Cars and Cards: The Lil' Guys Fight Back

The Wall Street Journal has the exclusive on a ban the Securities and Exchange Commission has enacted on trading securities
that are part of an investigation into potential insider trading violations involving two of the agency's enforcement lawyers. Bloomberg reports that General Motors (GM) has received $4 billion from Treasury ahead of the company's restructuring deadline, while the New York Times says some 330 Chrysler dealers have banded together under the moniker "the Committee of Chrysler Affected Dealers" to contest being shut down. The Journal and Bloomberg take a look at salary raises at Morgan Stanley (MS) and claw back provisions at UBS (UBS). The Washington Post outlines a credit card reform bill signed into law yesterday that prevents credit card companies from raising interest rates "arbitrarily" and charging certain fees, and CNNMoney reports that stocks slumped at the end of the week, as investors "went into a holiday weekend with lingering concerns about the economy."

The SEC, in addition to banning trading activity for companies under investigation as part of the insider-trading debacle reported a week ago by the paper, now requires staff members have their brokers turn in trading statements to be reviewed by the agency's ethics officers for accuracy, among other rules. The measures are intended to beef up the SEC's internal compliance, which is made up of ordinances the inspector general reviewing the case called "confusing and inadequate." The lawyers under investigation are Glenn Gentry and Nancy McGinley, two friends who "shared a ‘passion' for financial markets, and spent a good part of their work day emailing each other with stock ideas," the Journal writes. They haven't been charged with any crime.

GM had previously said it would need $2.6 billion to get through the month, so the additional $1.4 billion to make up the $4 billion loan taken out yesterday will be deducted from the $9 billion the automaker would receive after filing for bankruptcy, which it now says is probable. The Journal reports that the company also struck a tentative cost-cutting labor deal with the Canadian Auto Workers union, following tentative approval of new contract terms with the United Auto Workers union that would reduce labor expenses in the United States. "Still unresolved is GM's effort to swap equity for $27 billion in bondholder claims," Bloomberg says. Bondholders have until Tuesday to respond to a debt-for-equity swap offered by the company.

The Committee of Chrysler Affected Dealers is comprised of 330 of the 796 dealers Chrysler informed earlier this month it would no longer have a relationship with as of June 9. But the problem, highlighted by the NYT, is that "many of those fighting the hardest are dealers who recently spent huge amounts of money to stay in the company's good graces, who sacrificed their own profits to help keep the company intact or who otherwise thought they had bent over backward to ensure that Chrysler could survive, only to learn that they were the ones who would not." For instance, Robert Archer, a Houston dealer, continued to order more and more cars at the behest of Chyrsler as the company neared bankruptcy. So when he got the letter informing him his dealership would be shut down, he had 700 new vehicles and $1.7 million in new parts in stock.

Chrysler executives said they used a number of factors to determine which stores should shut down, including sales, customer satisfaction, location, and condition of the dealership. Defending the decision, Steven Landry, the company's vice president of North American sales and marketing said in a statement that if Chrysler did not streamline its operations and complete the deal with Italian automaker Fiat, "the stark reality is all 3,181 dealers will face elimination." And while the company will not be buying back any inventory, Landry said the company was "treating the rejected dealers fairly by assisting in the redistribution of remaining vehicle and parts inventory, paying incentive and warranty payments due," according to the Times. Chrysler has also said 89 percent of the dealers being cut have historically sold more used vehicles than new ones and are expected to keep selling and servicing used vehicles. Forty-four percent of the dealers being cut also sell a competing manufacturer's cars at the same store, "something [the company] does not like."

Over at Morgan Stanley, the Journal reports that the base salary of certain executives is going up to make up for an expected dearth of bonuses. Co-Presidents James Gorman and Walid Chammah will increase by one-third to $800,000 a year, according to a securities filing. Chief Financial Officer Colm Kelleher, Chief Legal Officer Gary Lynch and Chief Administrative Officer Thomas Nides will get a base salary of $750,000 each. In fiscal 2008, Chammah, Kelleher, Lynch, and Nides had base salaries of $300,000 to $322,903. Gorman's base salary couldn't be learned. Chairman and Chief Executive John Mack's salary will remain unchanged at $800,000. The raises come as the government "pushes its own overhaul of compensation practices at banks and securities firms. Those companies got government assistance after investors lost confidence in their balance sheets, and are now facing tougher oversight aimed at curbing the sort of excessive risk-taking that helped cause the continuing financial crisis," the paper says.

Bloomberg adds that Morgan Stanley and UBS, which also raised bankers' base pay 50 percent, have added so-called "claw back provisions," which set aside a part of workers' bonuses that is eligible to be "recouped in later years if an employee leaves or is found to have behaved in ways that are harmful to the company." UBS cut its bonus pool by 78 percent in January "after amassing the biggest loss in Swiss corporate history in 2008." Bank of America (BAC) said this year it might boost salaries as well.

The WP writes that President Obama signed the Credit Card Accountability, Responsibility and Disclosure Act yesterday, boosting credit-card holders' rights as companies have come under fire for predatory and unfair practices. Card companies can no longer raise interest rates on existing balances unless the borrower is 60 days behind on payments. And if the cardholder pays on time for the following six months, the company will have to restore the original rate. "On cards with more than one interest rate, issuers will have to apply payments above the minimum first to the debts with the highest rates. Before increasing rates, the card company will have to give cardholders 45 days' notice," the WP explains. As a result of the new regulations, credit card executives have said they will be unable to "properly distinguishing between risky and non-risky borrowers and force them to charge everyone higher rates and annual fees or withhold credit." Most provisions won't go into effect for another nine months.

The Dow Jones industrial average (INDU) lost 15 points, or 0.18 percent, to close at 8277.3, the Dow's fourth straight loss, CNNMoney says. However, the average "still managed to end the week with a slight gain." The S&P 500 (SPX) index dropped 0.15 percent to 887 but was up 0.5 percent for the week. The Nasdaq composite (COMP) fell about 0.2 percent. The dollar, meanwhile, slipped to its lowest level in five months "against a basket of currencies." Bonds slumped as well, with the yield on the 10-year note climbing to a six-month high. Analysts interviewed by the site said that "the market lacked conviction Friday because many investors were absent ahead of the Memorial Day holiday." U.S. markets will be closed Monday.