The Real Deal 6
A newspaper with issues
WEDNESDAY, APRIL 22, 2009
LABOR
WALL STREET
Yahoo to slash hundreds of jobs
Banks pull stock market higher after late sell-off
MICHAEL LIEDTKE AP Technology Writer
SAN FRANCISCO Yahoo Inc. will lay off more than 600 workers after getting off to another bumpy start under a tough-talking new boss who has promised to engineer a long-awaited turnaround at one of the Internet’s best-known franchises. Neither the lackluster first-quarter results nor the job cuts announced Tuesday came as a surprise. Analysts had already predicted Yahoo’s three-year slump would worsen during the first three months of the year, and hints about the payroll purge were leaked to the media last week. This marks Yahoo’s third round of mass layoffs in a little over a year, but the first batch since the Sunnyvale-based company hired technology veteran Carol Bartz as its chief executive in January. Yahoo dumped about 1,000 jobs in February 2008 and another 1,500 or so late last year while co-founder Jerry Yang was still running the company. Yang stepped down, largely because he wasn’t able to snap the company out of its financial funk during his 18-month tenure as CEO. The misery worsened in the first quarter as skittish advertisers spent less on their Internet marketing campaigns. Yahoo earned $118 million, or 8 cents per share, during the first three months of the year. That represents a 78 percent drop from net income of $537 million, or 37 cents per share, in the year-ago period. Last year’s results included a non-cash gain of $401 million. But Yahoo’s profit this year still would have been lower even after subtracting last year’s one-time boost. The latest earnings matched the modest expectations among analysts surveyed by Thomson Reuters. Revenue fell 13 percent to $1.58 billion. If not for the stronger dollar, Yahoo said its revenue would have been down by 8 percent. After subtracting commissions paid to its ad partners, Yahoo’s revenue stood at $1.16 billion — about $50 million below analyst estimates. Yahoo shares gained 15 cents in Tuesday’s extended trading after rising 72 cents, or more than 5 percent, to finish the regular session at $14.38. Investors have been hoping Yahoo will be able to make more money by forging an online advertising partnership with Microsoft Corp. Executives from both Yahoo and Microsoft reportedly have been stepping up their negotiations as the two companies try to counter Internet search leader Google Inc.’s domination of online advertising.
TIM PARADIS AP Business Writer
NEW YORK Treasury Secretary Timothy Geithner convinced Wall Street to give banks another chance Tuesday. Geithner’s assertion that “the vast majority” of banks have enough capital pulled stocks from a slump that began with a selloff Monday and spilled over into Tuesday morning. Geithner also told a congressional oversight committee that some banks would be allowed to repay financial bailout funds with the blessing of bank regulators. The comments signaled that banks might not get poor marks in government “stress tests” designed to determine whether banks have enough capital to survive if the economy turns even worse. The results are due May 4. “There is the hope that everything will be well after the stress test,” said John Nichol, senior portfolio manager at Federated Investors. The Dow Jones industrial average jumped 128 points after tumbling 290 points Monday on worries about bad debt at banks and the implications of the stress
tests. The drop punctuated a six-week rally that lifted stocks more than 20 percent from their lowest levels in more than a decade. Stocks fluctuated in the early going Tuesday after a string of lackluster earnings reports and forecasts stoked worries about how quickly the economy can recover. Bank stocks, which led the market lower Monday, bounced back after the Geithner comments. JPMorgan Chase & Co. rose 9.6 percent, Citigroup Inc. jumped 10.2 percent, while Goldman Sachs Group Inc. rose 4.7 percent. The fortunes of bank shares have largely dictated the stock market’s direction since the fall of Lehman Brothers Holdings Inc. in mid-September, and investors took Geithner’s comments as a reason to go back into the market. Some analysts attributed the buying to short covering, where investors have to buy stock after having earlier sold borrowed shares in a bet that the market would fall. The Dow rose 127.83, or 1.6 percent, to 7,969.56. Broader stock indicators showed the biggest gains. The Standard & Poor’s 500 index rose 17.69, or 2.1 percent, to 850.08,
and the Nasdaq composite index rose 35.64, or 2.2 percent, to 1,643.85. Huntington Bancshares Inc. logged one of the more notable turnarounds. The regional bank fell as much as 26 percent in early trading before ending up 34 cents, or 10.9 percent, at $3.45. The jump in most banks overshadowed mixed results from big-name companies. Coca-Cola Co. and drugmaker Merck & Co. posted results or issued forecasts that fell short of what the market expected. Wall Street was uneasy about some of the reports because analysts had set low expectations after a bruising January in which fourth-quarter results short-circuited a stock rally. Coca-Cola fell $1.24, or 2.8 percent, to $43.09, after its first-quarter earnings fell 10 percent because of restructuring charges and write-downs. The beverage maker’s earnings were in line with Wall Street’s expectations but sales fell short. Merck reported a 57 percent drop in first-quarter earnings because of a slide in both sales of its drugs and income from its partnership on cholesterol medicines. Merck fell $1.68, or 6.7 percent, to $23.54.
ECONOMY
Banks still in distress, Geithner tells overseers TOM RAUM Associated Press Writer
WASHINGTON America’s banks are still broken despite all their bailout billions, Treasury Secretary Timothy Geithner told impatient rescue overseers Tuesday as they pressed him on when things will get better and how much it will cost. A bleak new report estimated U.S. banks and other financial institutions could lose a stunning $2.7 trillion in all. How well is the mostly-spent $700 billion federal bailout working? “To date, frankly, the evidence is mixed,” Geithner told a congressionally appointed oversight panel. Confidence in the program is wearing thin on Capitol Hill. With lawmakers back from their spring break, even bailout supporters are skeptical that Congress — weary of bankers’ bonuses and still-scarce credit — would approve additional bank
rescue money if requested. Geithner’s testimony signaled that the administration was not preparing to ask. Wall Street was cheered by Geithner’s assessment that “the vast majority” of banks could be considered well-capitalized. Bank stocks had slid on Monday but bounced back on Tuesday. Still, the government’s effort to stabilize the financial sector and unclog credit markets has come under heavy scrutiny. Officials must do a better job in carrying out and explaining its efforts to shore up the financial system, the head of the oversight panel told Geithner. “The sense of fear and uncertainty has not gone away, but it’s been joined by a new sense of anger and frustration,” said Elizabeth Warren, who is also a Harvard University law professor. “People are angry that, even if they have consistently paid their bills on time and never missed a pay-
ment, their TARP-assisted banks are unilaterally raising their interest rates or slashing their credit lines.” Of the $700 billion authorized by Congress for the Troubled Asset Relief Program last October, Geithner said about $110 billion is left. With about $25 billion expected to be repaid this year, the total available is about $135 billion. Some banks are maneuvering to pay back some of the bailout money, unhappy with the strings attached. But Geithner said that doesn’t mean the government would necessarily accept the repayments. These questions have to be first answered, he said: “Do the institutions themselves have enough capital to be able to lend and does the system as a whole, is it working for the American people for recovery?” A series of “stress tests” are being administered to banks by the administration to help judge their financial health.