China sees rocky export rebound, shrinking surplus

BEIJING/SHANGHAI (Reuters) - China's exports face a "hard and tortuous" path to recovery as uncertainties dog the global economy's gradual return to health, with this year's trade surplus set to shrink from last year's record, the Commerce Ministry said.

Commerce Minister Chen Deming told a conference on Saturday that China's trade surplus was expected to fall to $180 billion to $190 billion this year from last year's record $295.5 billion.

The surplus was $136.4 billion in the first nine months of the year.

With China's economic recovery relying heavily on government spending to boost domestic demand, imports have seen greater improvement than exports in recent months.

Exports in September were 15.2 percent below their level a year earlier, beating forecasts of a 21 percent fall, although the government expects a double-digit fall for all of 2009.

In a statement released late on Friday on the ministry's website (www.mofcom.gov.cn), it said the full-year fall in exports compared with the previous year should be less than 20 percent.

"In 2010, the world economy will hopefully see a gradual recovery, and the environment for Chinese trade will gradually improve," it said.

"But as there is not yet sufficient strength in the global economic recovery, many problems and contradictions have yet to be basically resolved. The recovery will be hard and tortuous, and it will be hard to see an obvious recovery in international demand in the short term."

Net exports shaved 3.6 percentage points off headline GDP growth of 8.9 percent in the third quarter as Chinese manufacturers continued to reel from a slump in global trade.

Protectionism in these straightened times was a particular worry, as was increasing competition, the ministry said.

"At present some nations are conducting probes into Chinese goods, which is causing yet further obstruction for a recovery in Chinese exports," it said.

A U.S. trade panel on Friday approved the eighth government investigation this year into charges of unfair Chinese pricing practices in a case in which U.S. companies want a nearly 100 percent duty or more on $382 million of imported steel pipes.

Still, there were signs for optimism, the ministry added.

The government was continuing to provide help to exporters in the form of export tax rebates, and numerous new markets awaited Chinese firms.

"There is a bright future for developing trade with newly emerging markets," it said.

Exclusive: Fidelity preserves income with deep cuts

BOSTON (Reuters) - Operating income at FMR LLC, parent of Fidelity Investments, fell just 7 percent to $1.4 billion in the first nine months of 2009, even as revenues plunged, according to a confidential prospectus obtained by Reuters for a debt offering by the privately held firm.

The results far exceed the performance of the mutual fund operator's largest publicly traded rivals, as all try to weather fallout from the financial crisis and recession.

The entire industry has suffered as management fees plummeted along with the stock market's steep drop in 2008.

But the figures also show the deep cuts Boston-based Fidelity had to make to achieve those results.

Fidelity, which manages some $1.5 trillion, said in the filing that it had slashed expenses, largely through staff cuts.

Two major rounds of lay-offs, along with attrition, trimmed employee headcount in financial services to 38,000 as of June 30, 2009, 16 percent down from 45,200 a year earlier.

"Our company is very healthy and very strong, in large part because we're positioned well with a very diverse business line and because we took steps to manage through an unprecedented worldwide economic crisis," Anne Crowley, Fidelity spokeswoman, told Reuters.

Fidelity's operating revenue for the Jan-Sept 2009 period totaled $12 billion, down from $15.1 billion in the corresponding period in 2008. Operating expenses were $10.6 billion, down 22 percent from $13.6 billion.

RIVALS STRUGGLE

Among Fidelity's competitors, BlackRock Inc. which oversees $1.4 trillion in assets, saw its operating income drop 29 percent to $889 million for the first nine months of the year on revenues that fell 21 percent to $3.2 billion.

Franklin Resources, manager of $523 billion in assets, said its operating income plunged 43 percent over the past 12 months as operating revenues declined by 30 percent for the same period.

Fidelity's results have been bolstered by its broader array of businesses, including the fees it collects from clients of its online brokerage and for administering corporate retirement plans.

Fidelity closely guards details about its financial results but was required to disclose the information to a small group of potential investors in offering documents obtained by Reuters for an upcoming private placement of debt.

