January 22, 2010
Banks face revolutionary reform

Barack Obama wanted a regulatory reform bill on his desk by the end of last year. It did not happen.

Rather than wait impatiently on the sidelines, the president on Thursday came up with new restrictions on Wall Street. which will further delay a bill – and add to the lobbying frenzy that surrounds it.

In a surprise move, Mr Obama adopted the ideas of Paul Volcker, the former Fed chairman, including a prohibition on commercial banks trading purely for their own account and a ban on owning hedge funds and private equity firms.

Tim Geithner, Treasury secretary, who is facing increased hostility from Democrats for not adopting punitive measures against Wall Street, had not taken up Mr Volcker’s proposals but did not fight the president’s decision.

Officials said banks would have to choose between owning an insured depository on one hand and owning proprietary trading operations or stakes in hedge funds and private equity firms on the other. They would, however, be able to continue proprietary trading related to their customers’ businesses.

Amid continuing uncertainty over the detail of the reforms, bank executives said they believed they could continue to own hedge funds as long as they did not invest their own funds.

Congress members on both sides of the aisle declined to commit to the Obama plan in interviews with the Financial Times. But Judd Gregg, a Republican member of the Senate banking committee, and Jack Reed, a Democratic counterpart, both said they had been attracted to Mr Volcker’s ideas during private meetings and were interested in considering them.

“This problem has not just been too big to fail, it’s been too big to manage,” said Mr Reed. “A lot of these organisations – they have the core of a bank but that is overwhelmed by very sophisticated subsidiaries and trading programmes.”

Mr Gregg said he was “willing to listen”. “I’m a little concerned that this, however, is less about financial reform and more about the politics of the day and an attempt to get a populist message going and use the banks as a whipping boy, which I don’t think is constructive.”

Rob Nichols, president of the Financial Services Forum, which represents leading institutions in Washington, said: “Trading, proprietary or otherwise, did not lead to the financial crisis.”

Although aides sought to distance the proposals from the Democratic defeat in Massachusetts, Mr Obama was spoiling for a fight on Thursday as he announced his second crackdown on Wall Street in two weeks following last week’s $90bn levy.

“I welcome constructive input from folks in the financial sector. But what we’ve seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common sense rules of the road that would protect our economy and the American people,” he said.

Mr Volcker has intellectual clout and political capital in Congress, which will be needed as the administration tries to gather support for its new proposals. Ironically, it was the Treasury and the White House – where Mr Volcker heads an economic advisory board – that had given his ideas the cold shoulder.

One man who had supported Mr Volcker and pushed a version of his plan through the House is Paul Kanjorski, a Democratic member of the House financial services committee, who passed an amendment allowing regulators to force a sale of a risky division.

Thursday’s move by Mr Obama removes the regulators’ leeway and Mr Kanjorski celebrated the toughened approach to what he called the “super core” of the industry’s problems.

But officials struggled to explain the link between this plan and the financial crisis. Senior Treasury officials have long argued that the crisis had very little to do with own-account gambling by banks with insured deposits. Many of the institutions that got into trouble were not traditional commercial banks.

Sceptics, including within the administration, said it would prove hard to put an end to the kind of own-account activities Mr Obama wants to stop without also impeding client-based in-vestment banking he wants them to continue.

Moreover, there is apparently nothing in the proposal to stop former investment banks such as Goldman Sachs and Morgan Stanley simply giving up their newly acquired banking charters and reverting to being non-banks.

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Filed under: ft banking crisis 
January 22, 2010
President Obama calls for the biggest regulatory overhaul since the 1930s

By Tom Braithwaite in Washington and Francesco Guerrera in New York

The global banking industry was thrown into turmoil on Thursday after President Barack Obama , responding to public rage over the financial crisis, proposed the most far-reaching overhaul of Wall Street since the 1930s.

In reforms that could force the restructuring of some of the biggest names in US finance, including JPMorgan Chase and Goldman Sachs, Mr Obama promised that “never again will the American taxpayer be held hostage by a bank that is too big to fail”.

