Business and Finance

The biggest tech IPO in history took off like a slightly-delayed rocket this morning, with Facebook shares rising more than $7 to $45 in the first few minutes of trading, before falling back down to its launch price of $38 in the first hour of trading. So will the company be a long-term high flyer or will it just soars briefly before fizzling out?

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Ally Financial’s ResCap mortgage unit filed for a prepackaged bankruptcy protection Monday, a move that the taxpayer-owned bank says will allow it to take another step to repay Treasury.

The ResCap unit, which operates under the GMAC Mortgage brand, was once one of the nation’s leading subprime lenders. Problems with those home loans for riskier borrowers and the sharp drop in the company’s core auto finance business forced Treasury to give it a $15.8 billion bailout in 2009, as part of its efforts to rescue the troubled auto industry and housing market.

The company, which started as the finance unit of automaker General Motors (, Fortune 500) under the GMAC name, changed its name to Ally following the bailout. Besides continuing its auto finance business, it now operates an online commercial bank.

Ally also said it is looking at a possible sale or other strategic alternatives for its international business.

The company said that it expects GMAC to continue to make and service mortgage loans while the bankruptcy process is completed. The portfolio of home loans it holds, now valued at less than half its original value, will be auctioned off as part of the bankruptcy process payday loan lenders.

GMAC said it will make a so-called "stalking horse" bid of $1.6 billion for those loans, but they are expected to draw a higher bid from investors.

"The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us," said Ally Chief Executive Officer Michael A. Carpenter. "This action, along with pursuing alternatives for the international businesses, will allow Ally to focus 100 percent of its energies on further strengthening its already leading U.S. auto finance and direct banking franchises."

Treasury currently owns about 74% of its outstanding stock, and Ally has paid about $5.5 billion of the bailout back to Treasury through dividends and loan repayments. The company’s statement Monday said that upon successful completion of the bankruptcy auction and disposal of its international business, it should be able to have paid back about two-thirds of the government bailout. 

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Beauty products maker Coty Inc. is raising its buyout offer for direct-seller Avon Products Inc. by about 6.5 percent to almost $10.7 billion.

Avon, whose brands include Skin-So-Soft, Anew and mark, said Thursday that Coty told it in a letter that it was raising its offer to $24.75 per share from $23.25 per share.

The revised bid is a 15 percent premium to Avon’s Wednesday closing price of $21.60. Avon shares rose 1.3 percent to $21.87 in premarket trading Thursday.

Avon had rejected Coty’s $10 billion offer last month, but Coty has remained interested. It said in the letter to Avon that it wants to look at Avon’s books to confirm estimates and learn more about Avon’s ongoing bribery investigation and litigation.

Coty says it will withdraw its latest bid if it doesn’t receive a response by the close of business Monday.

Coty’s letter indicated Avon has said it is not interested in reviewing any proposal until after newly installed CEO Sherilyn McCoy has completed a review of all of Avon’s business operations.

On Thursday, Avon said its board will consider Coty’s letter in due course.

Founded in 1886, Avon became a fixture in households across the country as its legions of “Avon ladies” went door to door selling makeup to family, friends and acquaintances.

Now, Avon is in transition. McCoy, a long-time Johnson & Johnson executive, has been in place less than a month easy payday loans. She replaced CEO Andrea Jung, who had come under fire for failing to stem the company’s declines and wrap up the bribery investigation, which started in China in 2008 and has spread to other countries.

The company’s profit has shrunk over the past three years. It has frequently missed analysts’ earnings expectations and posted weak sales in some of its largest markets, including Brazil and Russia. Avon said last week that its first-quarter net income fell 82 percent, hurt by a bigger restructuring charge and higher commodity and labor costs.

Rumors of other possible bids for the New York company have been swirling. A media report last week said private equity firm Richmont Holdings is structuring an offer for Avon, but so far nothing has materialized.

