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Tuesday PM July 21st, 2009

Continental to cut 1,700 jobs after big second-quarter loss; Southwest Airlines announces 1,400 accepting early-out offers…Houston home sales continue to lag, but not as badly as rest of nation…Exelon ends $7.4 billion NRG Energy buyout attempt…

Continental Airlines is preparing to cut some 1,700 jobs after posting a big loss for the second quarter as traffic fell. The carrier will also raise the fee for checking luggage. The Houston-based airline said it lost $213 million in the quarter that ended June 30th, compared with a loss of $5 million a year earlier. Excluding one-time charges, the loss was $169 million. Revenue tumbled 22.7 per cent, to $3.13 billion. The company said it would cut jobs and raise by $5 each the fees for checking a first bag and booking a reservation over the phone.

Southwest Airlines broke a string of three straight losing quarters by scratching out a $54 million profit in the April-June period–despite a downturn in travel. But Southwest is also cutting its work force, announcing that 1,400 employees–about four per cent of its workers–accepted early-out offers of cash and travel benefits. CEO Gary Kelly says, with business travel remaining weak, the Dallas-based airline can’t predict a profitable third quarter. Southwest expects to incur costs of about $70 million for the voluntary departure of 1,400 employees starting at the end of this month and running through next April. Since the recession deepened last fall, traffic on U.S. airlines has fallen every month compared with the year before. Companies have cut back sharply on business travel, which is a lucrative part of airline operations.

Houston’s home sales are still stronger than the rest of the nation, according to Houston Association of Realtors chair Vicki Fullerton.


“The increases are beginning to be noticed, and the notice is appreciably better than in the past. And in fact, we had the highest median price ever for property in Houston, so that bodes well. Even though the lease market is still strong and active, more people are getting into the purchase market.”

Houston’s median home price is at $164,500—up from $160,050 a year earlier. HAR says the market is being boosted by seasonal buying, low interest rates and tax incentives. Sales of single-family homes declined for the 22nd straight month, but the association says Houston is still better off than the rest of the nation.

Exelon says it has ended its $7.4 billion, all-stock bid to buy power generator NRG Energy. Chicago-based Exelon announced its plan, shortly after NRG shareholders rejected Exelon’s efforts to increase the size of NRG’s board and elect board members more open to a deal. Princeton, New Jersey-based NRG has rejected two offers for the company, calling them undervalued. The deal would have created the nation’s largest power generator that would have been able to provide electricity to about 45 million homes.

The head of the White House’s auto task force is warning Congress against a House-approved plan to restore General Motors and Chrysler dealerships being closed by the car companies’ bankruptcies. Ron Bloom told a House subcommittee that the plan would set a “dangerous precedent” and raise legal concerns, according to remarks prepared for delivery. Bloom said if Congress intervenes, it could jeopardize the ability of taxpayers to recoup billions in federal aid to GM and Chrysler. The House approved a measure last week that would force GM and Chrysler to restore about 3,000 dealerships expected to be closed in the bankruptcies. The Senate has not yet considered the plan. Dealers support the bill, arguing that nearly 200,000 workers could lose their jobs.

Two senior Congressional Democrats are calling on the Treasury Department to make the $700 billion financial bailout program more visible and accountable to taxpayers. Representative Edolphus Towns of New York and Senator Max Baucus of Montana said that Treasury Secretary Timothy Geithner must adopt recommendations from a government watchdog that the department has resisted. Towns and Baucus made their comments as a House oversight panel prepared to hear testimony from special Inspector General Neil Barofsky, who oversees the massive Troubled Asset Relief Program. Barofsky delivered a quarterly report to Congress sharply critical of Treasury’s reluctance to better track how federal bailout money is being spent.

Federal Reserve Chairman Ben Bernanke has rejected Congressional skepticism regarding an expansion of the Fed’s duties to police big financial companies. During his appearance before the House Financial Services Committee, Bernanke also faced some questions about taxpayer bailouts of financial companies and slow moving efforts to curb home foreclosures. Concerns were also expressed about the Fed’s
track record in protecting consumers from abusive practices from lenders, credit card companies and other financial service providers. The panel’s highest-ranking Republican, Spencer Bachus said letting the Fed become the financial Supercop would be what he called “inviting a false sense of security” that would be shattered at taxpayers’ expense. Bernanke argued that the Obama administration’s proposal would be a “modest reorientation” of the Fed’s powers, not a great expansion of them.

Fed Chairman Bernanke says the Fed will be able to reel in its extraordinary economic stimulus and prevent a flare up of inflation when the recovery is more firmly rooted. In testimony prepared for the House Financial Services Committee, Bernanke also says any such steps will be far off in the future and that the central bank’s focus remains “fostering economic recovery.” To that end, Bernanke again pledged to keep its key bank lending rate at a record low near zero for an “extended period.” Economists predict rates will stay at record lows through the rest of this year.

President Barack Obama says he sees a lack of humility among leaders of the financial community. While noting that some of the nation’s most powerful banks had repaid federal bailout money, Obama said: “what you haven’t seen (in the financial sector) is a change in culture, a certain humility where they kind of step back and say gosh, you know, we really messed things up.” Obama was asked in an NBC’s Today show interview about bonuses paid to those in the financial sector after the federal government had to step in with taxpayer money to prevent the system from collapsing. The president said the industry “should be more focused on products we’re providing consumers. Let’s make sure we’re operating in a more secure, safe fashion.”

A draft report suggests conservation is the best way to help meet the future water needs of the rapidly growing Travis County area. Public comment on the review done for the Lower Colorado River Authority will be sought in the fall. The Austin American-Statesman reported on the draft water supply resource plan. The document found, even with rapid population growth and industrial expansion, demand for LCRA water is not expected to outstrip the utility’s supplies until 2080. Jennifer Walker, a water resources specialist for the Sierra Club, served on an LCRA water conservation task force. She says the value of looking far into the future “all depends on how you plan on using that water supply.”

A new Texas law means an exemption for disabled veterans and welcome relief from having to worry about paying property taxes on their homes. Governor Rick Perry in June signed legislation waiving property taxes on the homes of severely injured veterans who seek and quality for the exemption. The Houston Chronicle reported that more than 1,500 veterans in the Houston area have contacted the Harris County Appraisal District for details. Disabled veterans in Texas will qualify if the Department of Veterans Affairs has determined they are unable to work or are receiving 100 per cent disability compensation due to their military service. The new law also increases exemptions for veterans with disability ratings of 30 per cent, 50 per cent or 70 per cent. Many states offer similar tax breaks.

Barnes & Noble is increasing its presence in the small but highly competitive market for electronic books. It has launched a new e-bookstore offering titles that can be using a variety of devices. Barnes & Noble will sell books that shoppers can read on the iPhone, iPod touch, Blackberry and most personal computers. So far, competitors have sold devices designed solely for reading electronic books, such as’s Kindle or Sony Own Reader. New York-based Barnes & Noble said it also will be the exclusive provider of books for a reader from Mountain View, California-based Plastic Logic, which expects to release it in 2010. And the company expects to make more devices compatible in the coming months. The company plans to offer 700,000 titles initially and up to a million within a year. That includes the more than half-million books Google recently made available for free. It will sell all other trade and traditional titles for $9.99 each.

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