DETROIT – General Motors Corp. says its restructuring plan is starting to take hold, improving the automaker’s fortunes at least to the point that it won’t need a US$2 billion U.S. government loan installment that it had requested for March.
Chief financial officer Ray Young said Thursday that GM formally told the Obama administration’s autos task force on Wednesday that it wouldn’t need the money this month. But in an interview with The Associated Press, Young would not say when the struggling automaker would need more government money or whether it will reduce the size of its loan request.
"It seems like our companywide cost reduction efforts are moving well, as well as we’ve been able to defer spending that we previously anticipated in January and February," Young said. "I think that’s a positive development."
GM, which is living on US$13.4 billion in government loans, has requested another $16.6 billion as it tries to weather the worst auto sales slump in 27 years.
In Canada, the company’s Canadian unit, GM Canada, has asked for about $6 billion in loans from the federal and Ontario governments.
Young said GM is continuing to calculate its cash balances and plans to update the task force when it may need more money.
"We’re working through the forecast right now," he said. “We’re not going to slow down in terms of our companywide cost reduction initiatives. We continue to look toward deferring expenditures as much as we can in order to avoid having to draw more liquidity."
Young’s statements appeared to help GM’s shares. They rose 24 cents, or 12.9 per cent, to US$2.10 in THursday trading on the New York Stock Exchange.
Young said GM’s cash burn rate, the amount of spending above revenue, has slowed since the company submitted a viability plan to the government on Feb. 17.
"The cash burn that we thought we were going to have in January and February is not as high. Clearly we still have a cash burn," he said, attributing the burn rate to a lack of revenue from the company shutting down many of its factories for the month of January.
GM burned through $19.2 billion in cash last year on its way to a $30.9 billion loss.
Young would not say if GM will need another government loan draw in April. In its viability plan filed Feb. 17, GM asked for $2 billion in March and another $2.6 billion in April. It would not need any more money until 2011 when a $4.5 billion revolving line of credit comes due. The company also says it could need up to $7.5 billion more if the economy doesn’t improve, for a total of $30 billion by 2011. It plans to start repaying the loans with $2 billion in September.
GM is coming close to spending the $13.4 billion in government loans it received through February. The money, Young said, was used largely to pay parts suppliers, employees and dealers when GM had little revenue coming in due to January production slowdowns across the globe quick cash.
"We had very little receipts, but we still had a lot of payments related to prior production and prior sales," he said. "We used that liquidity in order to address basically a lot of expenses that we had."
Young also said in the interview that GM’s new contract with the Canadian Auto Workers union, ratified Wednesday by the membership, comes very close to closing the cost gap that GM has with foreign automakers that have U.S. factories.
He conceded it doesn’t close the entire gap, and would not say how much GM will save from the concessions or what its hourly labour costs would be. Young also said GM is in talks with the CAW and the Canadian government about forming a trust fund that would pay retiree health care costs inn Canada.
Young wouldn’t comment on Chrysler LLC vice-chairman Tom LaSorda’s threat to close Canadian plants if Chrysler doesn’t get cost-competitive contracts and government aid, saying Chrysler’s costs could be different from GM’s.
GM, under the CAW contract, agreed to keep 20 per cent of its North American manufacturing volume in Canada. The agreement includes a wage freeze to September 2012, the elimination of an annual bonus and a reduction in paid time off, among other concessions.
Young also said negotiations are progressing in the U.S. with the United Auto Workers over swapping stock for part of the cash payments that the company is required to make to a union-run trust that will take over retiree health care costs next year. GM already has a deal on other labour cost concessions, but details have not been released.
Both the trust concessions and labour cost cuts are required under term sheets that came with government loans granted to GM and Chrysler. The term sheets say both companies must do their best to reduce labour costs so they are equal to Japanese automakers with U.S. factories by the end of this year.
Ford Motor Co.’s U.S. hourly workers earlier this week approved cost cuts and funding half the trust with stock, and the UAW has said the GM deal would be patterned after Ford’s.
