Finance and Economic

Fannie Mae, the largest provider of money for U.S. residential mortgages, on Wednesday said its regulator named nine board members, including a former Morgan Stanley executive.

The appointment of David Sidwell, who was Morgan Stanley’s (MS, Fortune 500) chief financial officer from March 2004 to October 2007, and eight others comes after the government in September forced the company and rival Freddie Mac into conservatorships under their regulator, the Federal Housing Finance Agency.

Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) have lost billions of dollars as the housing slump boosted delinquencies, raising alarm among regulators and lawmakers who are counting on the companies to help stabilize the market for U.S. home mortgages.

The other directors are Fannie Mae Chief Executive Officer Herb Allison; Dennis Beresford, former chairman of the Financial Accounting Standards Board; William Thomas Forrester, former CFO of the Progressive Corp (PGR, Fortune 500) cash advance.; Brenda J. Gaines, former CEO of Diners Club North America, a subsidiary of Citigroup Inc (C, Fortune 500).; Charlynn Goins, former chairman of New York City Health and Hospitals Corp.; Frederick "Bart" Harvey III, former chairman of the board of trustees of Enterprise Community Partners; Egbert Perry, chairman and CEO of the Integral Group LLC; and Diana Taylor, a former managing director for Wolfensohn & Company.

Beresford and Gaines have served as Fannie Mae directors since 2006. Harvey has been a director since August 2008. 

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GMAC won Federal Reserve approval to become a bank holding company Wednesday, enabling the auto lender to tap the Treasury’s $700 billion financial bailout fund and help keep General Motors Corp. in business.

To comply with rules about who can own a bank, GMAC’s majority owner, Cerberus Capital Management LP, agreed to distribute its stake to its investors, and minority owner GM will cede all control.

The Fed order said the plan would benefit the public by strengthening GMAC’s ability to fund the purchases of vehicles manufactured by GM.

Saving GMAC may improve the chances of salvaging General Motors, which received $9.4 billion in U.S. loans this month to stave off collapse at least until January. That package didn’t include support for GMAC, which finances about 75 percent of the inventory at GM dealers. The lender also served as a major source of loans to GM car buyers until it was frozen out of credit markets after losses totaling $7.9 billion.

GMAC’s request was approved even though the Detroit-based lender didn’t satisfy the capital requirements laid out when it applied to become a bank in November payday loans.

GMAC said it needed three-quarters of investors that held $38 billion in bonds to exchange the notes as part of a plan to reduce debt. As of Dec. 17, holders of 58 percent of eligible notes had tendered and with two days until the deadline, GMAC hadn’t provided an update. GMAC has been unable to raise cash by selling bonds backed by auto loans since May as concerns mount that cash-strapped households will be unable to pay bills.

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Gasoline prices increased for the fourth day in a row Friday, according to a daily survey of gas station credit card swipes.

The price of regular unleaded rose 0.3 cents to a national average of $1.6730 a gallon from $1.67 on Thursday, according to motorist group AAA.

Average gas prices ticked higher on Saturday for the first time in nearly three months, according to AAA. They briefly retreated for one day before resuming their upward climb.

The price of gasoline has fallen in tandem with the price of crude oil, which has shed more than $100 a barrel since July. Oil demand has declined rapidly as the world economy has slowed.

According to the Transportation Department, Americans drove 100 billion fewer miles between November 2007 and October 2008, compared with a year earlier.

Local prices: Gas is currently selling below $2 a gallon in nearly all states, with the exception of Alaska, where gas prices averaged $2.648 a gallon, and Hawaii, where gas was $2.402 on average.

Gas was cheapest on average in Wyoming, at $1.477 a gallon, according to AAA. Missouri, the first state to see average prices drop below $1.50 a gallon, saw prices bounce back above that mark on Friday to $1.513.

Out of major U.S. cities, Anchorage, Alaska, has the highest average gas prices, at $2.404 a gallon, according to GasBuddy individual health insurance.com, a service that lets motorists post local fuel prices online. Salt Lake City, Utah, had the lowest average, at $1.383.