Coty is controlled by German holding company Joh. A. Benckiser GmbH, which also operates consumer products company Reckitt Benckiser Group PLC. Reckitt’s brands include Air Wick air freshener and Clearasil skin care products. Benckiser is one of Coty’s financing sources, along with BOT Capital Partners and Berkshire Hathaway Inc.

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Charter Communications cut its losses in the first quarter, while managing to reverse a long decline in customers subscribing to cable TV.

The company, by far the largest Internet and TV provider in St. Louis, reported a loss of $94 million, or 95 cents per share. A year earlier, the company lost $110 million or 97 cents per share.

Charter is gradually becoming less of a cable TV company and more of an Internet service and phone provider. Still, cable TV provides the biggest piece of its revenue, and the slow drop off of cable video customers has long vexed the company.

That trend changed in the March quarter as Charter added 20,000 video customers, bringing the total to 4.16 million, compared to a loss of 24,000 in the same period a year earlier. That was the first quarterly video growth in five years, said CEO Tom Rutledge in an investor conference Tuesday.

Rutledge said the company has been improving the quality of its TV picture signal and the number of channels. It will be offering 100 high definition channels by mid-year, he said. It’s also been raising prices; about 40 percent of its video customers saw a 3 percent price increase recently.

Loss of video customers is common story in the cable TV business, which is facing more competition as telecom companies role out video services, such as AT&T’s U-verse, in a broader geographic area. Charter’s strongest competition is from satellite TV companies, Rutledge said. Internet streaming services, such as Netflix, aren’t a big factor in cable TV subscriber losses, he said.

“Our video competitors often offer more channels, including more HD channels, and typically only offer digital services which have a better picture quality compared to our analog product,” the company said in a filing Tuesday with the SEC. Charter offers both analog and digital services. People using older TVs without a digital converter box receive an analog signal.

Despite the rise in customers, revenues from video dropped 2 percent, in part because fewer people are paying for premium channels or using its pay video-on-demand service.

Overall, Charter’s revenue grew 3 percent as demand for Internet and phone service increased. Charter added 141,000 residential Internet customers compared a 90,000 gain a year earlier. It added 31,000 phone customers, up from 24,000 last year.

While making money on its basic operations, Charter remains burdened by $12.8 billion in debt and faces continuing costs to upgrade its systems.

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Don’t panic yet. The government reported Friday that the economy got off to a tepid start this year, but that doesn’t foreshadow a repeat of the near-standstill that happened in 2011.

“The economy is firmly on a growth trajectory,” said Sung Won Sohn, an economics professor at California State University’s Smith School of Business. “The first-quarter slowdown will be temporary.”

Still, the January-March report was discouraging.

Economists had expected gross domestic product _ the broadest gauge of economic output _ to expand at a 2.5 percent annual rate for the first three months of the year. Instead, the Commerce Department said it was 2.2 percent, mainly because of government budget-cutting and a slowdown in business investment.

And some of the January-March growth, meager as it was, probably came at the expense of the current quarter. An unseasonably warm winter pulled car buyers into showrooms earlier than usual.

The same was true for housing construction. That’s one reason it jumped at a 19 percent pace from January through March.

Economists doubt consumers can keep spending as freely as they did in the first three months of this year: an annual pace that was 2.9 percent faster than in the previous quarter and the fastest in more than a year. They probably can’t afford to. Americans’ after-tax income rose just 0.6 percent in the first three months compared with a year earlier. That was the puniest pay increase in two years.

People spent more in part because they socked away less. The savings rate fell to 3.9 percent of after-tax income. That was down from 4.5 percent. Economists worry that people won’t keep spending more unless their income grows.

Stock prices rose Friday despite the report of weaker growth. David Rosenberg, chief economist at Gluskin Sheff, said investors might have bid up stocks because they think the Federal Reserve is more likely to pursue another round of bond buying to stimulate the economy.

Fed Chairman Ben Bernanke “has created the impression that if the economy stumbles, he’ll be there to hold your hand,” Rosenberg said.