Ford officials said Wednesday that the concessions would reduce its total hourly labour cost to $55, still at least $6 higher than Japanese automakers with U.S. factories.
But Young said GM can still comply with the terms of its loans using the Ford deal as a framework.
"We’re working through that," he said. "There are other things that we can work on with the UAW in terms of further closing the gap, and a lot of that’s related to improving productivity further."
Young said Ford also indicated it would need productivity gains to close the cost gap.
"I think the term sheet says that we’re going to be competitive with the transplants. It doesn’t say identical."
Ultimately, Young said GM still has to demonstrate to the autos task force that it can become viable.
Gone are the days of luxury California hotel retreats for executives of bailed-out U.S. insurance giant American International Group.
Once mighty AIG has a new employee expense handbook, a special governance committee, and strict limits on executive pay, according to a letter from Federal Reserve Chairman Ben Bernanke to Senator John Kerry that was obtained by Reuters on Tuesday.
The new expense policy was mandated by the U.S. Treasury Department and “may be materially amended only with the prior written consent of the Treasury,” Bernanke said.
The letter from the Fed chairman to Kerry, a Massachusetts Democrat, opens a window onto how much influence the Fed and Treasury have over day-to-day events at AIG. It also shows that Kerry, at least, can get answers on AIG from the Fed.
During a congressional hearing last week, lawmakers demanded the Fed identify financial firms that received money from AIG. Fed vice chairman Donald Kohn refused.
Almost six months ago, the government stepped in to save AIG from disaster after its credit derivatives businesses was crushed by a crisis in credit markets that continues today.
Despite a taxpayer-backed rescue package worth $173 billion, AIG is still bleeding red ink. It posted a $61.7 billion quarterly loss earlier this month.
If the bailout — including credit and equity investments by the Fed and Treasury — has not put the agencies in AIG’s driver’s seat, they’ve got their hands on the steering wheel payday loan lenders.
Writing in response to an October letter from Kerry, Bernanke said the Fed can insist that AIG meet minimum corporate governance standards, monitor its financial condition and “restrict certain major decisions that might reduce the ability of AIG to repay its loan” from the Fed.
He said the Fed routinely makes its views known to AIG.
“Last fall, for example, we made clear to AIG’s management our deep concern about reported incidents of corporate spending and questions surrounding certain executive compensation.”
AIG came under fire in October for spending $200,000 on hotel rooms and $23,000 on spa services at an event, just days after it got an emergency government loan to avoid bankruptcy.
AIG has said that 10 employees from its subsidiary, AIG American General, attended the 100-guest event.
Kerry wrote to Bernanke and former Treasury Secretary Henry Paulson in October asking them to ensure AIG did not incur “unnecessary or excessive expenses at a cost to the taxpayer.”
Bernanke said in his letter to Kerry the Fed supported AIG establishing a special governance committee, issuing a new employee expense policy guidebook, and cancelling meetings, conferences and other events not clearly needed for business.
Latvia faces bankruptcy in three months if it fails to deliver budget cuts required by the International Monetary Fund and the next installment of its bailout is delayed, Premier-designate Valdis Dombrovskis said.
“If we do not continue to receive this international loan, then we go bankrupt in June,” Dombrovskis, 37, said in an interview on March 6.
Latvia, in the grip of the severest crisis since independence in 1991, was granted a 7.5 billion-euro ($9.5 billion) bailout last quarter after the economy shrank 10.5 percent and the state seized its second biggest bank. The government fell on Feb. 20 after agreeing to budget cuts needed to keep the deficit below 5 percent of gross domestic product.
Dombrovskis wants the IMF to approve a deficit of 8 percent of GDP to avoid crippling the economy. Latvia must cut the budget to meet terms of the bailout or get a bigger loan from the IMF- led group and European Commission or it will run out of money.
“It’s hardly possible” to keep to the earlier target, Dombrovskis said. “The previous memorandum of understanding was signed under the assumption of a 5 percent recession, meanwhile the forecast is for 12 percent and it may get worse.”