Diesel: The price of diesel fuel, which is used in most trucks and commercial vehicles, fell Friday by 1 cent to a national average of $2.519 a gallon, according to AAA.

Diesel prices have fallen more than $2 a gallon since hitting a record high of $4.845 on July 17.

Ethanol: The price of E85, an 85% ethanol blend made primarily from corn, fell by nearly a penny to an average of $1.499 a gallon in Friday’s survey, according to AAA.

E85 can be used in place of regular gas in specially configured "flex-fuel" vehicles, but it is not readily available in some states.

The AAA figures are state-wide averages based on credit card swipes at up to 100,000 service stations across the nation. GasBuddy prices are averages of local regular unleaded gasoline prices that about 700,000 volunteer gas prices spotters have posted online. Individual drivers may see lower fuel prices in different areas of each state.

CNNMoney.com staff writer Kenneth Musante contributed to this report.  

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President George W. Bush bailed out automakers on Friday with $17.4 billion in emergency loans as he sought to stave off a collapse that would have cost hundreds of thousands of jobs.

Bush, seeking to bolster his legacy and bucking some fellow Republicans who would prefer the car industry to deal with its problems without government aid, said it would be irresponsible in a time of economic crisis to let carmakers die.

The government will offer up to $17.4 billion in loans to the U.S. automakers, reeling from a slump in consumer demand, and expects General Motors and Chrysler LLC to access the money immediately. The White House said the loan agreements had been signed.

Ford Motor Co, the other firm in Detroit’s storied Big Three, said its liquidity was adequate for now and it did not need a loan at this point.

“If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers,” Bush said, warning that to do nothing would deepen and prolong the U.S. recession.

U.S. stocks rose on the news of the lifeline to the sector, with GM shares jumping 10.9 percent.

The White House moved on its own after Republicans in the Democratic-controlled Congress blocked a deal last week. That plan followed weeks of negotiations that included desperate pleas on Capitol Hill from the auto chiefs.

Some $13.4 billion of the total package will be made available in December and January from a $700 billion Wall Street bailout fund originally designed to rescue struggling financial institutions savings account payday loans.

Bush attached a string of conditions to the three-year loans and set a deadline of March 31 for the companies to prove they can restructure enough to ensure their survival or have the loans called back.

But the White House opted against a “car czar” proposal that was a cornerstone of the failed bailout efforts in Congress, and handed oversight responsibility to Treasury Secretary Henry Paulson instead.

“We don’t think that’s something that we should impose … just for 31 days when the next administration may or may not have a different view about how they want to handle it,” deputy White House chief of staff Joel Kaplan said.

Democratic President-elect Barack Obama, who takes over from Bush on January 20 and will inherit the handling of the deal, welcomed the loan move as a necessary step. But he said he wanted to make sure workers did not bear the brunt of the restructuring.

“My top priority in this administration is to create 2.5 million new jobs and I want some of those jobs to be in the auto industry,” Obama said at a news conference.

Obama has been calling for short-term loans to the sector based on steps toward long-term viability.

LABOR TERMS 

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If Japan’s experience is any guide, the historic plunge in U.S. Treasury yields may deepen as the Federal Reserve’s moves toward unconventional policy tools — such as outright purchases of government bonds — to revive the economy.

As part of the Bank of Japan’s quantitative easing policy launched in March 2001 to fight against deflation, the central bank began buying government outright to drag down long-term rates after having already driven short-term rates to zero.

Benchmark 10-year Treasury yields may test all-time lows struck in the 1940s near 1.60 percent if the Fed decides to start scooping up government bonds as part of any new policy, a prospect Fed Chairman Ben Bernanke has raised.

The Fed is widely expected to cut rates to 0.5 percent or lower this week and possibly lay out new initiatives on top of its array of interventions to prop up frozen markets for commercial paper, mortgage and asset-backed securities.

U.S. banks and Wall Street financial firms are already following a similar pattern seen in Japan that is reinforcing the drop in Treasury yields.