In interviews in August, the company's president, Rodger Lawson, had touted its growing total assets as evidence of its ability to come through the financial crisis in good shape, but had given only a limited number of other financial details.

Lawson gave asset details as of June 30, but even since then total assets under management have risen $116 million to $1.474 billion at September 30, according to the filing, due to market gains.

Fidelity's debt was recently downgraded to A2 from A1 by Moody's Investors Service, which expressed concerns about Fidelity's complicated business platform and its high level of debt -- $10.2 billion, according to the company's filing. "Fidelity's leverage and net profitability measures have not trended as anticipated for the rating level," Moody's said in an October 19 note.

Asked about the company's operating performance, however, Moody's analyst Matthew Noll said via e-mail that "the resilience of Fidelity's business through the financial crisis has been a testament to the company's diversification."

The operating results exclude the performance of certain companies that Fidelity owns such as COLT Telecom Group SA in Europe, which has long been a drag on the company's results.

The filing states that Fidelity took a $299 million impairment charge on COLT in the first quarter of 2009.

The filing also confirmed that Fidelity dramatically altered its structure to convert to a so-called Subchapter S Corporation in October, 2007.

Under Internal Revenue Service rules, "S" corporations generally pay no federal taxes, instead passing tax obligations down to their shareholders.

The document revealed little new information about Fidelity's ownership structure, noting that the company's voting stock remains owned 51 percent by employees and 49 percent by descendants of founder Edward C. Johnson 2d, including his son Edward "Ned" Johnson 3d, the company's current chairman and CEO.

Fidelity said its upcoming private placement of debt will be co-managed by Barclays Capital and Citigroup Global Markets.

Proceeds of the debt will be used for "general corporate purposes," including paying off maturing debt obligations, bolstering its liquidity in case of future market disruptions, and for making potential acquisitions.

Ford seen narrowing loss, focus on cash burn

DETROIT (Reuters) - Ford Motor Co (F.N) is expected to post a narrower quarterly loss with support from the U.S. government "cash for clunkers" program, but the focus will be on the outlook for the U.S. economy and auto industry sales.

Ford's cash burn rate, and the fate of its labor costs -- with a United Auto Workers union ratification vote on concessions headed toward failure -- also will be a close focus for investors.

Uncertainty over the strength of the U.S. economic recovery has grown in recent weeks, and several of the top U.S. auto dealership groups have pointed to a much slower recovery in U.S. auto industry sales next year than Ford has projected.

Analysts on average expect Ford to post a loss of 12 cents per share from continuing operations and excluding one-time items in the quarter, compared with a loss of $1.31 per share a year earlier, according to Thomson Reuters I/B/E/S.

But Ford could produce a positive surprise after gaining market share and sales from the "clunkers" program and raising production in North America, said Autoconomy.com analyst Erich Merkle, who expects Ford to post an annual profit in 2010.

"I think they could have their profitability moment here in the third quarter, but it will still be a little tricky," Merkle said. "Will it be sustainable and how much of it will be because of cash for clunkers?"

Merkle expects U.S. auto industry sales to be substantially higher in 2010 than this year, rising to more than 12 million vehicles from slightly above 10 million in 2009.

Ford, the only large U.S. automaker not to reorganize with a government-supported bankruptcy this year, has planned on U.S. auto industry sales of more than 12 million vehicles in 2010, roughly 1 million vehicles above some dealer forecasts.

The ability to avoid the bankruptcies that engulfed General Motors Co GM.UL and Chrysler has given Ford a leg up, but now may be working against it in a union vote on whether to approve concessions that would bring its costs in line with rivals.

Ford's U.S. factory workers at several UAW locals have rejected making further concessions to the automaker and the overall vote may fail. If the vote fails, Ford's long-term labor costs would not be in line with rivals.

In February, Ford completed a revised labor agreement with the UAW that cut costs by about $500 million per year. The automaker has said it needs additional concessions to keep it cost-competitive with GM and Chrysler over the long term.

The proposed agreement workers are chafing at includes a "no-strike" clause on wages and benefits and a reduction in job classifications for skilled trades workers, as well as some production commitments and a $1,000 one-time bonus.

