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NEW YORK – Shantanu Narayen, the president and CEO of software maker Adobe Systems Inc., was awarded compensation valued at $5.2 million in fiscal 2009, a 68 percent decline in a year that saw the recession weaken demand for its products.

Narayen received a base salary of $875,000 for the fiscal year ended Nov. 27, 2009, according to a proxy statement the maker of Photoshop and Flash software filed with the Securities and Exchange Commission. This was the same as the salary he received in fiscal 2008.

His perks declined 61 percent to $7,740. The bulk of this was a company 401(k) match and the rest — $390 — a life insurance premium.

Narayen’s perks were higher in 2008 because he was awarded $12,710 in tax grossups for Platinum Club, an exclusive trip to reward the company’s top salespeople. Narayen had attended Platinum Club as part of his business duties, Adobe said last year.

This was not included in his 2009 compensation.

Making up the bulk of his compensation package, Narayen was granted stock options and restricted stock valued at $4.3 million on the date they were granted, according to an Associated Press calculation.

This is a decline of nearly 70 percent from a year earlier, though at that time the vast majority of the stock options had little value.

In 2008, Narayen’s total compensation package was valued at $16.4 million.

The Associated Press formula is designed to isolate the value the company’s board placed on the executive’s total compensation package during the last fiscal year infrared room heaters. It includes salary, bonus, performance-related bonuses, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year.

The calculations don’t include changes in the present value of pension benefits, and they sometimes differ from the totals companies list in the summary compensation table of proxy statements filed with the Securities and Exchange Commission, which reflect the size of the accounting charge taken for the executive’s compensation in the previous fiscal year.

The recession dampened demand for Adobe’s Creative Suite 4, the latest version of the software package targeting professional designers and developers that brings in the bulk of Adobe’s revenue. It happened to launch in the fall of 2008, right as the financial meltdown hit.

Adobe had posted a 56 percent decline in its 2009 earnings, and its revenue dropped 18 percent. It also reduced its work force by about 1,300 employees, though it gained some from of its acquisition of Omniture Inc.

San Jose, Calif.-based Adobe’s shares rose 53 percent during the fiscal year, to close at $35.38 on Nov. 27, 2009.

Adobe CEO 2009 pay package down 68 percent

WASHINGTON — There are no crown princes at the Ford Motor Company, its late chief executive, Henry Ford II, was fond of saying about the family business.

But for a quarter-century, there has been a crown prince at Toyota.

And now it is up to Akio Toyoda, grandson of the company’s founder, to steer his family’s battered company back on course.

When he testifies on Wednesday before the House Committee on Oversight and Government Reform, Mr. Toyoda, 53, will be making his debut before the American public under a harsh spotlight.

In his prepared testimony, released on Tuesday, Mr. Toyoda said he took personal responsibility for the situation. In the past, he said, the company’s priorities were safety and quality, and sales came last.

But as Toyota grew to become the world’s biggest carmaker, “these priorities became confused, and we were not able to stop, think and make improvements as much as possible,” Mr. Toyoda said.

Although the Toyoda family is among Japan’s most prominent, Mr. Toyoda was all but unknown in the United States before the recalls for sticking accelerator pedals that have put him at the center of the crisis.

He was groomed for decades to hold the same job as his father Shoichiro, now Toyota’s honorary chairman, and his grandfather, Kiichiro. In the last few days, Mr. Toyoda has undergone intense preparation from company officials here about what to expect in a Congressional hot seat.

“It’s a critical juncture,” said Ulrike Schaede, professor of Japanese business at the University of California, San Diego. “If there are no further recalls and everything goes well on Wednesday, people in the U.S. will be just as happy to go on and forget about it.”

But if Toyota is forced to recall more cars and Mr. Toyoda stumbles, “Toyota could go another decade trying to recover.”

Mr. Toyoda got a preview of what might be in store for him when the House Energy and Commerce Committee held the first of a series of hearings on the recalls on Tuesday.

Committee members asked questions of James E. Lentz III, the president of Toyota Motor Sales U.S.A., for more than two hours, meaning Mr. Toyoda, at the very least, is in for a long day.