Latvia faces a deepening contraction as its currency peg to the euro forces it to push through wage cuts to remain competitive. The economic collapse threatens to spread through the whole Baltic region, and there may be need for a broader bailout that includes Lithuania and Estonia, Dombrovskis said online payday loans.
‘Domino Effect’
“In the Baltic region there is a fear of a domino effect, if one country would go, then probably the whole region will go,” he said. Any plan “could talk about all three countries, with a focus on Latvia as its weakest link.”
Last quarter, Estonia’s economy shrank an annual 9.4 percent, the most in at least 15 years, while Lithuanian GDP contracted for the first time in nine years, shrinking 2 percent.
Bankruptcy in Latvia would also affect Sweden, Dombrovskis said. Swedish banks have claims in Latvia, Lithuania and Estoni worth about $75 billion, according to ING Groep NV.
Standard & Poor’s cut Latvia’s credit rating to junk on Feb. 24, lowering the country to BB+ from BBB-. Credit-default swaps for Latvia soared to a record 1,109 basis points on March 3, the highest in the EU.
Dombrovskis’s five-party coalition, which may be confirmed by a parliamentary vote this week, is planning to cut spending by 360 million lati ($642 million) instead of the 700 million lati that would be necessary to keep the deficit under 5 percent.
The pace of borrowing by U.S. consumers increased in January for the first time in four months as rising joblessness caused Americans to pull out their credit cards to take advantage of post-holiday discounts.
Consumer credit unexpectedly rose by $1.76 billion, or 0.8 percent at an annual rate, to $2.56 trillion, the Federal Reserve said today in Washington. Credit decreased by $7.48 billion in December and a record $9.13 billion in November, more than previously estimated in both months. The Fed’s report doesn’t cover borrowing secured by real estate.
The value of car and truck loans rose 0.7 percent while deep discounts at retailers such as Limited Brands Inc. and Macy’s Inc. boosted consumer spending in January for the first time in seven months. Still, the gains in credit and spending may be short-lived as payrolls drop and banks remain reluctant to lend.
“Consumer credit bounced in January on the heels of sharp declines in November and December,” Steven Wood, president of Insight Economics LLC in Danville, California, said in a note to clients. Overall, Wood said, “consumers are deleveraging along with the rest of the economy, which “does not bode well for real consumer spending in the months ahead.”
Economists had forecast consumer credit would drop $5 billion in January, according to the median of 27 estimates in a Bloomberg News survey. Projections ranged from an $8.1 billion drop to a gain of $3.2 billion.
Revolving debt such as credit cards increased by $926.5 million. Non-revolving debt, including auto loans and mobile home loans, rose by $830.2 million.
Consumer Spending
Other reports indicated consumer spending improved in the first two months of the year as Americans seized on retailers’ discounts. Wal-Mart Stores Inc., TJX Cos. and Aeropostale Inc. yesterday reported better-than-anticipated February sales free instant credit reports.
Retailers had less merchandise left over from the holidays in February and offered new spring items, bringing more people out to shop than the month before, Stifel, Nicolaus & Co. analyst Richard Jaffe said.
Retail Metrics, a researcher, said U.S. comparable-store sales rose 0.7 percent in February, better than the 1.1 percent decline analysts had estimated and the first positive result since September. The outcome was helped mostly by Wal-Mart, Retail Metrics President Ken Perkins said.
Still, the unemployment rate jumped in February to 8.1 percent, the highest level in more than a quarter century, the Labor Department said today, a surge likely to send more people into bankruptcy and force further cutbacks in consumer spending.
‘Remained Tight’
Payrolls fell by 651,000. Losses have now exceeded 600,000 for three straight months, the first time that’s happened since the data began in 1939. Revisions to the previous two months lopped off an additional 161,000 positions.
Lending fell across the U.S. and credit availability “remained tight” over the last two months, the Fed said March 4 in its regional business survey.
More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth, First American CoreLogic said the same day. Households at or near negative equity account for a quarter of mortgage holders.
