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Daily Market Commentary for October 28, 2009
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GMAC
GMAC Financial Services announced to the
Treasury Department that they are in need of more government funding, a
spokesman from the Treasury Department confirmed the negotiations. It is
estimated that the government will pump an additional $2.8-$5.6 billion dollars
into the company after the $12.5 billion dollars they already lent them in
December 2008, the government also owns a 35% stake in the lending firm. It is
most likely that the funds will come in the form of preferred stock. GMAC
provides financing for General Motors and Chrysler customers, they also operate
a home mortgage lending unit that has helped contribute to colossal losses in
recent months, the recent lapse in auto sales has also taken a toll, they are
among the hardest hit in the financial industry, by rising loan defaults and
troubled credit markets. Last quarter GMAC documented a loss of $3.9 billion
with assets totaling $185 billion. GMAC is a vital competitor in the U.S. auto
industry and a major part of General Motors' earnings, GM sold a stake of the
company to a private equity firm in 2006. In trading news, stocks were falling
lower this morning as new home sales reports surprisingly fell and investors
reacted to the GMAC report. Commerce Department reported new home sales fell
3.6% to a seasonally-adjusted annual rate of 402,000 last month, from a rate of
417,000 in August, it marked the first time new home sales fell since March.
According to government reports, orders for durable goods rose 1% in September,
matching analysts' expectations, orders fell 2.6% the previous month. Stocks
continued to fall in the afternoon, bond prices rose, the yield on the benchmark
10-year Treasury note fell to 3.40 from 3.45 Tuesday, commodities such as oil
and gold fell and the dollar rose against most other major currencies.
Special Master for TARP Executive Compensation Kenneth R. Feinberg Testimony
before the House Committee on Oversight and Government Reform:
Mr. Chairman: I thank you and the Committee for the opportunity to testify
today. The subject of executive compensation continues to be a top priority of
the American people and the international business community, so I welcome your
invitation and look forward to participating in this hearing. As you know, in
June of this year, I was asked to serve as Special Master for TARP Executive
Compensation by the Secretary of the Treasury. In that capacity, I have a number
of responsibilities under the relevant statutory and regulatory authority. These
responsibilities include interpreting the regulations, and evaluating and making
determinations regarding compensation payments to, and compensation structures
for, certain employees of TARP recipients receiving exceptional financial
assistance. In these capacities, I have spent the past five months carefully
considering the terms and conditions of the 2009 executive compensation for
senior executives at those seven corporations that received exceptional
financial assistance from the federal government: AIG, Bank of America,
Citigroup, Chrysler, Chrysler Financial, General Motors and GMAC. These
executives include five "senior executive officers" and the twenty "most highly
compensated employees." My mandatory jurisdiction under the regulations is
limited to the senior executives at these seven companies and only these seven
companies. Although I do have interpretive authority under the Standards, and
advisory authority under the law to make recommendations and nonbinding
determinations as to officials of other companies who received TARP financial
assistance, I have no legal authority to make final determinations pertaining to
executive compensation for any companies other than these seven. Mr. Chairman, I
refer you and the Members of the Committee to the Report of the Special Master
for TARP Executive Compensation: 2009 Executive Compensation Determinations for
the TARP Exceptional Assistance Recipients, dated October 22, 2009, a copy of
which is included with my prepared testimony. This Report includes my
compensation determinations concerning senior executives at each of the seven
companies referenced above, and provides a comprehensive explanation and
analysis of the reasoning which underlies such determinations. I welcome any
inquiries you may have concerning my Report. In your letter of October 15, 2009,
inviting me to testify, you raised three questions for me to focus on during my
appearance here today. I treat these questions in the order you presented them
in your letter.