As on Tuesday, the oversight committee will hear from Transportation Secretary Ray LaHood and safety advocates as well as family members of Toyota owners involved in crashes who say those accidents were caused by vehicle defects.

Until last week, Toyota officials had said it was not necessary for Mr. Toyoda to testify. But they were put on the spot when the oversight committee issued an invitation, making it difficult for Mr. Toyoda to refuse.

Shin Tanaka, an expert on crisis management issues, said it should not have taken Congressional hearings for Mr. Toyoda to appear before the American public. “Any crisis that involves safety is a matter for the C.E.O.,” said Mr. Tanaka, president of Fleishman-Hilliard Japan, a global communications company. “Mr. Toyoda should have been on a plane straight away.”

But that would not have been in character for Mr. Toyoda, whose nickname changed from “the prince” to “no-show Akio” in some Japanese media during the first weeks of the recall crisis (he has since appeared at three news conferences).

Although it now holds only 2 percent of the company’s stock, the Toyoda family has played an active role in running Toyota since it was founded in 1937 as an offshoot of the automatic loom works started by Mr guaranteed payday loans. Toyoda’s great-grandfather, Sakichi.

Visitors to Nagoya, Japan, can see the small white building where the papers were signed to start the company, a sprawling museum that exhaustively details every aspect of loom making and car building, as well as the elegant arts-and-crafts-era house where Sakichi lived.

Every generation of Toyodas since Kiichiro has played an active role. Eiji Toyoda, 96, a cousin of Kiichiro, built the company into a global competitor in the 1980s.

Akio Toyoda’s father, who turned 85 this month, was in charge during the 1980s and 1990s, and remains akin to automotive royalty both in Japan and the United States. The 2007 dinner marking his induction into the Automotive Hall of Fame drew top executives from every Detroit automaker.

But Akio Toyoda initially resisted following in his ancestors’ footsteps. After earning an undergraduate degree in Japan, he came to suburban Boston to earn an M.B.A. at Babson College, taking his classes in English. He spent the next few years in New York, living near the Frick Collection and working for two consulting firms.

Only when colleagues repeatedly asked him about the car business was Mr. Toyoda tempted to return home, only to be told by his father that he would have to go through the same apprenticeship in manufacturing and sales as any other trainee.

Yet his name has always set him apart, and his tutelage, which included stints in the United States, China and Japan, has taken place under Shoichiro Toyoda’s watchful eye.

Last year, amid the company’s worst financial crisis since his grandfather’s days, the company promoted Akio Toyoda, expecting that his biggest challenge would be to stem a flood of red ink — not the recalls that have tarnished Toyota’s sterling image for quality.

“The final part of the production process — the buffing wheel to make him presentable in public — wasn’t yet done when he was called to the bridge,” said James P. Womack, an author and expert on Toyota’s manufacturing system.

Given that, Professor Schaede said, the elder Mr. Toyoda is believed by many in Japan to be acting as a “shadow shogun,” wielding considerable authority behind the scenes, although he is not involved day to day.

His family’s stature, and Mr. Toyoda’s own brief tenure thus far as chief executive, most likely will protect his job despite the crisis, Professor Schaede said. “He isn’t at fault, and he’s the one to fix it,” she said.

So, as Mr. Toyoda sits before the American public, members of other global automotive families, like the Fords, the Quandts at BMW, the Piëchs at Porsche and the Peugeots at PSA Peugeot Citroën, will be watching to see how the Toyoda scion fares.

“It is the family’s case to make in every generation that they really do add value,” Mr. Womack said. “Akio must try to make the case for his generation a lot sooner than he or anyone else anticipated.”

Hiroko Tabuchi contributed reporting from Tokyo.

A Tough Test Before Congress for Toyota’s Chief

Hot News: Flagging confidence intensifies economic fears

NEW YORK (Reuters) – Private-sector economists see the economy growing more quickly than previously forecast in the first three quarters of 2010, but growth would be slower than expected toward the end of the year, a Federal Reserve Bank of Philadelphia survey said on Friday.

For the full year 2010, economists raised growth estimates for annualized real gross domestic product (GDP) to 3 percent from their earlier projections of 2.4 percent.