CASH BURN KEY

Morningstar analyst David Whiston said the automaker's touting of increased U.S. market share and improved quality may be working against it in the UAW vote. He does not believe a rejection would have an impact on Ford's stock performance.

"Ford has a lot of good things going," Whiston said, adding that he believes Ford has a good chance to post a profit in 2010, one year ahead of its target.

Ford posted net losses totaling $30 billion from 2006 through 2008 and has said it expects to return to at least break-even in 2011, which would make a stunning rebound after the deepest U.S. economic downturn in decades.

Until the U.S. economic recovery takes off, cash will remain king for Ford, which borrowed more than $23 billion in late 2006 to finance its turnaround and believes it has enough money to complete its restructuring.

Ford burned through $4.7 billion of cash in the first half of the year. Ford has said it expects the second half outflow to be substantially slower than it was in the first half.

J.P. Morgan believes Ford could turn a third-quarter profit, with a faster-than-expected return to profitability in North America also possible.

Ford has been restructuring since 2005, trimming excess production capacity, hourly and salaried workers and divesting brands to focus on Ford, Lincoln and Mercury.

Earlier this week, Ford announced that Zhejiang Geely Holding Group was its preferred bidder to acquire the automaker's Swedish brand Volvo. Volvo is the last remaining brand from Ford's former premier auto group.

Nine U.S. banks seized in largest one-day haul

LOS ANGELES (Reuters) - U.S. authorities seized nine failed banks on Friday, the most in a single day since the financial crisis began and the latest stark sign that substantial parts of the nation's banking industry are being crippled by bad loans.

The move brought the total number of failed banks in 2009 to 115 -- their highest annual level since 1992 -- with analysts expecting more to come. Among the lenders seized Friday was Los Angeles-based California National Bank, in what was the fourth-largest U.S. bank failure this year.

The largest institution to fail in the current financial crisis was Washington Mutual, which boasted $307 billion in assets when it was shuttered in September 2008.

U.S. Bancorp on Friday acquired the nine banks that had been held by FBOP Corp, picking up $18.4 billion in assets and $15.4 billion of deposits.

Visibly worried employees lined up to file into Cal National's head offices in the heart of a deserted downtown Los Angeles on a chilly Friday evening, where they had their employers' fate explained to them, regulators said.

"We're getting ready to turn everything over to U.S. Bank," said Roberta Valdez, a spokeswoman for the Federal Deposit Insurance Corp, which helped supervise the transfer of FBOP's assets. "They will continue to operate as normal in the interim," she added, referring to lenders acquired from FBOP.

U.S. Bancorp -- which has been buying up distressed assets this year -- is picking up the lenders once owned by FBOP, a private Illinois group with over $18 billion in assets that owned banks in Texas, Illinois, Arizona and California.

Cal National is FBOP's largest bank by branches. Others that will now go under the U.S. Bancorp umbrella included BankUSA, Citizens National Bank, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and the Community Bank of Lemont.

"This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions," said Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp.

"This transaction adds scale to our current California, Illinois and Arizona footprints."

NEXT BIG HEADACHE

In the "near future," all nine lenders' branches will be re-branded U.S. Bank, which is the California-focused unit of U.S. Bancorp's that operates a network of more than 770 branches across Illinois, Arizona and California.

U.S. Bancorp did not specify what would happen to the new employees it inherits.

Cal National operates 68 branches across Southern California with more than $7 billion in assets. As of June 30, the lender maintained five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier, according to the Los Angeles Times, which first reported news of its evening takeover on Friday.

Cal National lost about $500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, the newspaper added, referring to securities rendered nearly worthless by the government takeover of the mortgage firms last year.

According to FDIC data, Cal National was the fourth biggest bank failure this year in terms of assets, just edging out Corus Bank, seized Sept 11 with a flat $7 billion of assets.

A bank official who answered the main number at Cal National's headquarters said they could not talk at the time.