The lackluster first-quarter growth follows government reports that hiring slowed sharply in March and the number of people seeking unemployment benefits reached a three-month high.

With 12.7 million people unemployed, today’s economy needs much faster growth to boost hiring. Growth would have to be roughly 4 percent for a full year to lower the unemployment rate, now 8.2 percent, by 1 percentage point.

In 2011, a series of setbacks struck the economy. Gas prices rose sharply. An earthquake in Japan shuttered factories there and cut off supplies to U.S. manufacturers. A standoff in Washington brought the federal government to the brink of default, rattling investors and consumer confidence. And Europe’s debt crisis threatened to diminish U.S. exports and further spook investors.

The economy slowed to an annual rate of just 0.4 percent in the first quarter of 2011. Unemployment, which had been falling, rose again last summer.

But most economists think the U.S. economy is more resilient this year.

The job market, household finances and businesses are all in better shape than they were a year ago. Supplies are flowing freely. Political bickering has eased. And the fears about Europe have subsided at least temporarily.

“People are less concerned that the eurozone crisis could engulf the whole world,” says Nigel Gault, an economist with IHS Global Insight.

A 55-cent run-up in gasoline prices (to an average $3.83 a gallon) isn’t hurting as much this year. In part, that’s because drivers are getting used to paying more. And families’ finances are sturdier after another year of paying down debts.

In addition, some factors that held back growth in the first quarter aren’t expected to last. Businesses splurged on software and equipment at the end of 2011 because of an expiring tax break. That stole economic activity, in effect, from the first quarter. Companies will probably resume spending again later this year.

And economists say government spending will probably rebound _ or at least stop falling _ because state and local governments are collecting more tax revenue as their economies slowly recover.

“Their budget holes are getting a lot smaller,” says Jay Bryson, global economist for Wells Fargo.

Most of all, the job market is stronger than it was last year. Unemployment has fallen from 9.1 percent in August to 8.2 percent in March. The economy has added nearly 1.9 million jobs over the past year. More hiring is creating more pay and more spending _ a cycle in which hiring and consumer spending reinforce each other and grow.

Economists note that Friday’s report isn’t the final word on first-quarter growth. It is just an initial estimate. The government will revise the figures in May and again in June.

Then in July, the growth figures will be tweaked yet again. That’s when the government will revise its estimates of growth from 2009 through the first quarter of this year.

The picture could look brighter after the revisions. Two months ago, the government revised income and savings for the second half of last year. It showed Americans had earned and saved more than previously thought. That meant they had more money to spend.

Some economists expect a similar revision this year because job gains suggest that incomes might be higher.

This was the 11th quarter since the Great Recession officially ended in June 2009. The fastest rate of economic growth has been 3.9 percent in the first quarter of 2010. Normally, a much bigger bounce would follow a deep recession like the one the United States sank into in December 2007.

When the economy emerged from the recession of 1981-1982, for instance, growth hit an 8 percent annual pace for four straight quarters in 1983 and 1984.

The gross domestic product measures the output of all goods and services produced in the United States, from cars to electricity to manicures. GDP growth drives job creation, pay, corporate profits and stock prices.

As disappointing as the first-quarter numbers were, the U.S. economy still looks a lot stronger than most of the rest of the developed world. It’s expected to grow perhaps 2.5 percent for the full year.

By contrast, Britain’s economy will only grow 0.8 percent and Japan’s about 2 percent, according to forecasts from the International Monetary Fund. Things are even worse in Europe. The 17 countries that use the euro as their currency are expected to see growth shrink 0.3 percent.

“Growth is an increasingly rare commodity in the global economy,” says Jason Conibear of Cambridge Mercantile, which specializes in trading currencies. “But the US has got it.”

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Stocks are opening sharply lower after a mostly strong start to the week, yanked down by concerns about the debt crisis in Europe.