They said job growth would be greater than expected for the next two quarters, but downwardly revised estimates for after that no fax payday loans. While jobs are now expected to grow by 600 a month in the first quarter and 117,600 a month in the second quarter, they are forecast to grow on average by 96,000 in the second half of 2010.

(Reporting by Emily Flitter, Editing by Chizu Nomiyama)

Economists see slower growth toward year-end

DETROIT (Reuters) – AutoNation Inc (AN.N), the largest U.S. auto dealership group, on Thursday posted quarterly results that exceeded analysts' expectations and said Toyota Motor Corp was making progress in its repair program.

AutoNation expects the impact on its earnings from Toyota's (7203.T) massive recall campaign to be less than 1 cent in the first quarter and nil in the second quarter, Chief Executive Mike Jackson said.

Net income slipped to $61.7 million, or 35 cents per share, in the fourth quarter, from $67 absolutely free credit report.1 million, or 38 cents per share, a year earlier. Revenue rose 8 percent to $2.8 billion.

Excluding one-time items, AutoNation reported earnings from continuing operations of 29 cents per share. Analysts on average expected 27 cents, according to Thomson Reuters I/B/E/S.

(Reporting by David Bailey; editing by John Wallace)

AutoNation quarterly earnings exceed expectations

MADRID (MarketWatch) — International investing looked so easy last year, but now strategists say there are clear risks even in some of those “can’t-go-wrong” markets.

International markets as a whole are in the red almost six weeks into 2010, with the MSCI/Barra EAFE (Europe, Australasia and Far East) index down 5.8%, after gaining 31% over 12 months.

Challenges ahead in the euro zone

European Central Bank President Jean-Claude Trichet told reporters Thursday the euro zone still faces major challenges but is heading in the right direction. He was speaking shortly after the ECB kept interest rates steady.

There are some old worries — whether economic growth can be sustained — and some new ones — whether some nations will be able to repay their debt — that international investors face this year.

“The top-down macro environment and the impact of how you view bottom-up opportunities is more important than it has been in decades,” said Martin Jansen, New York-based senior portfolio manager at ING Investment Management.

One reason why international money managers have soured on a few areas is due to high valuations and big gains. Eastern Europe, for example, saw its markets soar 120% over 12 months, and 84% excluding Russia, according to MSCI/Barra data. This year so far, the region is down 0.8% while Russia is off 6.3%.

“A lot of Eastern Europe has seen big rebounds in currencies and the markets have come back. Valuations are just not there anymore,” said Allan Nichols, an international equity analyst at investment researcher Morningstar Inc.

Going forward, international investors will have to be more selective about where they put their money. Here are five global spots that are red flags for money managers now:

1. China

Strong growth in China has been a driver for stocks and the recovery globally. China’s economy expanded 8.7% in 2009, topping the 8% official target, as massive fiscal stimulus and bank lending helped the country escape recession in spite of weaker global trade.

There’s a downside to this robust activity, said Alexander Young, international equity strategist at S&P Equity Research Services.

“The flip side of strong growth is liquidity removal and tightening. The risk for 2010 is how to remove the risk of liquidity,” Young said. Last month, China raised banks’ reserve-requirement ratio, and also reportedly cracked down on new lending, rattling markets worldwide. Young said there are expectations China will begin to raise interest rates before the end of the first quarter.

“China was a positive news driver for all stocks, now it is a negative,” said Young. “China stocks are underperforming year-to-date and it looks a bit boxed in.”

According to MSCI/Barra, China stocks rose 59% over 12 months, but are down 7.1% year-to-date. The iShares FTSE/Xinhua China 25 Index is up 47% on a 12-month basis, but down 10% year-to-date. And among U.S.-listed China shares, according to Morningstar, CNOOC is down 4.1% on the heels of a 68% rise in 2009, and China Mobile Ltd. is up 4.8% on a 12-month basis and down 1.1% over three months.

Young said China remains a great longer-term opportunity. “Near-term,” he said, “it’s clearly not doing well. The reason for this is not going to go away overnight. It’s over-owned. Everyone has exposure so it’s ripe to fall.”