Declining U.S. auto sales in February indicate auto loans will drop. Sales slid to a 9.1 million annual pace during the month, the lowest rate since December 1981, according to Autodata Corp. The drop was led by General Motors Corp., Ford Motor Co. and Chrysler LLC.
Full text of the letter:
Dear Mr. Sloan:
Recent events have fatally undermined investor confidence in Bank of America (BAC) Chairman and CEO Kenneth D. Lewis. With BAC’s share price now down 90% in 5 months, we call upon the BAC board of directors to immediately seek the resignation of Chairman and CEO Ken Lewis. Absent prompt action to remove Mr. Lewis, we will have no choice but to call upon BAC shareholders to join us at BAC’s upcoming annual meeting in voting against Mr. Lewis, Thomas Ryan, as chair of the Corporate Governance Committee responsible for CEO succession, and you as lead independent director.
A year ago, we communicated grave concerns with BAC’s failure to manage risk in a February 6, 2008 letter to three members of the board’s Asset Quality Committee. Absent a compelling explanation, we indicated our intent to oppose the directors’ re-election at BAC’s 2008 annual meeting. In response, you invited us to a meeting in Charlotte during which you assured us the board was diligent in its oversight of management and had already taken steps to substantially improve risk management. Based on these assurances, we did not oppose the election of any BAC directors.
The board, however, subsequently allowed Mr. Lewis to take outsized, reckless risks by acquiring Merrill Lynch in the midst of severe financial uncertainty. After hastily arranging the ill-considered acquisition, management then failed to disclose Merrill’s staggering fourth quarter losses prior to the shareholder vote on the merger. In addition, BAC’s senior management was reportedly aware of Merrill Lynch’s intent to distribute nearly $4 billion in bonuses at a time when Merrill Lynch was suffering heavy losses. It also appears that Mr. Lewis had the ability to prevent the payments under a previously undisclosed agreement.
Removing Mr. Lewis is now a necessary prerequisite to restoring BAC’s credibility with shareholders, regulators and the public. If the board fails to remove Mr. Lewis prior to filing its 2009 annual meeting proxy this month, we will urge shareholders to join us in opposing Mr. Lewis’ re-election and that of the independent directors most culpable for his continued employment.
The CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a coalition of unions representing 6 million members, to enhance long-term shareholder value through active ownership. These funds, together with public pension funds in which CtW union members participate, are substantial long-term Bank of America shareholders.
At the time of our March 2008 meeting to discuss BAC’s risk management failures, BAC had lost approximately 30% of its market capitalization over the previous year, in significant part due to liquidity support agreements included in the terms of CDOs BAC had issued since 2005. At that meeting, we were assured by you and BAC’s risk management team that the company understood the mistakes it had made, and had already taken steps to substantially improve its risk management process going forward, including a commitment to seeking outside opinions concerning future developments in the financial markets.
Subsequent events suggest that neither the board nor management put adequate risk management practices in place: despite serious concerns with the Merrill acquisition voiced by numerous outside observers, the board supported Mr. Lewis’ gamble, with devastating results. Whereas BAC had entered the September-October meltdown in relatively strong shape compared to peer institutions - having lost only about 40% of its January 2007 market capitalization at the time Lehman Brothers collapsed - the board’s acquiescence to the Merrill Lynch acquisition has since precipitated a 90% fall in BAC’s share price free 3-in-1 credit report.
Shareholders’ loss of confidence in BAC stems from the announcement on January 16 that Merrill Lynch had lost an additional $15.3 billion - and over $19 billion in shareholders’ equity - in the fourth quarter of 2008, essentially doubling its losses for the year.
