With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world.
Airbus Parent Wins Saudi Security Contract; Automakers Post Losses; Private Sector Payrolls Shrink by 473,000; Gannett to Lay Off at Least 1,000; Pending Home Sales Rise, Mortgages Fall; Gold Breaks $940 Barrier; SEC Approves "Say-on-Pay" Rules; AIG Shares Drop After Split
- Pan-European aerospace and defense giant EADS NV - the parent company of Boeing Co. (NYSE: BA) nemesis Airbus SAS - yesterday (Wednesday) announced that Saudi Arabia has selected it as the winner of a $2.8 billion border-security contract. The contract calls for EADS to install security checkpoints and radar systems along 5,600 miles (9,000 kilometers) of Saudi Arabian borders over the next five years, MarketWatch.com reported. Known as the "Saudi Border Guard Development Program," the deal represents a major contract win for EADS - coming as it does at a time when worldwide defense budgets are being squeezed. In this era of heightened terrorism concerns, border security is viewed as a key growth area for defense contractors and is a niche in which EADS has been focusing resources and building a solid reputation, MarketWatchsaid.
- Ford Motor Co. (NYSE: F) beat Wall Street loss estimates, but that couldn't stop its stock decline of more than 2% yesterday (Wednesday). The company beat expectations with an 11% year-on-year drop, while General Motors Corp. (OTC: GMGMQ), Toyota Motor Corp. (NYSE ADR: TM) and Chrysler Group LLC all suffered sharp declines of 34%, 32% and 42% respectively, Dow Jones Newswires reported. Industry executives blamed a "softening" in U.S. sales toward the end of the month, while Ford mentioned that sales on both coasts were outperformed by central regions. Honda Motor Co. Ltd. (NYSE ADR: HMC) and Nissan Motor Co. Ltd. (Nasdaq ADR: NSANY) also suffered losses, 30% and 23%, respectively.
- Payrolls in the U.S. private sector shrunk by 473,000 in June, according to a survey taken by Automatic Data Processing (Nasdaq: ADP). The cuts were worse than the 395,000 analysts expected, but lower than May's total of 485,000, revised from the previous figure of 532,000. Losses in the second quarter averaged 492,000, a significant drop over the first quarter average of 691,000. "If businesses fail to slow the pace of job cuts, the stabilization in consumer spending and home sales will unravel, and the recession won't end later this year as forecast," Moody's senior economist Ryan Sweet told the AFP.
- In related unemployment news, Gannett Co. Inc. (NYSE: GCI) will cut between 1,000 and 2,000 jobs of its 41,500-person workforce due to declining ad revenues, The Wall Street Journal reports, citing an anonymous source. The cuts will come from Gannett's U.S. Community Publishing division that consists of more than 80 local dailies, but will not affect its flagship USA Today. The company's net income dropped 60% in the first quarter.
- Pending sales of existing homes rose for the fourth consecutive month in May, growing by 0.1%, the National Association of Realtors said yesterday (Wednesday). The index of signed purchase agreements was also up 4.6% year-on-year. "We're starting to see sales stabilizing," BMO Capital Markets senior economist Michael Gregory told Bloomberg News. "We've probably reached bottom or are close to that." In related news, mortgage applications in the United States fell 19% in the week ended June 26. The Mortgage Banker's Association's index of applications to purchase a home or refinance a loan dropped to 444.8 last week, compared to 548.2 in the prior week. "The run-up in mortgage rates is exacting a toll in terms of depressing mortgage applications," IHS Global Insight chief U.S. financial economist Brian Bethune told Bloomberg."The economy is in a phase of attempting to find a bottom. Anything that comes in the way of that, like higher rates, is going to mean it takes longer."
- Gold rose above $940 per ounce yesterday (Wednesday) following news that China has asked to debate proposals for a new global reserve currency sent the dollar tumbling. "The China news is the factor for today. That was driving the currencies, which are driving the gold," said Andrew Montano, a director at bullion dealer ScotiaMocatta in a Reuters interview. Analysts doubt that China will be successful in changing the global reserve currency in the foreseeable future.
- The Securities and Exchange Commission (SEC) unanimously approved rules that will require greater transparency on executive compensation for corporations under the Troubled Asset Relief Program, The Associated Press reported. Known as the "say-on-pay" rules, it will give shareholders an opportunity to vote on companies' compensations practices, but the votes can be nonbinding. The rules will go through a two-month public comment period before they can be enacted. The new rule will also require more transparency from boards of directors and about risk management practices.
- Shares of American International Group Inc. (NYSE: AIG) plummeted more than 22% yesterday (Wednesday) after shareholders approved a 1-for-20 reverse stock split, The Associated Press reported. The split is designed to raise the insurer's share price as it continues disposing of assets and spinning off some subsidiaries as it tries to repay its bailout funds to the U.S. government and return to profitability. The U.S. government currently owns an 80% stake in AIG.