Flanked by Paul Volcker, the former Federal Reserve chairman, who has advocated the move for months, Mr Obama called for banks to be banned from running their own trading desks and “owning, investing in or sponsoring” hedge funds and private equity groups.

Tim Geithner, the Treasury secretary, who has come under attack from Democrats on Capitol Hill, backed the plan, officials said, even though his own regulatory proposals have stopped well short of the sweeping Volcker reforms.

Republicans responded coolly, but did not reject the proposals out of hand. Richard Shelby, senior Republican on the Senate banking committee, called for more details and new hearings.

Others accused the White House of adopting a populist message to divert attention away from the blow delivered by the Democrats’ defeat in the Senate race in Massachusetts.

The measures, which require congressional approval, hark back to the response to the 1929 stock market crash that ushered in the Glass-Steagall Act, separating commercial and investment banking, which remained in law until 1999.

Shares of the big Wall Street banks fell as Mr Obama announced the proposals, but those of regional banks rose.

Mr Obama called for new rules – beyond current regulations restricting banks from holding no more than 10 per cent of US deposits – that would place unspecified size limits on institutions.

“In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward,” said Mr Obama. “And these firms have taken these risks while benefiting from special financial privileges that are reserved only for banks.”

Congressional aides and administration officials said a lot of detail remained to be decided. Barney Frank, chairman of the House financial services committee, said he would support new rules if they allowed banks to dispose of newly banned operations over three to five years and thereby prevent a “fire sale”.

Bankers said the lack of detail and the likelihood of a protracted debate in Congress would give them the chance both to lobby for changes and to adapt their businesses, with, for example, Goldman possibly giving up the financial holding company status it adopted in the financial crisis.

Read More

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Filed under: ft banking crisis 
January 4, 2010
China and India lead Asian recovery

By Kevin Brown in Singapore

Published: January 4 2010 03:47 | Last updated: January 4 2010 07:51

Asia’s rapid recovery from last year’s recession appeared to be confirmed on Monday by a slew of positive reports on industrial production that suggested economic growth is powering steadily ahead, led by China and India.

Even a worse-than-expected fourth-quarter contraction in Singapore’s gross domestic product failed to dampen the optimistic mood, with economists writing off the setback in the city-state as a consequence of pharmaceutical industry volatility.

Purchasing managers’ index reports for China, South Korea, Taiwan and India appeared to confirm that a robust and widespread recovery continues to be under way. Figures for Australia were expected later on Monday.

The China Manufacturing PMI, produced by HSBC and Markit Economics, rose to 56.1 in December, up from 55.7 a month earlier – the second fastest rise yet recorded by the survey, which dates back to 2004. The average rise for the fourth quarter of 2009 as a whole was also the fastest yet recorded.

The closely watched survey pointed to a ninth consecutive monthly expansion in new order volume, with companies reporting buoyant demand in both domestic and export markets. The growth in export orders was the fastest since March 2005, reinforcing a positive trend that began in the second half of last year.

The HSBC index confirmed the strong trend suggested by the official PMI numbers, released on January 1, which showed manufacturing activity expanding in December at the fastest pace for 20 months. The two series are not directly comparable because they use different methodology.

However, the HSBC date also signalled that prices charged by Chinese manufacturers were rising at the fastest rate since July 2008, buoyed by rising raw material costs as well as strong demand.

Grace Ng, economist at JPMorgan in Hong Kong, said the two PMI series taken together suggested that China’s manufacturing sector was experiencing a strong recovery, supported by broad-based demand growth.

“The manufacturing order to inventory ratio continued to stay at about the highest level since April 2008, suggesting that, with further steady recovery in final demand conditions, solid sequential trend growth in the manufacturing sector will continue in the coming months,” she said.