I. What standards and considerations are you using to evaluate employee
compensation at the seven companies that submitted such plans for review? I was
guided by the rules and principles in the statute and the Treasury regulations
in evaluating employee compensation at the seven companies. For example, the
Treasury regulations expressly make clear that I must consider competitive
market forces in determining compensation levels that will permit the seven
companies to remain in business, to thrive financially, and to eventually repay
the taxpayers for TARP financial assistance. These companies must be able to
attract sufficient talent to prosper. At the same time, however, the law
requires me to take into account whether the terms and conditions of
compensation are performance-based and tie compensation to the companies'
prospective performance and financial success. In addition, the regulations
make clear that my compensation determinations should be made in such a way that
considers whether senior executives are provided incentives to avoid taking
excessive risks to receive greater amounts of compensation. The law also
anticipates that a portion of compensation be tied to the repayment of TARP
financial assistance, and requires companies to "claw back" incentive
compensation that is based upon inaccurate financial statements or performance
metrics. In sum, the standards and considerations I used in evaluating employee
compensation at the seven companies can be found in the statute and the
accompanying Treasury regulations: in these laws, Congress and the Treasury
provided me the guidance needed to make my final determinations. Based on this
guidance, I determined that a new compensation regimen should be implemented at
these seven companies: guaranteed compensation is to be replaced by
performance-based compensation designed to tie individual executives' financial
opportunities to the long term overall financial success of each Company.
Short-term profits must give way to longer-term financial stability and success.
II. What specific proposals have been received from the seven companies and what
specific actions have you taken with respect to those proposals? Mr. Chairman, I
refer you and the Members of the Committee to my Report (attached) which details
the individual submissions made by each of the seven companies, and also
describes in comprehensive fashion my response to each of these submissions. The
general conclusions I reached after careful evaluation and analysis of the
submissions were the same for six of the seven companies--I concluded, pursuant
to the statute and the Treasury regulations that each submission would result in
payments contrary to the "Public Interest Standard," and should, therefore, be
rejected. The "Public Interest Standard" is the term I used in my Report to
describe the regulatory standards that I am required to apply in making
determinations. Instead, as my Report spells out, I made important revisions to
the submissions as a precondition to approving compensation structures and
payments for each individual covered executive at these six TARP
recipients. (Chrysler Financial has unique circumstances, and I determined that
its proposal was appropriate in light of them. I can summarize the flaws in the
six individual company submissions as follows:
1. The companies requested excessive guaranteed cash salaries and bonuses for
company executives;
2. The companies requested that stock issued to these executives be either
immediately redeemable or redeemable without a sufficient waiting period;
3. Many of the companies did not sufficiently tie compensation to
performance-based benchmarks and metrics;
4. Many of the companies did not sufficiently limit or restrict financial
"perks," such as private airplane transportation, country club dues, golf
outings, etc., and in some cases provided excessive levels of severance and
executive retirement benefits;
5. The companies did not make sufficient effort to fold guaranteed compensation
contracts entered into prior to the enactment of the current compensation
regulations – into 2009 performance-based compensation.
In modifying these six submissions in order to satisfy the "Public Interest
Standard," I made important changes designed to tie compensation to prospective
company performance:
1. I greatly reduced the amount of 2009 guaranteed cash compensation made
available to senior executives. On the whole, cash (which, in the past,
included cash base salaries and cash bonuses) was reduced by approximately 90%.
Overall total compensation was reduced by approximately 50%.
2. In place of cash, I substituted "stock salary" which, in accordance with
Treasury regulations, vests immediately upon issuance but may only be redeemed
in three equal, annual installments beginning in 2011, with each installment
redeemable one year early if TARP obligations are repaid. The objectives are
clear to tie individual compensation to longer-term performance metrics, and to
encourage senior executives to remain at the company for a period of years to
maximize their personal benefit from the overall profitability of the company
itself. The value of "stock salary" will depend on the companies' financial
success in coming years. At the same time, I also permitted incentive payments
of "long-term restricted stock." This long-term incentive stock vest only if
executives remain employed for three years after grant, and it can be cashed in
only in 25% increments for each 25% of TARP obligations repaid by their
employer. Again, the goal is to tie individual compensation to the overall
financial success of the company.
3. By implementing the ideas of "stock salary" and "long-term restricted stock,"
only redeemable after multiple years of company performance, I tied individual
compensation to long-term company success.
