Democrats demand Big 3 offer survival plan

WASHINGTON (Reuters) - Democratic congressional leaders, seeking to salvage a bailout of the Big Three automakers, demanded executives provide a business survival plan in exchange for their support of up to $25 billion in loans.

The ultimatum came on Thursday after the Democratic leaders failed to persuade the White House and congressional Republicans to use part of a $700 billion financial rescue fund to prop up the auto industry.

Hanging in the balance is the future of General Motors, Ford Motor and Chrysler LLC, whose losses have mounted during a severe economic downturn that has prompted Americans to largely stop buying cars.

Shares of GM and Ford rebounded from multi-decade lows as the developments in Washington kept bailout hopes alive.

While many lawmakers are anxious to see the companies survive, Republicans have been more wary of whether the money would really help, and Democrats have been more inclined to be generous to the huge employers of unionized labor.

Democratic leaders acknowledged on Thursday a growing public resentment over government bailouts of U.S. business in slowing the automakers' demands, saying they will take a look after the auto industry provides a roadmap to its survival.

House of Representatives Speaker Nancy Pelosi, a California Democrat, and Senate Majority Leader Harry Reid, a Nevada Democrat, told a news conference that the automakers must develop a bailout proposal by December 2 and it would be considered during the week of December 8.

"Until we can see a plan where the auto industry is held accountable and a plan for viability on how they go into the future... we cannot show them the money," Pelosi said.

Said Reid: "We can only help if they (the automakers) are willing to help themselves."

Both General Motors and Ford pledged to cooperate.

Amid warnings that General Motors might be facing bankruptcy by the end of the year, a bipartisan group of U.S. senators sketched out a possible compromise.

The White House said President George W. Bush could support the proposal spearheaded by Sen. Carl Levin, a Michigan Democrat, and Sen. Christopher Bond, a Missouri Republican, to allow automakers and their suppliers to use $25 billion in Energy Department loans for greener cars to address their current crisis.

The senators attached a heavy Washington hand. They proposed letting the government veto any auto investments or asset sales over $25 million.

Keeping a low profile was President-elect Barack Obama, who earlier in the week said U.S. automakers needed a government rescue but the help should be conditioned on changes in the industry.

EXECUTIVES CRITICIZED

The Big Three's executives testified on Capitol Hill this week about their dire economic situation, but undercut their argument by flying to Washington aboard corporate jets instead of taking cheaper transportation.

"I know it wasn't planned, but these guys flying in their big corporate jets doesn't send a good message to people in Searchlight, Nevada, or Las Vegas, or Reno, or any other place in this country," Reid said.

The automakers' woes have added to a chaotic U.S. economic picture, with fears that a failure to get a bailout would lead to thousands more layoffs and deepen what many economists believe are recession conditions.

In Detroit, United Auto Workers President Ron Gettelfinger said lawmakers need to take immediate action on a $25 billion loan bill to support the U.S. automakers or one or more could fail by the end of the year.

"Inaction is simply not an option," he said.

Transplanted automakers are also feeling the pinch. Honda Motor Co Ltd said on Thursday it would cut another 18,000 units from its planned U.S. production in response to the industry downturn.

A bankruptcy of one or all of the Big Three could shake vast sections of the U.S. economy, an argument Democrats have emphasized. Some Republicans have argued a bankruptcy could allow the companies to make structural changes needed to assure their long-term survival.

Many analysts believe the Big Three need massive restructuring to reduce their costs and to produce cars that Americans will buy, after years of making gas-guzzling sport utility vehicles that have fallen out of favor after people got a taste of $4-a-gallon gasoline over the summer.

The White House and its Republican allies on Capitol Hill have drawn the line against extending part of the $700 billion financial industry bailout to the Big Three saying that could prompt other sagging industries to seek a government handout.

Instead, they have called on Democrats to back amending the $25 billion earmarked in September for meeting new fuel-efficiency standards as the way to help the Big Three.

Clint Currie, a transportation analyst at the Stanford Group in Washington, said he believes Congress will pass a bailout with harsh terms for the industry in January.

Senior management might have to leave and there might be major mandates for restructuring attached, he said.

"I think there's a fairly high likelihood that they'll pass an auto bailout in January, and from all indications it's not going to be something they're going to like," he said. "They're going to have to take it or leave it at that point."

Although share gains were tempered after Reid and Pelosi's criticism, GM closed up 3.2 percent at $2.88 and Ford ended 10.3 percent higher at $1.39, both on the New York Stock Exchange. Chrysler is owned by Cerberus Capital Management.

GM to return two leased jets amid criticism

DETROIT (Reuters) - General Motors Corp will return two of its leased corporate jets amid intense criticism in Washington this week on the luxury travel arrangements of its chief executive even as the company pleads for federal aid.