The India Manufacturing PMI, compiled by HSBC and Markit, rose from 53 to 55.6, its highest level since May, when it hit 55.7, the strongest performance of 2009. The positive result was helped by a big rise in the sub-index for new orders, which rose to 60.1, the highest for the year, from 54.6 in November.

The India PMI has now been above the neutral level of 50 for nine consecutive months, indicating a sustained period of expansion, following a five-month period when it suggested that output was contracting.

HSBC said the detailed December survey data suggested that growth was the strongest for 15 months, driven by better economic conditions and business investment. Demand from both domestic and foreign buyers was higher than in November, although the home market remained the principal driver of new business expansion.

The data will ease concerns that India’s manufacturing sector might have been slowing, although HSBC said many companies remained cautious about the durability of the country’s economic recovery.

The South Korea manufacturing PMI, also produced by HSBC, edged up slightly in December to 52.8 from 52.6 in November, indicating a continued expansion of the economy, although the pace appeared to be slowing.

The sub-index for total new orders fell from 54.1 to 52.9, and the index for new export orders declined from 52.4 to 50.7. However, both remain in positive territory. Any figure above 50 indicates growth in the index, with any figure below 50 indicating a decline.

In Taiwan, the manufacturing PMI, produced by HSBC and Markit, moved upwards for the ninth successive month, reaching 58.7 from 58.4 in November. The index showed strong demand in both export and domestic markets, although the rate of increase in new orders edged downwards.

In Singapore, the Ministry of Trade and Industry said the economy contracted by 6.8 per cent in the fourth quarter on a seasonally adjusted annualised quarter-by-quarter basis. Compared with the fourth quarter of 2008, the economy grew by 3.5 per cent. It declined by 2.1 per cent for 2009 as a whole, in line with government and private sector expectations.

The MTI said the fourth-quarter setback was caused by a 38.4 per cent contraction in the manufacturing sector, on a quarter-by-quarter seasonally adjusted annualised basis, following an expansion of 29.6 per cent in the third quarter.

The ministry said the decline was mainly due to a contraction in the output of the biomedical and transport engineering industries. Electronics, chemicals and precision engineering posted positive growth.

Robert Prior-Wandesford, economist at HSBC in Singapore, said the numbers did not signal a return to recession, even though the quarter-by-quarter contraction was larger than consensus forecasts.

“Pharma production is notoriously volatile, as companies often shut temporarily to swap product lines, and is likely to bounce back strongly in early 2010. Production will also be boosted as a couple of new facilities are set to open during the year,” he said.

In Tokyo, Yukio Hatoyama, the Japanese prime minister, said his top priority was to stop the economy slipping back into recession by passing budget bills for the current financial year and the next.

“With the feeling that the economy must not be allowed to go into a double dip, that we will not allow it to do so … we compiled emergency measures and a second extra budget at the end of last year,” Mr Hatoyama told reporters.

“We want to bring this second extra budget into effect as soon as possible,” he said, adding that next year’s budget should also be dealt with quickly. Japan’s financial year runs to the end of March.

Bonus: EDITOR’S CHOICE

Biggest regional trade deal unveiled - Jan-01

Insight: China needs admirers to match ambitions - Jan-03

Opinion: Reforms to help China maintain growth - Dec-17

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Filed under: ft china economy crisis 
October 30, 2009
Short View: GDP grows, but pain remains

The recession in the US is over. Official confirmation came with the news that its gross domestic product grew at an annual rate of 3.5 per cent in the third quarter – slightly better than positive forecasts.

Stocks rallied, while the dollar sold off. The numbers were a good enough reason to halt the recent return of risk aversion. In the short term, the key to whether risk appetite can return, will depend on the data that is due next week, and crucially US employment.

This is clear from a look at how the rebound in GDP was achieved. Household disposable incomes actually fell during the quarter, by 3.4 per cent, but consumer spending rose, also by 3.4 per cent. This is not a pattern that can be sustained for long, and it is inconsistent with the need for US families to pay down their debts.

