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Some former bankers are planning to bid for failing banks in the Federal Insurance Deposit Corp auction process, and getting financial backing from Wall Street firms like Goldman Sachs Group Inc and Deutsche Bank AG, the Wall Street Journal reported citing sources.

JPMorgan Chase & Co’s former Chief Executive William Harrison, former Wachovia Corp CEO Robert Steele and Herb Boydstun, former CEO of Hibernia Corp were among the banking veterans considering such plans, the paper said citing people familiar with the situation.

Last month, former executives at Citizens Financial Group Inc, a unit of Royal Bank of Scotland Group PLC, raised $1 faxless payday loans.15 billion in a private placement and formed NBH Holdings Corp in an effort to buy battered banks, the Journal said.

Other bankers who are looking for investors to enter the auction include Charles Rinehart, former chairman and CEO of H F Ahmanson & Co and Daniel Healy, former finance chief of North Fork Bancorp, the Journal said citing sources.

(Reporting by Supantha Mukherjee in Bangalore; Editing by Valerie Lee)

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Financial regulators on Wednesday told Switzerland’s biggest banks and insurers to defer the bulk of their managers’ bonuses and better match pay against performance under new rules aimed at curbing risky investing.

The new rules, to come into force on January 1, 2010, placed Switzerland in a growing group of countries moving the focus of compensation away from a short-term culture blamed for the financial crisis toward longer-term sustainable profitability.

“Remuneration schemes can create false incentives which may lead to inappropriate risks being entered into, threatening the business and profitability of a financial institution and, at the end of the day, its stability,” regulator FINMA said.

FINMA said there would be no cap on executive bonuses and that the new system would apply to the country’s seven largest banks and five biggest insurers. It did not name them.

The Swiss regulator also said it would welcome the introduction of clawbacks on bonuses when performance was poor, such as was already the case with the country’s top two banks UBS and Credit Suisse.

Responding to criticism from the financial industry, FINMA said the rules were compulsory only for firms with at least 2 billion Swiss francs ($1.98 billion) in equity capital or as solvency.

Analysts said base salaries, stuck for years at large Swiss banks, would rise as the importance of bonuses diminishes. This would limit the flexibility the banks have enjoyed until now and also change the way firms spread compensation costs over time as payouts are made more in cash than shares.

The new rules are expected to apply to UBS, Credit Suisse and also large insurers such as Swiss Life, Swiss Re and Zurich Financial Services, analysts said payday cash advances.

GLOBAL TREND

Leaders from the Group of 20 nations adopted guidelines on curbing bonuses at a meeting in Pittsburgh in September after countries like Germany, Britain and France had already started to take regulatory action to curb excessive bonuses.

“There is a lot of pressure to do something on the compensation front,” said Andreas Venditti, a banking analyst at ZKB. “Different countries are all trying to introduce some new rules. At first sight, the Swiss rules appear to be consistent with international guidelines.”

Credit Suisse last month unveiled a new compensation scheme that it said would fully comply with new G20 standards.

UBS, which received state aid to overcome the subprime crisis last year, has said in an internal memo seen by Reuters it also plans to change its compensation structure. Hefty bonuses and salaries at UBS caused public outcry in Switzerland, leading former chief Marcel Ospel and other ex-board members to return 33 million Swiss francs ($32.71 million) in payments.

UBS was also sharply criticized earlier this year for increasing bankers’ pay. Newly-appointed new Chief Executive Oswald Gruebel said the bank had to pay market level salaries to retain stuff.

(Editing by David Cowell)

($1=1.009 Swiss Franc)

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U.S. Treasury Secretary Timothy Geithner said high unemployment rates show that economic recovery is still perilous and governments need to maintain stimulus as long as necessary to ensure sustained growth.

“If we put the brakes on too quickly we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater,” Geithner said in a statement issued at the conclusion of a two-day Group of 20 meeting.

He said that with some growth beginning to become apparent in the global economy, policymakers were faced with new challenges but had to avoid taking actions that could snuff out recovery.

“It’s too early to start to lean against recovery,” Geithner said.

“With growth now underway and the financial fires winding down, the policy challenge is changing. The first stage was the emergency rescue,” Geithner said. “The next stage was catalyzing private demand and business investment. This will require continued policy support.”

(Reporting by Glenn Somerville and Sujata Rao)

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When CIT Group filed for bankruptcy Sunday, it wasn’t much of a surprise. The once-dominant small business lender has been largely sidelined for more than a year.

CIT Group was historically a major player in two key markets: lending to new and expanding businesses, especially franchises, and providing short-term financing for retail suppliers. On the retail side, CIT has stayed active, but its traditional lending has come to a near standstill.

Last year, CIT Group made more than 1,200 loans through the Small Business Administration’s primary lending program, totaling $771 million. But in the 2009 fiscal year, which ended Sept. 30, its loan volume fell 88%. CIT Group made just 142 loans, totaling $105 million.

