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The Star Online: Business

Corporate Results in Brief
US Fed warns of big economic risks, ramps up aid
HP's board may oust CEO, hire eBay vet: source

Posted: 21 Sep 2011 06:07 PM PDT

Thursday September 22, 2011

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US Fed warns of big economic risks, ramps up aid

Posted: 21 Sep 2011 05:59 PM PDT

WASHINGTON (Reuters) - The Federal Reserve on Wednesday moved to counter what it said were significant risks to the U.S. economy with an effort to lower long-term borrowing costs and bolster housing.

The U.S. central bank said it would launch a $400 billion program to weight its $2.85 trillion balance sheet more heavily toward longer-term securities by selling short-term government debt to purchase longer-dated Treasuries.

It also said it would reinvest proceeds from maturing mortgage and housing agency bonds it holds back into the mortgage market, an acknowledgment of just how weak housing remains.

The Fed's action met with a mixed reception in financial markets. Apparently spooked by the central bank's dismal outlook, U.S. stocks sold off. The Standard & Poor's 500 index closed down nearly 3 percent.

Prices for long-term government debt rose, pushing yields lower -- a sign the measures were more aggressive than some investors had expected. The yield on the benchmark 10-year note dropped as low as 1.856 percent, the lowest in more than 60 years.

"Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated," the Fed said in a statement after a two-day meeting. "There are significant downside risks to the economic outlook, including strains in global financial markets."

The U.S. economy grew at less than a 1 percent annual rate over the first half of the year and economists have warned of a heightened risk of recession.

Analysts, however, said the Fed's move might not have a great impact, even if it does lower long-term interest rates.

"The cost of borrowing simply isn't the problem," said Paul Ashworth, an economist at Capital Economics in Toronto. "Businesses don't have the confidence to invest and half of all mortgage borrowers don't have the home equity needed to refinance at lower rates."

Still, faced with a lofty 9.1 percent jobless rate and an escalating sovereign debt crisis in Europe, Fed officials felt they needed to do what they could to try to breathe more life into the sluggish U.S. recovery.

With Fed Chairman Ben Bernanke reluctant to stay on the sidelines, his activism has become a punching bag for politicians as an election year nears. Top Republican lawmakers wrote to Bernanke this week urging the central bank to resist further economic interventions, echoing criticism voiced by Republican presidential candidates.

By shifting their bond holdings into longer maturities, the Fed seeks to "twist" long-term interest rates lower relative to its target for overnight lending, hopefully spurring mortgage refinancing and more borrowing by businesses and consumers.

Not all policymakers were on board with the Fed's latest action. The same three officials that had dissented against a decision in August to bolster a low interest rate pledge also opposed Wednesday's move.

Mohamed El-Erian, co-chief investment officer at PIMCO, the world's biggest bond fund, said the combination of dissents and a gloomier outlook pointed to a growing policy divide.

DOING THE TWIST

In its statement, the central bank said it will buy $400 billion in securities with maturities of six to 30 years by the end of June 2012, selling an equal amount of debt maturing in three years or less.

The Fed is not alone in its concerns. The Bank of England on Wednesday signaled it was ready to pump more money into the weakening British economy, while Norway's central bank signaled it might refrain from rate increases for longer than previously expected.

The Fed had already embarked far down one of the most aggressive monetary easing paths on record. It cut overnight interest rates to near zero in December 2008 and then moved to more than triple its balance sheet through a series of bond purchases.

After its last meeting on August 9, the Fed said it expected to hold rates at rock-bottom levels at least until the middle of 2013, drawing the trio of dissents.

Critics claim the monetary easing campaign has failed to produce results and warn it could actually cause damage by fueling inflation and debasing the dollar.

"We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy," Republican congressional leaders said in their letter to Bernanke, which they released on Tuesday.

The central bank's policies have also become a topic on the presidential campaign trail. Texas Governor Rick Perry, a leading Republican candidate, said any further Fed money printing would be almost "treasonous."

