2. President Obama will announce his plan to impose a new fee on the country's largest financial firms on Thursday. Estimates hold that this plan could return as much as $120 b



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1. According to the Federal Reserve, the American economy is improving modestly and the geographic range of the recovery has spread: according to official data, ten of the Federal Reserve's twelve districts have reported that their jurisdiction's economy has 'picked up,' with Philadelphia and Richmond reporting mixed conditions. While shoppers spent more in 2009 than in 2008, the job market is still soft, demand for loans were are still depressed, and commercial real estate sales are still lackluster. For these reasons and more, the Federal Reserve is likely to continue its policy which has thus far centered around low interest rates and stimulus packages.
2. President Obama will announce his plan to impose a new fee on the country's largest financial firms on Thursday. Estimates hold that this plan could return as much as $120 b. worth of losses to the United States Treasury from the $700 b. Troubled Assets Relief Program. Details have been largely kept from the public, but according to officials, the fee will be one-time and would last for years. Obama apparently desires to recover taxpayers for their massive investment into Wall Street.
3. The Security and Exchange Commission proposed requirements for brokerage that are anticipated to rein in risk from their customers who are allowed split-second access to buy or sell stock. This practice--called 'naked' sponsored access--allows brokerages to rent out their ability to trade on exchanges to unregulated clients. The SEC said that it was concerned about the potential risk inherent in the fast-paced environment, arguing that unregulated clients might disrupt the markets. The proposed rules, it says, would level the playing field for market players and update trading regulations which are over a decade old..
4. Argentina's Economy MInister Amado Boudou said that the government will launch a plan to swap its defaulted sovereign bonds. The government hopes to settle matters with holders of $20 b. in defaulted debt from a 2002 default by issuing new bonds to help cover the $13 billion in debt payments the country will face this year. Argentinean bond prices have fallen since the country's president issued a presidential degree to fire Central Bank chief Martin Redrado for opposing a plan that will allow the government to use $6.5 b. in foreign currency reserve to pay the debt.
5. Japan Airlines--whose stock prices closed today to less than 10 cents--has hired a new CEO. The airlines is also finalizing plans to slash about 13,000 jobs and cut dozens of routes in an effort to slash its $16 b debt. These moves have been coordinated by a government-backed fund, the Enterprise Turnaround Initiative Corporation of Japan which which will inject 300 b. yen ($3.3 b.) of fresh capital into the airlines provided that it files for bankruptcy and its bank forgive about 350 b. yen in debts.
The airlines currently has 67.2 b yen in outstanding bonds, and an estimate by UBS Securities claims that only 20% are likely to be recoverable under the current restricting plan.
I

Fed says mild economic pickup broadening

1.13.10

http://www.reuters.com/article/idUSTRE60C59920100113
U.S. economic activity remained at a low level as 2010 began but was improving modestly and beginning to broaden out to include wider swaths of the country, the Federal Reserve said on Wednesday.
"Reports from the 12 Federal Reserve districts indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report," according to the periodic Beige Book report compiled this time by the Philadelphia regional Fed bank.
Ten districts said activity was picking up while the Philadelphia and Richmond Fed banks reported mixed conditions.
The Fed's findings were based on results of a survey taken on or before January 4. It said shoppers in the 2009 holiday season spent slightly more freely than in 2008 but at a rate still far below 2007 levels, when the economy was just on the verge of slipping into a serious financial crisis.
Job markets were still soft in most of the country, though the New York Fed reported "a modest pickup" in hiring and several service-sector firms in the St. Louis Fed region planned to take on more employees.
Wage rises and price pressures were subdued.
WON'T AFFECT POLICY
The Beige Book report, so called because of the color of its cover, will be used by U.S. central bank policymakers when the Federal Open Market Committee meets on January 26-27 to decide whether to adjust policy.
The Fed has slashed rates to near zero and pumped over $1 trillion into the financial system to prevent a banking failure and pull the economy out of the worst recession in decades.
It has pledged to hold rates ultra-low to nurture what appears to be a fragile recovery and comments from a senior policymaker on Wednesday reinforced the view that policy will be in place for some time.
"I think that we are going to be waiting for the economy to improve in a strongly sustainable fashion and until that happens then it's unlikely that we would be changing policy," Chicago Fed bank President Charles Evans told reporters after speaking to a business group in Coralville, Iowa.
Financial markets took the latest indication of modestly improving conditions positively, with stock prices adding to earlier gains after the report was issued in early afternoon.
It said home sales began increasing in most parts of the country as 2009 ended, especially for lower-priced homes. The extension of a federal tax credit for first-time homebuyers helped spur sales, according to realtors.
There were still plenty of signs of economic trouble.
The Fed said demand for loans continued to decline or weakened further in much of the country. As well, credit quality was still deteriorating and financial institutions in many districts including new York, Philadelphia and Cleveland said loan delinquencies were rising.
Commercial real estate conditions were still soft in most of the country. New York, Philadelphia, Kansas City and San Francisco all said that demand for commercial and industrial space was still losing momentum.
II.