Japanese commercial banks, which were badly hurt by the bursting bubble in stock and real estate prices, turned into hefty buyers of government bonds while repairing their balance sheets and cutting back on traditional lending.

“After the injection of public funds into Japanese major banks in 1999, domestic bank holdings of JGBs kept rising until 2004 or 2005,” said Kazuhiko Sano, chief fixed-income strategist at Nikko Citigroup direct payday loan lenders. “Their behavior may give hints on the future actions of U.S. banks.”

Data from the Fed shows that commercial bank holdings of Treasuries and agencies have surged and reached a record $1.284 trillion in October.

But those holdings of Treasuries and agencies make up just 10 percent of their $12 trillion in total assets, near the lowest proportion in the past 30 years.

In Japan, bank holdings of government bonds are still 36 percent of total assets, up from 9 percent in 2000.

BACK TO THE FUTURE

The 10-year Treasury yield fell as low as 2.48 percent last week, the lowest since 1954, and remain at just 2.58 percent.

Despite concerns about heavy Treasury debt issuance to pay for more fiscal stimulus and the next tranche of the Treasury’s $700 billion TARP program, yields will likely tumble if the Fed chooses to buy big amounts of long-term bonds, analysts said.

The BOJ’s purchases, starting at 400 billion yen ($4.3 billion) a month, drove 10-year yields down to a low of 1.02 percent at the time they were announced.

When the BOJ boosted monthly JGB purchases to 1.2 trillion yen in October 2002, within the next year the 10-year yield slid to just 0.430 percent in 2003 — the lowest benchmark government bond yield in history. 

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As the U.S. government nears a deal to save General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), a debate rages over whether Chief Executive Rick Wagoner’s job should be spared in the bailout or its most visible symbol of shared sacrifice.

With pressure mounting on Wagoner to step aside, GM on Tuesday asked its white-collar employees to add their names to a petition of support to be forwarded to the U.S. Senate.

U.S. Sen. Christopher Dodd, a Connecticut Democrat, touched off the latest controversy over Wagoner’s role at the top U.S. automaker when he said on Sunday Wagoner should step aside as Congress weighs a $15 billion industry rescue.

But with the steady backing of GM’s board, Wagoner has faced down previous threats to his leadership, including one in early 2006 as GM’s sales began to sputter and losses mounted.

Now, with GM at the brink of collapse, Wagoner’s allies have rallied to his defense and argue switching management now would risk deepening the crisis for a fragile industry.

Lee Iacocca, made famous as the CEO who steered Chrysler through a turnaround on the strength of $1.5 billion in federal loans in the early 1980s, endorsed Wagoner and his peers at Chrysler LLC and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) in a statement on Tuesday.

“They’re by far the best shot we have for success. I say give them their marching orders and then let them march. They’re the right people to get the job done,” Iacocca said.

Tim Leuliette, chief executive of auto supply firm Dura Automotive Systems, said calls for management changes could make a bad situation worse.

“The refueling plane is poised to link up mid-air and give them jet fuel, but the guys on the ground are calling for a change in pilots before the planes link up,” he said car insurance quotes.

CRITICS LINE UP

Critics, including governance experts, are unmoved by defenses of Wagoner, Detroit’s longest-serving CEO, who ascended to the top spot at GM in 2000.

Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) CEO Alan Mulally joined that company in 2006 from Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz). Bob Nardelli, controversial for a $210 million severance package from the top job at Home Depot (HD.N: Quote, Profile, Research, Stock Buzz), was named Chrysler CEO in 2007.

“I just find it very perplexing,” said Jonathan Macey, a Yale law professor who has studied the failures of corporate boards. “Clearly, changes have to be made in these auto companies to make them competitive. It’s also clear that Wagoner’s not the right person for the job.”

Others see GM’s slide toward failure under Wagoner’s tenure as sufficient grounds to oust him and to shake up a complacent board that has failed in its role as watchdog. Eight of the 13 directors on GM’s board have served with Wagoner since 2003.

