded too quickly and became unwieldy.
Over the years, Patch lost between $200 million and $300 million dollars and was the subject of a proxy fight as investors lost confidence. Mr. Armstrong had to promise to pare back his vision, and last year fired hundreds of staff members. There were no details on staffing plans announced at the time of the deal with Hale.
Edmund Lee wrote for Bloomberg Businessweek about the company’s finances — or lack of them:
AOL Chief Executive Officer Tim Armstrong had told investors he planned to turn Patch into a profitable business by the end of last year. As part of that effort, he eliminated about 500 positions, or close to half of its 1,000 employees, in August. The job eliminations cost the company between $14 million and $18 million, according to a filing at the time.
Patch was a pet project of Armstrong, who helped found the startup in 2007 by investing $4.5 million of his own money, allowing it to begin with coverage of three townships in northern New Jersey. It was sold to New York-based AOL for $7 million in 2009. Armstrong, as AOL’s CEO, recused himself from the deal and forfeited the $750,000 he made in profit. He also returned the $4.5 million he recouped from the sale in exchange for shares in AOL.
Patch reached about $70 million in sales last year, or about $78,000 per local site, up from $16 million in 2012. The average cost to operate each site is $140,000 to $180,000, Armstrong had told investors, leaving a wide chasm between revenue and expenses.
It’s yet another sign that media companies are having a hard time figuring out how to turn a profit in an increasingly online and digital world. Maybe having business executives run the local news outlets will help them find new revenue streams.
by Chris Roush
Mary Barra, the first woman to lead a major global automaker, has a press corps following like no other executive, reports Tom Krisher of the Associated Press.
Krisher writes, “Barra, who officially becomes General Motors’ CEO on Wednesday, was pursued by about 100 reporters and photographers after GM swept car and truck of the year awards at the Detroit auto show Monday.
“Two large bodyguards and public relations handlers fended off the throng that chased her to the Cadillac exhibit, where she did a television interview. During the pursuit, one cameraman tripped over a couch and another ran into a post.
“A security guard said he hadn’t seen as large of a gaggle since former CEO Rick Wagoner was pursued as GM was headed toward bankruptcy in 2009.
“‘You guys have rocketed her to superstar status overnight,’ incoming GM North America president Alan Batey told reporters at the show.”
Read more here.
by Liz Hester
Merger Monday brought a huge announcement in the liquor world. Japanese whiskey maker Suntory is buying Beam Inc. for $13.6 billion. Since it’s the first large deal of the year and such an iconic American product, the coverage was extensive.
Few spirits are as American as bourbon. But the maker of some of whiskey’s most iconic brands, including Jim Beam and Maker’s Mark, will soon belong to an acquisitive Japanese beverage maker.
In a deal announced on Monday to buy Beam Inc. for $13.6 billion, Suntory of Japan struck one of the biggest takeovers in the liquor business in years, transforming it into the third-largest distiller globally.
The acquisition may also signal the last mega-deal in the spirits industry for some time. Beam has long been considered the most attractive big target for consolidation. Rivals like Brown-Forman, the maker of Jack Daniel’s, are controlled by families, performing well on their own and have shown little interest in potential takeovers.
The giants of the business — Diageo of Britain and Pernod Ricard of France — face many constraints on their ability to grow by mergers. While the two companies had considered bidding for the American whiskey producer, neither ultimately moved ahead.
The Wall Street Journal story by Mike Esterl in Atlanta and Hiroyuki Kachi in Tokyo had excellent background on the growing market for American whiskey:
Beam is positioned squarely in a part of the liquor business experiencing a powerful global upswing: bourbon whiskey. The traditional American spirit is made mostly from corn, aged in charred oak barrels and typically hails from Kentucky. Its popularity is building as some consumers grow tired of vodka, the top-selling U.S. spirit, and gravitate toward distillers of brown spirits with more than centurylong domestic roots.
Long in the doldrums, U.S. bourbon has made a comeback in the past decade and production in 2012 rose above one million barrels for the first time since 1973. Distillers have invested roughly $300 million to boost capacity since 2011. North American whiskey—including bourbon, Tennessee and Canadian whiskeys—accounted for more than half of the total growth in the $21 billion U.S. spirits market in the 52 weeks ended Oct. 12, 2013, according to store tracker Nielsen.