4. I reined in ”perks" by expressly requiring that any such perks beyond $25,000
per individual must first receive the approval of the Office of the Special
Master. No longer will senior executives be entitled to excessive use of
private planes and other compensation-related financial benefits. I also
prohibited additional company contributions to executive retirement programs.
5. I succeeded in almost all cases in getting the companies to agree to
restructure guaranteed contracts and other forms of guaranteed compensation into
prospective, performance-based compensation packages. These companies agreed, in
almost all cases, to transfer guaranteed forms of compensation entered into with
company officials before the enactment of current legal requirements into "stock
salary." I am very reluctant to even attempt to invalidate the sanctity of
contracts entered into well before enactment of the current law; however, I did
work closely with the companies in an attempt, cooperatively, to restructure
these "grandfathered" financial guarantees by making them part of my 2009 final
compensation determinations.
Mr. Chairman, I refer you and the Members of the Committee, to my Report which
spells out in further detail how we modify company submissions to comply with
the "Public Interest Standard."
III. What recommendations do you have for oversight of TARP recipient employee
compensation schemes in the future? The Treasury regulations speak quite
clearly to this question. First, the Standards require that the Office of the
Special Master now turn its attention to reviewing compensation structures for
the remaining executive officers, and 75 next most highly compensated employees,
in each of the seven companies. The regulations do not require the Special
Master to make individual compensation determinations for these individuals;
instead, the regulations require that the Special Master approve the
compensation structure for these individuals. The law affords me 60 days to do
this from the time that I deem the company submissions with respect to these
individuals "substantially complete." I have received all of these pertinent
submissions from each of the seven companies but have not yet concluded that
they are "substantially complete," thereby triggering the 60-day
limitation. Second, the Office of the Special Master must soon turn its
attention to the process for determining the 2010 compensation for the senior
executives at each of the seven TARP exceptional assistance companies. I
believe we have made important progress in this regard as a result of completed
efforts at 2009 compensation. Nevertheless, there will undoubtedly be new
compensation issues which will confront us in 2010. (For example, we anticipate
dealing once again with claims of "grandfathered" retention contracts and other
guaranteed forms of compensation which will have to be considered by the Special
Master as part of 2010 submissions for the senior executives; in addition, it is
anticipated that the list of senior executives for each Company will undergo
some modification, requiring a new evaluation of certain individual compensation
packages submitted by each company.) Finally, I do not recommend that my
responsibilities related to compensation determinations for senior executives,
as currently defined by Treasury regulations, be expanded beyond the current
seven companies receiving exceptional TARP financial assistance. I believe
Congress and the Treasury has already spoken with respect to the compensation
restrictions that apply beyond this group of firms. My limited mandatory
jurisdiction involving just these seven companies is justified by the fact that
the American taxpayers have a vested interest as particularly significant
stakeholders in these seven companies. But, the federal government should not
enter the business of micromanaging compensation practices beyond these seven
companies by expanding my jurisdiction or broadening my discretionary
authority. Hopefully, the individual final compensation determinations I make
may yet be used, in whole or in part, by other companies in modifying their
individual compensation practices. I believe the final compensation
determinations I make and discuss in my Report are a useful model to guide
others in the private marketplace. But that is where my authority should end.
I do not believe it necessary or wise to broaden my jurisdiction or make my
legal authority more pervasive. Mr. Chairman, this concludes my formal written
statement, and I welcome any questions from you and the Members of this
distinguished Committee. Thank you.
Economic data released today:
MBA [Mortgage Bankers Association] Mortgage Applications:
U.S. MBA Market Index fell 12.3% at 562.3; compared to last week 641; U.S.
MBA Purchase Index fell 5.2% at 254.9; compared to last week 268.8.
Durable Goods Orders:
September Durable Goods Orders, Excluding-Transportation, rose 0.9%; U.S.
September Durable Goods Orders rose 1.0%; compared to consensus of an increase
by 1.5%; September Durable Goods Orders, Excluding-Defense, rose 0.5%; August
Durable Goods Orders Unrevised at -2.6%.