HP's board may oust CEO, hire eBay vet: source

Posted: 21 Sep 2011 05:56 PM PDT

NEW YORK (Reuters) - Hewlett-Packard Co's board convened on Wednesday to consider ousting Chief Executive Officer Leo Apotheker after less than a year on the job and replacing him temporarily with former eBay CEO Meg Whitman, a source familiar with the matter said.

The board of directors -- facing shareholder lawsuits and intensifying criticism from investors -- is thrashing out a host of issues, including whether to name Whitman as the interim CEO, the source told Reuters,

HP is trying to contain a crisis of credibility on multiple fronts, starting with its leadership. No decisions have yet been made about leadership, the source said on condition of anonymity because of the sensitivity of the issue.

If Apotheker is let go, he would be the third CEO in a row to be ousted by the board of the largest U.S. technology company by sales.

Wall Street wasted no time in roaring its approval, sending HP shares up 6.6 percent to close at $23.96, a gain of $3 billion on the day in the company's market value.

Analysts say the odds may have been stacked against Apotheker from the beginning. Venture capitalist Ray Lane, who this year assumed chairmanship of an often-lambasted but powerful board, has argued that previous management underinvested in areas including software and services.

"He was doomed from the beginning," said Ticonderoga Securities analyst Brian White. "The die was cast for whoever stepped into that position."

INVESTOR IRE

Investors seemed to approve of Whitman, a billionaire who joined HP's board this year on an interim basis after a failed bid to become California's governor.

Apotheker, former CEO of German business software maker SAP AG, was a surprise choice to replace the popular Mark Hurd, who was ousted last year after a scandal involving expense reports and a female contractor.

Before Hurd came Carly Fiorina -- like Whitman, a candidate for California political office -- whom investors blamed for betting on a sunset PC industry by buying Compaq. She was eventually fired by the board.

HP's latest chief is facing similar investor criticism. During his tenure, Apotheker slashed sales forecasts repeatedly, backtracked on promises to integrate Palm's webOS software into devices, and struggled to halt a 50 percent plunge in the share price.

Apotheker's possible exit has been viewed by some as merely a matter of time. Chairman Lane had been taking a more visible role in the past few weeks, including accompanying the CEO to visit investors to communicate and clarify HP's strategy.

Last week, he replaced Apotheker at an industry conference to defend HP's change in strategy and clear the confusion that followed in the market.

Representatives for Whitman, whose track record at eBay came under attack during her campaign, did not respond to requests for comment. Representatives for HP and the board did not respond to requests for comment.

A STUDY IN DYSFUNCTION

In August, HP again frustrated investors by killing off a much-touted line of mobile devices including the TouchPad and declaring it may spin off its massive PC division. Apotheker also spearheaded a deal to buy British software maker Autonomy that many considered too costly.

HP has been faced withering criticism from Wall Street and a raft of shareholder lawsuits over its recent strategic decisions and how it communicated them.

Especially rankling to investors was its decision to fork over close to $12 billion for Autonomy, without clarifying how the niche maker of cloud-computing software would fit into or help drive a sprawling empire that spans computers, printers, software and enterprise IT solutions.

"It was unanimously agreed to," said a second source familiar with the situation, referring to the Autonomy deal. "The board was a big part of this."

The pricey Autonomy deal is hard to walk away from, even if HP wanted to, this person said, adding that he did not think the deal was an issue right now.

HP's board has been held up as a model of dysfunction since the wiretapping scandal of a few years ago, when HP counsel and board chairwoman Patricia Dunn authorized electronic eavesdropping on directors and journalists to try to plug a series of media leaks.

That scandal, forever associated with a storied company hailed as a cornerstone of Silicon Valley, forced the resignation of Dunn.

Wall Street now awaits HP's decision on future leadership.

News of Apotheker's potential ouster was first reported by Bloomberg.

Kredit: www.thestar.com.my

Rabu, 21 September 2011