That sharp drop-off has left CIT’s usual borrowers scrambling to find new financers.

"In the past, CIT has been an important lender to the franchise businesses," said Alisa Harrison, a spokeswoman for the International Franchise Association. "However, earlier this year they dramatically reduced their lending to the industry as a result of their financial problems, prompting franchise companies to seek alternative capital sources to replace CIT."

One popular franchise, Dunkin’ Donuts, relied on CIT for years as one of its preferred lenders. But CIT’s lending dried up as the economy deteriorated. "Lending volumes by CIT with our franchisees are certainly lower in 2009 than in previous years," said Andrew Mastrangelo, a Dunkin’ Donuts spokesman.

Dunkin’ Donuts insists that CIT’s precarious financial state isn’t hindering the company. "CIT’s bankruptcy filing in no way affects our stores, their ability to grow or our ability to meet consumer demand," Mastrangelo said.

But others who track small business loans see ripple effects. Lending to small businesses has been cut in half this year, according to Bob Coleman, editor of the Coleman Report, a trade publication that monitors small business lending trends.

Outgoing CIT CEO Jeffrey Peek likes to call his company "the bridge between Wall Street and Main Street." Since last year, that bridge has been collapsing.

"This is why this is so terrible for Main Street," Coleman said. "If this were a GM plant, everyone would be screaming that we need to keep this GM plant there."

We ‘dodged a bullet’

While CIT’s traditional loan business dwindled, the company has stayed active in another field it dominates: factoring, a type of financing that lets companies borrow against their customer invoices.

Factor financing is popular in the retail field, where margins are paper-thin and manufacturers can’t wait around for their customers to pay up. Selling accounts receivable to a factor, typically for 70 to 90 cents on the dollar, gives suppliers an immediate cash infusion and lets them pass on the administrative work of collecting payments from customers.

The National Retail Federation estimates that CIT providers factoring services to around 2,000 manufacturers, which in turn supply products to some 300,000 retail locations. For those suppliers, "there aren’t a whole lot of other alternatives," said J. Craig Shearman, the NRF’s vice president for government affairs. "There are a number of smaller firms that do factor financing, but not enough to pick up the slack if CIT were to drop out of factor financing all together."

CIT’s factoring volume has dropped this year, largely in response to the weak retail market payday loan in advance. In the first half of this year, it had a transaction volume of $16.5 billion, down 20% from the same period in 2008.

While CIT’s holding company is in bankruptcy, none of its operating subsidiaries are affected by the filing. That means the company’s factoring business is carrying on as usual.

Still, any trip through bankruptcy is going to leave a legacy, and those that rely on CIT are waiting to see how the situation will play out. One silver lining: CIT’s bankruptcy happened late enough that it won’t disrupt the critical holiday shopping season, when retailers typically rake in 25% to 50% of their entire year’s revenue.

"We think we have dodged a bullet," Shearman said. "Most of the merchandise for the holidays is in the distribution centers, if not in the stores themselves."

Individual customers have so far stayed out of the fray. Ray Steele has been working with CIT since the day he and his wife opened their furniture supply company, Ultimate Accents in Kernersville, N.C. They are not planning on making any changes.

"We have been with CIT for 11 years and at this point have no reason to go elsewhere, unless something changes that we can’t foresee right now," Steele said. "Since they continue to fund us uninterrupted, it is not a concern of ours right now. I mean, you fly on a plane of a company that is bankrupt, you buy a car from a company that is bankrupt."

CIT says its bankruptcy proceedings won’t affect the company’s day-to-day business. That’s good news for Steele, because finding another factor financing company to work with wouldn’t be easy. "It would be a big imposition on us, and it would affect our business — as it would 99% of the other people that would be put in that position," Steele said.

What comes next

CIT’s bankruptcy followed months of negotiations with the government and with potential investors for a desperately needed capital infusion. The company’s public struggles took a toll: The week of July 13, when CIT appeared poised to go bankrupt, customers drew down $700 million against CIT’s financing lines, twice the normal transaction volume.

Also that week, Microsoft (MSFT, Fortune 500) and tool retailer franchise Snap-On gave CIT a no-confidence vote, cancelling financing programs they had in place with the company.

CIT said it has the capital it needs to continue its day-to-day operations. Through the bankruptcy reorganization, the company hopes to shed around $10 billion in debt and position itself for a return to profitability. A judge will hear its case on Dec. 8.

It’s uncharted water. CIT’s bankruptcy is the fifth largest in U.S. history, and among those companies, only General Motors has emerged with an intact operating business.

"It is not a slam dunk," said industry observer Bob Coleman. But "it is better than the alternative. Right now, you have a company that is dead in the water and can’t do any lending."

Meanwhile, customers like Ray Steele are keeping their fingers crossed. "Everything so far seems to be fine," he said. "Hopefully it will continue to be that way." 

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The Walt Disney Co’s breakthrough deal to build one of its signature theme parks in Shanghai marks a major advance for Western media and entertainment firms trying to crack a tough China market.