Obama plans fee on financial firms to recover TARP money

1.13.10

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/13/AR2010011300317.html?hpid=topnews
President Obama will announce on Thursday a plan to impose a new fee on the nation's biggest financial firms in what officials say will be a years-long effort to recoup the government money used to bail out those institutions, a senior administration official said Tuesday night.
The fee could return as much as $120 billion worth of losses to the U.S. Treasury from the $700 billion Troubled Assets Relief Program, or TARP, which was designed to rescue the firms during the economic crisis, officials said.
The expected announcement appears to confirm reports that the 2011 budget Obama will submit next month will include revenues raised by such a fee -- funds that could help reduce the nation's soaring deficit.
But the senior official said the motivation behind the fee is Obama's desire to recover for taxpayers the massive investment pumped into Wall Street during the financial meltdown that was triggered 15 months ago.
Obama fought for the bailout in his first weeks in office but has since watched in frustration as some of the biggest firms have given billions of dollars in bonuses to their executives.
The senior official, who spoke on the condition of anonymity because the decision has not been announced yet, said it has been under consideration since August. The law that created TARP requires the government to seek repayment, but a new fee would accelerate that process.
"As the banking industry recovered, the president and the economic team felt it was important to discuss ways to recoup every dime for the American people more quickly than the law required," the official said.

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Banking executives have broadly opposed such a fee, saying it could generate new economic shock waves and stifle lending during a still-shaky recovery.
In addition, economists have said they worry that any new fee -- such as one imposed on banking transactions -- could be passed on by the banks to their customers, creating in essence a new tax for consumers.
The senior official declined to provide details about how the administration's plan would avoid those problems. But the official said it would not be a one-time fee and would last for years.
Banks and other financial institutions have already begun to repay some of the TARP money. But government officials estimate that without a fee of some kind, losses from the program could be as much as $120 billion.
"That is the highest end of a conservative estimate of the cost of TARP," the senior official said. "Officials expect the number will be much lower, and over the course of years, the fee would pay back any cost to the taxpayer."
III.

S.E.C. Suggests Curbs on High-Speed Trading

1.13.10

http://www.nytimes.com/2010/01/14/business/14sec.html?ref=global

WASHINGTON (AP) — Federal regulators on Wednesday proposed requirements for brokerage firms aimed at reining in risk from their customers who get split-second access to markets to buy or sell stocks.
The Securities and Exchange Commission voted 5-0 to open the proposal for comment for 60 days.
At issue is so-called “unfiltered” or “naked” sponsored access, in which brokerages that are approved to trade on exchanges rent out their access to them to unregulated clients like high-frequency traders. They use mathematical models to exploit market imbalances and minute price differences.
S.E.C. officials said an estimated 38 percent of the daily trading volume in stocks and bonds on American markets involves naked sponsored access.
Regulators say they are concerned about potential risks, including the possibility that electronic errors at high speeds could disrupt the markets. They said the rules also could help level the playing field for market players and bring order to a patchwork of regulations that are about a decade old.
The proposed rule would require brokerages to put in place controls to reduce risk from their sponsored trading customers stemming from erroneous orders. Credit limits for trading orders would have to be respected.
The S.E.C. chairman Mary L. Schapiro said she viewed unfiltered access as akin to “giving your car keys to a friend who doesn’t have a license and letting him drive unaccompanied.”
The proposed rule would require that if a broker is going to loan his keys to a trading customer, “he not only must remain in the car, but he must also see to it that the person driving observes the rules before the car is ever put into drive,” Ms. Schapiro said before the vote.
It was the latest in a series of moves by the S.E.C. regarding quickly evolving markets, as the regulators have examined whether ordinary investors are unfairly disadvantaged by trading systems that don’t publicly provide price quotes and other trading practices.
Last fall the agency proposed new rules for so-called dark pools that would require more stock quotes to be displayed as well as a ban on flash orders — which give traders a split-second edge in buying or selling stocks.
IV.

Exclusive: Argentina says debt swap going ahead

1.13.10

http://www.reuters.com/article/idUSTRE60C5BE20100113
Argentina is sending a "strong signal" that a swap of defaulted sovereign bonds is going ahead as planned, Economy Minister Amado Boudou told Reuters in an interview on Wednesday.
The debt swap, which Boudou has said will launch later this month, will open "as soon as possible," he said, adding that the government was still waiting for approval from the U.S. Securities Exchange Commission (SEC).
The government is hoping to settle with holders of $20 billion in defaulted debt to clear up fallout from a 2002 default to issue new bonds to help cover the $13 billion in debt payments the country faces this year.
"There is a firm political decision to move forward with the swap," Boudou said. "We're sending strong signals that the president's decision will not be altered."
Some analysts have raised questions whether an ongoing dispute over government plans to use $6.6 billion in foreign currency reserves to pay debt threatens to delay the exchange.
Argentine bond prices have fallen since Fernandez used a presidential decree last week to fire Central Bank chief Martin Redrado for opposing her reserves plan.
The fall in debt prices threatens to make any potential deal less attractive to bondholders.
Turmoil over Fernandez's decision to set up the fund and oust Redrado has pitted the government against Argentine courts and Congress, where opposition leaders have questioned the legality of the move.
A judge has temporarily reinstated Redrado and blocked the government bid to tap the Central Bank's foreign reserves.
Boudou said the government intends to forge ahead with the reserves fund, which he has described as key to determining the interest rate Argentina pays when it returns to global credit markets after the swap.
He also said senior Argentine officials were meeting with retail investors and banks in Mexico and London to discuss the proposed swap.
Boudou said the banks managing the swap had at no time proposed delaying the transaction.
(Additional reporting by Guido Nejamkis and Jorge Otaola; Editing by Andrew Hay)
IV.

