Thursday PM May 7th, 2009

Results from the government's bank "stress tests" suggest many of the nation's largest banks may need to raise more capital to make it through a deeper recession. Regulators have told Wells Fargo, Citigroup and Bank of America they all need billions more. But the Obama administration is downplaying concerns about the need for more cash. The results appear to be good enough so that President Barack Obama will not have to ask Congress for more bailout money--which lawmakers aren't likely to hand over easily. Critics are concerned that regulators seem so intent on maintaining public confidence in the banks that the results will have to say the banks are basically healthy.

A Texas bank has become the 11th financial institution to return the money it received from the government's $700 billion bailout fund. The Treasury Department reported that Sterling Bancshares of Houston had paid back the $125.2 million loan it received from the government in December. Sterling Bancshares did not pay the government for the warrants received as part of the financing agreement. So far, only one bank, Centra Financial Holdings of Morgantown, West Virginia, has paid the government for the warrants, which gave the government the option to buy stock shares in the bank. Many banks are lobbying the government to drop the requirement that the banks must pay for the warrants. Sterling Bancshares repaid the loan on Tuesday. Under the law that created the $700 billion financial rescue fund, the government has two business days to disclose transactions involving the fund.

Federal Reserve Chairman Ben Bernanke calls for a holistic approach to strengthening oversight of the banking system to prevent future financial crises. In remarks prepared for delivery via satellite to a Fed conference in Chicago, Bernanke says regulators must not only sharpen their assessments of individuals banks, but also examine the financial system as a whole to detect risks that could endanger the normal flow of credit, market operations and commerce. Those are critical elements to the smooth functioning of the U.S. economy.


Delaware-based DuPont plans to eliminate about 2,000 jobs—about three per cent—if its work force by 2010, according to the Houston Business Journal. The company has fewer than 1,000 workers at chemical operations in Bayport, Baytown, Houston and LaPorte. Houston should not be affected much by the layoffs, according to DuPont. Restructuring will take place in the coatings and color technologies, electronics and communications technologies, performance materials and safety and protection segments, according to a regulatory filing.


AAA cites the seasonal change to "summer blend" gasoline formulas and expectations of an improved economy for a spike in retail gasoline prices in Texas. The weekly AAA Texas price survey says the average price of regular self-serve unleaded gasoline climbed nine cents in one week to $2.04 per gallon. AAA cites the approach of the Memorial Day holiday and summer driving season, combined with expectations of an improved economy, for the increase. The most expensive gasoline in Texas is in Amarillo, where it rose 13 cents to $2.10 per gallon. The cheapest gas is in Houston, where it rose seven cents to $1.99 per gallon. The national average for regular self-serve unleaded is $2.14, up nine cents from last week.


Attendance at the 2009 Offshore Technology Conference reached 66,820 this week. Energy professionals from more than 120 countries met at Reliant Park. OTC officials say that's a little less than last year, but exceeds expectations considering economic conditions.

Energy companies are venturing deeper into the Gulf of Mexico as they explore for and produce new sources of crude and natural gas. That's what a new government report shows. The number of production projects operating in depths greater than 1,000 feet rose eight per cent last year to 141. That's according to the report released this week at the Offshore Technology Conference by the Interior Department's Minerals Management Service, which oversees U.S. offshore activity. The report predicts that oil production in the Gulf could peak at more than 1.8 million barrels per day by 2013, but natural gas will likely continue its decline. The MMS pegs any project at 1,000 feet or greater as "deepwater," but increasingly companies are moving into 5,000-foot depths or more. Those are classified as "ultra-deepwater."

Price volatility was a topic at one of OTC's general sessions. Luc Messier with ConocoPhillips explained how his company is reacting to the decrease in commodity prices.

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"We had pretty much the same level of oil prices that we're having today, but the costs of goods and services and projects since 2004 have doubled. So we're getting the same revenue for oil and gas as we did in 2004, but we have to pay twice as much for basically developing our projects and developing our assets."

The oil industry is pushing to make the lifting of drilling bans permanent, according to American Petroleum Institute CEO Jack Gerard. Oil companies have been barred from drilling in about 85 per cent of U.S. waters for almost three decades, but the bans were removed last summer as oil reached $147 a barrel. Gerard spoke on an OTC panel.


