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Daily Briefing American Express (AXP) is the latest big employer to swing the ax. The New York-based credit card company set plans Thursday to cut 7,000 jobs, or more than 10% of its staff, in a move that AmEx says will help it save $1.8 billion next year. In addition to the job cuts, which will be centered in what AmEx terms “positions that do not interact directly with customers,” the company is cutting management salaries and instituting a hiring freeze. The move comes a week after American Express posted a 24% drop in third-quarter earnings, as U.S. cardmembers reduced their spending. The cuts at AmEx come amid a wave of cutbacks by big companies ranging from Goldman Sachs (GS) to Whirlpool (WHR) and Yahoo (YHOO). The government said Thursday that initial jobless claims were flat with a week ago, but up 40% from year-earlier levels. “We’ve been engaged for the past few months in an intensive, companywide review of priorities and staffing levels,” AmEx chief Kenneth I. Chenault said. “The reengineering program we announced today will help us to manage through one of the most challenging economic environments we’ve seen in many decades.” What a difference a government takeover can make. Fannie Mae (FNM) said Wednesday it plans to write off the value of an asset that was at the center of accounting questions before Treasury took Fannie and its government-sponsored sibling Freddie Mac (FRE) over in September. Fannie said Wednesday it “has determined to take a valuation allowance against its deferred tax asset,” which amounted to $20.6 billion at June 30, the latest date information is available. The deferred tax asset reflects losses the company accumulated for use in offsetting future profits. There’s nothing inherently insidious about deferred tax assets, but obviously they’re only of use when a company expects to be profitable soon — something no one is likely to say about Fannie, which lost $4.5 billion in the first half of this year as it added to its loan loss reserves. Critics of Fannie frequently complained in the run-up to September’s takeover that the companies were overstating their capital by including the full value of the deferred tax assets in capital calculations, rather than the much smaller amount permitted by bank regulators. That was an important claim because, even accepting the companies’ accounting, Fannie and Freddie were operating on a perilously thin capital cushion in an environment of falling house prices. Yet as recently as August, when Fannie held its last earnings conference call as a shareholder-controlled company, execs were still insisting it was appropriate to carry deferred tax assets and count them in full as capital. “What we do is we make an assessment on the recoverability based on the taxable income the company generates,” then-finance chief Steve Swad said. “And just remember that our taxable income is higher than our book income because there’s no reserve building expense. Based on that, we think it’s sufficient to recover the asset.” Since then, however, Swad has departed in a finance department shakeup, to be followed a week later by CEO Daniel Mudd and other top execs. With the government in control of Fannie and the executive suite having been cleared, it seems there is no reason to make any hard-to-figure claims about Fannie’s income in the next few quarters. By David Whitford, editor at large You’ve been hearing lot of talk lately about the coming “nuclear renaissance,” some of it from me (See “The power generation gap“). Last year I drove 7,000 zig-zaggy miles – from the Seabrook nuclear power plant on the New Hampshire coast to the Idaho National Laboratory in a desolate valley in the southeastern part of the state - to examine firsthand the prospects for a nuclear power revival in the United States. But so far, frankly, there hasn’t been much action to report. The Nuclear Energy Institute, for example, a pro-nuke trade group, says 17 utilities and consortiums are “pursuing” licenses for 30 new nuclear plants in the U.S. That’s potentially meaningful, given the fact that there hasn’t been a new nuclear plant open in the United States since 1996, and construction on that one began in 1973. But it’s a long way from filing papers to putting shovels in the ground, much less flipping the switch and putting power on the lines. “None of these utilities have committed to building” says Darren Gale, VP for Babcock & Wilcox’s nuclear power generation group. “All you hear about is licensing efforts. Utilities are not putting their necks out yet as far as going down the path of full construction.” That said, there is some recent movement to report. French nuclear power giant AREVA and Northrup Grumman Shipbuilding (NOC) jointly announced Thursday afternoon plans to build a $360 million plant in Newport News, Va., to supply large-scale components for the U.S. nuclear power industry. The announcement follows one earlier this summer by The Shaw Group and Westinghouse of their plans to build a nuclear components plant in Louisiana. Both