Consumption rose largely because of a huge increase in expenditure on durable items, led by motor cars. Government subsidies through the “cash for clunkers” programme, removed before the quarter had ended, largely explain this.

Meanwhile, tax credits for homebuyers, which helped revive activity in the housing market, are due to be withdrawn later this year. The question now is whether higher consumption can be sustained without government support.

The hope is that the rebound in activity will help consumers to feel more confident. But the Conference Board’s surveys of consumer confidence, and the growing dissatisfaction with the economy reflected in political opinion polls, show it has not yet had that effect.

The likely reason for this is unemployment, which keeps rising and saps the confidence of all touched by it. Thursday’s new data on initial claims for unemployment insurance confirmed that the rate of the rise in joblessness has slowed significantly – but the jobless rolls are still rising faster than at any time this decade, before the financial crisis took hold.

This explains why consumers are not feeling better, even though the recession is over.

Bonus Video:

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(Notes: 2)
  
Filed under: ft economics crisis 
October 23, 2009
Shock as figures show Britain is still in recession

Shock figures showing that Britain is still struggling through recession sent the pound plunging and threw fresh doubt over Alistair Darling’s plans to cut the national debt.

The City and Downing Street were stunned as output data revealed that the economy shrank by 0.4 per cent between July and September — an unprecedented sixth consecutive quarter of decline.

The figures dashed predictions that Britain was emerging from recession and dealt a blow to Gordon Brown’s hopes of an economic recovery taking root before the election. The pound, which had been trading at €1.111 and $1.6693, collapsed against the currencies to €1.087 and $1.6323.

Economists had predicted that output was growing by 0.2 per cent.

Chris Williamson, chief economist at Markit, which conducts surveys on the state of the economy, said that yesterday’s figures were wrong and could lead to “disastrous policy mistakes”.

Output has dropped 5.9 per cent since the recession began in the second quarter of last year. In the 1980s output fell by 6 per cent.

The lingering slump comes despite record low interest rates, extra government spending and a £175 billion boost to the money supply through quantitative easing. Last month, Mr Brown had said that Britain was coming out of recession. He told the BBC: “I think you will see figures pretty soon that show the action that Britain has taken yielding effect.”

Retailers used yesterday’s data to call on the Chancellor to keep VAT at 15 per cent to boost the January sales.

The Treasury insisted that the VAT rate would be restored to 17.5 per cent on January 1 as planned. But pressure is likely to intensify over the weeks running up to the Pre-Budget Report.Richard Lambert, the Director-General of the CBI, said that changing the rate of VAT at midnight on December 31 would create practical problems for businesses and that the current rate should be extended.

Sir Stuart Rose, executive chairman of Marks & Spencer, told The Times: “If the Government could delay for one week or two that would make an enormous difference. We have made pleas to the Government already but it doesn’t seem to have made any difference.”

In an interview this week Sir Philip Green, who owns Topshop, said that it was inevitable that VAT would have to rise because of the state of the public finances. “But to do it on January 1 is a ludicrous time. Let’s just be sensible,” he said.

Bonus 1: The video

 

Bonus 2: The comments - Pay your attention please.

Read More

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Filed under: economics crisis data 
October 23, 2009
Goodbye, Macroeconomics

By Eli Noam

Published: October 14 2009 00:46 | Last updated: October 14 2009 00:46

We are in the midst of a severe economic crisis, the second in about a decade, and the third for Latin America and Asia. It appears that information based economies are volatile. This is partly due to the fundamental price deflation in some of the core information services and products, and partly due to the much greater speed of transactions that outpace the ability of traditional institutions to cope. Information technology contributes to the volatility. But can the same technology also provide new tools for stabilisation?

Cyclical swings in the economy are as old as mankind. The Bible tells us about seven fat years in Egypt followed by seven lean years. Each economic system has its economic policy instruments to deal with swings. In ancient Egypt, Joseph’s warnings led to the creation of granaries. In feudal ages, the tools were control over the composition of coins, and severe restrictions on land and its workforce. These policies, in turn, became outdated for the industrial age, which pursued aggregate demand enhancement by governmental spending and taxation, control of the money supply, and manipulations of interest rates.