Banks are still cleaning up their balance sheets from the recent credit boom that fueled banks' appetite to extend loans, many with poor underwriting and triggers that caused borrowers' payments to spike to unaffordable levels.

More lenders are expected to go under this year as the industry tries to get a handle on commercial real estate loans that will continue to worsen, as more strip malls go vacant and residential developments stall.

Banks held about $1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 percent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks were better diversified.

Banks that analysts say could risk big losses include Salt Lake City's Zions Bancorp, Columbus, Georgia's Synovus Financial Corp and Dallas-based Comerica Inc.

Before FBOP, U.S. Bancorp bought Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those thrifts failed last November, the newspaper said. Just this month, U.S. Bancorp bought 20 Nevada branches from BB&T Corp, which had acquired them as part of its deal to buy Colonial BancGroup Inc, it added.

(Additional reporting by Mary Milliken; Editing by Bernard Orr and Dean Yates)

Ford hopes dim as workers veto changes

DETROIT (AP) -- Ford Motor Co.'s hopes for a cost-cutting labor agreement grew dimmer, with a key local union in Kentucky rejecting changes to workers' contracts.

AP - In this Oct. 26, 2009 photo, the Ford logo is seen on the automaker's headquarters in Dearborn, Mich. ...

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MTLQQ.PK	0.5890	-0.0200

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Eighty-four percent of workers at United Auto Workers Local 862 in Louisville voted against the changes, local President Rocky Comito said late Friday. Comito said workers felt they were being asked to give more than the company's executives.

"Some want to see management give more at the upper level," Comito said. The Louisville local represents 5,000 workers.

Another large local in Ford's home city of Dearborn also was voting Friday. By late Friday night, officials hadn't announced the results for UAW Local 600, which represents 8,000 Ford workers. But workers at the Dearborn Truck Plant, one of the plants represented by Local 600, rejected the contract by a 93 percent vote, according to Gary Walkowicz, a member of the bargaining committee at the plant who has been leading opposition to the contract changes.

The votes continued a string of defeats for Ford and the UAW, which reached the cost-cutting agreement two weeks ago but need workers to ratify it. Ford has a total of 41,000 workers represented by the UAW.

Exact tallies weren't available, but at least 11 UAW locals representing about 19,500 workers have voted down the deal, many overwhelmingly. Only about four locals with a total of 7,000 members have favored the pact.

Speaking at a community event in Detroit on Friday, UAW President Ron Gettelfinger said there won't be a revote if the contract changes fail.

"If it fails, there would be no reason to go back to the bargaining table," Gettelfinger said. "We have a democratic process in place. People have a right to express themselves. We recognize there's a lot of misinformation about it out there, but that is what it is."

Ford sought the deal to bring its labor costs in line with Detroit rivals Chrysler Group LLC and General Motors Co., both of which won concessions from the union as they headed into bankruptcy protection earlier this year. If the agreement fails, Ford will have higher labor costs than competitors and therefore a tougher time turning a profit.

The no votes came even as Ford reached a similar cost-cutting agreement with the Canadian Auto Workers union Friday. The CAW has agreed to cuts in benefits in exchange for product guarantees, but that agreement must be ratified by Canadian workers.

Ford has said it won't comment on the proposed changes until balloting is over. The company is scheduled to release its third-quarter results Monday, the same day the UAW had asked locals to wrap up voting.

Gary Chaison, a professor of labor relations at Clark University in Worcester, Mass., said it's extremely rare for union members to vote against the leadership. But he said Ford asked for too much too soon after workers already agreed to concessions earlier this year.

He also said Ford lacks credibility because its financial situation wasn't as dire as GM and Chrysler.

"They made such a strong case about not going to bankruptcy court and turning the corner, so they couldn't go to the workers and say, 'We need this to turn the corner,'" he said.

Comito said workers objected to a limit on the right to strike and questioned why Ford was seeking further changes. Workers also approved a new contract with concessions in 2007, and made health care concessions in 2005.

"They're concerned about giving up too much without justification," Chaison said.