Wednesday’s government approval for the theme park caps years of on-off talks between Disney and Chinese authorities, who are wary of too much foreign influence in the highly sensitive sectors of media and popular culture.

The new park planned for the Pudong new district of China’s financial capital will take years to contribute to a company that rakes in more than $30 billion in annual revenue.

But analysts see the move as an important step forward for Disney and other Western media firms to make inroads into the vast and untapped Chinese media and entertainment market.

“They’ve been laying the groundwork for a park for many years by exposing the population to Disney properties, film, TV and merchandising,” said Christopher Marangi, senior analyst with Gabelli and Co in New York.

“Adding a physical presence in the form of a park would really complete and add to the value chain in China.”

The breakthrough comes just two weeks ahead of a scheduled trip to China by U.S. President Barack Obama, a visit analysts had expected to help spur a decision on the park.

The deal has been seen by some as a feel-good bilateral story, highlighting U.S. cultural influence and an investment that does not entail U.S. manufacturing job losses, while China gets a boost to its leisure sector and to domestic demand as it tries to trim its dependence on exports.

For Shanghai, China’s financial hub, Disneyland could keep tourists coming after the curtain falls on the 2010 World Expo.

And Disney will hope the park, with an estimated price tag of $3.6 billion, will fare better than its Hong Kong property, which has struggled with lower-than-expected attendance and financial losses since it opened in 2005.

SMALL STEP FORWARD

Disney, Time Warner and News Corp have surprisingly little to show for their years of effort and extensive investments in China.

“I wouldn’t say this is a one-off gain,” said Vivek Couto, executive director of Media Partners Asia, on the deal’s broader significance for foreign media’s drive for a foothold in China.

“But it’s in a non-sensitive space. It’s a theme park. It’s got nothing to do with television content that can be politically sensitive or competitive with other major Chinese companies in the space.”

Even privately held domestic media can find the going tough, as leading Internet portal Sina found recently when it scrapped a merger with Focus Media due to government stonewalling over a deal that would have created a major new domestic media player. 

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Confused about whether lawmakers will extend the $8,000 first-time homebuyer credit and what it would look like?

That’s understandable, since the situation is still very fluid.

Here’s where things stand.

Support for the credit: There is still bipartisan support in Congress for extending the credit past Nov. 30 and making it available to more homebuyers.

The Obama administration wants the credit extended for a "limited period," Treasury Secretary Tim Geithner and Housing Secretary Shaun Donovan said Thursday. They did not elaborate.

What’s on the table now: There appears to be a compromise deal that falls between the most and least generous proposals that have been put forth so far.

"There is bipartisan compromise to extend the credit through spring and expand it to existing homeowners who are stepping up to a different home," financial policy analyst Jaret Seiberg wrote in a research note for Concept Capital’s Research Group.

The latest idea under discussion is a credit worth up to $8,000 for first-time homebuyers and up to $6,500 for homeowners looking to trade up to a bigger primary residence and who have already lived in their current home for five years. (CNN: Senate compromise may be in the works.)

To qualify for the full credit, however, homebuyers must have adjusted gross income of less than $125,000 ($225,000 for married couples filing jointly).

In addition, the credit would only apply to homes sold for $800,000 or less. Contracts to buy a home must be signed by April 30, 2010, and the deals must close by June 30 in order for a buyer to qualify for the credit.

Rationale for extending the credit: Supporters of the credit say it has helped to boost existing home sales in recent months. Extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected rise in foreclosures next year, which is expected to put downward pressure on prices.

If the credit is allowed to expire, they say, the housing market and the broader economy will grow moribund again.

"The most fundamental argument for the credit is that nothing works in the economy if housing is falling — it hurts household wealth and credit becomes tight," said Mark Zandi, chief economist at Moody’s Economy payday advance loans.com. "[The credit] is a good insurance policy. It’s vital to stem the housing price declines."

What critics say: Though extending the credit has bipartisan support, it is not without its critics.

Critics, while acknowledging that the credit has helped to generate additional home sales, say it has been poorly targeted and therefore not cost-effective.

They point to estimates that only 10% to 20% of the nearly 2 million homebuyers who will have gotten the credit by Nov. 30 bought solely because of the tax break.

In other words, a large majority of homebuyers who benefited from the credit would have bought their homes without it.

By one economist’s estimate, the government may have spent $43,000 for each sale that occurred strictly because of the credit.

In a position paper published this week, the liberal Center on Budget and Policy Priorities said making the credit available to existing homeowners would not help stabilize housing prices or reduce inventory.

"When [they] purchase a new home, they simultaneously put their current home up for sale. As a result, there is no net effect on supply or demand in the housing market."

Timing on a vote: An amendment to extend and expand the credit could be attached to a bill that would extend unemployment benefits and which could pass the Senate by next week.

However, there’s a chance the housing credit will be dealt with separately.

The credit could be attached to another piece of legislation or put in a standalone bill with other proposals to extend tax breaks.

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