“I think the removal of the CEO has to be part of the picture,” said David Allon, portfolio manager at Firstrust Financial Resources in Philadelphia, who owns GM preferred stock. “I think the board has to recognize that Wagoner is in a self-preservation mentality.” 

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Sprint Nextel Corp plans to cut costs and use cash to pay back its $3 billion of debt due in 2009 and 2010, rather than raise new financing in tight capital markets, its finance chief said on Monday.

Chief Financial Officer Bob Brust plans to prepare a cost cutting plan for the board in January that may include layoffs, more outsourcing and a reduction in network expansion plans.

“The main focus for 2009 is cash, keeping the company completely liquid in this economy,” Brust told Reuters. “We’re going to carefully look at the cost structure …. Everything’s on the table.”

He said that Sprint, which has already been offering buyouts to employees, could cut jobs, eliminate expensive contractors, and outsource some information technology functions.

While the company will continue spending to maintain its network quality, it would likely hold back on any expansion until the economy starts to improve, Brust said.

“You can always postpone things until after the storm passes,” said Brust.

But he said the company would not be looking to sell assets because it would be difficult to find a buyer in the current credit squeeze.

SAVING

Brust took over as CFO in May after previous CFO Paul Saleh left in a management reshuffle a few months before. The No. 3 U.S. wireless service has been suffering from such losses because of weak network capacity and poor customer service since its 2005 purchase of Nextel Communications fast pay day loans.

The company has $600 million of debt due to be paid in May 2009 and another $2.4 billion in 2010, but it plans to avoid requiring new capital in the next two years, Brust said.

As well as paying down debt, he said the company, which has about $4 billion in cash, also needs to reallocate some savings to boost advertising and other efforts aimed at stemming customer losses.

While Chief Executive Dan Hesse will make the ultimate decision on such efforts, Brust said he would advise that Sprint not use cellphone service price cuts as part of its efforts to help retain users or attract new ones.

Brust said Sprint’s outlook was unchanged from November 7 even as the U.S. economic situation has deteriorated significantly.

“So far on the wireless side there’s been no mass disruption I can see,” he said. “So far we’re where we were when we did the announcement in November …. We’ve seen pressure from the recession but nothing crazy.”

Sprint on November 7 forecast downward pressure on average monthly revenue per user in the fourth quarter and continued pressure on postpaid subscriber numbers. However, it noted that gross customer additions would stabilize, with customer cancellations at a similar rate to that in the third quarter. 

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Offshore haven Liechtenstein has agreed a landmark deal with the U.S. to drop bank secrecy in cases of tax evasion and could make similar concessions in the European Union, a diplomat from the Alpine nation said.

Prince Nikolaus, a member of Liechtenstein’s ruling royal family who brokered the deal, told Reuters on Wednesday the tiny principality had agreed a “significant” change to bank secrecy rules that entitles the U.S. to bank account information when probing a tax dodge.

The prince said he was prepared to grant similar concessions within the European Union but wanted double-taxation agreements as well a commitment by countries to deal leniently with citizens that had hidden money from the taxman in Liechtenstein.

“We accept that more cooperation is necessary because there is more acute pressure,” the prince, the brother of Liechtenstein’s ruling monarch and the country’s ambassador to Brussels, told Reuters by phone from Brussels.

“People understand better today than a year ago that this is a hot issue,” said the prince. “It is of high political importance to many countries. Money is a rare species for states — they need every penny.”

Liechtestein is together with Monaco and Andorra one of three countries blacklisted by the Organization for Economic Cooperation and Development and was the target of a German investigation into thousands of citizens suspected of parking untaxed income in the principality.

The deal brokered with Washington, due to be signed this month, means banks in Liechtenstein could be forced to hand over bank account information to the U cash advance.S. authorities should they suspect tax evasion.

Previously, the U.S. had to prove a deliberate tax fraud — a standard so high it made bank accounts in the small country impenetrable to outsiders.

The Swiss banking association denied that the deal could pressure neighboring Switzerland — the world’s biggest offshore center — to take a similar step as it has a long-standing taxation agreement with the United States.