2. Brazil

According to MSCI/Barra, Brazil is up 74% on a one-year basis, but down 14% this year so far. Morningstar’s Nichols said the country is facing headwinds such as skyrocketing stock valuations and uncertainty about the outcome of the presidential election expected in October.

“If you’re running a big portfolio, you can’t afford to not have some money in Brazil, but for the average investor that can go anywhere, Brazil is not where I’d be right now,” he said.

A year ago, he noted, Brazil was his favorite country to invest in, but no longer after a “huge run” in both its stocks and the currency. Nichols added: “Historically, with changes in the government there, the currency has taken a hit. There is a risk the currency could roll back over as you near the election next fall.”

Nichols said Brazilian telecoms have not had big moves, but a price war between the providers has eroded any potential value in these shares. He considers utilities fairly valued — shares of Companhia Energetic de Minas Gerais-CEMIG are down 13.8% year-to-date, after rising 68% in 2009.

Brazil’s bank stocks are overvalued as well, he said. Itau Unibanco shares are down 16% this year on the heels of a 119% gain in 2009. Meanwhile, iShares MSCI Brazil is down almost 15% this year after a 2009 gain of 121.5%.

“If you can stand the volatility, Brazil will be a good story for years and years,” said Nichols. “Potentially this year you could drop 20%, but five years from now, you’ve probably doubled your money guaranteed approval cash advance loans. The question is can you withstand the volatility and not panic?”

3. U.K. — financials

Event risk in the U.K. financials sector has Guy Monson, London-based chief investment officer and managing partner at Sarasin & Partners, keeping those stocks at arm’s length.

“There is a risk that highly indebted companies in economically sensitive sectors (such as banks and real estate) could struggle to refinance large levels of maturing debt over the coming years,” he said. “Political risk continues to rise on both sides of the Atlantic, but in the U.K. the uncertainty ahead of the general election is compounded by the U.K.’s high fiscal deficit, and there is a concern that overzealous corrective action could hurt any fragile economic recovery.”

He added: “Until the U.K. saver rebuilds savings for a persistent period, this problem will remain.”

Moreover, he said, U.K. banks are largely dependent on the wholesale market, and must borrow each night in the overnight market and money markets to make up for a relatively low savings volume.

The U.K. government had to announce its rescue package in late 2008 because Royal Bank of Scotland and Lloyds were finding it increasingly difficult to get wholesale funding. U.S.-listed shares of RBS are up 82% over 12 months and down 12% over three months; shares of Lloyds are up 7.5% and down 16%, respectively, over the same periods.

Monson said investors should remember that two-thirds of profits or earnings from the FTSE 100 come from abroad, so painting all U.K. stocks gloomy would be short-sighted.

4. Southern Europe

Worries about the ability of Greece to repay its debt spread this week to Portugal, Spain and other struggling members of the European Union including Ireland and Italy. Spain’s IBEX 35 is down 15% year-to-date, while Greece’s ASE Composite has tumbled 14%.

For some of these governments, debt difficulties are not new, but investors understandably are anxious. Greece will have to cut budget spending for at least two years, said Morningstar’s Nichols, adding that he’d avoid the country’s markets with the exception of a utility stock or something similar. See related story on how some investors are finding value in Greece.

Some observers are concerned the situation could unfold into a broad and sharp sell-off across even relatively healthier European markets. And while investors may not hold Greek or Portuguese stocks, Spanish banks such as Santander and BBVA that have come under pressure recently are widely held in international portfolios.

BBVA recently said fourth-quarter profit was nearly wiped out due to write-downs in the U.S. and reassessed Spanish property holdings. Spain’s economy may sputter for some time, which would hurt banking industry profits even if the companies’ capital bases are solid, said Sergio Gamez, a research analyst at Bank of America Merrill Lynch, who has a “Buy” rating on Santander.

Strategists caution investors to consider where the companies they invest in are doing business. “When you’re looking at sovereign debt and fiscal deficits, many of these countries will grapple with it for many years. To really get sovereign finances under control means substantially reducing living standards,” said ING’s Jansen.

5. Consumer discretionary — U.S., Japan, Europe

In developed markets, retail, luxury and other consumer discretionary stocks had a decent bounce last year, Jansen said. But the path forward may be rocky.