Unlike vodka, a popular “white” spirit with roots in Europe, bourbon is quintessentially American and has been re-popularized through television shows such as “Mad Men,” which is set in the 1960s and features then-advertising executives with rock glasses in hand.
Bourbon makers routinely play up their brands’ long local histories. Beam traces its flagship bourbon to 1795, when Jacob Beam sold his first barrel, the first of seven generations and 30 family members of master distillers. One of them, James or “Jim” Beam, restarted production after Prohibition was repealed in 1933.
In recent years, dozens of tiny “craft” distillers have also sprung up across the U.S. to capitalize on the growing thirst for brown spirits such as bourbon. Some bourbon brands—including Maker’s Mark—have said they are struggling to keep up with demand.
Bloomberg’s Clementine Fletcher and Leslie Patton wrote that Japanese companies are looking to increase overseas growth:
Suntory, the maker of Yamazaki whiskey and Premium Malt’s beer, is seeking to boost overseas growth as the population in its home country shrinks and ages. The company in 2012 had explored an offer for Beam alongside Diageo Plc. (DGE) Beam, whose largest shareholder is activist investor Bill Ackman’s hedge fund, in 2012 got 59 percent of its revenue from North America and 21 percent from Europe, the Middle East and Africa.
“Strategically, it makes sense for Suntory,” said Trevor Stirling, an analyst at Sanford C. Bernstein & Co. in London. “I’m a little surprised they decided to go it alone, but at the moment there are low yen interest rates.”
Beam rose 25 percent to $83.42 at the close in New York yesterday. The advance would mean a $342.5 million gain for Ackman’s Pershing Square Capital Management LP if its stake is unchanged from Sept. 30. The shares traded as high as $83.61, topping the offer price, indicating some investors expected competing bids. Deerfield, Illinois-based Beam gained 11 percent last year.
The takeover would be the largest overseas acquisition by a Japanese company since SoftBank Corp. (9984) acquired Sprint for $21.6 billion in a deal announced in 2012.
Fueled by a strong currency, Japanese companies embarked on an overseas buying spree that peaked with $113.5 billion worth of deals announced that year, data compiled by Bloomberg show. With the yen weakening, the value of overseas deals announced last year dropped to about $46 billion, the data show.
David Gelles wrote a sidebar for the New York Times pointing out that there might not be too many more deals like this one:
A big whiskey acquisition is a shot in the arm for the global spirits industry, but there may not be many more substantial liquor deals to strike.
By agreeing to acquire Jim Beam for $13.6 billion on Monday, Suntory, a privately held Japanese food and beverage producer, snatched up one of the most attractive targets left on the market, and will assume the mantle of the third-largest distiller globally.
With brands including Maker’s Mark and Jim Beam bourbon, Beam had been riding high in recent years.
“It’s a good deal for Beam shareholders,” said John Faucher, JPMorgan analyst. “Looking at the rapid growth we’ve seen in bourbon over the recent years, Beam is doing good job seizing the moment, striking while the iron is hot.”
But Beam is a company at least two other global spirits groups would have liked to own.
The Beam brands are incredibly valuable and Suntory looks to have edged out several others who would have liked to own it. I just hope that Suntory is going to use the Beam distribution network to increase its reach in the U.S. The more whiskey, the better.
by Liz Hester
As Detroit works through one of the biggest bankruptcies in municipal history, the auto industry begins to return to profitability. It’s one of the best turnaround stories of the year told through the annual auto show.
The Wall Street Journal had this story by Joseph B. White about the state of the city:
Leaders of the world’s major auto makers gathering in Detroit this week for the North American International Auto Show will find a far more hospitable climate than they’ve experienced during the past several years.
Detroit’s weather promises to be chilly and dank as ever. But the U.S. auto industry is enjoying blue skies. Sales in 2013 recovered nearly all the ground lost during the Great Recession in 2009, as demand for luxury cars and highly profitable trucks and sport-utility vehicles boomed and gasoline prices drifted down. The pace of growth in 2014 will slow, but most industry executives expect smooth sailing for the near term compared with the turmoil of recent years.
