August 11, 2004
Fed
Raises U.S. Rates,
Still Optimistic
The U.S. Federal Reserve
yesterday raised interest rates another quarter of a percentage point to
head off potential inflation, saying the economy had been hit by energy
costs but was poised for faster growth, Reuters reported. The unanimous
decision by
the U.S.
Central Bank's policy-setting Federal Open Market Committee (FOMC) moves
the benchmark federal funds rate -- which influences credit costs
throughout the economy -- to 1.5 percent. It was the second
quarter-point rise this year, following one announced on June 30 after
the last FOMC meeting. The Fed action, which boosted the dollar and
weighed on U.S. government bonds and the stock market, came despite weak
job growth in July as well as oil prices that hit records above $45 a
barrel on Tuesday. 'In recent months, output growth has moderated
and the pace of improvement in labor market conditions has slowed. This
softness likely owes importantly to the substantial rise in energy
prices,' the Fed said in a statement outlining its rate decision, the
newswire reported.
Productivity Still Strong, But Slows
The productivity of
U.S.
businesses rose at a swifter-than-expected pace in the second quarter
but labor costs still gained at their fastest rate in two years, a sign
of building corporate cost pressures, Reuters reported. Nonfarm business
productivity rose at a 2.9 percent annual rate in the second quarter,
the Labor Department said today, well ahead of the 2 percent expected by
Wall Street but a slowdown from the first quarter's 3.7 percent advance.
It was the smallest productivity gain since the fourth quarter of 2002,
but strong enough to convince economists that it would still help
provide a brake to inflation. 'These numbers will probably be of concern
to Fed policy-makers if the trend continues,' said Gary Thayer, chief
economist at A.G. Edwards & Sons in St.
Louis , the newswire reported.
Conseco Settles Lawsuit with
Former President
Conseco Inc. has settled a
lawsuit demanding that its former president repay the Carmel-based
insurer more than $25 million he borrowed to buy company stock, the
Associated Press reported. Thomas J. Kilian, Conseco's former president
and COO, was one of 11 executives who borrowed money from the company to
buy its stock. Conseco attorney Reed Oslan didn't disclose the amount of
the settlement. Conseco had claimed Kilian owed the company $26.8
million including interest. Collectively, the 11 owed
Conseco more than $670 million for the company-backed loans, which are
now barred under federal law. Conseco, which emerged from chapter 11
reorganization last September, is seeking repayment to satisfy creditors
as part of its bankruptcy settlement, the newswire reported.
Kmart-Home Depot Deal to Involve Fewer Locations
Kmart Holding Corp. will sell
fewer than the originally planned 24 stores to Home Depot Inc., as a
result
of certain closing conditions not being satisfied with respect to some
stores, the online Wall Street Journal
reported. A Home Depot spokesman confirmed
the pact but said the company couldn't provide further details. In early
June, Kmart agreed to sell up to 24 stores to Home Depot for up to $365
million in cash. Kmart said the companies have now revised their
transaction to provide for the sale of no fewer than 13 stores for $173
million in cash and up to 19 stores for $288.5 million in
cash.
Separately, Kmart said it was reducing
staff at its headquarters by 10 percent as part of streamlining efforts.
The company didn't say how many total jobs were affected. In February,
the company said that 2,200 people worked at its headquarters, the
newspaper reported.
U.K. Pension
Issue Bogs Down Federal-Mogul's Bid To Emerge
U.S. financier
Carl Icahn, one of the most prominent 'corporate raiders' of the 1980s,
is at the heart of a showdown over the future of nearly 40,000
United
Kingdom workers' pensions. Icahn -- who
once owned oil giant Texaco and air carrier Trans World Airlines and now
is starting a hedge fund -- is the largest bondholder at Southfield,
Mich.-based Federal-Mogul Corp., an auto-parts supplier in the
Detroit suburb that could
emerge from Chapter 11 bankruptcy reorganization later this year.
Bondholders, led by Icahn, would then own 49.9 percent of the
company and control the board. But one big issue needs to be resolved:
the pension hole at Federal-Mogul's
U.K.
subsidiary, known as Turner & Newall Ltd. (T & N). The pension
fund's independent trustee, Alexander Forbes Trustee Services, wants
Icahn and other creditors to give the plan more money. Otherwise, the
trustees, who represent pension-plan members, could shut down the
pension plan, potentially forcing the insolvency of T& N in the
process.
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Class-action Lawsuit Filed
Against W.R. Grace Over 401(K)
Chemical company W.R. Grace
& Co. said investors in the company's retirement plan filed a
class-action lawsuit against some of its officers and all of its board
members. In its second-quarter report filed late Monday with the
Securities and Exchange Commission, W.R. Grace, which is operating under
bankruptcy protection, said the lawsuit was filed in June on behalf of
participants in its 401(k) plan between July 1, 1999 and Feb. 27 of
this year. The class
action was filed June 17 in the U.S. District Court of Massachusetts
against each member of W.R. Grace's board, some current and former
officers and employees of the company, Fidelity Management Trust Co.,
State Street Bank & Trust Co., certain benefits administration and
investment committees of the company and other 'unknown fiduciary
defendants,' according to the report.
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Trump Must Invest $55 Million to Hold On to 25 Percent of His
Casino
As Donald J. Trump's publicly
traded casino company, Trump Hotels and Casino Resorts, goes into a
bankruptcy reorganization, Trump has to invest $55 million of his money
in the enterprise to maintain a large ownership stake, the New
York
Times reported. In an interview yesterday Trump pegged his net
worth at $4 billion to $5 billion, a figure that suggests he could
easily invest $55 million into the reorganization of the casino that
bears his name. But an examination of Trump's finances suggests that his
claims of being a billionaire may be exaggerated. Read the
href='http://www.nytimes.com/2004/08/11/business/11place.html'>full
article.
Judge Leaves Halliburton
Fraud Case
The judge overseeing an
accounting fraud suit brought by shareholders against the Halliburton
Company has stepped down from the case after disclosing that his
children had owned stock in the company, Bloomberg News reported. The
case has been transferred from Judge David C. Godbey to Judge Barbara M.
G. Lynn, according to a spokeswoman for the clerk's office of the
Federal District
Court in
Dallas , where both judges
sit. The transfer followed a request on Friday by a lawyer for investors
that Judge Godbey step aside because of his disclosure.
Theaters Get Better Reviews from
Investors
In the past few months, movie-theater
chains have been a target of private-equity funds, whose executives
believe they can leverage the companies and extract their consistent
free cash flow for their benefit and the benefit of investors, the
online Wall Street Journal reported. In the late '90s, many
theaters plunged into economic uncertainty as ticket sales fell. Between
1999 and 2001, 12 out of 14 major theater chains declared bankruptcy,
according to research from Wachovia Securities Inc. Read the article
at 'http://www.wsj.com' (subscription
required).