“Retailers that are tied to these domestic developed economies have a long, long struggle ahead of them,” he said. “There’s too much capacity to the extent consumption is not going to come back significantly. There will be a huge amount of price competition.”

Retailers that could face tough times, he said, include Marks & Spencer , and luxury goods and appliance makers tied to developing economies. Shares of Swedish appliance maker Electrolux slumped this week after its return to profit in the fourth quarter fell short of expectations and the company was lukewarm about the year ahead. See Electrolux shares drop on cautious 2010 outlook

“It’s the question of the headwinds and the question of what you’re paying for,” said Jansen. “For a shorter-term trade they could get cheap enough, but in terms of a buy and hold strategy, this won’t be where I’m looking.”

Jansen said the consumer discretionary sector expanded so massively in the past decade that it’s going to take a couple of years to consolidate, at least. At that point, he added, “the survivors will have a good future ahead of them.”

Weekend Investor: Global hot spots investors should avoid

TOKYO — As Toyota’s problems mounted in North America with the announcement of a halt to sales and manufacturing of the bulk of its cars, commentators in Japan fretted Wednesday that the automaker’s problems could seriously hurt the reputation of the rest of Japan’s manufacturing sector.

“Toyota’s reputation for safety is in tatters, and it is inevitable that its image among consumers will suffer,” the Sankei Shimbun daily said.

The Japanese feel a certain sense of pride that, despite the nation’s long economic slump, a handful of prominent exporters like Toyota dominate overseas. Toyota has led the way in gas-electric hybrid systems and other environmental technology.

“The discrediting of Toyota could even destroy the world’s trust in Japanese manufacturing, which relies on its reputation for high quality,” the Tokyo Shimbun daily warned.

Toyota Motor Sales U.S.A. announced Tuesday that it would stop selling and building models that were already the subject of a recall over a problem with accelerator pedals.

The eight models, including the popular Camry and Corolla sedans, accounted for more than a million sales in 2009, 57 percent of Toyota’s American total for the year.

Toyota officials said that the company was considering what measures to take in Europe but that it had not made any concrete plans.

Analysts in Japan have raised concerns for some time that Toyota’s rapid growth in recent years was over-stretching the company. Toyota’s president, Akio Toyoda, has himself berated the company for excessive confidence, which he said had set the company up for a painful fall in the global economic crisis. He said last year that Toyota was “grasping for salvation.”

“We have had fears for quite a while now that Toyota lacked the human resources and production capacity for such rapid expansion. By chasing numbers, they were becoming seriously outstretched,” said Masahiro Fukuda, manager of research at Fourin, a global automotive research company based in Nagoya, Japan pay day loan lenders. “Many of us weren’t surprised over the big recalls; we were more surprised that it took Toyota so long.”

Other analysts faulted Toyota’s zealous pursuit of efficiency and cost-cutting. “The same parts were used here, there and everywhere, on major models,” said Koji Endo, managing director at Japan Advanced Research, a Tokyo-based think tank. “That’s very efficient, but very risky. If the part turns out to be faulty, you suddenly have a problem on your hands involving millions of cars.”

Now, halting its factories, especially if the interruption drags on, could have a “tremendous impact” on Toyota’s bottom line, Mr. Endo warned. “Toyota will have to change the design of the gas pedal, get relevant approvals, set up production, then exchange parts for millions of cars on the road, cars sitting at dealerships and cars they were assembling at their factories,” he said.

Toyota’s woes are throwing the carmaker’s recovery into flux, analysts say. Toyota this week said it expected group sales to grow 6 percent from the previous year to 8.27 million. The company reports third-quarter results on Feb. 4.

Some in Japan questioned whether Toyota was taking too drastic a step in suspending production.

“Toyota says it has halted sales and production to show it will be thorough in its response, but the move carries the risk of further heightening consumer fears,” the Mainichi Shimbun newspaper said. “Even a quick restart of sales might not be enough to ward off a serious shift away from Toyota.”

But Mr. Fukuda said he saw Toyota’s decision to suspend sales as a typical Toyota move. “At a Toyota factory line, when something goes wrong, they stop the whole line.” he said. “Now Toyota is doing the same thing, at the company level. That’s the Toyota way.”

