Fed Cuts Interest Rate for 10th Time This Year
The Federal Reserve moved aggressively again to prop up the nation’s terrorist-attack-rattled economy by cutting its benchmark interest rate to a 40-year low. It was the central bank’s 10th cut this year.
Fed Chairman Alan Greenspan and his colleagues on the policymaking Federal Open Market Committee slashed the federal funds rate, which banks charge each other for short-term loans, half a percentage point to 2%. The rate began the year at 6.5%.
The panel dismissed suggestions that it throttle back on the size and pace of its rate cutting. With the latest cut, Fed officials pushed the real, inflation-adjusted value of the funds rate toward negative terrain. That set up the enticing possibility of being able to borrow at rates so low that inflation would offset the interest costs.
Mortgage rates fell to their lowest level in three decades, providing a broad incentive for consumers to buy or refinance homes, which could generate more spending to prop up the sagging economy.
The reduction in rates, to an average of 6.46% for 30-year mortgages, is expected to spur housing sales and already has turned millions of homeowners toward refinancing. There were reports of consumers waiting an hour or more to get through to mortgage officers.
Nine States Shun Microsoft Settlement
After more than three years of legal jousting, Microsoft Corp. settled its landmark antitrust lawsuit with the Justice Department and nine of the states that had joined in the action.
But the other nine and the District of Columbia refused to sign the settlement, and several--led by California--are vowing to press on with the lawsuit to win tougher terms. Before splintering, the coalition of 18 states negotiated around the clock to modify the original agreement drafted by the Justice Department.
Under the final proposed settlement, Microsoft agreed to abide by a set of restrictions designed to prevent the Redmond, Wash.-based software company from retaliating against computer makers or driving rivals out of the business. But the terms were criticized by Microsoft opponents as being far too weak to restore competition or punish Microsoft for violating antitrust laws.
State’s Unemployment Rate Near 3-Year High
California’s unemployment rate climbed to nearly a three-year high of 5.7% last month, as businesses around the state slashed 21,000 jobs, data showed. The state’s jobless rate stood at 5.4% in September.
The employment report reflected job losses in the aftermath of the Sept. 11 terrorist attacks, along with the state’s continuing slump in high-tech and other manufacturing sectors. Travel-related industries also are taking a pounding.
But economists said that the latest figures also show that California has yet to suffer as severely as other parts of the country have.
“We’re seeing a moderate recession,” said Brad Williams, economist for the California Legislative Analyst’s Office. “We’re not seeing evidence of a meltdown or a major retrenchment.”
Hewlett Family to Vote Against Buying Compaq
The Hewlett family and a related foundation, owners of about 5% of Hewlett-Packard Co.’s shares, plan to vote against the computer maker’s $21.4-billion purchase of Compaq Computer Corp.
Hewlett-Packard shares soared 17% on the news and closed Friday at $18.99 on the New York Stock Exchange, up 12% for the week.
David W. Packard said he was likely to vote his personal HP shares and the 25 million held by the Packard Humanities Institute against the transaction. The Hewlett family also said it would vote about 106 million shares against buying Compaq.
The actions turned what had been a straightforward, if unpopular, business combination into a Silicon Valley soap opera, pitting the scions of technology royalty against the most prominent woman chief executive in the country, beleaguered HP CEO Carly Fiorina. If the merger fails, some analysts expect Fiorina, 47, to be fired.
Airlines Call for Background Checks
The airline industry gave a boost to one of the more controversial security ideas under discussion since Sept. 11., formally calling for a massive screening system that would subject passengers to intensive background checks.
Under the Air Transport Assn. proposal, all reservations would be checked against a new government database that would include arrest records, intelligence information, immigration files and financial data. This master database, constantly updated, would be used to identify individuals who merit closer screening at the airport.
The industry also proposed a “trusted traveler” identification card, which would be issued to prescreened passengers willing to undergo extensive personal background checks. These travelers would be sent to airport checkpoints with less intensive screening, allowing them fewer delays.
Some analysts said that the ID cards might be appealing to frequent business travelers, but civil libertarians and others said the screening system could lead to an unneeded infringement of privacy.
Newport News Board OKs Deal With Northrop
The board of Newport News Shipbuilding Inc. approved a $2.1-billion acquisition by Northrop Grumman Corp.
The deal, which also must be approved by shareholders, would turn Century City-based Northrop into the world’s largest military shipbuilder, making virtually every type of vessel required by the Navy, from destroyers and transport ships to nuclear submarines and massive aircraft carriers.
Northrop would own a massive shipyard spanning two miles along the James River in Virginia where the world’s most sophisticated and the largest military ships are built. Newport News is the nation’s sole builder of aircraft carriers and only one of two suppliers of nuclear submarines.
Wells Fargo to Accept Mexican Consular IDs
Banks are stepping up efforts to deliver financial services to undocumented immigrants, a trend that was bolstered when Wells Fargo & Co. announced it will accept Mexican consular identification from potential account holders.
The lack of mainstream ID--including Social Security numbers--has been a key barrier to bank accounts for many undocumented immigrants, who tend to operate in a cash economy. Acceptance of the cards, issued by Mexican consulates, will ease that process slightly.
Wells Fargo’s program marks the most aggressive outreach to date by a big bank. US Bancorp quietly launched a similar program to accept the consular ID cards on Nov. 1, and Union Bank of California also accepts them.
Cisco Sales Up 3.5% in Latest Quarter
Cisco Systems Inc. surprised Wall Street analysts by reporting a 3.5% quarterly spurt in business from the previous three-month period, giving some hope that the devastated networking equipment industry has bottomed out.
The San Jose-based company, a bellwether for the industry, also forecast sales for the current quarter to be flat or slightly higher than its most recent fiscal quarter, which ended Oct. 27.
Cisco, which makes routers and other devices that move traffic over the Internet, has suffered over the last year as businesses in general, and telecommunications companies specifically, cut back spending.
Cisco stock gained $1.03 in the first two days after it released its results. It closed at $19.20 on Friday on Nasdaq, still down 50% this year.
House2Home Blames Sept. 11 for Its Demise
House2Home Inc. said it is going out of business, closing all 42 home furnishings stores only months after splashy grand openings.
House2Home, which converted the stores to cavernous home furnishings businesses after struggling for years as a home improvement chain, said the sluggish economy had slowed sales. But the business went into a tailspin after the Sept. 11 attacks, with sales slumping more than 30% in recent weeks.
“If we could erase Sept. 11, we’d be doing fine,” House2Home president Thomas Gallagher said. “Sept. 11 was insurmountable.”
The company filed for bankruptcy protection but said it plans to liquidate its assets and shutter its stores, the last of which opened in August after they were converted from HomeBase home improvement stores. The chain has 24 branches in Southern California.
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Please see Monday’s Business section for a preview of the week’s business and economic news.