BAC shareholders could have avoided these devastating losses had BAC either exercised its rights under the Material Adverse Effects clause or disclosed the losses to its shareholders prior to our voting on the merger. Mr. Thain has reportedly indicated that BAC had ongoing access to Merrill Lynch’s daily profit and loss reports. Nevertheless, Mr. Lewis claims that he and his team were unaware of the scale of Merrill’s losses until after the December 5 shareholder vote. At that time, Mr. Lewis requested and received considerable further taxpayer support in the form of additional preferred equity and a partial guarantee of the value of approximately $118 billion in assets. But despite apparently recognizing the severity of Merrill’s condition and the damage a merger would do to BAC, Mr. Lewis neither informed shareholders of the scale of Merrill’s fourth quarter losses nor invoked BAC’s contractual rights under the merger agreement’s Material Adverse Effects clause.
More recently, shareholders have learned that at essentially the same time as the merger agreement, BAC and Merrill Lynch entered into a previously undisclosed agreement according to which Merrill was able to issue bonuses from a pool of approximately $5.8 billion, and that the bonuses “shall be determined by the company (Merrill) in consultation with the parent (Bank of America).” Indeed, it appears that BAC used its authority to influence Merrill’s bonus awards to reduce the size of the available pool from $5.8 billion to “under $4 billion.” As a consequence of BAC’s failure to disallow bonus payments by Merrill Lynch, the company is now under investigation by the New York Attorney General.
These decisions have prompted shareholder litigation alleging breach of fiduciary duty. At minimum, they represent a failure of judgment on Mr. Lewis’ part. Any one of these actions alone would justify Mr. Lewis’ removal: he either knew the scale of Merrill’s losses and failed to inform shareholders of them, or he was grossly negligent in failing to keep abreast of Merrill’s deteriorating performance. Moreover, in allowing Merrill executives to extract $3.6 billion from the company even while BAC recorded over $15 billion in losses and was seeking further taxpayer support, Mr. Lewis endangered the solvency of BAC and severely tarnished its public image and reputation.
While we believe shareholders are entitled to a full explanation of what the board knew, when it knew it, and whether it approved of Mr. Lewis’ disastrous decisions, it is more important in our view that the board do what is necessary to restore investor confidence. Removing Mr. Lewis as Chairman and CEO is necessary first step in this challenging process.
Thank you for your timely consideration.
The Bank of England’s $70 billion plan to spur lending by purchasing corporate bonds is aiming at the wrong targets because it won’t help borrowers that are shut out of debt markets, according to analysts.
“Buying investment-grade, non-financial corporate debt in the secondary market helps out investment funds and bank trading desks, but not the companies that actually need liquidity,” said Simon Surtees, who helps manage more than 18 billion pounds ($25 billion) at Gartmore Investment Ltd. in London. “I can’t honestly see what the Bank of England is trying to achieve.”
Governor Mervyn King said in February he’ll buy up to 50 billion pounds of debt “as soon as possible,” after cutting interest rates to a record failed to open debt capital markets to the companies that need cash most. The last borrower with non-investment grade ratings to sell bonds in pounds was Dutch electric-generation company Intergen NV in July 2007, when credit markets froze for all but the safest borrowers.
The bond-buying program comes after the central bank started to purchase commercial paper last month, and is the next stage toward so-called quantitative easing, where governments increase money supply to reduce its cost and stoke the economy. Policy makers are trying to ease access to funding after banks worldwide lost or wrote down $1.2 trillion since the start of the credit crisis.
A Bank of England spokesman, who declined to be identified citing policy, wouldn’t comment on the debt-buying plan. A spokesman for the U.K. Treasury referred inquiries about the bond purchases to the bank.
Dysfunctional Markets
Most investment-grade companies, those rated above Baa3 by Moody’s Investors Services and BBB- by Standard & Poor’s, can still sell bonds directly to investors. The central bank’s plan may be more effective targeting markets that aren’t functioning, such as bank debt or mortgage-backed bonds, according to Tim Barker, head of credit research at Aviva Investors in London.
Investment-grade companies including Tesco Plc, the U.K.’s biggest supermarket operator, and Imperial Tobacco Group Plc, the maker of West and JPS cigarettes, have sold 27.9 billion pounds of bonds in Britain’s currency this year, according to data compiled by Bloomberg. That’s almost three times the amount issued in the same period of 2008.