CEO Rick Wagoner was in the capital to testify on the company's dire financial situation but his testimony was overshadowed by irate lawmakers who blasted him for flying on a private jet to ask for public funds and failing to make personal sacrifices in exchange for federal assistance.

Chief executives from Ford Motor Co, and Chrysler LLC, who were also there to plead for $25 billion in federal aid, came under fire too for flying to Washington in private jets.

GM spokesman Tom Wilkinson said on Friday GM decided to return the aircraft because of a "really aggressive cutback in travel."

The company, which is in a cost-cutting mode, is scrutinizing every trip, he said, but declined to disclose the name of the company it leases the airplanes from.

Wilkinson said the decision to return the leased corporate jets was made before this week's hearings and that the company in September returned two other of the seven jets it had at the beginning of the year.

"There is a perception issue," Wilkinson said of Wagoner's travel to Washington on a private jet. "We need to be very sensitive to that going forward."

He, however, said the company has not decided on what mode of transportation Wagoner would take if had to travel to Washington again.

Wagoner and Ford CEO Alan Mulally are required by their companies to fly by private aircraft for security reasons, according to company documents filed with the U.S. Securities and Exchange Commission.

The policy for Chrysler CEO Robert Nardelli is not required to be disclosed because the company is not publicly traded.

Skeptical lawmakers took to task the three CEOs for their luxurious travel arrangements at congressional committee hearings.

"Couldn't you have downgraded to first class or something, or jet-pooled or something to get here?" Rep. Gary Ackerman, a New York Democrat, asked the executives at a hearing held by the U.S. House Financial Services Committee.

Even Democrats who said they were sympathetic to the automakers' plight expressed frustration that the executives used private jets while professing ruthless cost-cutting measures.

A Chrysler spokesman said the automaker also leases or charters jets. He, however, declined to comment on whether the company was rethinking the use of private jets for executive travel, saying it was a "private matter."

Ford did not have an immediate comment on its corporate jet policy.

According to Ford's proxy, CEO Mulally's compensation included $752,203 in 2007 for personal use of company aircraft.

About two years ago, the head of Ford's North American operations, Mark Fields, gave up use of a corporate jet for personal travel to his home in Florida after the arrangement came under criticism at a time when the automaker was losing billions and slashing jobs.

He now flies first class on commercial planes.

Bargain hunters lift stocks, but Citi sinks

NEW YORK (Reuters) - Stocks rose in choppy trade on Friday as investors snapped up cut-price shares in beaten down sectors, including commodities and energy, a day after Wall Street slid to 11-year lows.

Even so, fresh worry about the future of embattled No. 2 U.S. bank Citigroup limited a broad market advance as the stock dragged on financials and pushed Citigroup to around 15-year lows.

Citigroup shares tumbled about 16 percent to $3.94 following news reports that the company is considering selling pieces of its business or the entire company outright.

Shares of energy companies, helped cushion both the Dow and the S&P 500, with Exxon Mobil up more than 3 percent.

The S&P energy index was up 3.2 percent, with all but three of the index's 41 components higher.

"The market is very oversold and bouncing off the recent multi-year lows," said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey. "With regards to Citigroup, unless something changes dramatically, they're going to end up being broken up or somebody flat out taking them over."

The Dow Jones industrial average gained 35.84 points, or 0.47 percent, to 7,588.13. The Standard & Poor's 500 Index rose 1.78 points, or 0.24 percent, to 754.22. The Nasdaq Composite Index edged up 3.76 points, or 0.29 percent, to 1,319.88.

On Nasdaq, shares of Microsoft , which is also a Dow component, jumped nearly 7 percent to $18.70, making the stock a top boost after a Oppenheimer & Co, a brokerage, raised its rating on the software maker.

Besides Citigroup, shares of JPMorgan declined 11.4 percent to $20.77 and Bank of America shed 7.5 percent to $10.40.

Goldman Sachs, meanwhile, cut its outlook on the U.S. economy, forecasting it would contract by 5 percent at an annual rate in the current quarter and unemployment rate would soar to 9 percent by late 2009 from 6.5 percent in October.

The failure of U.S. automakers, including General Motors Corp, to secure an immediate government bailout to avert possible bankruptcy linger, also contributed a negative tone.

Shares of Wal-Mart Stores Inc rose 1.7 percent to $51.54 after the world's largest retailer said Lee Scott was retiring as chief executive and it named Mike Duke, who heads Wal-Mart's international operations, as his successor.

Citigroup shares drop as CEO plans to keep Smith Barney

NEW YORK (Reuters) - Citigroup Inc shares tumbled for a fifth straight day, as Chief Executive Vikram Pandit tried to downplay speculation the banking giant might sell major businesses to restore its health and investor confidence.