So when the present economic crisis hit, governments dealt with it in a traditional way through broad-based stimulus spending and through interest rates. But it is unclear whether the remedies of the industrial age apply. Demand is not the main problem of the information economy. People consume more bits and minutes than ever. The problem is prices, together with the inability to monetise many information activities. This leads to early over-expansions to gain market share, and subsequent contractions.

Nor is the pace of these macro-responses adequate for the accelerating speed of the information economy. By the time the emergency moneys have been actually spent, we are likely to be out of the recession and they might stimulate inflation.

The new type of problem, in contrast, is the enormous flow of computer-based economic activity that is increasingly impenetrable to interpret or respond to. Yet proponents of the traditional tools mostly got upset when the new elements of the economy undermined their traditional tools.

As e-money emerged, symposia were full of professors of macroeconomics and central bankers lamenting the difficulty of controlling this new supply of money. In other words, the efficiency of the advanced economy had to serve the efficiency of monetary policy, not the other way around.

Instead of suppression, how could the new technologies create new tools for government?

The most important aspect is the ability of the new technology to differentiate and customize. On the internet, each packet is identified as to sender and receiver. Which means that one can identify users, and uses. And if we can identify, we can differentiate.

This is very powerful. Traditional macroeconomics was very aggregate. It was their essence. The reasons were two: for theorists, it was easier to write equations that way. And for policy implementation, it was difficult, in very practical administrative terms, to disaggregate the many economic agents in a society.

But now, we have tools that can differentiate. With proper legal authorization, a central bank could charge different overnight rates to different banks or vary reserve requirements. Sales and other taxes could be varied selectively for different products, regions, or users. Tax credits could be tied to spending for particular uses. Stimulus money could go towards spending or investments that are above the level of last year.

To give a close analogy: In the past, toll roads could charge motorists only in a very undifferentiated way. But now, with automated billing and stored payment systems, we can charge different prices by time of day, by frequency of use, by the characteristics of the driver, by the characteristics of the car, and by the proximity of a driver’s residence to public transportation alternatives. In sum, we possess a much finer tool than before to stimulate and to depress demand for transportation, and to do so at a lower cost due to the ability to pin-point incentives.

We need, of course, to deal with some implications. One is on individual privacy. To differentiate one needs to know a lot. But this problem could be resolved through a system of pseudonyms and trusted intermediaries. A second problem is international trade. Basically, could a government differentiate in favour of its own people? The World Trade Organisation rules say no. But that is likely to become a relic of the industrial age.

The industrial age was the age of massification. Mass production. Mass consumption. Mass media. Mass advertising. But not any more. All around, we see customisation and individualization. Macroeconomic activity by government will eventually follow, and become a sub-aggregated ‘mezzo’ economic policy. Economists, technologists, and policy analysts should work to develop these tools.

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Filed under: ft tech economy crisis 
October 16, 2009
(This must be a joke) Bank of America reveals $1 billion loss

Bank of America (BoA) slid to a $1 billion net loss in the three months to September in the last quarterly results to be announced by Kenneth Lewis, the company’s outgoing chief executive.

BoA’s results were hit by a number of non-core costs, including $402 million it set aside to cover the cost of closing down a Government guarantee on its assets.

The bank also took punishment from the continuing financial difficulties being suffered by consumers.

Net income from deposits plunged by 40 per cent to $798 million compared to the three months to September 30 last year.

BoA’s global card services division made a $1 billion loss and home loans and insurance made a $1.6 billion loss. Profits were also impacted by a $2.6 billion charge which came mainly from an improvement in BoA’s creditworthiness, which meant that it would cost more to buy back debt sold by BoA and Merrill Lynch, the investment bank it bought last year. Banks must account for this cost every quarter.