New Home Sales:
U.S. September New Home Sales fell 3.6% to 402K; compared to consensus of
440K; U.S. August New Home Sales Revised to 417K from 429K.
Crude Oil Inventories as released by DOE [Department of Energy]:
U.S. Crude Oil Stockpiles +0.778 Million Barrels at 339.85 Million Barrels;
U.S. Crude Oil Stockpiles +0.778 Million Barrels in week; was seen increasing by
1.7 Million Barrels; U.S. Gasoline Stockpiles +1.619 Million Barrels at 208.564
Million Barrels; U.S. Gasoline Stockpiles +1.619 Million Barrels in week; was
seen decreasing by 1.1 Million Barrels; U.S. Distillate Stockpiles -2.134
Million Barrels at 167.754 Million Barrels; U.S. Distillate Stockpiles -2.134
Million Barrels in week; was seen decreasing by 0.7 Million Barrels; U.S.
Refineries Ran at 81.8% versus 81.1% week ago; U.S. Refineries Ran at 81.8%
capacity; was seen at 81.20%.
At the NYSE closing bell on the New York Stock Exchange, here is how the major
world indices and major U.S. stock indices ended the trading session on the
world markets as well as the emerging markets including the stock market closing
bell price:
DOW (Dow
Jones Industrial Average) shed 105.88 points, EOD 9,866.30
NYSE (New York Stock
Exchange) shed 166.35, EOD 6,765.69
National Association of Securities Dealers Automated Quotations (NASDAQ)
shed 54.98 points, EOD 2,061.11
S&P 500 (SPX) shed 20.57 points, EOD 1,042.84
BEL 20 (BEL20) shed 71.08 points, EOD 2,371.96
CAC 40 (CAC40) shed 80.17 points, EOD 3,663.78
FTSE100 (UKX100) shed 120.55 points, EOD 5,080.42
NIKKEI 225 (NIK/O) shed 137.41, EOD 10,075.05
New York Stock Exchange (NYSE) stock market indicators for the trading session
today:
Advanced stock prices 350 declined stock prices 2,801, unchanged stock
prices 43, stock prices hitting new highs 28 and stock prices hitting new lows
20. NYSE quotes for volatile stocks and market trends, as well as stock quotes,
stock prices and stock symbols of Day Trading Stock Picks on the New York Stock
Exchange stock market for Day Trading online and active Day Trading for those
who are or would like to be Day Trading for a living: V gain 2.74, HOD 78.02,
LOD 74.76, EOD 76.64; HRS gain 3.72, HOD 43.00, LOD 40.40, EOD 41.66; FAS shed
6.82, HOD 76.25, LOD 69.07, EOD 69.48; RTP shed 11.90, HOD 181.86, LOD 173.70,
EOD 174.30; BLK shed 0.28, HOD 227.76, LOD 220.00, EOD 221.62; CME shed 8.48,
HOD 319.00, LOD 307.38, EOD 308.02; FSP shed 0.47, HOD 11.67, LOD 11.00, EOD
11.00; VSI no change 0.00, HOD 20.29, LOD 17.95, EOD 17.95; AIG gain 1.32, HOD
36.68, LOD 33.13, EOD 35.33; WHR shed 3.06, HOD 75.10, LOD 71.29, EOD 71.74; SPW
shed 6.88, HOD 58.48, LOD 53.08, EOD 53.82.
National Association of Securities Dealers Automated Quotations (NASDAQ)
stock market indicators for the trading session today:
Advanced stock prices 429, declined stock prices 2,328, unchanged
stock prices 91, stock prices hitting new highs 17 and stock prices hitting
new lows 48. NASDAQ quotes, volatile stocks and market trends, as well as stock
quotes, stock prices and stock symbols of Day Trading Stock Picks on the NASDAQ
stock market for Day Trading online and active Day Trading for those who are or
would like to be Day Trading for a living: ILMN shed 8.29, HOD 35.44, LOD 33.24,
EOD 33.37; APOL shed 12.91, HOD 64.95, LOD 58.84, EOD 60.06; PSYS shed 5.47, HOD
20.25, LOD 17.63, EOD 18.67; BIDU gain 13.17, HOD 399.37, LOD 383.36, EOD
396.83; PNRA gain 3.64, HOD 61.00, LOD 58.30, EOD 58.74; AMZN shed 0.43, HOD
125.12, LOD 120.76, EOD 121.64; ISRG shed 10.49, HOD 258.00, LOD 247.10, EOD
247.51; AAPL shed 4.97, HOD 198.02, LOD 191.10, EOD 192.40; FSLR gain 1.36, HOD
154.37, LOD 148.80, EOD 151.58.
