TOP STORIES -- May 3-8
U.S. Employment Rises; Oil Hits 13-Year High
The U.S. economy generated a net 288,000 new jobs in April, the government said, providing compelling evidence that the recovery is finally producing results where it matters most to American workers.
The nation’s unemployment rate edged down slightly to 5.6% from 5.7% in March, the Labor Department reported.
April’s job gains far surpassed economists’ expectations, increased the odds of imminent interest rate increases and boosted President Bush’s political fortunes heading into the final six months of the presidential election campaign.
The April hiring spree was broad-based and followed blockbuster March gains that were revised upward to 337,000.
Service industry employment surged, and the nation’s hard- hit factory workers finally got a break: Manufacturers added a net 37,000 jobs in the last three months. It was the eighth straight monthly increase in total employment.
Separately, however, crude oil prices hit a 13-year high of $40 a barrel Friday, reinforcing worries that months of high energy prices could cripple trucking, airlines and other key industries.
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Star Dot-Com Banker Convicted of Obstruction
Frank Quattrone, the former Silicon Valley investment banker who took some of the nation’s hottest technology companies to Wall Street, was convicted of trying to obstruct government probes into new stock offerings.
Quattrone sat stone-faced as U.S. District Judge Richard Owen read the verdict pronouncing him guilty of two counts of obstruction of justice and one count of witness tampering in a case that stemmed from a brief e-mail he wrote to his staff 3 1/2 years ago.
Quattrone, 48, will face 12 to 20 months in prison under federal sentencing guidelines when he is sentenced Sept. 8.
“We are obviously grossly disappointed,” said Quattrone’s lawyer John Keker, who promised an appeal. “I feel like we failed Frank. He’s innocent.”
The case centered on an e-mail Quattrone wrote to his staff at Credit Suisse First Boston’s technology group in Palo Alto in December 2000. The two-line missive encouraged his subordinates to comply with an e-mail sent by another banker a day earlier to “clean up” files.
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Fed Appears Poised to Raise Rates Soon
Federal Reserve officials signaled that they were likely to raise short-term interest rates soon, a development that could test the recovery’s strength, chill some overheated housing markets and significantly change financial calculations for millions of consumers and businesses.
The Fed’s monetary policy panel, the Federal Open Market Committee, said it was leaving its benchmark short-term rate unchanged for now at 1%. But citing a strengthening economy and job market, it dropped a previous pledge to remain “patient,” replacing it with a promise to proceed at a “measured” pace.
Some analysts interpreted the statement as a sign that the Fed would begin raising rates this summer, reversing a series of reductions that took rates to lows not seen since the 1950s and provided powerful fuel for a sputtering economy.
Any rate increases would affect a broad range of consumer and business borrowing keyed to short-term rates, including adjustable-rate mortgages, auto and home equity loans and some credit card accounts.
Consumer debt has risen to near-record levels, and nearly a quarter of household borrowing is subject to floating-rate payment adjustments.
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Talks Between Sony, MGM May Intensify
Metro-Goldwyn-Mayer Inc. postponed by nearly seven weeks its annual shareholders meeting, a signal that talks with Sony Corp. about a potential acquisition of MGM for $5 billion may begin to accelerate.
People close to the situation said the talks had bogged down over two issues. One was the insistence by Sony executives that MGM deal with them exclusively for at least a short period. The second sticking point was the conditions under which Sony would be given access to proprietary data from MGM involving areas in which the two companies compete head to head -- specifically DVD distribution.
One person close to the talks said it was still “a long shot” that Sony would complete the deal.
MGM said it was moving its shareholders meeting from May 12 to June 29 because it was “considering strategic alternatives.” Sony declined to comment.
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Studios, WGA Criticize Each Other’s Offer
Contract negotiations between Hollywood writers and studios abruptly turned south, as each side ended a media blackout and criticized the other’s offer.
The development significantly increased tensions in the bargaining, which had continued after a three-year contract lapsed last Sunday. Talks were adjourned until Wednesday.
In a statement, the 11,000-member Writers Guild of America said it had offered studios a one-year deal, similar to the one producers this year granted the Screen Actors Guild. The union says the arrangement will keep the industry working and safeguard the fall television season.
The guild said a three-year proposal from studios offered too little money to the union’s health fund, a small increase for work that appears on pay-TV networks and no added money for sales of DVDs.
J. Nicholas Counter, president of the Alliance of Motion Picture and Television Producers representing studios and major networks, said the studios were prepared to boost their healthcare contribution and were close to what the WGA has demanded on other issues, such as the basic minimum payment for writers.
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Gore, Partners to Start Youth-Oriented Channel
Backed by a roster of media heavyweights, former Vice President Al Gore said he was jumping into the cable television business with a new channel aimed at young Americans.
But Gore, 56, stressed that he was not out to play politics, saying: “This is not going to be a liberal network, a Democratic network or a political network.”
Gore and a group of investors acquired the Newsworld International channel from Vivendi Universal for an undisclosed sum. The channel reaches 17 million of the nation’s more than 100 million TV households.
Gore said he planned to make the channel -- its name to be determined -- an independent source of information at a time when just a few media giants dominate TV news.
Media industry sources said the channel would blend unscripted “reality” fare with commentary on public affairs. Several sources said the channel would have a strong point of view and could veer to the left, Gore’s assurances notwithstanding.
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Safeway, Citing Strike, Posts Big Profit Drop
Citing the grocery strike in Central and Southern California, Vons and Pavilions owner Safeway Inc. said fiscal first-quarter profit plunged 73%.
Net income fell to $43.1 million, or 10 cents a share, from $163 million, or 36 cents, a year earlier. Sales in the quarter ended March 27 fell 5% to $7.6 billion. Excluding the closure of 12 Dominick’s stores in the Chicago area, Safeway’s profit was 16 cents a share. Analysts had expected 23 cents a share.
The results added to the pressure on Chief Executive Steven Burd, who is under fire from several public pension funds.
The labor dispute wiped out $122 million, or 27 cents a share, of profit. Excluding stores involved in the dispute, sales at those open at least a year -- a key financial measure -- fell 1.3%.
Safeway, Burd said, didn’t cut per-share earnings guidance for the full fiscal year, as some investors had feared. Profit is expected to be $1.95 to $2.03, excluding the effect of the strike.
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SEC Sues Pimco’s East Coast Stock Funds
The Securities and Exchange Commission sued Pimco’s stock mutual funds and their two top executives, claiming they defrauded investors by letting a well-heeled hedge fund make quick trades that hurt other shareholders.
The SEC’s civil complaint targeted Pimco’s East Coast stock operations and didn’t name Newport Beach-based Pacific Investment Management Co., the company that runs Pimco’s prominent lineup of bond funds.
The SEC named PEA Capital, Pimco Advisors Fund Management and Pimco Advisors Distributors. The complaint also named Stephen J. Treadway, chief executive of the two Pimco Advisors firms, and Kenneth W. Corba, who recently quit as chief executive of PEA Capital.
They are accused of violating securities laws by failing to disclose a market-timing accord with the now-defunct Canary Capital Partners hedge fund in 2002 and 2003.
PEA Capital and its affiliates called the charges “inappropriate.” Corba adamantly denies allegations of wrongdoing, said his attorney, Jim Rehnquist. Treadway’s lawyer declined to comment.
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For a preview of this week’s business news, please see Monday’s Business section.