The Dow Jones industrial average is down 75 points to 13,041 in the opening minutes of trading Wednesday, a day after soaring 194 points, its biggest this year.

The Standard & Poor’s 500 is down six at 1,384 and the Nasdaq composite index is down 11 points to 3,032.

Spain, which sent markets higher Tuesday after its successful bond sale, reported that the proportion of bad loans at the country’s banks rose to an 18-year high low fee payday loans.

In the U.S., Halliburton rose 3 percent after the oil services company posted a 23 percent jump in first-quarter profits.

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Europe’s sovereign debt crisis and the aftershocks of events such as the Japan earthquake and Arab Spring are expected to slow the growth in global exports to just 3.7 percent in 2012, the World Trade Organization said Thursday.

That comes after a slowdown to 5 percent in 2011 and 13.8 percent in 2010, the global trade body said in its annual report. The figures represent the total volume of merchandise exported across borders, accounting for changes in prices and exchange rates.

“More than three years have passed since the trade collapse of 2008-09, but the world economy and trade remain fragile,” WTO chief Pascal Lamy said. “The further slowing of trade expected in 2012 shows that the downside risks remain high. We are not yet out of the woods.”

The global forecasts are remain uncertain due to potential volatility caused by the eurozone crisis, U.S. debt concerns, economic aftershocks of the Japan earthquake and nuclear crisis, flooding in Thailand and the impact of continuing political unrest in the oil-rich Middle East.

The slowdown in 2012 would bring trade growth below the world average rate of 5.4 percent over the last 20 years, the WTO said. Developing economies are expected to lead the growth in goods traded this year with a forecast 5.6 percent increase in exports, compared to 2 percent for industrialized nations.

The forecast assumes a global output growth of 2.1 percent, down from 2.4 percent last year.

Lamy warned that protectionism could rise among governments grappling with the slow trade growth.

“The WTO has so far deterred economic nationalism, but the sluggish pace of recovery raises concerns that a steady trickle of restrictive trade measures could gradually undermine the benefits of trade openness,” he said.

In 2013, the growth rate is expected to recover slightly again to 5.6 percent, the organization forecast. This was the first time the WTO predicted a growth rate more than a year in advance.

Last year, developed countries did a bit better than expected, while the U.S. became a net exporter of fuels in large part because of coal exports to Japan, WTO officials said.

The U.S. saw exports grow 7.2 percent in 2011 after a rise of 15.4 percent the year before. The European Union saw exports grow 5.2 percent in 2011 after a rise of 11.5 percent the year before.

Japan’s exports contracted by 0.5 percent, a sharp turnaround from its 27.5 percent rise in exports the year before, which had made up for the sharp 24.9 percent decline in 2009.

China, the world’s biggest exporter, saw its growth in exports slow to 9.3 percent in 2011 after a surge of 28.4 percent the year before.

Measured in dollar terms, the total value of merchandise traded in 2011 was $18.2 trillion, a jump of 19 percent and an all-time global record driven by rising prices for fuels and other commodities.

The WTO, however, bases it forecast for growth rates on the volume of merchandise, since prices are difficult to predict.

The 2010 rate of 13.8 percent represented a slight downward revision to last year’s reported figure of 14.5 percent _ the biggest rise recorded since 1950 _ based on more recent and complete data showing how economies rebounded from the global downturn.

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A potential $4.3 billion deal between the Boeing’s defense unit and the Brazilian government that has bounced on and off the table for years is back in play.

And a Boeing Co. official said this week that the company expects to learn by June if it finished atop the process that has pitted aerospace makers from three nations in a bid to supply state-of-the-art fighter jets to the Brazilian Air Force.

Tom DeWald, the regional director for Latin American business development is optimistic that Boeing will prevail.

“There’s no question the Air Force down there loves our product,” he said.

Missouri Gov. Jay Nixon is expected to remind Brazilian officials of that fact when he visits the country on a trade mission later this month.