“We are in a different position and we are not under any pressure now and we have not heard any demands from the U.S. govt with regards to renegotiating that agreement,” a spokesman said.

EU DEAL?

Wedged between Austria and Switzerland, Liechtenstein is not an EU member and is under pressure from nearby EU countries to disclose bank data of non-residents.

An EU official confirmed that talks with Liechtenstein were in an advanced stage.

“The European Commission is in the advanced stages of negotiating an agreement with Liechtenstein on cooperation to fight financial fraud, including direct taxation, but so far there is no concrete deal for EU states and Liechtenstein to sign,” the official said.

Germany and France have been pushing for such an agreement to include banking secrecy, which set back the negotiations. 

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European and Chinese industry activity slumped in November, Japanese officials said their economy was slowing rapidly and euro zone finance ministers gathered on Monday to discuss plans to curb recession.

The Bank of Japan called an emergency meeting for Tuesday to find ways to help corporate finance. BOJ Governor Masaaki Shirakawa warned access to funding was becoming increasingly tough for Japanese firms, to an extent comparable with a debilitating credit crunch a decade ago.

“Sluggishness in economic activity has increased rapidly. Overseas economies are experiencing the same kind of rapid change,” Shirakawa said of the broader Japanese economy.

Euro zone manufacturing activity sank to a record low in November and the outlook was equally grim.

The Markit Eurozone Purchasing Managers Index (PMI) for the manufacturing sector slumped to 35.6 in November, a low not seen in the survey’s 11-year history and way below the 50 mark that separates expansions from contraction.

“The extremely weak … survey intensifies fears that the euro zone’s recession will be deep and prolonged,” said Howard Archer, economist at IHS Global Insight.

The euro zone was officially declared in recession this month following a second quarterly contraction in economic output. Analysts do not see the economy growing again until the third quarter next year — and then only marginally.

The financial crisis that began with a U.S. housing market collapse last year has already knocked several big economies into recession, including the euro zone same day payday loans. Most economists believe the United States and Britain will soon follow.

Similar surveys from China showed its manufacturing industry slumped in November as new orders tumbled, showing the world’s fourth-largest economy being sucked deeper into the global maelstrom.

Japan’s economy minister was gloomier even than Shirakawa.

“We are moving to the next phase of shrinking consumption — some call it deflation — production going down and prices going down,” Economy Minister Kaoru Yosano told the Financial Times in an interview published on Monday.

RATE CUTS COMING

Central banks in Britain, the euro zone, Australia and New Zealand are expected to cut borrowing costs sharply this week in response to the crisis. Politicians are also poised to weigh in.

Euro zone finance ministers meet later on Monday to pick over a menu of economic measures drawn up by the European Commission, which could inject up to 200 billion euros ($258.8 billion) of government spending, although that figure includes national schemes already announced.

Agreement may prove elusive. German Chancellor Angela Merkel told her party on Monday the government, which has unveiled a 32 billion euro plan, would not take part in a “senseless” competition to spend billions more. 

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BONN–Deutsche Post AG is poised to announce thousands of job cuts at its DHL Express operations in the United States, possibly as early as today, a German weekly reported yesterday.

The Bonn-based express mail and logistics company was poised to announce the cutbacks at its DHL operations in the United States would affect between 12,000 and 13,000 jobs, the report in the Frankfurter Allgemeine Sonntagszeitung said.

The cuts are part of a wider plan to curtail operations in the U.S., including ground deliveries, and would likely affect drivers, shipping clerks and warehouse workers. The express unit employs some 18,000 workers.

The expected move will not signal Deutsche Post’s exit from the U Faxless pay advances.S., where it faces strident competition from UPS Inc. and FedEx Corp.

The report said the company’s U.S. logistics unit, which employs some 25,000 people, would not be affected and some staff at DHL would remain.

Deutsche Post itself did not comment yesterday.

Deutsche Post said earlier this year that competition, rising fuel prices and other factors have put its U.S. DHL operations on track to lose 1.3 billion euros ($1.6 billion U.S.) by the end of the year.

Associated Press

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