“If the Bank of England buys the exact same debt that everyone else is fighting frenetically to get their hands on, liquidity won’t return to the market as investors may not choose to invest in cheaper yet riskier assets,” said Lucette Yvernault, a portfolio manager at Schroder Investment Management Ltd car loans. in London.
Record-High Yield
Investors demand a record-high 25.4 percentage points over similar-maturity government bonds to hold speculative-grade U.K. borrowers’ debt, according to Merrill Lynch & Co.’s Sterling High-Yield Index. The benchmark includes 56 bonds issued by companies including British Airways Plc and drinks maker Allied Domecq Plc. That compares with the 6.15 percentage-point spread on investment-grade bonds, Merrill data show.
Buying just high-grade bonds “could exacerbate the current situation, where good companies that have non-cyclical earnings get even more highly bid, and those that don’t are still excluded” from debt markets, said Aviva’s Barker.
The central bank announced in a statement on Feb. 6 that it plans to buy corporate debt to “reduce liquidity premia on high-quality corporate bonds” and “remove obstacles” to companies seeking cash. The bank hasn’t published details of all the assets it plans to buy.
Interest-Rate Cuts
Policy makers have reduced the U.K.’s main interest rate from 5.75 percent to an all-time low of 1 percent since the end of 2007, and will cut it to 0.5 percent on March 5, according to the median forecast of 60 economists surveyed by Bloomberg News. Britain’s economy shrank 1.5 percent in the fourth quarter of last year, the biggest contraction since 1980, as consumer spending declined.
Credit-default swaps on U.K. government debt cost 153.5 basis points, according to CMA Datavision prices at 9:15 a.m. in London. That means it costs $153,500 a year to hedge against losses on $10 million of U.K. bonds for five years. The contracts, used to speculate on a borrower’s ability to repay debt, have risen 10-fold in the past year.
Chancellor of the Exchequer Alistair Darling suggested in an interview in the Daily Telegraph yesterday that the central bank could start quantitative easing, or printing money to buy bonds, as soon as this week.
“If the BOE’s plan doesn’t work, the funk we’re in will last considerably longer,” said Richard McGuire, senior fixed- income strategist at Royal Bank of Canada in London. “What’s at stake here is whether recession turns into depression.”
OTTAWA–Foreign acquisitions of Canadian-controlled firms – particularly in mining, manufacturing, retail and the accommodation-and-food services industries – drove a 13.7 per cent increase in assets under foreign control in 2006, the fastest growth rate since 1999.
Statistics Canada reports Canadian assets under Canadian control rose 8.2 per cent.
Canadian-controlled firms led the way in terms of economic performance in 2006, especially in oil and gas, construction and depository credit intermediaries, as well as the "other financial industries" category, which includes securities and commodity contracts auto loans for bad credit.
The agency says operating profits of firms under Canadian control increased 14.7 per cent, four times the growth rate of 3.7 per cent among those under foreign control.
Foreign-controlled firms accounted for 20.9 per cent of corporate assets in 2006, up from 20.1 the year before.
But their share of operating profits declined to 26.6 per cent from 28.7.
Foreign-controlled firms represented 29.8 per cent of operating revenues, virtually unchanged from the year before.
BOSTON — Jeff Auxier plowed all his retirement savings into Auxier Focus Fund when he launched it nearly a decade ago. He also vowed to never sell any of his initial $1 million investment.
That pledge has paid off. Through last year, his nest egg — along with his initial clients’ stake — has grown 47 percent. And Auxier has made additional investments along the way.
But the 49-year-old’s commitment has become tougher to uphold lately. His $80 million large-blend mutual fund lost nearly 25 percent last year but still ranked in the top quartile of its category, thanks to some investments in recession-resistant stocks like Wal-Mart Stores. The downturn reduced what had been a $2.2 million investment at its peak to $1.6 million. This year, the fund is down another 9 percent.
With retirement decades away, Auxier still has no plans to reduce his stake. He says he couldn’t face up to his investors if he didn’t stick with it.