Toyota’s Woes in U.S. Raise Concern in Japan

Wall Street’s main lobbying arm has hired a top Supreme Court litigator to study a possible legal battle against a bank tax proposed by the Obama administration, on the theory that it would be unconstitutional, according to three industry executives briefed on the matter.

In an e-mail message sent last week to the heads of Wall Street legal departments, executives of the lobbying group, the Securities Industry and Financial Markets Association, wrote that a bank tax might be unconstitutional because it would unfairly single out and penalize big banks, said these officials, who did not want to be identified to preserve relationships with the group’s members.

The message said the association had hired Carter G. Phillips of Sidley Austin, who has argued dozens of cases before the Supreme Court, to study whether a tax on one industry could be considered arbitrary and punitive, providing the basis for a constitutional challenge, they said.

Administration officials and other legal experts have called those claims dubious.

Indeed, President Obama urged the financial lobby to stand down when he introduced the tax proposal last week: “Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities.”

A spokesman for the lobbying group, Andrew DeSouza, confirmed on Sunday that Mr. Phillips was working with the group on a series of regulatory and legislative matters, including the tax. But because no formal tax legislation has been proposed by Congress, Mr. DeSouza said it was “premature to speculate on any potential actions beyond opposing the proposal itself as both punitive and counterproductive to increasing lending.”

A court challenge would open a new front in the banking industry’s assault on additional financial regulation. It might also further splinter the powerful financial lobby. The issue has already pitted smaller banks, which would be exempt from the tax, against their less popular Wall Street peers, and it has even stirred debate within the large banks over whether such an aggressive legal strategy would be politically wise.

Privately, executives at several large banks said they believed a legal battle was doomed to fail in Washington and risked escalating public rage over the bailouts of the banks. These executives say the industry may be better off pushing for a watered-down version of the tax. Most banks are just beginning to consider how, or whether, they would oppose it.

This political tug of war is centered on Wall Street bonuses, which have already returned to precrisis levels. The banks have tried to head off criticism by starting new charitable programs and by structuring executive bonuses in line with principles set by the federal pay adviser, like paying bonuses mostly in stock instead of cash and deferring the payout of some bonus money in case business declines again.

Administration officials hoped their proposed bank tax would serve much the same purpose. Democratic leaders in Congress have welcomed the plan, which could raise up to $117 billion to recoup projected losses from the bank bailout program.

Republicans have remained unusually silent on the tax, hoping to avoid a choice between supporting a tax increase and defending big bankers. Meanwhile, some liberal Democrats have gone further than the administration has, proposing a heavy tax on bank bonuses. Political analysts expect the bank tax to pass easily in the House but face resistance in the Senate.

There may be room for compromise. Administration officials hope to keep the proposed tax limited to major financial institutions with more than $50 billion in assets but consider that a difficult line to draw. For example, the proposed tax would not apply to large hedge funds; the mortgage finance giants Fannie Mae and Freddie Mac; or the carmakers Chrysler and General Motors.

“We believe the lines we have drawn are sound and sensible,” said Gene B online cash advances. Sperling, a senior Treasury Department official. “We understand these are the type of things we will need to keep an open mind on in negotiations with Congress.”

The financial lobby has insisted that it is unfair for banks to cover the cost of losses tied to nonbank bailout recipients like the automakers and the American International Group, the giant insurer that is now majority-owned by the government. In an appearance on CNBC on Thursday, Representative Barney Frank, chairman of the House Financial Services Committee, called the argument over including the automakers legitimate.

At the lobbying group, the selection of Mr. Phillips of Sidley Austin raised eyebrows because it suggests that Wall Street may be spoiling for a fight. Davis Polk & Wardwell, another white-shoe law firm, has been advising the same lobbying group on legal matters tied to new financial regulation.

Mr. Phillips, who was an appellate lawyer in the Justice Department during the Reagan administration, brought his first case in front of the Supreme Court when he was just 29 years old. Since then, he has appeared before the court more than 60 times. Mr. Phillips declined to comment about his work for the industry, referring all questions to the lobbying group.