The oil and gas industry is taking a hard hit in President Barack Obama's proposed budget. According to details released about the 2010 budget, the plan would rescind tax breaks for the oil and gas industry at a cost to the industry of $52.4 billion over the next ten years. The Obama administration says eliminating the two biggest tax breaks will put oil and gas companies on equal tax footing as other companies. The budget also spells out the shutdown of a proposed nuclear waste dump at Yucca Mountain in Nevada. It provides $197 million for the project, but no money for land, transportation access or new engineering work.

Obama is proposing $17 billion in cuts to the federal budget, but Congress has already rejected some of them. New details on Obama's budget would cut or kill 121 programs while boosting spending on many others, such as aid to schools and border enforcement. Many of the blanks in his previous budget outline were filled in by the administration. Many of the savings proposed by Obama had been proposed by former President George W. Bush, only to be rejected by Congresses controlled by both Democrats and Republicans.


Marathon Oil has begun including podcasts on its Web site. Marathon executive Dave Roberts took part in a discussion called "What is Marathon?" on the initial podcast, tackling the price volatility that his industry faces.

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"Those of us that have been in this business for some time understand that, that we are going to be price-takers. We can't set the price, nor do we want to. And just like I found it difficult to believe the sustainability of $145 crude oil, I find it difficult to believe the current market. And so my philosophy, and the company's philosophy, has always been to be able to see through and invest through the cycles that are naturally going to occur in this business."

Roberts says Marathon Oil has become more of an international business with its investments in Canada, Africa and Norway, and its re-entry into Libya.


Houston home starts fell in the first quarter by 55 per cent compared with a year ago, according to Metrostudy, as reported by the Houston Chronicle. Metrostudy says the fall-off in the pace of homebuilding could lead to fewer options and higher prices by the end of this year. The current median price is up 3.4 per cent from a year ago, to $210,706. Home buyers closed on 5,315 homes in the first quarter—35 per cent lower than the same period in 2008.

Rates on 30-year mortgages inched up this week after matching an all-time record low a week earlier. Mortgage finance giant Freddie Mac said that average rates on 30-year fixed-rate mortgages rose to 4.84 per cent this week, down from an average of 4.78 per cent last week. The all-time low of 4.78 percent was first recorded on the week of April 2nd, and again last week. Freddie Mac's survey dates back to 1971. Low rates have sparked a surge in refinancing activity, with about 75 per cent of new home loan applications coming from borrowers seeking to refinance.


Falling home prices have forced the government to ask Congress for a taxpayer subsidy to prop up a program that lets senior citizens take out reverse mortgages. The White House says in budget details that the Federal Housing Administration needs a $798 million subsidy next year, the first in its 75-year history. The money is needed for a program that lets seniors tap the equity in their homes. The FHA's main program for borrowers with weak credit will not need a taxpayer rescue, despite rising defaults.

The Texas House has adopted an overhaul of the Texas Residential Construction Commission, but consumer advocates are calling for more protections for homeowners trying to get builders to address defects in their homes. The proposal, given final house approval today, would introduce more regulation of builders, including a provision to make it easier for homeowners to file complaints and resolve disputes. But the legislation would allow the commission to continue functioning despite repeated calls for its closure. "This bill is a good patch job, but there is still a long way to go to ensure that homeowners are fully protected from shoddy homebuilders," said Alex Winslow, executive director of the watchdog group Texas Watch.


New applications for jobless benefits plunged to the lowest level in 14 weeks, a possible sign that the massive wave of layoffs has peaked. Still, the number of unemployed workers getting benefits climbed to a new record. The Labor Department says the number newly laid off workers applying for benefits dropped to 601,000 last week. That was far better than the rise to 635,000 claims that economists expected. But the total number of people receiving jobless benefits climbed to 6.35 million, setting a record for a 14th straight week. After the news was released, stock futures extended their earlier gains.


Consumer borrowing plunged in March at the fastest pace in 18 years as Americans put away their credit cards and hoarded cash amid the worst recession in decades. The Federal Reserve says consumer borrowing dropped 5.2 per cent in March, the biggest decline since an 8.1 per cent fall in December 1990. In dollar terms, consumer borrowing plunged by $11.1 billion. That's the largest dollar amount on records dating to 1943, and more than three times the $3.5 billion drop that economists expected.