Market trends on the American Stock Exchange (AMEX) and stock market indicators
for the trading session today:
Advanced stock prices 114, declined stock prices 422, unchanged stock
prices 25, stock prices hitting new highs 10 and stock prices hitting new lows
2.
Chicago Board of Trade Futures Market for the day, at time of this posting:
E-mini S&P 500 (ES) Dec 09: EOD 1040.00; Change -20.50
E-mini NASDAQ-100 (NQ) Dec 09: EOD 1,680.25; Change -39.50
E-mini DOW $5 (YM) Dec 09: EOD 9,719; Change -116
E-mini S&P MidCap 400 (MF) Dec 09: EOD 662.20; Change -22.16
Nikkei 225 (Yen) Dec 09: EOD 9,895; Change -255
World Currencies for the Forex Market, for Forex Trading by active Forex
Traders, at time of this posting:
Euro 0.6795 U.S. Dollars 1.4716
Japanese Yen 90.7800 to U.S. Dollars 0.0110
British Pound 0.6105 to U.S. Dollars 1.6379
Canadian Dollar 1.0784 to U.S. Dollars 0.9273
Swiss Franc 1.0263 to U.S. Dollars 0.9744
COMMODITY MARKETS:
Energy Sector - Nymex:
Light Crude (December 09) shed $2.09, EOD $77.46 per barrel ($US per barrel)
Heating Oil (December 09) shed $0.06, EOD $2.02 a gallon ($US per
gallon)
Natural Gas (December 09) shed $0.09, EOD $5.19 per million BTU ($US per mmbtu.)
Unleaded Gas (November 09) shed $0.08, EOD $1.99 a gallon ($US per
gallon)
Metals Markets - Comex:
Gold (December 09) shed $4.90, EOD $1,030.50 ($US per Troy ounce)
Silver (December 09) shed $0.30, EOD $16.24 ($US per Troy ounce)
Platinum (January 09) shed $12.10, EOD $1,306.90 ($US per Troy ounce)
Copper (December 09) shed $0.07, EOD $2.93 ($US per pound)
Livestock and Meat Markets - Chicago Mercantile Exchange (cents per lb.):
Lean Hogs (December 09) gain $0.53, EOD $55.95
Pork Bellies (February 10) shed $1.25, EOD $89.00
Live Cattle (December 09) shed $0.18, EOD $86.93
Feeder Cattle (November 09) shed $0.50, EOD $95.85
Other Commodities - Chicago Board of Trade (cents per bushel):
Corn (December 09) shed $1.75, EOD $369.00
Soybeans (November 09) shed $6.00, EOD $970.50
BOND MARKET:
2 year EOD 100 3/32, change -1/32, Yield 0.94, Yield change 0.02
5 year EOD 100 4/32, change 4/32, Yield 2.33, Yield change -0.04
10 year EOD 101 20/32, change 6/32, Yield 3.40, Yield change -0.04
30 year EOD 104, change 10/32, Yield 4.25, change -0.02
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Top of the page | |
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Total for Year |
Last Week |
$34,086.00 |
$8,234.00 |
|
| |
Total for Year |
Last Week |
$9,725.00 |
$1,970.00 |
|
| |
Total for Year |
Last Week |
$76,500.00 |
$10,200.00 |
|
| |
Total for Year |
Last Week |
$102,270.00 |
$13,630.00 |
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Total for Year |
Last Week |
$0.00 |
$0.00 |
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