"There has to be a hook, where they can feel like, ‘OK, this manager has got skin in the game, they’re going to pay attention to my money because they’ve got money in there, too,’" Auxier said.
But managers like Auxier who "eat their own cooking" — the industry expression for managers who invest in their own funds — aren’t necessarily the rule.
Fifty-four percent of U.S. stock funds reported their managers held ownership stakes, according to research by Morningstar Inc. that examined disclosures through Oct. 1. That means nearly half the funds’ managers hadn’t invested as much as a single dollar.
Manager ownership is less common in other fund categories: 41 percent of foreign stock funds reported manager ownership, with 35 percent for taxable-bond funds; 30 percent for funds with a mix of stocks and bonds; and 22 percent for municipal bond funds.
To learn whether fund managers are joining them for the bumpy ride, investors may want to pay more attention to fund annual reports due out around this time of year, and documents called Statements of Additional Information that may accompany fund prospectuses. Some reports will trumpet the fact that a fund manager is personally invested, and the additional statements disclose how much a manager invests.
Russel Kinnel, director of Morningstar’s mutual fund research, will be watching to see how many managers lately have maintained or increased their stakes, and how many jumped a sinking ship.
"It’s more important in a difficult time that you step up and have a major commitment to your fund," Kinnel said payday loans guaranteed no fax.
But Kinnel, an "eat your own cooking" advocate, advises investors shouldn’t put a manager’s level of personal investment ahead of other more important factors in making buy-or-sell decisions in funds. Considerations such as expense levels, long-term performance and manager experience rank higher.
Manager investment "doesn’t guarantee a manager won’t make a mistake; it’s more about a manager aligning their interests with yours," Kinnel said.
A manager of a fund that could be a core holding — one that’s broadly diversified in stocks designed to perform well over the long haul — should be expected to invest at least $500,000, Kinnel says, and ideally $1 million or more.
For more volatile niche funds designed to supplement core holdings, Kinnel suggests a manager hold at least $100,000.
There are exceptions: A manager of a fund investing in a single state’s municipal bonds shouldn’t be expected to invest if he doesn’t live in that state. That’s because such funds’ tax benefits only apply to residents.
Even considering such exceptions, Lipper Inc. fund analyst Jeff Tjornehoj argues it’s tough for most investors to decide how much investment is appropriate for a manager.
For example, factors such as age are worth considering, Tjornehoj said. An investor close to retirement may have less of a stomach for volatility than a young manager who can withstand ups and downs.
While Tjornehoj considers it a plus if managers invest in their funds, that factor "comes way down on the list of importance in a buying or selling decision," he said.
Still, it doesn’t hurt to know whether a fund manager feels your pain amid declining markets. Investors can find ownership information from a fund company’s website. Look for a fund’s Statement of Additional Information and search for a manager’s name to learn about their stake. The SEC and Morningstar also post such information at the following addresses: www.sec.gov/edgar/searchedgar/mutualsearch.htm and www.morningstar.com/goto/fundspy
Even then, you won’t find specific dollar figures. The SEC only requires funds to report whether managers’ stakes fall within one of seven ranges.
— Online tools. If you are comfortable putting your financial information online, try the free online personal finance programs at Quicken.com or Wesabe.com. They’ll automatically download your bank statements and credit card info, making budgeting much easier.
— out of the box tools. If all that personal information floating through cyberspace makes you nervous, buy a personal finance program for your home computer. Quicken or Microsoft Money cost about $40.
— Fill in the blanks. in the simple budget calculators at bankrate.com or at clearpointcreditcounselingsolutions.org. Click on calculators. Otherwise, grab a pencil. You’ll find a link to budget-making guide and forms from the University of Missouri at stltoday.com/spendsmart.
— Money in. Write down your monthly take-home pay, interest on your savings and other regular income. Do you expect an annual bonus or tax refund? Divide by 12. Add it all up, and that’s your monthly income.
