Wachovia says it will cut jobs and its dividend, and will raise $7 billion in a stock sale. The news coincides with word that the nation's fourth-largest bank had a surprising first-quarter loss of $393 million. The company's shares fell more than ten percent in morning trading. Wachovia's results were hurt by exposure to the troubled credit markets. It plans to cut 500 jobs in its corporate and investment bank. The Charlotte, North Carolina-based company will slash its dividend to save $2 billion a year.
Gas prices fluctuated over the weekend but appear poised to move toward a record high milestone of $3.50 a gallon. Forecasts call for gas to peak as high as $3.65 within a month. Oil prices, meanwhile, rose to within a dollar of last week's record of $112.21 a barrel as the dollar fell and oil supplies were disrupted in the U.S. and overseas. At the pump, the national average price of a gallon of gas edged lower overnight to $3.373 a gallon, 0.1 cent shy of a new record set Sunday. That's according to a survey of stations by AAA and the Oil Price Information Service. The Energy Department recently predicted gas prices could average as much as $3.60 a month this summer, and said the daily national average could rise as high as $4 at times. Prices are already over $4 in some parts of the country. A growing number of analysts, however, don't believe the national average will rise that high unless something unanticipated occurs. Drivers in California can expect to pay nearly 30 cents more than that for regular--and over $4 a gallon for higher grades. Drivers are now paying 56 cents a gallon more than they did a year ago. And AAA fuel price analyst Geoff Sundstrom says it looks like prices will continue to rise.
American Airlines says it received Federal Aviation clearance over the weekend to return all of its 300 grounded jets to service. The nation's largest airline had to cancel nearly 3,300 flights last week for wiring inspections, as part of a federal safety audit. The cancellations stranded hundreds of thousands of people over the course of several days. The chairman and chief executive of American parent AMR Corporation says the cancellations could end up costing American tens of millions of dollars. Those costs include lost revenue, overtime for maintenance crews and vouchers to reimburse stranded customers. A Standard & Poor's analyst estimates the price tag could easily top $30 million.
Rigorous airline maintenance audits recently ordered by federal regulators are likely to yield the most headaches for travelers flying Northwest, American and United Airlines. Those carriers have the oldest fleets, on average. The older the jet, the more likely it requires time-consuming, and potentially flight-grounding, government-ordered inspections, analysts and regulators agree. Northwest Airlines's fleet of roughly 350 planes has the oldest average age at nearly 18 years old. Fort Worth-based American has a 15-year-old fleet. UAL's United Airlines is at 13. That's according to the most recent annual reports by the companies. Reports of shorted wires, evidence of worn-down power cables, and fuel system reviews conducted by the manufacturer, Boeing, led to the airworthiness directive on MD-80 aircraft. Hundreds of those planes were grounded last week by American, Alaska Airlines and other carriers, inconveniencing hundreds of thousands of travelers. The first round of FAA audits over a two-week span last month was prompted by revelations that Dallas-based Southwest Airlines flew dozens of planes that had missed inspections. That round checked ten airworthiness directives that apply to each carrier's fleet. The second phase runs through June 30 and will check ten percent of the orders that apply to each airline's fleet. American said in its annual report in February that it was working to comply with about 180 directives. The airlines flies many types of aircraft.
Treasury Secretary Henry Paulson says that while risks remain, the Bush administration is dealing aggressively with the U.S. economic slowdown. Paulson made the remarks Saturday to the International MonetaryFund's policy-setting panel in Washington. He told the panel that a weak housing market, high energy prices and stress in financial markets are "penalizing U.S. economic growth.'' An IMF economic outlook predicted a mild recession this year in the U.S. that is seen as raising the risks of a global recession to 1-in-4. Paulson and Federal Reserve Chairman Ben Bernanke have been trying to reassure officials that U.S. policymakers are doing everything possible to loosen U.S. credit markets. That would enable businesses and consumers to get loans more easily and help the economy revive.
The IMF and World Bank meetings in Washington over the weekend focused on ways to deal with the unfolding global financial crisis and the effect of higher food and energy prices on developing countries. Bank President Robert Zoellick calls it an "emergency situation.'' He says while many in the U.S. and Europe are worrying about filling their gas tanks at a time when others "are struggling to fill their stomachs.'' He's urging governments to rapidly carry out commitments toprovide the U.N. World Food Program with the $500 million in emergency aid it needs by May 1st. The current economic situation has led to high food prices and unrest in several countries, including Haiti, Egypt and the Philippines. IMF chief Dominique Strauss-Kahn says "hundreds of thousands of people will be starving'' if the price spike continues. The development group Oxfam blames rich countries for the food crisis because of cuts in aid to developing countries and their encouragement of biofuel production. The IMF says biofuel is responsible for almost half the increase in the shortage for food crops.
Clear Channel Communications and six banks it's suing agreed to a temporary injunction. The deal blocks the banks from reneging on a deal to finance a private equity group's $19.5 billion buyout of the San Antonio-based radio station chain. The deal came after State District Judge Joe Frazier Brown of San Antonio denied a motion from the banks that the Clear Channel suit be dismissed. Brown also set a June 2nd trial date. The buyout offer is set to expire ten days later. In its suit, Clear Channel and a holding company established by its prospective buyers accuse CitiGroup, Morgan Stanley, Credit Suisse Group, Wachovia, Deutsche Bank and the Royal Bank of Scotland of improper interference. Clear Channel seeks $26 billion in damages. The buyers are led by the private equity firms Bain Capital and Thomas H. Lee. Banks agreed to provide financing, but the current market price would mean an immediate loss of almost 2.7 billion. The buyers have filed a separate suit in New York against the banks, alleging breach of contract and fraud.
The prospects are looking dim for the proposal to limit which Screen Actors Guild members can vote in upcoming contract talks. SAG's board of directors on Saturday referred the matter to committee rather than immediately act on it, as more than 1,400 guild members demanded in a petition. It sought to restrict voting to actors who work at least one day a year. The proposal ran into strong opposition from board members who argued it would exclude most guild members. The majority of SAG's 120,000 members don't work regularly. Supporters of the proposal reason that nonworking members would be more likely to favor a walkout. Contract negotiations with studios begin Tuesday.
This will be a busy week for economic reports, amid a series of downbeat reports seen recently. Tuesday, the Producer Price Index, measuring wholesale prices, is due. The Consumer Price Index follows the next day. Also this week, readings on industrial production, housing starts and the leading indicators are also due.