Pandit told employees on Friday that Citigroup, the second-largest U.S. bank by assets, does not want to change its business model and plans to keep its Smith Barney brokerage, according to two people who heard him.

He also said Citigroup had a solid capital position, and that employees should not focus on the bank's falling share price because that is not what regulators and credit rating agencies worry about, the sources said.

In late-morning trading, the shares were down 85 cents, or 18 percent, at $3.86, after earlier tumbling as much as 24 percent to $3.58. They closed at $9.52 a week ago.

The cost to protect Citigroup debt against default rose, suggesting that fixed-income investors see increased risk.

"It's fear and panic at this point," said Gerard Cassidy, a banking analyst at RBC Capital Markets in Portland, Maine. "Investors have seen similar movies this year, and the endings are very unpleasant."

Citigroup is looking at options including a sale of parts of the company, or a merger with another company, a person familiar with the matter said on Thursday.

Concerns are rising that the drumbeat of negative news about Citigroup could prompt customers or trading partners to flee.

"We worry if the lack of investor confidence leads to (a) lack of customer confidence," wrote Barclays Capital analyst Jason Goldberg. "We believe the market may be implying some sort of regulatory intervention."

Within the last three months, major U.S. lenders Wachovia Corp and Washington Mutual Inc suffered rapid outflows of deposits, as losses mounted on mortgages and other debt. Wachovia later agreed to be bought by Wells Fargo & Co, while Washington Mutual failed and its assets were bought by JPMorgan Chase & Co.

Earlier this week, Pandit set plans to shed 52,000 of Citigroup's 352,000 jobs by early 2009, and to move tens of billions of dollars in troubled securities onto its balance sheet.

The bank is also pushing the U.S. Securities and Exchange Commission to reinstitute a temporary ban on short sales of financial stocks, a person familiar with the matter said.

The cost to protect its debt was $470,000 annually to protect $10 million of debt against default for five years, up from $395,000 annually on Thursday, according to Phoenix Partners Group. Banks in extreme distress that were eventually taken over by regulators had much higher credit default protection levels, signaling that credit markets foresee either a dilutive capital raise for Citigroup, or government intervention that does not hurt bondholders.

On Thursday, Saudi Prince Alwaleed bin Talal said he planned to increase his stake in Citigroup to 5 percent from less than 4 percent. The bank's largest individual investor called Citigroup's shares "dramatically undervalued."

Citigroup's market value was $25.7 billion as of Thursday's close, down $48.7 billion this month, and down about a quarter trillion dollars since late 2006.

Thursday's market value was barely above the $25 billion that Citigroup received as part of the government's $700 billion financial industry rescue package. Citigroup said it has also raised another $50 billion of capital from other investors since the middle of 2007.

Associated Press to cut 10 pct jobs in '09 - sources

NEW YORK (Reuters) - The Associated Press plans to cut up to 10 percent of its workforce in 2009, according to sources at the news service, as it copes with tough financial times and ailing member newspapers.

The AP has one of the world's largest news-gathering teams, employing about 3,000 journalists, and a total of about 4,100 people worldwide. The cuts could amount to about 400 employees.

AP Chief Executive Tom Curley delivered the news as part of a "town hall" meeting with employees.

"All areas and ways of doing business are being reviewed," said an AP statement provided to Reuters. "The AP, which recently instituted a strategic hiring freeze, may need to reduce staff over the next year. If so, it hopes to achieve much of the reduction through attrition."

The job cuts come as the AP restructures its operations in the United States in a bid to provide what it said would be deeper, more relevant coverage for its member newspapers.

It is unclear how the cuts would affect the AP's news flow. Many U.S. residents cannot read a day's helping of news in print or on the Internet without encountering an AP story. The group has 240 bureaus worldwide, numerous local U.S. bureaus and 1,500 U.S. daily paper members.

The AP, which started 162 years ago as a newsgathering cooperative for U.S. papers, earlier this year revised its rate structure for member papers to help lower the fees that they pay as advertising revenue declines imperil publishers.

This comes after publishers objected to the terms of a previous rate structure plan the AP had planned to introduce.

One big publisher, Tribune Co, gave notice that it might drop the AP stories over the next two years as a result.

Some papers, like The Star-Ledger in Newark, New Jersey, have started exploring running editions without AP stories, which often fills many pages of papers that have been slashing staff, leaving few people and few ads to fill the space.

The Star-Ledger and many other papers, as well as big publishers from USA Today's Gannett Co Inc to McClatchy Co and the New York Times Co have collectively cut thousands of jobs this year. Investors in turn have abandoned these companies as stock market prospects as their chances for recovery fail to materialize.

In addition to wires such as Bloomberg, Dow Jones Newswires and Agence France-Presse, the AP competes with Reuters News, a division of Thomson Reuters Corp.