— money out. List all your monthly bills: mortgage, insurance, utilities, car payments, groceries, child care, cable, etc. How much will you spend this year at Christmas? Vacations? Divide by 12. Ditto with home and car repair, insurance, property taxes, clothing, health care and other irregular bills personal loan for poor credit. Don’t forget to add how much you intend to save.
— KEEP A SPENDING JOURNAL. If money tends to slip through fingers, stick a notebook in your pocket or purse and and write down all your cash expenditures for a week, or better yet, a month. You’ll be surprised at how all those lattes and vending machine snacks add up. Scrutinize your credit and debit card statements to see where your money is really going.
— SET PRIORITIES. If your income is larger than your expenses, congratulations! If not, you have a problem. It’s time for a family heart-to-heart. What’s really important: digging out of debt or funding the kids’ education?
List your priorities most-to-least important, then figure out how to finance the things at the top.
— mORE INFORMATION. Missouri Attorney General Chris Koster’s new website is loaded with great consumer info, scam alerts, tips and tools including calculators for auto loans, credit cards, student loans and savings. Go to ago.mo.gov/ConsumerCorner.
Hammered by the ailing housing market, mortgage finance giant Fannie Mae said Thursday it would tap its lifeline from the Treasury Department after reporting $58.7 billion in losses for 2008.
The company, a crucial source of funding for mortgage lenders, said it would draw down $15.2 billion of its $200 billion federal line of credit. In return, the government will receive preferred shares.
And it gave a dour view of the housing market — saying it expects peak-to-trough price declines to be in the 33% to 46% range, up from the 27% to 32% range it gave in the previous quarter. For 2009, it predicts home values will drop 12 to 18%.
For the fourth quarter, Fannie Mae reported $25.2 billion in losses, or $4.47 per share. The results mark the sixth straight quarter of losses, though slightly narrower than it reported in the third quarter. A year ago, Fannie Mae reported $3.6 billion in losses.
The company, which was taken over by the government in September along with Freddie Mac, attributed the losses to soaring defaults. Its provision for credit losses plus foreclosed property expense came to $12 billion for the quarter, up 30% from the previous quarter. Its charge-offs, or loans written off as uncollectable, rose 219% to $7 billion in 2008.
The value of non-performing loans were $119.2 billion at year-end, compared with $63.6 billion on Sept. 30 and $27.2 billion at the end of 2007.
Fannie Mae (FNM, Fortune 500) had said it would need up to $16 billion to cover its fourth quarter losses. Freddie Mac (FRE, Fortune 500), which has accessed nearly $14 billion and has said it may need up to $35 billion more, should report its results in coming weeks. The companies need the funding because their liabilities exceed their assets, giving them a negative net worth.
The companies’ net worth is declining in part because its mortgage guaranty becomes a costlier obligation as the housing market worsens no fax payday loans. Also, its funding costs have run higher as investors demanded higher rates because of the agencies’ perceived riskiness.
The results come a week after President Obama unveiled his foreclosure prevention plan, which relies heavily on Fannie and Freddie. The companies will allow borrowers whose mortgages they own or back to refinance even if they have little or no equity. And they will contribute more than $20 billion toward subsidizing interest rates to lower the monthly payments for borrowers on the verge of or already in default.
Fannie Mae, which unveiled with Freddie Mac their own streamlined loan modification program in November, said it conducted 33,249 loan modifications, 7,875 repayment plans and 11,682 preforeclosure sales in 2008.
Acknowledging the need to strengthen Fannie Mae and Freddie Mac at a time when the companies are under pressure from rising defaults, Obama doubled their federal lifeline, which was originally $100 billion each. He also is allowing each to hold up to $900 billion in loans in their portfolios, an increase of $50 billion.
The companies provide critical financing for mortgage lenders by purchasing their loans. They dominate the home loan market now that private investors have been spooked by the mortgage meltdown.
Their long-term future, however, remains in doubt. Set up by the government, they were private companies whose debt carried an implicit federal guarantee. But as the mortgage crisis deepened, the Treasury Department in September put them into conservatorship, a form of reorganization similar to bankruptcy.
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