BoA’s first quarterly loss since the fourth quarter last year came despite a 32.6 per cent year-on-year increase in revenue to $26 billion.

Despite the loss in the third quarter, which compares with a $1.1 billion profit in the same period last year, Mr Lewis said: “we are heartened by early positive signs, such as the leveling of delinquencies among our credit card customers.”

Mr Lewis said that deteriorating loans were the bank’s major challenge going forward, echoing comments made by Vikram Pandit, chief executive of Citigroup, who yesterday revealed that the bank made a $101 million net profit despite similar problems with bad debts.

It is a humbling exit for Mr Lewis, who has spend 40 years at the bank and until recently was lauded as a national hero for buying Merrill Lynch, the troubled investment bank, at the height of the financial crisis.

But yesterday Mr Lewis agreed to give up his bonus and salary for 2009, under pressure from President Barack Obama’s Pay Czar. The chief executive will retire at the end of the year. BoA is searching for a replacement.

Related Links

Boom time for bankers, one year after the crunch

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Filed under: banks finance business money crisis 
October 16, 2009
Google Says Worst of Recession Is Over, ‘Open for Business’ on the M&A Front

taitran:

Google Says Worst of Recession Is Over, ‘Open for Business’ on the M&A Front

By Andrew LaVallee

Google posted third-quarter profit of $1.64 billion, up from $1.29 billion a year ago, while revenue climbed 7% to $5.94 billion.

“While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future,” Eric Schmidt, the search giant’s chief executive, said in a statement.

On its call with analysts, Google typically gives its take on the broader economic environment, particularly advertising, in addition to how its business fared. It also usually gives updates on individual product lines, like search, YouTube and mobile, before the Q&A starts. (See the Q2 and Q1 recaps)

Highlights from today’s call:

4:26 p.m. EST: A few stats from the news release while we wait: Non-U.S. revenue was $3.14 billion, 53% of total revenue — year-earlier quarter saw 51% outside the U.S. United Kingdom revenue was 13% of total revenue, down from 14%.

Clicks to ads on Google and partner sites increased 14%, while average cost-per-click was down 6%.

Google employed 19,665 full-time workers as of Sept. 30, compared with 19,786 on June 30.

4:32: Call starts. The cast is the same as last quarter: Mr. Schmidt, CEO; Patrick Pichette, CFO; Jonathan Rosenberg, SVP of product management; and Nikesh Arora, president of global sales operations and business development. But there’s a twist — they’ll be using Google’s moderator to vet questions with voters. They vote on “the most relevant questions,” which go to the Google execs, the operator says.

4:35: “While there’s obviously a lot of uncertainty about the pace of the economic recovery, we believe the worst of the recession is behind us,” Schmidt says.

He adds that Google now has the confidence to invest “heavily” in its future. “It’s all good news from our perspective, at least in looking at the quarter.”

4:37: Says “we want to really get to the perfect search engine” and that many advertisers would like to spend more with Google if the company’s product allow them to do that.

4:38: Schmidt says “we’re open for business in making strategic acquisitions, both large and small.”

4:39: It’s Pichette’s turn. “At a high level, we’re very pleased with our Q3 results,” he says. The quarter benefited from growth in AdSense for content and display initiatives.

4:41: U.S. revenue up 4% to $2.8 billion. U.K. revenue decline affected by foreign exchange as well as ongoing macroeconomic weakness, Pichette says.

4:42: Operating expenses rose from the prior quarter, mostly due to payroll, equipment and facilities-related expenses.

“We believe the worst of the recession is behind us,” he says.

4:44: Brazil was a standout in Latin America, Arora says. We’re beginning to see signs of recovery in Europe and Africa, particularly Spain. In Asia, China performed strongly as an emerging market.

4:46: Looking at the display-advertising business, those have also shown strong results, he says. On YouTube, new advertisers and partners are helping with monetization efforts. Ninety percent of the top 50 advertisers have run YouTube campaigns with successful results — recent examples include McDonald’s and Hewlett-Packard.

