Friday, May 15, 2009

Quick Notes & Articles for the Day - May 15

SunTrust to Sell Shares, Cuts Dividend - SunTrust said on Friday morning that it is selling up to $1.25 billion of common stock and cutting its quarterly dividend by 90% ($0.01 per quarter), in order to comply with new federal capital guidelines for banks. "While it was determined that SunTrust is currently well-capitalized, and projected to remain so under the Treasury's more adverse-than-expected economic scenario, in order to meet newly adopted regulatory requirements, the company plans to adjust the composition of its overall Tier 1 capital resources to increase the common equity portion by $2.2 billion," the bank said in a press release. The company said it might sell securities or other assets, as well as exchange preferred shares for common stock, to raise additional capital.

CPI Data - Annual Retail Prices Drop Most in 54 years - Led by a large decline in energy prices, the consumer price index (CPI) was unchanged in April after seasonal adjustments and has fallen 0.7% in the past 12 months - the largest decline in 54 years. The decline in the consumer price index has sparked concerns about deflation in the United States. However, core inflation - which excludes volatile food and energy prices - has not declined. In the past year, the core CPI is up 1.9%. In April, the seasonally adjusted core CPI rose 0.3%, boosted by a 9.3% increase in tobacco prices. Excluding tobacco, the CPI fell 0.1% and the core CPI rose 0.1%.

After No Activity for Months - TARP Being Used Again - In an article in The Wall Street Journal, it was reported that the infusion of $22 billion in to insurance companies was the first new round of funds allocated from the TARP since the country's biggest banks received money at the turn of the year. It was reported that the government plans to make up to $22 billion of bailout funds available to some life insurers. Hartford Financial said Thursday that it has preliminary approval to receive $3.4 billion of TARP money. The Journal reported that the government will also give money to Prudential, Principal Financial, and Lincoln National. The Treasury will also provide funds to Allstate which sells life insurance alongside other types of insurance, and wealth-management firm Ameriprise Financial which sells life insurance and annuities.

The firms receiving money will be eligible because they were already bank-holding companies or they have changed their status to become one by agreeing to buy a savings-and-loan institution. The Journal reported that in exchange for the aid, the government will get warrants as well as preferred shares that initially pay a 5% dividend. The paper said final approval for insurers to receive TARP money depends on completion of paperwork. Funds are usually received within a month of preliminary approval.

Consumer Sentiment Rises - U.S. consumer sentiment rose in early May on a rosier outlook according to a survey released Friday by the University of Michigan and Reuters. The consumer sentiment index rose to 67.9, the highest reading since September, from 65.1 in April. Economists polled by MarketWatch had expected a May result of 68. The index hit a 28-year low of 55.3 in November. Consumers' expectations jumped to 69 in May from 63.1 at the end of April. Their views on current conditions fell to 66.2 from 68.3.


Fiscal Suicide Ahead - By David Brooks - The New York Times - "Barack Obama came to office with a theory. He believed that the country was in desperate need of new investments in education, energy and many other areas. He also saw that the nation faced a long-term fiscal crisis caused by rising health care and entitlement costs. His theory was that he could spend now and save later. He could fund his agenda with debt now and then solve the long-term fiscal crisis by controlling health care and entitlement costs later on."

Health Costs Are the Real Deficit Threat - By Peter Orszag - The Wall Street Journal - "This week confirmed two important facts -- that health-care costs are the key to our fiscal future, and that even doctors and hospitals agree that substantial efficiency improvements are possible in how medicine is practiced."

Derivatives Trades Should All Be Transparent - By Viral V. Acharya and Robert Engle - The Wall Street Journal - "On Wednesday, Treasury Secretary Timothy Geithner proposed new regulations on derivatives trading. The administration's goal is to introduce greater transparency to these financial contracts in order to reduce the systemic risk they pose to financial markets and to the economy as a whole. The proposals are good as far as they go, but they don't go far enough."

New Rules for Derivatives - The New York Times - "President Obama’s new proposal to regulate derivatives would go a long way toward reining in the complex products and reckless practices that have been a big factor in the financial crisis. But it would not go far enough. In apparent deference to those who have made major profits from unfettered derivatives trading, the proposal stops shy of creating a fully transparent market."

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