What could possibly go wrong? That will be the subtext as industry executives pitch new models to media and check out each other’s wares.
For Detroit’s restructured auto makers, one challenge will be to avoid repeating a pattern of boom and bust that’s plagued the U.S. car business since the early 1980s. Prosperity has tended to beget ill-advised diversification and bloated costs in Detroit. This time, however, the pain of near-death, bankruptcy and humiliating federal bailouts may not be so quickly forgotten.
The New York Times had this piece by Bill Vlasic about the boon the auto show will bring to the city:
Ever since Detroit filed for bankruptcy six months ago, political and business leaders here have insisted that the city’s long-awaited comeback has already begun.
This week is their chance to prove it, as thousands of automotive executives, suppliers and members of the news media descend on downtown for the annual North American International Auto Show.
The auto show has historically been a financial boon to the city, and this year is no exception. Organizers estimate that it will contribute $365 million to the local economy in wages and other spending.
Yet with the city mired in Chapter 9 bankruptcy, the event has taken on added importance. With Detroit’s worldwide reputation as shaky as its finances, it desperately needs a successful show to improve its battered image.
Reuters Deepa Seetharaman and Ben Klayman had a story about the changes in leadership at the top of the U.S. automakers and what that means for the industry:
This year is shaping up as a test of leadership at GM, Ford and Chrysler, five years after the U.S. auto industry’s searing restructuring. While the risks ahead are no longer life-threatening, how the companies respond will set their direction for years to come and signal whether the lessons of the financial crisis were embedded deeply enough.
“It’s a turn of an era,” Xavier Mosquet, senior partner and managing director at Boston Consulting Group, said in an interview. “Frankly, it is a totally different, new type of competitive situation that is emerging.”
Analysts see 2014 as a transition year, with slowing growth in the U.S. auto market and companies facing a renewed mandate to gain ground overseas. The 2015 contract talks with the United Auto Workers union also loom in the background.
In the weeks leading up to this year’s Detroit auto show, GM, Ford and Chrysler have all taken steps that highlight the leaders who will help them face what Mosquet described as the most competitive North American market in decades.
Kim Gittleson writing for the BBC said that the U.S. carmakers are gearing up for a year of transition:
This year promises to be one of transition for the big three, with Mary Barra taking over from Dan Akerson as the head of GM, while Ford boss Alan Mulally is set to depart at the end of this year.
In 2013, Chrysler avoided a public stock offering and finally came under complete ownership of Italian carmaker Fiat, giving boss Sergio Marchionne the chance to finally integrate the two firms, which badly need each other.
All of these developments are seen as good omens for the resurgence of the US car industry in 2014.
“Detroit is on the offensive again and it’s for very substantive reasons – good product, competitive costs, and improving brand reputation,” says Guggenheim car analyst John Casesa.
The Detroit Free Press had a story by Nathan Bomey about the relationship between Barra and the man she beat for the job – Mark Reuss:
Barra and Reuss rose through the GM ranks at a similar pace. She graduated from General Motors Institute and he from Vanderbilt University, but both joined GM as student interns and never left.
Both held high-level engineering jobs before being assigned to different roles at the height of GM’s crisis — Reuss as president of GM’s Australia unit and Barra as head of GM’s human resources division.
Although the leadership transition is not complete yet — CEO Dan Akerson retires Wednesday — Barra and Reuss already have a crisis on their hands.
Late Friday, GM recalled all of the 2014 Chevrolet Silverado and GMC Sierra full-size pickups with 4.3-liter and 5.3-liter engines to address a software issue that could cause exhaust components to overheat and ignite engine fires. The automaker said it issued the voluntary recall for 370,000 pickups after getting reports of eight fires with no injuries.
Despite the signs that GM and other auto companies are heading in the right direction, there are still some obstacles that they’ll have to overcome. But more importantly, the show is critical for Detroit as it attempts to come back from bankruptcy.
by Liz Hester
Reports Tuesday that Congress is considering changing some provisions of the Volcker Rule came as banks started to react to the new law.