4:47: YouTube has signed deals with all four major record labels and several independent labels. Earlier today, Google announced a partnership with Channel 4 in the U.K., which will bring full-length programming to the video-sharing site.

4:48: Arora adds a personal shout-out to the sales team.

4:50: Rosenberg calls the new AdWords front-end one of the company’s biggest investments of the year. Advertisers have new reports, can run more efficient campaigns and can get new features faster thanks to the platform, he says. Also testing a new offering for local ads — a one-page form, no keywords, no bidding, just a flat monthly rate. About 50 million “place pages” already launched. The phone numbers on the ads go through Google Voice, so they can be tracked.

4:51: Users are using more complex queries, he says, so Google is developing new ways for them to work with the results — being able to filter out commercial results if you want to read reviews, for example.

4:53: Display advertising “still a highly inefficient industry,” Rosenberg says. About a quarter of publisher space goes unused.

4:54: The crowdvoted Q&A begins. First question is: What are your goals with the recently relaunched DoubleClick ad exchange?

4:55: Rosenberg says “We’re making great progress with fixing the whole fractured and very complex ad ecosystem,” but we need to make it easier for advertisers to run broad campaigns and grow the pie for all players.

4:56: Imran Khan of J.P. Morgan asks for clarity on the 6% cost-per-click decline. Arora says foreign exchange had an impact but stresses the rise in paid clicks. “We’re not worried about lower CPCs when you get dollars and more performance.” Rosenberg adds that more clicks are coming from countries with lower CPCs.

4:57: What’s the M&A outlook? Schmidt says there’s no particular rhyme or reason but notes that they’re looking for larger businesses to buy, if they have a major user base. DoubleClick and YouTube look like they’re going to be “incredibly successful,” he says.

5:00: Rosenberg calls the early-September Gmail outage “a very big deal to us.” Google has taken steps to prevent it from happening again and is also working on improving recovery time if outages happen again.

5:03: Ross Sandler from RBC asks if Google is seeing higher conversion rates. Arora says “we don’t comment on precise metrics and conversion rates,” but says on the consumer side, “we’re seeing rational behavior.” The rates seem to be holding up.

5:04: Rosenberg fields a question on Android, Google’s mobile-operating system. He notes the big jump in Android-powered cellphones. “The strategy’s working,” he says.

Chrome OS “is going very well,” he adds. More updates to come later in the year.

5:05: “Android adoption is literally about to explode,” Schmidt says. Internal demos of Chrome OS indicate it is quite different from the incumbents, but it’s not quite done yet. Hope to get a version out later this year for developers.

5:07: What verticals, i.e., autos, saw the biggest spending increases from the previous quarter, Justin Post from Merrill Lynch asks. Arora says autos was most-improved in the U.S., thanks to Cash for Clunkers, and retail gained from back-to-school sales. Finance “continues to be a tough vertical,” esp. when comparing to the year-earlier period. Some pockets, however, such as health insurance or insurance overall, are more positive.

5:09: “We’re really pleased about YouTube’s performance,” Pichette says. It’s “on its path to profitability in the not-too-distant future.” Google is monetizing more than 1 billion videos every week.

5:10: Arora adds that 90% of YouTube’s home-page inventory sold out in 3Q, “a tremendous improvement from prior quarters.”

5:13: Asked for a definition of “investing heavily in the future,” Schmidt says “it depends. You use your business judgment.” Google measures how products are doing and “starves” ones that aren’t growing. He notes that the company is “short key technical talent to achieve some of these broader initiatives.”

5:17: Arora declines to rank how countries fare in revenue contribution — “over time, all these markets are relevant for us.”

5:19: Pichette says mobile searches on Google grew 30% from 2Q. “It tells you something about the mobile space,” he says. “They’re just basically transforming how people live on a mobile basis…the ecosystem is incredibly vibrant right now.”

5:23: Arora says Google still sees consumers in emerging countries coming online, which creates more searches and generates more paid clicks world-wide. That’s in addition to work it’s doing to drive CPC growth.