The government says productivity rebounded in the first three months of this year while wage pressures eased, both outcomes reflecting the country's deep recession. The Labor Department said that productivity--the key ingredient to rising living standards--grew at a 0.8 per cent annual rate in the January-March quarter, slightly better than the 0.6 per cent increase that economists had expected. Wage pressures, as measured by unit labor costs, increased at a 3.3 per cent rate--higher than the 2.8 per cent rise that economists had expected but lower than the 5.7 per cent spike in the final three months of last year.


Many retailers are reporting less sharp declines in April as shoppers bought a few more items. Warmer weather and glimmers of hope for the economy helped. As merchants report their sales results, a number of stores including Stage Stores are posting sales drops that were less than analysts had expected. Costco Wholesale is reporting a deeper-than-expected same-store sales drop. Same-store sales, or sales at stores open at least a year, are a key indicator of retailer performance since they measure growth at existing stores rather than newly opened ones.


PULSE is launching a surcharge-free ATM network alliance with MoneyPass Network, providing financial institution participants with access to more than 16,000 surcharge-free ATMs nationwide. The network enables PULSE participants to provide cardholders with increased access to surcharge-free ATMs.


On the orders of a federal bankruptcy court judge, the names of a handful of Chrysler debt holders who refused to settle to keep it out of Chapter 11 have been disclosed. Besides previously disclosed members Stairway Capital Management and OppenheimerFunds, the group includes Schultze Asset Management, Arrow Hedge Partners and Group G Capital Partners. In all, the nine dissenting lenders represent only about four per cent of Chrysler's total secured debt of $6.9 billion. A number of other funds dropped their opposition after President Barack Obama publicly chastised the group for not supporting his plan to help Chrysler stay in business. Some say they received death threats. The dissenting groups contend they're being steamrolled in bankruptcy court in favor of other parties like the United Auto Workers. They see it as a violation of rules covering secured lenders.

General Motors will temporarily close all or portions of 23 engine, transmission and parts factories across the U.S. for several weeks while vehicle-making plants are also idled. A GM spokeswoman cites plans announced two weeks ago to shutter 13 assembly plants for up to 11 weeks to control growing inventory. The additional closures affect more than 18,000 hourly and salaried workers. The spokeswoman says some parts plants will close for eight or nine weeks, while others will see only one product assembly line shut down. GM is surviving on $15.4 billion in government loans and faces a June 1st deadline to restructure or go into bankruptcy protection. GM announced the assembly plant shutdowns on April 22nd and informed workers at the parts plants last week and this week.


Houston PBS is airing Houston Have Your Say this evening at 7 p.m. on KUHT-TV channel 8, looking at the competitiveness of Houston's industries and workers. Moderated by Patricia Gras, this community forum follows others on immigration and regional growth. Participants include economists as well as representatives from Chevron and Marathon Oil. A jobs expert from Workforce Solutions will moderate a live public chat following the show.


Earnings

General Motors says it lost $6 billion in the first quarter and spent $10.2 billion more cash than it took in, as a sales slump cut revenue by $20 billion. The nation's biggest domestic automaker lost $3.3 billion in the year-ago period. GM has received $15.4 billion in federal loans and faces a June 1st government deadline to finish a restructuring plan or go into bankruptcy protection. Revenue dropped 47 per cent, to $22.4 billion from $42.4 billion in the year-ago quarter.

Dynegy says its first quarter loss more than doubled from a year ago as the power producer wrote down the value of the company because of its tumbling stock and power prices. Houston-based Dynegy reported a loss of $335 million for the quarter ended March 31st compared with a loss of $152 million a year ago. Revenue was $904 million. The company recorded a $433 million charge that it says reflects a decline in the company's value. Analysts surveyed by Thomson Reuters expected a loss of four cents a share on revenue of $683 million. Such estimates typically exclude charges.

Anadarko Petroleum says it lost $338 million in the first quarter due to lower commodity prices and non-cash hedging losses related to derivatives. Anadarko, one of the nation's largest independent exploration and production companies, had a profit of $286 million a year earlier. Adjusted for one-time items, Anadarko says its January-March earnings came to a loss of $242 million. Revenue fell about 46 per cent to $1.6 billion from $3 billion a year ago, the suburban Houston-based company said.


 

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