Topping today's business press is the first round of dealership cuts coming from beleagured car maker General Motors (GM), news that comes on the heels of sweeping closures announced for Chrysler dealerships.
The company sent letters to 1,100 dealers yesterday telling them they would no longer have a relationship with the flagging manufacturer beyond October 2010.
The Wall Street Journal leads with a probe into potential insider violations by two SEC enforcement lawyers.
Bloomberg has Federal Deposit Insurance Corp. Chairman Sheila Bair telling Al Hunt she predicts the chief executives at some of the largest, most troubled banks will be replaced, prompting the FDIC to quickly administer a PR Bandaid.
Meanwhile, U.S. stocks "stumbled" on Friday, according to Reuters, as energy shares and oil prices dropped on weak demand, even though small investors are tiptoeing back into stocks. CNN Money says that insurers had a lukewarm reaction to the $20 billion of TARP money set aside for them.
The letters sent by GM didn't say the company would be declaring bankruptcy, but the move indicates it probably will be the end of the month, when a restructuring plan is due to the White House, according to the New York Times.
In a conference call with reporters, General Motors sales chief Mark LaNeve acknowledged that carrying out the plan would be difficult outside of bankruptcy-court protection, as state franchise laws make it "onerous and expensive" for manufacturers to force dealers out of business; in bankruptcy court, however, those contracts can be nullified, the WSJ explains.
The cuts represent only a portion of the incisions GM will be making to its network: Altogether, the company will eliminate almost half—or about 2,400—of its 5,969 stores. Among those are close to 500 dealerships that sell Saturns, Saabs, and Hummers, brands the company will be shutting down, the WSJ says.
Still, the NYT points out, even after cuts at both GM and Chrysler will still have a much larger dealership network than Toyota (TM) or Honda (HMC). The problem is over-saturation of the dealership market, causing outlets to become competitive with each other, driving down prices, and reducing efficiency. GM has lost of nearly $90 billion in the last four years and has racked up $15.4 billion in government loans.
Reuters adds that the "unprecedented closures under the direction of the Obama administration" will put 100,000 or so jobs at risk. CNN Money provides as a complement to its coverage, a video with managing editor of Fortune magazine, Andy Serwer, discussing how the cuts will affect local communities and supporting businesses.
"These car dealerships are really central to many towns, small towns and even big towns, not only the economy but also to the community," he said. "[They] support the little league, the rotary club and of course local advertising ... and that's a lot of revenue."
In a surprise story (well, maybe not that surprising to some), the SEC's inspector general, David Kotz, in a report described several "suspicious cases" in which two unidentified enforcement lawyers traded stocks of certain companies around the time the companies were under investigation.
According to the WSJ, the report concluded the lawyers had violated the agency's internal rules, and the case was taken up by the U.S. attorney's office in Washington, D.C., and the Federal Bureau of Investigation. Still, violating internal SEC rules isn't necessarily illegal or criminal, the paper says.
"To become illegal insider trading, the transactions would have to involve the use of nonpublic material information." The lawyers have denied any wrongdoing. The inspector general's report was reported first by CBS News, but the WSJ got its hands on the report sent to SEC Chairman Mary Schapiro and has no qualms sharing it. Watch the CBS video here.
The statements made by Bair about the ousting of cheif executives will be broadcast this weekend on Bloomberg Television's show Political Capital with Al Hunt and has already lead to an official response by the FDIC: Bair said management changes "could happen" based on capital-raising plans submitted to the government.
"She did not refer to CEOs specifically," the agency said in an e-mailed statement. "Bair also did not suggest the federal government will remove the bank CEOs," the statement said. "Management needs to be evaluated," Bair said.
"Have they been doing a good job? Are there people who can do a better job?" she asked. When asked why some of the banks' CEOs are still in power, Bair replied, "I think the review needs to go with both the management and the board as well, absolutely." She was then asked, "Do you think some will be replaced in the next couple of months?" Bair replied, "Yeah, I think there will be an evaluation process. We're requesting it as part of the capital plan and yes."
The Dow Jones Industrial Average lost 62.68 points, or 0.8 percent, to 8,268.64, with declines at Bank of America, Intel, Pfizer, and Wal-Mart Stores leading the pull-down. The benchmark topped the week with a 3.6 percent decline, its second losing week in the last 10.
It was the worst weekly drop for the average since the week ended March 6. Exxon Mobil (XON) and Chevron (CVX) shed 0.9 percent and 2 percent, respectively, and the S&P 500's energy sector slumped 2.1 percent, leading to an overall decline of 1.1 percent Friday. The S&P sank 10.19 points to finish trading at 882.88.
It dropped 5 percent for the week. The Nasdaq Composite Index, which is not as heavily weighted with energy companies, fell 9.07 points, or 0.5 percent, to 1680.14. It fell 3.4 percent this week.
Finally, Fortune says that one of six insurers offered a portion of the $22 billion of TARP funds set aside for the sector has rejected the Treasury's offering, and two others "are on the fence." The point of the loans would be to "ease investor worries about the health of the sector, which depends on investment portfolios that have been hit hard by falling asset prices," the magazine reports.
Ameriprise Financial (AMP) said Friday it won't accept a bailout, while Prudential Financial (PRU) and Allstate (ALL) are undecided. "With numerous banks that took federal funds now racing to repay the money, the insurers are weighing the merits of taking more capital in a deepening downturn against the complications of government involvement," the story says.