5:26: Pichette, commenting on hiring outlook, says “it’s not about headcount…you have to find the right Googler.” Schmidt adds, “in terms of recruiting, I think we do it well. And so we will grow at whatever rate we can.”

5:28: Schmidt wraps up the call, saying, “I hope it’s clear that we’re very happy with the quarter. We believe we now have the confidence in our underlying business and the business trends to begin to get back to do the kinds of things that we really see as our mission, which is to make the world an information-rich place, to build some of these new businesses and really serve our customers very well.”

http://blogs.wsj.com/digits/2009/10/15/live-blogging-google-earnings-3/

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(Notes: 2)
  
Filed under: google crisis business 
October 16, 2009

Video: Goldman vs City. From FT

1:15am  |   URL: http://tmblr.co/Zrh1VyCo1Gl
Filed under: ft banks crisis 
October 16, 2009
US bank results highlight recovery gap

By Francesco Guerrera, Greg Farrell in New York and Anna Fifield in Washington

Published: October 15 2009 12:50 | Last updated: October 15 2009 18:56

Bumper third quarter profits at Goldman Sachs and another loss for Citigroup on Thursday highlighted the gap between the financial resilience of Wall Street and the woes of Main Street, fresh evidence that two Americas are emerging from the crisis.

The diverging performance of investment banks such as Goldman and the retail banking operations of the banks such as Citi is problematic for an Obama administration that wants a strong Wall Street but is also under pressure to tackle the plight of ordinary people.

“When you have unemployment creeping towards 10 per cent and a sluggish economy, stories of huge profits and huge bonuses… could create difficulties if [the president] needs any more stimulus,” said Norman Ornstein, a political analyst at the American Enterprise Institute.

 

Goldman announced near-record earnings of $3.2bn, boosted by surging profits in bond and currency trading - two activities that have become more profitable after the crisis reduced competition in financial markets and governments injected emergency funds into the banking system.

Goldman’s profit, which was nearly four times higher than in the third quarter of 2008, underscores its status as one of the winners from a crisis that eliminated two rivals - Lehman Brothers and Bear Stearns - and hobbled others such as Citi, Merrill Lynch and UBS.

Citi, by contrast, suffered its seventh loss in eight quarters as US consumers continued to fall behind on credit card bills and mortgage payments .

“US consumer credit remains the number one issue affecting our near-term results,” said Vikram Pandit, Citi’s chief executive, after announcing the bank had suffered credit losses of $8bn in the three months to September, largely in its consumer business.

Citi, which has been bailed out with $45bn of US taxpayers’ money, has suffered a total of more than $42bn in credit losses since the beginning of 2008.

Citi’s investment bank, which includes Salomon Brothers, a once-feared Wall Street powerhouse - underperformed its rivals, helping to push the group into a loss of $0.27 per share. That loss raises questions over whether the government, which owns a 34 per cent stake in Citi, will allow the bank to repay the aid in the short term.

Mr Pandit said Citi had begun to see some signs of stabilisation in its cards and mortgage portfolios. However, he warned it was too early to call an end to a consumer downturn that has significantly reduced the disposable income and the spending powers of millions of Americans.

The contrasting fortunes of Goldman and Citi suggest that Wall Street, which played a major part in the crisis and was one of its first victims, is recovering much faster than the rest of the US economy.

The contrasting fortunes of the banks suggest Wall Street is recovering much faster than the rest of the US economy.

Economists warn that, with unemployment rising, losses in credit cards and mortgages will remain high into 2010.

Goldman’s surging profits appear to vindicate its management’s decision not to change strategy despite being forced to ditch its investment banking status and convert to a bank holding company to access government aid last year.

Unlike arch-rival Morgan Stanley, which bought most of Citi’s retail brokerage unit, Goldman steered clear of consumer banking, arguing that its expertise lied in serving investors and companies rather than dealing with ordinary people.

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