It's Not Payback Time for Banks

Want to pay back Uncle Sam ahead of schedule? Not so fast. That's the message Treasury Secretary Timothy Geithner sent yesterday to bank brass anxious to pay off the billions they owe the government. "The ultimate test," writes the Washington Post, "for determining which banks can repay government bailout money is whether the entire financial system is capable of offering enough credit to revive the economy." In other words, even if a bank had the money to pay back the loaner ahead of schedule, it would not be permitted to do so unless it's deemed beneficial to the entire economy. This controversial stance could turn into a major scuffle between the banks and the Obama administration, the newspaper predicts. "Industry and federal officials are bracing for a showdown over this issue beginning Friday when the chief financial officers of 19 of the nation's major banks will be summoned to the Federal Reserve and told the results of the government's 'stress tests.'" The Wall Street Journal's "Heard on the Street" column has a partial solution: "allow gradual TARP repayments as the economy firms" so as to boost confidence in the banking sector, something sorely lacking these days.

That's not the only showdown between banks and the Treasury Department. According to the WSJ, a group of banks holding Chrysler debt are playing hardball. "The lenders rebuffed a Treasury Department request that they slash 85% of Chrysler LLC's secured debt, proposing instead to eliminate about 35% in exchange for a minority stake in the restructured car maker and a seat on its board," the newspaper writes. Getting this concession from the banks is crucial if the Chrysler-Fiat merger, which carries an April 30 deadline, is ever to go through. The New York Times calls the government's debt write-down demands "part of an enormous game of chicken with the debtholders." The banks, including JPMorgan Chase (JPM) and Citigroup (C), are being asked to write off nearly $6 billion in Chrysler’s secured debt to allow the merger to go through. Not surprisingly, they rejected the plan outright, saying they'd prefer to see Chrysler broken up into pieces. Yesterday's counteroffer by the banks did not go over well with the Obama administration. "It is neither in the interest of Chrysler’s senior lenders nor the country for them to advance a proposal that would yield them an unjustified return,” an unnamed administration official grumbled to the NYT.

Apparently, you have to go halfway around the world to find a bit of good news for the American auto sector these days. The NYT reports from Shanghai that General Motors (GM) is doing well in China; it's the No. 2 seller behind Volkswagen. What's the secret? "Unlike the gas guzzlers churned out by G.M.’s North American operation, the company’s China division has emphasized fuel-sipping models in the last decade," the newspaper writes.

Yahoo (YHOO) continues to suffer. (How long have we been writing that?) Yesterday, the Silicon Valley veteran announced a 78 percent quarterly profit drop due to tumbling online ad revenues, prompting it to  cut about 675 more jobs, or 5 percent of its work force, the WSJ reports. So where does this leave new CEO Carol Bartz? In the eyes of the WSJ, yesterday's results "did little to alleviate the pressure on [her] to make big changes at Yahoo." Business Week sees things quite differently, crediting Bartz with a strong first quarter performance and noting that "analysts said they were impressed with Yahoo's ability to rein in costs, much as search rival Google  managed to do last week." Indeed shares of Yahoo rose 3.8 percent in after-hours trading.

Luxury goods company LVMH might be a little lighter in letters if this FT story about it wanting to sell Moët Hennessy pans out. The paper cites "people close to the matter" as it reports that LVMH has approached its Moët partner Diageo with an offer to buy the rest of the wines and spirits business. (Reuters reports that LVMH denies any talks to sell the unit.) Revenue within operation fell 3 percent in 2008 and a "sale of some or all of Moët Hennessy would free up cash for LVMH, the world’s biggest luxury goods group, to spend on purchases in the fashion side of its business," writes the FT. Luxury may be struggling, but everyman retailer Tesco is flying high. It announced record-breaking sales of more than $1.45 billion a week and better than expected annual profits of more than $4.3 billion "despite the impact of the global downturn," the Guardian reports. In posting such figures Tesco "became the most prominent of a small group of retailers now saying the worst of the global recession appears over," adds the WSJ.

There's a radical new plan to save Flint, Mich., the NYT reports today, leading off its business section. Tear it down, block by block. Not the whole thing of course. Just the rough parts, which make up an ever-growing piece of the city. What's left would be a more livable city, the town's fathers hope. "The population would be condensed into a few viable areas. So would stores and services. A city built to manufacture cars would be returned in large measure to the forest primeval," the newspaper writes. Remarkably, the NYT finds little opposition to the plan.