The Obama Administration outlined new stricter international tax laws Monday, aiming to have Americans and American businesses earning money overseas to pay about $210 billion more in taxes over the next 10 years. The proposal includes more restrictions on international tax deductions and ways to get more information from foreign banks on their American customers. At the moment, American-owned businesses don’t have to pay federal income tax until the money they make is brought to the States.
Meanwhile, Bank of America (BAC) said it has no plans to raise $10 billion in stock, contradicting a report in the Financial Times saying otherwise. The Financial Times reported that the government “stress tests” conducted on banks to see how they would fare under worsening economic conditions found that Bank of America would need to raise at least $10 billion in capital and that the banks was making plans to raise the cash.
And the Dow jumped 214 points to 8427 on a better-than-expected housing report and signs that economic recovery is getting closer. The S&P 500 actually made its way into positive territory overall for this year.
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Nationwide Average
$2.17 a gallonTuesday
News came out Tuesday that up to 10 of the 19 banks undergoing these “stress tests” could be asked by the government to raise capital. However, the exact number would not be known until Thursday when the results, which have already been given to the banks, are made public.
Chrysler Bankruptcy Department: A U.S. bankruptcy court gave Chrysler approval to access a $4.5 billion loan to continue work with its alliance with Fiat. Meanwhile, several charities, colleges, and other firms were named as Chrysler debtholders, including the Bill & Melinda Gates Foundation and Halliburton. If these organizations want a portion of their money back, they’ll have to work through the bankruptcy court.
Federal Reserve Chairman Ben Bernanke was back in front of Congress Tuesday, but this time gave a more positive outlook on the economy than he has in a while. He warned, however, that unemployment will probably get worse before it gets better, possibly climbing to 9%.
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Confidence in Economy Improving
Wednesday
Bank of America, which denied it was planning to raise $10 billion in stock on Monday, will, apparently, need to raise much more. Perhaps it was just the amount the bank was denying. The government “stress tests” determined the company would need to shore up capital by about $34 billion.
Meanwhile, FOX Business learned that if General Motors (GM) follows through with plans it has outlined with the SEC, it could lose its spot in the Dow Jones Industrial Average. GM has a plan to issue 60 billion new common shares to be exchanged for debt held by the government, the United Auto Workers union, and bondholders. This would give the government a majority stake in the auto maker, disqualifying it from being listed in the Average.
Ford (F) announce plans to spend $550 million to transform a truck plant into one for smaller, fuel-efficient cars. This factory will make the company’s Focus model as well as an electric version of the car.
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Thursday
Thursday started off with first quarter results from General Motors, which is quickly approaching its deadline for reducing debt. The auto maker posted a 21% drop in sales and a loss of $6 billion in just one quarter. The company also burned through $10.2 billion in cash from its reserves.
The weekly jobless report showed that claims fell to 3-months lows last week, down to 601,000 people filing for unemployment. This could be a sign that the labor market is improving a bit.
Meanwhile, President Obama requested that Congress cut $17 billion from the budget, targeting 121 federal programs he sought to reduce spending on or eliminate altogether. However, while $17 billion might sound like a lot to some, compared to the $3.4 trillion federal budget that was just outlined by Congress, it’s just peanuts, said Republicans. This cut makes up less than half of a percent of a cut.
Just ahead of the “stress test’ results release, Wells Fargo announced it will hold a $6 billion stock offering. Wells Fargo is one of the institutions undergoing these tests.
And then the big news came out… as estimated, 10 banks were asked by the government to raise almost $75 billion in capital, including Bank of America, Wells Fargo (WFC), GMAC (GMAC) and Citigroup (C). See the complete list here.
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Friday
Friday began with a report on unemployment. The jobless rate hit 8.9% in April, according to the Labor Department, though, this was better than economists expected. Since December 2007, when the recession began, 5.7 million jobs have been lost. The economy lost 539,000 jobs last month, while economists predicted a loss of 610,000.
The Treasury released guidelines for institutions looking to start paying back their TARP loans. Many banks aren’t crazy about the stings that come attached to that money and are looking to pay it off to avoid them. Taxpayers and leaders in Washington would also like to see it paid back, to take at least some of the burden of risk off taxpayers’ backs.
But even the banks that were deemed ‘healthy’ according to the government ‘stress tests,’ may have a difficult time doing this, according to an industry official. According to a document from the Treasury, regulators “will carefully weigh an institution’s desire to redeem outstanding Capital Purchase Program preferred stock against the contribution of Treasury capital to the institution’s overall soundness, capital adequacy and ability to lend, including confirming that the institution has a comprehensive internal capital assessment process.”
An American Bankers Association vice president, Wayne Abernathy, said bankers are worried that these restrictions would give the government a lot of leeway in denying TARP repayments.
Meanwhile, oil futures hit their highest level for the year, settling at $58.63 a barrel. Though this might disappoint consumers at the gas pump, the rise could be reflecting an economy that’s closer to recovery.
And ending the week on a positive note, the Dow rose 165 points, closing at 8575. This is 2,000 points above the index’s lows from early March.
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Banks Focus on Paying Back TARP
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