Market Improves; Banks, Credit Unions Seek Capital InfusionsWall Street was optimistic on Monday that President-elect Barack Obama's plan for a large infrastructure spending package will help pull the economy out of recession. The Dow Jones industrial average went above 9,000 points and ended up at 8,934 with a gain of 300 points. Obama announced over the weekend plans for the biggest public works spending program since the construction of the nation's interstate highway system more than 50 years ago. This plan is designed to boost the economy, putting thousands to work building on infrastructure construction projects. Obama's plans are to create 2.5 million jobs by 2011 through repairing roads and bridges, modernizing schools and making public buildings energy efficient, among other initiatives.
What About Auto Bailout?
Investors also await news about the Big Three's $15 billion bailout. Auto makers General Motors, Chrysler and Ford may get the money within a week, but their top executives may have to step aside. The final version of the plan will likely include stipulations that impose stringent taxpayer protections, including stock warrants that would give the government an equity stake in the three companies, new limits on executive compensation and a ban on any stock dividends until the loans are paid off.
More Jobs Lost
3M Co., a Maplewood, MN-based manufacture says it will cut 1,800 jobs by the end of the year, and will have other employees take vacation or unpaid time off for the last two weeks of the year. These cuts are on top of 1,000 cut in the third quarter.
The owner of the Los Angeles Times and Chicago Tribune, the Tribune Co. is headed toward bankruptcy. The company also owns the Chicago Cubs and Wrigley Field and is mulling the sale of the team to raise capital. The Tribune Co. was on the edge of possibly violating its debt covenant and is another victim of the loss of readers in the newspaper industry, as the poor economy affects sales, and readers and advertisers leave to the Web.
Electronic giant Sony Co. announced on Tuesday it will cut 8,000 jobs and close manufacturing sites, It is also cutting investments in its electronic business by 30 percent. The company will close 57 of its manufacturing sites to save more than $1 billion in the next year.
Small Banks Also In Bailout Line
Last week the FDIC had already gotten more than 1,200 applications from small community banks looking to enroll in the Troubled Asset Relief Program, or TARP. The Treasury department has already doled out $161.5 billion in 52 companies, and another 93 banks have gotten approval for $48.4 billion in funds. Thousands more are anticipated to apply for the government bailout by the deadline.
Why these banks are applying for help, say analysts, is not because they have fallen into problems with subprime mortgages, which caused the big headaches for Citigroup and Washington Mutual, but because the slowing economy has them worried that they'll need a bigger capital reserve as they face rising loan losses in 2009.
NCUA's Supplemental Capital Initiative
The National Credit Union Administration will ask for consideration of supplemental capital approaches for credit unions. NCUA Board Member Gigi Hyland says she will, in her role as liaison to the National Association of State Credit Union Supervisors (NASCUS), ask NASCUS to seriously consider whether credit unions be given some form of supplemental sources of capital. "Permitting credit unions to accept supplemental capital requires Congressional action, so the sooner we get started on this effort, the better," Hyland says.