Bank of NY Mellon to cut 1,800 jobs

NEW YORK (Reuters) - Bank of New York Mellon Corp on Thursday said it plans to cut 1,800 jobs as falling equity markets reduce the assets it oversees, cutting into potential profit.

The reductions affect about 4 percent of the New York-based company's 43,000-person workforce, with the bulk beginning in January and continuing through 2009, spokesman Ron Gruendl said. Some cuts will come through attrition, the bank said.

Bank of New York Mellon declined to say which businesses or geographic regions will be affected.

Thursday's cuts are not related to Bank of New York Co's $18.3 billion purchase in July 2007 of Pittsburgh-based Mellon Financial Corp, which created Bank of New York Mellon. The merger was expected to result in 3,900 job reductions.

"It has become clear that we need to take additional steps beyond our merger synergies to reduce expenses, given the current weakness in the global economy," Chief Executive Robert Kelly said in a statement.

Bank of New York Mellon is the world's largest custodian of assets for institutional investors and one of its biggest asset managers and even before this quarter's stock market selloffs had seen assets decline.

Assets under custody fell to $22.4 trillion as of Sept 30 from $23 trillion three months earlier, while assets under management fell to $1.07 trillion from $1.11 trillion.

Third-quarter profit fell 53 percent from a year earlier, largely because of a charge to bail out money market funds.

Bank of New York Mellon joins other asset managers to announce job cuts over the last few weeks, including: Fidelity Investments, Janus Capital Group Inc, Legg Mason Inc, MFS Investment Management and Putnam Investments. MFS on Thursday announced 90 job cuts, or 5 percent of its workforce.

Last month, the bank said it would receive a $3 billion capital injection from the U.S. Treasury Department. It was one of the nine original banks to receive funds from the government's $700 billion bank rescue package.

Shares of Bank of New York Mellon closed Thursday down $1.03 at $24.36 on the New York Stock Exchange. They have fallen 50 percent this year.

GLOBAL MARKETS - Stocks rebound on rate cut hopes; bonds up

LONDON (Reuters) - European and Asian shares managed to rise and oil rose towards $50 on Friday as expectations of further interest rate cuts helped to cushion deepening gloom about the financial and auto sectors as well as the broader economy.

On Wall Street, the benchmark S&P 500 index fell to its lowest level since 1997 as signs of distress in the economy mounted, led by troubles at Citigroup and U.S. automakers.

However, Citigroup, which fell more than 26 percent on Thursday, rose 6 percent in Frankfurt trading. U.S. lawmakers kept alive prospects for a $25 billion bailout plan for carmakers, although no agreement was reached on Thursday.

Furthermore, hopes that the world's central banks would cut interest rates further -- with talk that China might lower borrowing costs later on Friday -- helped world stocks off an earlier 5-1/2 year low.

"Rumours are only rumours, but investors are always interested in talk that there will be more official steps that could help the market rebound further," said Wu Nan, analyst at Xiangcai Securities.

MSCI world equity index was up 0.8 percent after hitting its lowest level since April 2003. The FTSEurofirst 300 index also rose 0.8 percent. Emerging stocks gained 1.8 percent.

U.S. crude oil increased 0.3 percent to $49.55 a barrel, having hit a 3-1/2 year low below $49 earlier.

Investors sought safer government securities even though stocks rebounded. The December bund future rose 43 ticks while the two-year U.S. Treasury yield touched a fresh record low of 0.9586 percent.

The 10-year Treasury note dropped a full point in price to yield 3.112 percent , after hitting 2.990 percent on Thursday -- its lowest level since the 1950s. The 10-year yield was trading at above 4 percent only in June.

"The main risk is the recession and that we are probably ahead of the worst year over the last century in terms of economic growth and that this will take its toll on many industries," said Kornelius Purps, fixed income strategist at UniCredit.

"We are probably only at the beginning of this poor performance in terms of economic growth and other factors will follow. This is quite worrisome and will keep a bid in the bond market."

The yen fell 1.5 percent to 95.11 per dollar after hitting a three-week high beyond 94 earlier. The dollar fell 0.5 percent against a basket of major currencies.

LICENCE TO CUT?

Talk of Chinese interest rate cuts complemented a rumour that authorities might soon announce the creation of a 300 billion yuan fund to support the stock market.

Euro zone interest rates are also expected to fall next month, and possibly earlier. A PMI survey on Friday showed that output of euro zone services and manufacturing business sank much further and faster than expected in November to record lows.

JP Morgan also said that bigger-than-expected declines in Canadian inflation also allow the central bank to cut interest rates more aggressively in December by as much as half a percentage point.

The Bank of Japan, however, kept its key policy rate unchanged at 0.30 percent on Friday. Governor Masaaki Shirakawa said more rate cuts could disrupt markets as they might cause various problems in ensuring smooth fund supply in money markets.