The group has hired him before. Last spring, it retained Mr. Phillips to examine similar legal questions after lawmakers prepared to heavily tax Wall Street bonuses in response to the public’s outrage over bonuses for A.I.G. traders. Through an extensive phone campaign and relentless lobbying on Capitol Hill, the financial lobby successfully beat back the legislation without using the courts.

This time around, Mr. Phillips is working with the group to determine whether it has legal grounds to challenge the tax proposal, including the possibility that the tax might amount to a retroactive policy. The original bailout bill, however, spelled out that the government needed to recover that money.

Mr. Phillips’s primary argument, however, might be that a tax so narrowly focused would penalize a specific group. Legal scholars say the Supreme Court has overturned only a handful of laws on those grounds, and those were typically rules that singled out political outcasts like former members of the Confederacy or people accused of being communists.

Officials of the lobbying group suggest that a bank tax would be punitive because it would seek to recoup bailout losses from companies that have already paid back their money — with warrants and interest.

But Mr. Sperling, the Treasury official who was one of the architects of the proposal, said the industry’s claims had little standing. “That sounds more like a political sound bite masquerading as a legal argument,” he said.

Outside legal scholars agree. “It seems to me that it is not even a close question,” said Laurence H. Tribe, a constitutional law professor at Harvard who was a legal adviser to the Obama campaign. Mr. Tribe contends that imposing a fee or requirement to return a sum of money cannot be construed as a punishment. Even more important, the administration’s proposal lays out a clear set of criteria, not a list of individual culprits, Mr. Tribe said.

The Securities Industry and Financial Markets Association, an umbrella group for hundreds of financial institutions, is under intense pressure. It has been weakened significantly by the financial collapse that claimed Bear Stearns, Merrill Lynch and other large, dues-paying members.

Just last week, the group ended an eight-year affiliation with the American Securitization Forum, its bondholder lobbying unit, after the groups failed to resolve how they would treat their members’ increasingly divergent interests.

Wall St. Weighs a Challenge to a Proposed Tax

WASHINGTON (MarketWatch) — The Treasury Department can use its broad principles to justify almost any decision it makes when unwinding the government’s stake in the $700 billion bank bailout package, according to a congressional oversight panel for the Troubled Asset Relief Program.

“The panel is concerned that, although Treasury has been consistent in articulating its principles, the principles as announced are so broad that they provide Treasury with a means of justifying almost any decision,” the Congressional Oversight Panel wrote in its latest report entitled “Exiting TARP and unwinding its impact on the Financial Markets.”

The statute creating TARP lists three principles that guide its determination of when to sell assets: maintaining the stability of the financial system, preserving the stability of individual financial institutions, and maximizing the return on the taxpayers’ investment.

However, the panel argued that these principles may sometimes be at odds with each other.

“The most profitable moment to sell a TARP asset may not be the moment that best promotes systemic stability or the moment that best serves a particular institution,” it reported. “This means that there is effectively no metric to determine whether Treasury’s actions met its stated goals. Because any approach may alternatively be justified as maximizing profit, or maintaining the stability of significant institutions, or promoting systemic stability, almost any decision can be defended.”

According to the COP, Treasury’s largest TARP assets as of Dec. 31 include $58 billion in preferred securities issued by banks, a $25 billion stake in Citigroup Inc.’s common stock, $46.98 billion in preferred stock of American International Group Inc. and $61 billion in General Motors Corp. and Chrysler shares and debt.

Moral hazard

The report also raised concerns about implicit guarantees associated with so-called “too-big to-fail” financial institutions that were bailed out Internet Payday loans.

“Belief remains widespread in the marketplace that, if the economy once again approaches the brink of collapse, the federal government will inevitably rush in to rescue financial institutions deemed too big to fail,” the report said. “This belief distorts prices, giving large financial institutions an advantage in raising capital that mid-sized and smaller banks — those not too big to fail — do not enjoy.”

Panel members added that the guarantees also encourage financial institutions to take “unreasonable risks” with the belief that if they fail, taxpayers will be there to prop them up.

“So long as markets continue to believe that an implicit guarantee exists, moral hazard will continue to distort prices and endanger the nation’s economy, even after the last TARP program has been closed and the last TARP dollar has been repaid,” they said.