are important steps toward what AREVA chief executive Anne Lauvergeon, in an exclusive interview with Fortune before the announcement, described as “reviving the capacity of the nuclear industry in the U.S.” Lauvergeon means the capacity to build new nuclear power plants, which is perhaps the biggest roadblock to the industry’s vision of dramatically increasing nuclear’s share of electricity generation in the United States, currently stalled at 20%. Set aside the safety fears, political opposition, regulatory hurdles and the seemingly irresolvable quandary of how to dispose of the waste and you’re still left with the nagging question of who’s going to build all these new plants. We used to do it all here. Today there’s just one plant in the world that’s producing the massive steel forgings that form the core of nuclear reactors, in Japan. And until these proposed new plants come online in Virginia and Louisiana, there’s still only one plant left in America — a Babcock & Wilcox facility in Mount Vernon, Ind. — that has the coveted “N” stamp required for large-scale nuclear manufacturing. One more factor to keep in mind: The potential impact of the global economic crisis on construction plans going forward. Lauvergeon says she’s not worried about that. AREVA has a five-year backlog, she says, and is still forecasting heavy demand for new plant construction in developing countries like China and India. Gale of Babcock & Wilcox, meanwhile, sees a possible truth about enzyte boost to the industry if a new administration in Washington were to initiate large-scale public works projects as a way of stimulating the economy. “My opinion,” said Gale, “is any country would be well served in a time like this to work on infrastructure. That’s what you should do with your money. It creates jobs and focuses on things you have to have.” (For complete coverage of the U.S. nuclear power industry and its revival, click here.) Wachovia’s (WB) commercial customers were pulling their deposits last month as questions about the Charlotte bank’s health mounted. Wachovia on Wednesday posted a $23.9 billion third-quarter loss, reflecting an $18.8 billion goodwill writedown and a $4.6 billion addition to loan loss reserves. The bank, which is in the process of being sold to Wells Fargo (WFC), said the latest quarter was hit by $2.5 billion in market disruption losses, a $682 million valuation decline in its trading business, $515 million in non-merger-related severance costs and $497 million of auction rate securities settlement costs. Wednesday’s report is likely to be Wachovia’s last as an independent company. The bank was to be sold at a token price to Citigroup (C) in a deal arranged last month by the Federal Deposit Insurance Corp., before Wells Fargo emerged days later with a higher bid that involved no government support. One measure of Wachovia’s plight in the midst of last month’s September panic comes from its deposit data. Wachovia said core deposits, measured on average over the course of the quarter, rose 4% from a year ago to $392 billion, led by sales of certificates of deposit and money market accounts. But deposits were actually 2% below year-ago levels at quarter-end, “driven by a significant decline in higher cost commercial deposits,” Wachovia says. Of course, there’s no mention of Wachovia’s near failure amid the financial-sector panic. The bank says only that the month-end deposit run reflected “significant market turmoil at the end of the third quarter of 2008.” E*Trade’s (ETFC) mid-decade foray into mortgage lending continues to haunt the online brokerage firm. The New York company posted a steep third-quarter loss after the market closed Tuesday and said it expects to lose money in the fourth quarter as well. E*Trade lost $321 million, or 60 cents a share, from continuing operations for the quarter ended Sept. 30, compared with a year-ago loss of $59 million, or 14 cents a share. Analysts surveyed by Thomson Financial were looking for a 28-cent loss. The company said daily trading volume rose 7% in the latest quarter as September’s market turmoil sent investors scurrying to their keyboards. E*Trade opened 41,000 net new accounts and brought in $800 million in customer assets during the period. But margin loans fell, as customers joined big companies in a deleveraging frenzy. “We absorbed significant credit costs while generating the capital and liquidity to maintain substantial cushions of both,” CEO Donald Layton said. The latest quarter was hit by a $518 million provision for loan losses, as E*Trade boosted its loan-loss expectations following a special credit review. E*Trade said it now expects to lose $1.8 billion over the next three years on its home equity portfolio, up from a previous forecast of $1.5 billion. E*Trade said it believes its loan loss provisions have peaked and that charge-offs, reflecting actual losses on troubled loans, will begin to drop next year. In the meantime, the company said it is eligible for a government equity infusion “and will be following up with the appropriate governmental agencies.” |