BUSINESS BRIEFS
SEC: credit raters had conflicts of interest
Associated Press
WASHINGTON — The three main credit-rating agencies failed to rein in conflicts of interest in giving high ratings to risky securities backed by subprime mortgages that later collapsed, federal regulators said yesterday.
The results of the yearlong review by the Securities and Exchange Commission illuminate the role of Wall Street's credit rating industry in the turmoil that has gripped the financial markets in recent months.
The three agencies that dominate the industry — Standard & Poor's, Moody's Investors Service and Fitch Ratings — have been widely criticized for failing to identify risks in investments tied to high-risk subprime mortgages.
The rating agencies "sometimes deviated from their own models and their own procedures," SEC Chairman Christopher Cox said at a news conference. "Conflicts of interest were not always managed properly."
The problems were serious enough to cause concern among employees of the agencies themselves, Cox noted, citing internal e-mails uncovered in the SEC review.
CONSUMER BORROWING GROWS
WASHINGTON — Consumers boosted their borrowing in May, mostly reflecting heavy credit card use to finance their purchases.
The Federal Reserve reported yesterday that consumer credit increased at an annual rate of 3.6 percent in May, roughly the same pace as logged in the prior month.
The pickup pushed total consumer debt up by $7.8 billion to $2.57 trillion. That was a bit more brisk than the $7 billion over-the-month increase economists were expecting.
The increase was led by much stronger demand for a category called revolving credit, which is primarily credit cards. Use of revolving credit rose at a 7.1 percent pace in May, a month where a flow of tax rebates helped to energize consumer spending. In April, consumers cut back on such credit at a 0.5 percent pace.
SIEMENS TO TRIM GLOBAL WORKFORCE
FRANKFURT, Germany — Industrial conglomerate Siemens AG said yesterday it will cut 16,750 jobs, or 4.2 percent of its global workforce, to streamline operations and slice nearly $2 billion in costs in the face of a slowing economy.
The Munich-based maker of products ranging from light bulbs and medical equipment to high-speed trains and power turbines said the cuts would include 12,600 administrative jobs as well as another 4,150 positions involving restructuring projects at its various units. The company has a worldwide work force of approximately 400,000 people.
Siemens said it will consolidate its businesses from the current 1,800 separate legal entities to fewer than 1,000 and take its 70 regional companies and transform them into 20 regional clusters.
Siemens said the cuts were being made in an effort to reduce total costs by 1.2 billion euros ($1.8 billion) by 2010.
PENDING HOME SALES DOWN 4.7%
WASHINGTON — A measurement of pending home sales fell to the third-lowest reading on record in May as the housing market's recovery continued to prove elusive.
The National Association of Realtors' seasonally adjusted index of pending sales for existing homes fell 4.7 percent to 84.7 from an upwardly revised April reading of 88.9.
The index was 14 percent below year-ago levels.
Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed.
Typically there is a one- to two-month lag before a sale is completed.
Pending sales fell around the U.S., sinking the most — 7.1 percent — in the South, and the least — 1.3 percent — in the West.
ALCOA EARNINGS SINK 24% IN Q2
PITTSBURGH — Aluminum producer Alcoa Inc. said its second-quarter earnings fell nearly 24 percent as higher prices failed to offset raw material and facility outage costs.
The Pittsburgh-based company earned $546 million, or 66 cents per share, for the quarter that ended June 30, compared with $715 million, or 81 cents per share, during the same period a year earlier.
Quarterly revenue dropped about 6 percent to $7.6 billion.
Results beat Wall Street estimates. Analysts, on average, expected profit of 64 cents per share on revenue of $7.36 billion.