Japan Airlines gets new CEO as bankruptcy looms

1.13.10

http://www.reuters.com/article/idUSTOE60C09120100113
Kazuo Inamori, the founder of electronics maker Kyocera Corp (6971.T), agreed on Wednesday to become the new chief executive of Japan Airlines (9205.T), as the carrier's shares plunged ahead of its expected bankruptcy.
JAL is likely to file for bankruptcy as early as next week as part of a broader restructuring aimed at reducing debts, slashing about 13,000 jobs and cutting dozens of unprofitable routes, sources have told Reuters. [ID:nTOE60A04W]
With $16 billion in debts, JAL's bankruptcy would be the sixth largest in Japan's history.
Inamori, the 77-year-old honorary chairman of Kyocera and an ordained Buddhist priest, will replace Haruka Nishimatsu, who has indicated he would resign as part of the restructuring overseen by a government-backed fund.
Founded in 1959 as a ceramics company, Kyocera has grown into one of Japan's most profitable technology firms. Its products include semiconductor components, mobile phones and solar cells.
"I don't know anything about the transportation industry, but I would like to make my best contribution," Inamori told reporters after meeting Prime Minister Yukio Hatoyama, adding that he did not plan to take a salary.
"I am old and a full-time job is hard for me, so I would like to work three or four days a week and I will work for free."
Lack of experience in the airline industry may initially hinder Inamori's effort, but it would not be a critical drawback, analysts said.
"I think he's a right person for Japan Airlines at this point since Japan Airlines needs a respected person for its business restructuring," said Yasuhiro Matsumoto, senior credit analyst at Shinsei Securities.
"For the time being, the government has agreed to offer financial support for Japan Airlines, so we should not worry about how long it would take for him to become more familiar with Japan Airlines."
Dealing with the ailing airline is one of a long list of problems confronting Hatoyama's government, which took power in September after his Democratic Party trounced the long-ruling conservative rival in an election.
Inamori is a staunch supporter of the Democrats and known to have close ties with Ichiro Ozawa, the party's No.2 official. He is also a member of a panel headed by Hatoyama seeking to cut wasteful government spending.
For five facts on Inamori click [ID:nTOE60C01E]
SHARES SLUMP
JAL shares tumbled by their daily limit of 30 yen to 7 yen, or less than 10 cents, leaving Asia's largest carrier by revenue with a market value of $208 million, about the same as Tunisair TAIR.TN and less than the cost of a Boeing 747-8 widebody commercial airliner.
More than 820 million JAL shares changed hands, accounting for one-fourth of all volume on the Tokyo exchange.
The Enterprise Turnaround Initiative Corp of Japan (ETIC), the state-backed fund, plans to put about 300 billion yen ($3.3 billion) in fresh capital into JAL, provided it file for bankruptcy and its banks forgive about 350 billion yen in debts, sources have said.
Normally a bankruptcy would lead to a delisting and render shares worthless.
"It is highly probable that JAL will have its capital wiped out when it files for bankruptcy," said Shinsei's Matsumoto.
Debt holders will also suffer. JAL has 67.2 billion yen in outstanding bonds, only about 20 percent of which will likely be recoverable in a court-led restructuring, according to an estimate by UBS Securities.
The ETIC said in a statement that in the support plan under consideration it would take measures to ensure JAL can maintain its operations, including securing funding so it can continue to pay for fuel, aircraft leases and other commerical debts.
TACKLING BUREAUCRACY
Besides being an entrepreneur, incoming CEO Inamori has a track record as a corporate turnaround specialist.
A decade ago, Kyocera made failed office equipment maker Mita Industrial its wholly owned subsidiary and helped its recovery. The entity now is a profit-making operation, with more than 200 billion yen in annual sales.
But analysts said turning JAL around would not be easy.
"JAL has been encumbered to serve 108 airports, when there is no economic justification for some of the airports in the first place. As a regulator, you're not going to tell them no," said Lance Gatling, president of Nexial Research, a consultancy.
"The question is whether any management can come in and undo any of these traditional relationships," he said. (Additional reporting by Dan Sloan, Nathan Layne, Taiga Uranaka, Hideyuki Sano, Junko Fujita; Editing by David Dolan and Lincoln Feast) ($1=91.14 Yen)

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