Chaison said the vote is an embarrassment to Gettelfinger, who personally campaigned in Louisville last weekend. He started his career at the local, which represents workers at the Kentucky Truck and Louisville Assembly plants, which make the Ford Explorer and Ford Super Duty pickup. Both plants have received assurances of future work from the company.

Workers would get a $1,000 bonus if the deal is ratified, but the proposal also would freeze entry-level wages and require some skilled-trades workers to do more than one job. The union also agreed not to strike Ford if the two sides disagree on wage or benefit increases, although the UAW could still strike over other issues.

Gettelfinger told The Associated Press last week that the deal saves 7,000 union jobs with new product commitments at several plants, and that Ford could withdraw those promises if the deal is rejected.

But on Friday, Gettelfinger said, "it's not a big deal one way or the other."

"This was a positive contract for our membership. It gave them long-term job security and that's what it was all about," he said. "We'll continue to work with the company, regardless of how it goes."

Workers at factories in Chicago; Claycomo, Mo.; and Livonia, Plymouth, Sterling Heights, Flat Rock, Ypsilanti Township, Mich., have rejected the deal thus far. Locals in Wayne, Mich.; Cleveland; Indianapolis and St. Paul, Minn., have voted in favor.

Associated Press Writers Corey Williams in Detroit and Janet Cappiello Blake in Louisville contributed to this report.

Madoff: Had 'too much credibility' with SEC

WASHINGTON (AP) -- As Bernard Madoff sat in jail a few months after pleading guilty to fraud, he sounded faintly boastful.

AP - FILE - In this July 17, 2009 file photo, Bernard Madoff's accountant David Friehling exits Manhattan federal court ...

The only problem with officials at the Securities and Exchange Commission's Washington headquarters, he said, is that he had "too much credibility with them and they dismissed" the idea that he was scheming people out of billions of dollars.

A document released Friday details a prison interview conducted June 17 by the SEC inspector general in which Madoff says he had the impression that "it never entered the SEC's mind that it was a Ponzi scheme."

Madoff seemed convinced SEC staff did not suspect him, despite the agency's numerous probes of his business. He said in the interview that the SEC examiners "never asked" for basic records to corroborate his operations.

The disgraced financier also confided that he didn't bring an attorney with him when he testified in an inquiry by the SEC's enforcement division because he believed he didn't need one -- and he was trying to fool the government investigators into thinking he had nothing to hide.

The details emerged in a summary of Inspector General David Kotz's interview with Madoff at the Metropolitan Correctional Center in New York, released along with hundreds of other documents related to Kotz's extensive investigation of the SEC's stunning failure to detect Madoff's fraudulent scheme for 16 years.

Kotz also issued a statement Friday saying his probe found no evidence to support Madoff's claim of having a "close relationship" with SEC Chairman Mary Schapiro, who previously headed the Financial Industry Regulatory Authority, the brokerage industry's self-policing organization. In the interview, Madoff called Schapiro a "dear friend," saying she "probably thinks, I wish I never knew this guy."

Like the SEC, FINRA made periodic exams of Madoff's brokerage operation, which functioned separately from his investment business hidden from regulators' view. An internal review by FINRA found a regulatory breakdown on the part of the organization in the Madoff case.

As the SEC inspectors carried out probe after probe of his business, Madoff said in the interview he was "worried every time" that he'd be caught. "It was a nightmare for me," he said. "I wish they caught me six years ago, eight years ago."

Madoff, 71, a former Nasdaq stock market chairman, pleaded guilty in March to charges that his secretive investment-adviser operation was a multibillion-dollar Ponzi scheme that destroyed thousands of people's life savings and wrecked charities. It was possibly the largest-ever Ponzi: the classic scheme in which investors are paid with other investors' money rather than actual profits on their investment.

He is serving a 150-year sentence in federal prison in North Carolina.

The new details from Kotz's inquiry came the same day as word that Madoff's longtime auditor is expected to plead guilty next week in a cooperation deal. Prosecutors told a federal judge in New York that accountant David Friehling was expected to offer a guilty plea at a conference Tuesday to revised charges that accuse him of securities fraud, investment adviser fraud, making false filings to the SEC, and obstructing or impeding administration of the Internal Revenue laws.

