Financial News Over This Week

Aggregator Bank ??
The heads of the U.S. Treasury Paulson and Federal Deposit Insurance Corp Sheila Bair gave momentum to the idea of a new government-backed bank to remove toxic assets from lenders’ balance sheets. A lot of work has been done on an aggregator bank and other ways of using the $700 billion financial-rescue fund to let it go further when it comes to dealing with illiquid assets, Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”

Citigroup Splits Into Two After Losing $8.3 Billion
Citigroup, scrambling to survive losses triggered by the credit crunch, unveiled plans to split in two and shed troubled assets, and reported a quarterly loss of $8.29 billion. The banking giant also said it expected more departures from its embattled board, which is losing former Treasury Secretary Robert Rubin as a director later this year.

Over 8 in 10 corporations have tax havens
Eighty-three of the nation’s 100 largest corporations, including Citigroup, Bank of America and News Corp, had subsidiaries in offshore tax havens in 2007, and some of the companies received federal bailout funding, a government watchdog said Friday. The Government Accountability Office released a report that said Bank of America Inc., Citigroup Inc. (C) and Morgan Stanley (MS) all had more than 100 units in countries that maintain low or no taxes. The three financial institutions were included in the $700 billion financial bailout approved by Congress.

Rescue of U.S. banks hints at nationalization
Last fall, as Federal Reserve and Treasury Department officials rode to the rescue of one financial institution after another, they took great pains to avoid doing anything that smacked of nationalizing banks. They may no longer have that luxury. With two of the nation’s largest banks buckling under yet another round of huge losses, the incoming administration of Barack Obama and the Federal Reserve are suddenly dealing with banks that are “too big to fail” and yet unable to function as the sinking economy erodes their capital.

Deflation concerns grow as consumer prices shrink
Consumer prices tumbled yet again in December, and inflation last year logged its smallest advance since the early 1950s, fanning new fears that the country may face a dangerous bout of deflation.

Inflation slows to half-century low in 2008
Inflation slowed to a half-century low last year and industrial output fell for the first time since 2002, data showed on Friday, as the recession deepened toward year-end, raising the specter of deflation. With consumer confidence remaining at depressed levels, the reports suggested the economy could take longer to pull out of a downturn that is on track to be the longest and possibly deepest since World War Two. “We seem to be digging an economic hole of major proportion which will only add time to the turnaround,” said Kevin Giddis, head of fixed-income sales, trading and research at Morgan Keegan in Memphis, Tennessee.

Hertz to cut more than 4,000 jobs
Hertz Global Holdings Inc said on Friday that it would cut more than 4,000 jobs in a worldwide restructuring through the first quarter due to falling demand, and the car rental company’s shares fell nearly 9 percent. Hertz expects annualized savings of $150 million to $170 million in 2009 from the job cuts, it said. It expects to take a fourth-quarter charge of $20 million to $25 million for the cuts. The cuts are in the car and equipment rental businesses as well as in corporate and support areas in all regions focused on positions that do not have direct contact with customers, Hertz said in a statement. Hertz will have cut its workforce by 32 percent since August 2006 with the latest round of reductions, it said.

Circuit City to liquidate remaining US stores
Bankrupt Circuit City Stores Inc., the nation’s second-biggest consumer electronics retailer, said Friday it failed to find a buyer and will liquidate its 567 U.S. stores. The closures could send another 30,000 people into the ranks of the unemployed. “This is the only possible path for our company,” James A. Marcum, acting chief executive, said in a statement. “We are extremely disappointed by this outcome.” The company had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable.

Arabs lost 2.5 trillion dollars from credit crunch: Kuwait
Arab investors have lost 2.5 trillion dollars from the credit crunch, Kuwaiti Foreign Minister Sheikh Mohammad al-Sabah, whose country hosts an Arab economic summit next week, said on Friday.

“The Arab world has lost 2.5 trillion dollars in the past four months” as a result of the global financial crisis, Sheikh Mohammad told a press conference following a joint meeting of Arab foreign and finance ministers in Kuwait.

He also said that about 60 percent of development projects “have either been postponed or cancelled” by the six-nation Gulf Cooperation Council (GCC) states because of the global meltdown.