Should Boeing capture the bid, Brazil would eventually take possession of 36 F/A-18 Super Hornets along with a wealth of spare parts and other materials.

The Super Hornets would be designated “FX-2” fighter jets by the Brazilian Air Force.

The French aircraft manufacturer Dassault Aviation and Sweden’s Saab Defence and Security are the other two bidders.

DeWald said Brazil initially broached the prospect of replacing an already aging fleet of Dassault Mirage fighters in the mid-1990s.

An initial request for bids wasn’t floated until shortly after the turn of the 21st century.

After years of political wrangling, the arms sale competition re-surfaced in 2009 with Boeing, Dassault and Saab as the finalists.

For a country that last engaged in meaningful conflict on its own soil over a century ago, the move to bolster its Air Force has more to do with acquiring technology than adding firepower.

“The end game is for Brazil to develop their own abilities to produce, train, and maintain defensive aircraft systems from what they learn by purchasing these foreign aircraft. In essence, they want to create a South American defense industry base,” Michael Blades, senior aerospace industrial analyst with Frost & Sullivan in San Antonio, wrote in an email response to questions about the Boeing deal.

In a 2010 white paper prepared for the Brookings Institution, foreign policy analyst Kevin Casas-Zamora criticized the uptick in the purchases of military hardware by Brazil and other South American nations.

“The absolute increase in military expenditure, and of acquisitions in particular, hinders the region’s economic and political development. Even the security benefits of such expenditures are debatable at best,” Casas-Zamora wrote.

A deal would, however, bode well for the thousands of local employees of the Boeing Defense, Space and Security unit who build that fighter jet, not to mention countless suppliers here and throughout the U.S.

The company’s 2010 contract to supply 124 fighters to the U.S. Navy is expected to wind down around mid-decade. Likewise, the clock is ticking on a 2011 pact to provide 84 military aircraft to Saudi Arabia. Production on the Saudi contract could run through 2020 if not beyond.

But looming Pentagon budget cuts and the Pentagon’s shift toward unmanned aircraft darken the long-term prospects for continued fighter production in Hazelwood.

For those reasons alone, Blades says much rests on Boeing’s ability to wrest the contract with Brazil.

“If they don’t take advantage of foreign military sales avenues that are open to them they are facing limited growth,” he said. “And if they let other companies like Dassault or Saab (in the case of the Super Hornet) make sales to countries like Brazil not only do they lose growth prospects they strengthen those foreign competitors.”

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U.S. service companies expanded at a healthy pace last month and stepped up hiring, though growth slowed a bit from the previous month.

The Institute for Supply Management, a private trade group, said Wednesday that its index of non-manufacturing activity dropped to 56 in March, down from February’s 57.3. Any reading above 50 indicates expansion.

The trade group of purchasing managers surveys roughly 90 percent of U.S. companies in all sectors outside of manufacturing. That includes retail, construction, financial services, health care, and hotels.

A measure of employment rose as more companies said they plan to add workers.

Separately, payroll processor ADP said the economy added 209,000 private-sector jobs in March. The ADP survey does not include government jobs.

Both reports are encouraging signs ahead of the government’s report on March job growth, which will be released Friday. Economists are predicting that employers added 210,000 jobs, which would be the fourth straight month of strong hiring.

More jobs have helped service companies grow. As hiring picks up, Americans are more willing to spend. Consumer spending jumped in February by the most in seven months, the government said last week payday loans no teletrack.

Department stores, electronics chains and other merchants are seeing more business. Retail sales increased in February by the most in four months. Department store sales rose in February by the most since November 2010.

Big job gains at service firms are necessary to reduce the unemployment rate. The service sector includes low-paying positions in retail and restaurants. But it also has higher-paying jobs in professions such as information technology, accounting and financial services.

The job gains have come as growth has picked up. The economy expanded at an annual rate of 3 percent in the final three months of last year.

Still, the hiring gains have not resulted in bigger paychecks for most people. Income grew just 0.2 percent last month, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.

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