The charges carry a prison term of up to 108 years, though significant cooperation with prosecutors can bring leniency.

In his interview with Kotz, Madoff said the SEC never asked him about his tiny accounting firm. It seemed incongruous that, with more than $65 billion in private investments he claimed he oversaw for thousands of people, Madoff used what seemed to be a small-time auditor with a minuscule office in suburban New City, N.Y. Authorities say that Friehling appeared to have rubber-stamped Madoff's records.

Kotz's report of his investigation, made public in early September, painstakingly detailed how the agency's investigations of Madoff were bungled, with disputes among inspection staffers over the findings, lack of communication among SEC offices in various cities and repeated failures to act on credible complaints from outsiders forming a sea of red flags.

An inspection of Madoff's operation in 2003-04, for example, "was put on the back burner" even though the exam team still had unresolved questions, Kotz found.

Madoff's former finance chief, Frank DiPascali, is cooperating with prosecutors after pleading guilty in August to helping Madoff carry out his fraud. Madoff was asked in the interview whether he was concerned about DiPascali's testimony. His answer: "No, he didn't know anything was wrong, either."

Obama highlights fresh signs of economic growth

WASHINGTON (AP) -- President Barack Obama said Saturday that reports the economy is growing again and that more than 1 million jobs were saved or created by his stimulus plan show "we are moving in the right direction."

AP - President Barack Obama speaks in the Diplomatic Reception Room of the White House in Washington, Friday, Oct. ...

But he tempered his upbeat message with a cautious word about further job losses and progress yet to be made.

Unemployment hit a 26-year high of 9.8 percent in September, and the October report due next week could show it topping 10 percent.

The government reported this week that the economy grew 3.5 percent from July through September, the first signs of growth in a year and unofficial confirmation that the economic slide that began in December 2007 is over. Separately, the White House said Obama's $787 billion stimulus plan -- a mix of spending and tax cuts -- had saved or created more than 1 million jobs.

That news, "while not cause for celebration, is certainly reason to believe that we are moving in the right direction," Obama said in his weekly radio and Internet address.

"It is easy to forget that it was only several months ago that the economy was shrinking rapidly and many economists feared another Great Depression," the president said.

Obama's assessment came a day after an independent federal board reported that nearly 650,000 direct jobs have been saved or created because of stimulus program money provided to businesses, contractors, state and local governments, nonprofit groups and universities.

The new data released late Friday represents 156,614 federal contracts, grants and loans worth a total of $215 billion that went to more than 62,000 recipients. The largest number of jobs were created or saved by state governments. About half of the reported jobs were among teachers and other education employees. With state budgets in crisis, federal aid helped governors avoid major cuts in education, which officials said spared many teachers and school workers from the unemployment line.

The 1 million jobs cited by Obama include those from direct economic assistance, plus those linked to the economic boost from $288 billion in tax cuts under the stimulus program, according to White House economic adviser Jared Bernstein.

Republicans expressed doubt on the administration's job-creation claim. GOP Senate leader Mitch McConnell described the jobs reports as "bewildering" when 3 million jobs have been lost since Congress approved the stimulus program.

In his address, Obama acknowledged that economic growth is no substitute for job growth. He also telegraphed what is expected to be sour unemployment news when the October figures are released next Friday, saying: "We will likely see further job losses in the coming days."

"But we will not create the jobs we need unless the economy is growing," he said.

Job creation also depends on the willingness of consumers to open their wallets and purses. But on Friday, the Commerce Department reported a 0.5 percent decline in consumer spending in September. It was the first drop in five months and the biggest since last December.

Obama said his administration has taken steps to help get credit to people and businesses of all sizes, stem home foreclosures, cut taxes, create jobs and help people who need it, such as seniors and the unemployed.

"So we have made progress," he said. "At the same time, I want to emphasize that there's still plenty of progress to be made. For we know that the positive news for the economy as a whole means little if you've lost your job and can't find another, if you can't afford health care or the mortgage, if you do not see in your own life the improvement we are seeing in these economic statistics."