Floyd Norris wrote about the potential changes in the New York Times:
When Zions Bank announced last month that it expected to take a big loss because of the Volcker Rule, it set off alarms all over Washington. Regulators scrambled to say they were considering changing the rule, but that was evidently not enough for some legislators.
Representative Jeb Hensarling, a Republican of Texas and chairman of the House Financial Services Committee, is expected to propose a bill that could open up a huge loophole in the rule. The proposed change could allow banks to create and own securities with many types of investments that are barred under the Volcker Rule, which is intended to prohibit speculative trading by banks while letting them both make markets for customers and hedge other investments.
Jeff Emerson, an aide to Mr. Hensarling, said on Tuesday that the chairman expected to propose the bill soon. A copy of it was provided by another congressional aide, who declined to be identified. It was that aide who raised the possibility of widespread abuse if the legislation were enacted.
Zions, based in Salt Lake City, said that it expected to post the loss because it owned a large number of collateralized debt obligations that contained trust-preferred securities, known as TruPS, issued by other banks. The bank said it would have to post the loss, which it estimated at $387 million before taxes, because it would no longer be able use an accounting rule that allowed it to keep losses on those securities off its earnings statement, although they were disclosed in footnotes.
That accounting treatment depended on the bank being able to say it expected to retain the securities until they matured, something it would not be able to do if the Volcker Rule would require the sale of the securities, even if the sales could be delayed for several years.
Stephen Gandel wrote in CNN Money that bankers were upset that they might have to show losses on the securities:
Bankers, nonetheless, cried foul. In late December, the American Banking Association sued to halt the Volcker Rule from going into effect, saying it was unfairly punishing Zions and hundreds of other small banks that had bought TruPs CDOs. Almost immediately, regulators announced they were reviewing TruPs and the Volcker Rule. And now it looks likely regulators will exempt the securities.
The retreat from regulators is understandable. The purpose of the Volcker Rule was to deter banks from making risky trades with their own money. TruPs CDOs are not actually hedge funds, or a proprietary trade. As Zions said, it planned to hold the CDOs to maturity, and that makes them more like many other bonds that banks buy and are still allowed to hold under Volcker. And they are largely held by small banks, not the large banks that threatened the economy in the financial crisis. So, not the types of things that the Volcker Rule was set up to limit.
But that doesn’t mean banning TruPs CDOs is a bad thing. TruPs are a type of debt that is sold by banks and other financial firms. The financial crisis threw into sharp relief the fact that the system was too interconnected. If one large bank were to fail, they would all go down. Banning banks from holding a type of debt could limit that risk. And banks would still be allowed to own TruPs, just not in CDOs, which makes it easier for banks to hide losses.
While regulators sort through the outcomes from the new law, Citigroup is also considering selling some private equity investments in order to comply with the new rules, Shayndi Raice wrote in the Wall Street Journal:
Citigroup Inc. is considering selling its $1 billion stake in a private-equity fund to comply with new federal rules, said a person familiar with the matter.
The move is in line with Citigroup’s strategy of shedding its private-equity and hedge-fund assets to comply with the so-called Volcker rule, part of the Dodd Frank financial overhaul, which forbids banks from investing in funds they don’t manage. It also caps the amount a bank can invest in such a fund to 3% of the fund’s assets.
Citigroup is considering selling its remaining stake in an emerging-markets fund it sold in August to the Rohatyn Group, a private-equity fund run by Nick Rohatyn, son of financier Felix Rohatyn. During meetings with the Rohatyn Group, investors expressed interest in purchasing Citigroup’s stake, said the person. A formal offer for the stake could come in the first half of 2014, the person added.
Citigroup executives have acknowledged for some time that they will need to sell the stake or ask for an extension to comply with the Volcker rule.
Reuters reported in a story by Huw Jones that the European Union’s proposal isn’t as strong as the U.S. regulations:
Banks in the European Union face limits on taking market bets with their own money under a draft EU proposal that represents a central plank of attempts to prevent a repeat of the financial crisis of 2007 to 2009.
