- The Washington Times - Friday, March 13, 2009

Corporate titans General Motors, General Electric and Bank of America reported progress Thursday in weathering the economic downturn with a little government help - shreds of good news that sparked another strong rally on Wall Street.

After demanding as much as $30 billion more in government loans last month, GM announced that it will not need another $2 billion loan this month after all because of the massive layoffs and other cost-cutting measures at the Detroit auto giant.

GE reassured markets that a downgrade of its once unshakeable AAA credit rating Thursday would not hamper its extensive financial businesses, while Standard & Poor’s said the outlook for the widely admired global conglomerate had stabilized. GE has been a principal beneficiary of a Federal Reserve program propping up the commercial paper market.

But perhaps the most inspiring news of the day came from Bank of America President and Chief Executive Officer Kenneth Lewis, who declared that not only was the company posting a profit for the first quarter but he doesn’t expect it to need any more aid from the government.

The surprisingly bright outlook from Bank of America, the beneficiary of more than $45 billion in government cash since September, follows Citigroup’s announcement of rising profits on Tuesday, which sparked a major stock rally from 12-year lows. Both banks had been on the top of the list of candidates for further bailouts.

“While some banks may need more public support in the future, I don’t believe we will,” Mr. Lewis said in a speech to the Boston Chief Executive Officers’ Club in which he also predicted the bank would rake in more than $100 billion in revenue this year.

The news sparked massive relief on Wall Street, led by double-digit gains in GM, GE and financial stocks.

The Dow Jones Industrial Average, leaving its 12-year lows far behind, zoomed back through the 7,000 level and ended up 239 points at 7,170. The Standard & Poor’s 500 Index vaulted more than 4 percent to 751.

“A fresh sense of optimism has pushed both stocks and commodities higher,” said analysts at Briefing.com.

Also helping stocks was a pledge from federal regulators to publish rules within three weeks that will ease some of the burden on banks to report deep losses on their souring loan portfolios.

Markets also got a bounce from a government report showing a tiny decline in retail sales during February after a big jump in January, suggesting to many economists that consumer spending may have stabilized after a steep fall at the end of last year. Consumer spending is the engine of growth for the U.S. economy.

But another report showed a major reason why consumers have been so glum: a $5 trillion drop in the value of their homes and stock holdings in the final quarter of last year - the largest on record. This loss of wealth has taken a big bite out of consumer confidence as well as spending, and has particularly hurt purchases of big-ticket items like cars and homes.

“If we are starting to see consumers show signs of life again, it couldn’t have come at a better time,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “Since last summer, consumer spending had collapsed on a scale we have not seen in half a century. … The economic clouds were darkening by the day.”

Consumers, taking advantage of extensive discounting by retailers, since the beginning of the year have been willing to spend more on small items like electronics, clothing, sporting goods and health and personal care products, according to a Census Bureau report released Thursday.

But auto sales have continued to plunge, dropping by 4.9 percent in February to the lowest levels in decades. This free fall in auto sales is what drove GM and Chrysler to the brink of insolvency in December.

In response, automakers announced deep cutbacks, with GM eliminating 47,000 jobs worldwide, and shut down most of their factories from before Christmas through January. The massive cost-cutting now is producing results, GM said. But some analysts said the cost reductions are mostly the result of GM not producing any cars for more than a month.

The Treasury Department demanded even more cuts in labor and pension benefits as a condition of getting more loans this year. Thus far, GM and Chrysler have not won the concessions from bondholders and labor unions envisioned by the Bush administration when it provided them with an initial $17.4 billion in loans in December.

Bank of America’s Mr. Lewis credited the more than $350 billion in cash that banks have received from the Treasury for preventing a financial system “meltdown,” but the Charlotte, N.C., banking giant is in a “hurry” to return the cash it received so it can be free of government-imposed restrictions on executive pay, dividends and other perks. He said the day of liberation will come when the housing market and economy return to health.

“At some point, we’ll see housing prices stabilize and that would reignite the market,” he said.

The toppling of GE’s gold-plated credit rating, which it has held since 1956, turned out to be less of an event than the markets expected, since the downgrade by S&P; was minor.

GE’s loss leaves only five other nonfinancial companies with top ratings from S&P;: ExxonMobil, Johnson & Johnson, Microsoft, Pfizer and Automated Data Processing.

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