Policymakers want to rein in excessive trading risks in the EU banking sector, whose assets total some 43 trillion euros ($59 trillion), that could threaten depositors if trades go wrong and potentially put taxpayers on the hook in a rescue.
Yet the EU proposal, seen by Reuters on Monday, has already been described as a watered-down measure designed to ensure approval across the bloc and which is less rigorous than equivalent “Volker Rule” regulations being introduced in the United States.
It seems that despite the best intentions of regulators putting the laws into practice isn’t as easy as it first appears. There are some unintended consequences for the banks and for those trying to curb their investments.
by Chris Roush
Eric Starkman, a public relations professional, writes that Vanity Fair magazine and Fortune magazine appear to have switched roles with the hard-hitting business coverage appearing in the former about Yahoo’s CEO.
Starkman writes, “I can’t do justice summarizing McLean’s prodigious reporting in this space, but suffice to say that McLean shatters many myths, including that Mayer’s departure was a major loss for Google. McLean reveals that many of the accomplishments that have been attributed solely to Mayer during her time at Google were more a team effort. Indeed, her star had been losing its luster there when she left for Yahoo! (a point underscored by McLean’s reporting that there was no shortage of people who actually cheered Mayer’s departure). It’s noteworthy that code-writing Google engineers didn’t follow her out the door despite the fact that Mayer is an engineer; the only Google recruit was a PR person, who, quite tellingly, was Mayer’s first Yahoo! hire. McLean also suggests that if Mayer hadn’t given Dan Loeb a sweetheart deal to go away, the savvy investor quite possibly might have fired her.
“Reporting excellence aside, McLean’s article is also notable for where it appears. Vanity Fair, a glossy monthly better known for its stories on the lives and scandals of the glitterati among Hollywood, Washington, Wall Street and the like, has emerged as a bastion for more thoughtful and insightful explanatory business journalism. The magazine has published a slew of impressively provocative business features, including Sarah Ellison’s reporting on Rupert Murdoch’s empire (here, here, and here, among others) and her profile on CNN host Piers Morgan, Michael Lewis’ story about Goldman Sachs’ seemingly undo influence with federal prosecutors, and William Cohan’s less-than-flattering profile of investor Dan Loeb.
“McLean wrote for Fortune magazine a few years back. At the time, standard-setting expository and investigative journalism was the magazine’s raison d’être. As I predicted, however, the magazine didn’t fare well under the stewardship of Laura Lang, who was forced out last year, and is no longer the leader of the pack, partially due to a top talent exodus. In addition to the departure of Hank Gilman, a highly respected managing editor known to favor hard-hitting stories, the magazine also lost James Bandler, a Pulitzer-prize winning reporter who was responsible for some of Fortune’s most noteworthy features (see here).”
Read more here.
by Chris Roush
The 23-year-old CEO of Snapchat criticized journalists on Twitter Monday morning, claiming that some details in a recent Forbes cover story about his startup were misreported, but Forbes responded hours later with a transcript from Spiegel’s interview with the story’s author, reporter J.J. Colao, essentially proving that Spiegel misled the publication during its reporting.
Kurt Wagner of Mashable writes, “The details in question were included in the story’s lead, and depicted an email exchange between Spiegel and Facebook CEO Mark Zuckerberg. In the story, Zuckerberg emailed Spiegel in late 2012 asking for a meeting to discuss the new startup. Spiegel’s response: ‘I’m happy to meet … if you come to me.’
“At least that’s what Spiegel told Forbes.
“Few people can pull off a demand like that, especially when speaking with the multibillionaire CEO of the world’s largest social network. And it turns out Spiegel is not, actually, one of those people.
“After a Business Insider reporter called Spiegel ‘arrogant’ after reading the Forbes article, Spiegel responded on Twitter by publishing the actual email chain between him and Zuckerberg from November 2012. The emails confirmed that Spiegel did not, in fact, set the terms for the meeting as originally described by Forbes. Instead, Zuckerberg simply had plans to be in Los Angeles a few weeks later, and the meeting was established during his trip.
“At first, it looked as if Forbes goofed — until the publication released a transcript of its interview, in which Spiegel ‘fabricated a story full of swagger,’ according to Forbes editor Randall Lane.”
Read more here.