However, lawmakers on Capitol Hill are working on legislation that they believe will limit moral hazard while protecting the financial markets. Legislation approved in the House in December would have big banks pay fees to create a $150 billion fund that could be used to dismantle a large Lehman-like failing financial institution, so that its collapse doesn’t cause collateral damage to the markets.

The goal of the insurance fund would be to have funds available to make payouts to creditors and counterparties of the failing institution so that they don’t collapse as well, driving the market into a financial crisis. Its creation would also mean taxpayer dollars won’t be needed to avert another financial crisis.

Panel: Treasury has no metric for its TARP goals

Hot News: American Airlines sweetens offer as JAL shares plunge

NEW YORK (Reuters) – Alcoa Inc (AA.N) posted a narrower fourth-quarter loss on Monday as aluminum prices inched up and the manufacturing industry showed small signs of recovering from the recession.

The net loss was $277 million, or 28 cents per share, compared with a loss of $1.19 billion, or $1.49 per share, in the fourth quarter of 2008, when the economic downturn began.

The company reported an operating loss of $266 million, or 27 cents per share.

Revenue fell to $5.43 billion from $5.68 billion but was 18 percent higher than the third quarter, the Pittsburgh-based company said. Alcoa also had a positive cash flow of $761 million in the quarter.

Analysts on average were expecting revenue of $4.86 billion, according to Thomson Reuters I/B/E/S insurance quotes.

The loss followed a narrow profit in the third quarter, which had been preceded by three consecutive quarterly losses for the aluminum company, traditionally the first Dow component to report each quarter.

Aluminum, used in automobile and plane manufacturing, and for kitchen wrap and beverage cans, reached a peak of $3,380 per tonne in July 2008. But it slumped 35 percent later as the global economy went into recession and has only slowly risen. On Monday the metal was selling in London at around $2,330.

(Reporting by Steve James; Editing by Steve Orlofsky)

Alcoa reports narrower fourth-quarter loss

NEW YORK (MarketWatch) — The biodiesel industry is revving up efforts to reinstate the U.S. biodiesel tax credit, warning that as many as 23,000 jobs could be at risk if lawmakers don’t revive the program that expired on Jan. 1.

During the health-care showdown in the Senate last month before the holidays, Congress failed to take some of its usual end-of-the-year actions on the biodiesel tax credit — seen as vital to the producers of 500 million gallons of the fuel sold in 2009.

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Usually made from byproducts of soybean processing for cattle feed, biodiesel received a $1 per gallon credit, which expired on Dec. 31.

The subsidy, in place since 2004 and last extended in October 2008, has helped biodiesel grow as an affordable blending component of petroleum-based fuels.

Despite Washington’s promotion of “green” jobs, the biodiesel industry could instead deliver green-collar layoffs if the program isn’t revived, industry proponents argue.

“Production has pretty much dropped to zero since the tax credit expired,” said Michael Frolich, a spokesman for the National Biodiesel Board, a trade association. “Plants are running idle and they’re cutting back more hours.”

Flolich added that the industry hasn’t announced any layoffs yet, but without the tax credit, the business would not thrive.

While biodiesel production still lags well behind corn-based ethanol, it’s still a significant business, with players such as Cargill , Archer Daniels Midland Co. and Valero Energy Corp. taking part.

All told, some 150 companies count themselves as voting members of the National Biodiesel Board.

Agriculture giant Archer Daniels Midland runs a biodiesel plant in Velva, N.D., and jointly owns a second in Jefferson, Mo., but does not disclose its biodiesel capacity. A company spokesman referred comments on the biodiesel tax credit to the National Biodiesel Board.

Spring hopes

Biodiesel advocates hope to get the tax credit back on the agenda shortly after Congress begins its 2010 session in coming days, with optimism about a reinstatement by February or March.

Late last year, Sen credit reports free. Charles Grassley, R-Iowa, got the ball rolling by launching a bill to extend the tax credit for five years and make it a production tax credit instead of a blending credit. The move would make the tax credit more beneficial for companies that make biofuel, rather than refiners that use it to blend into their products.

“Without an extension of the tax credit, all U.S. biodiesel production will grind to a halt,” Grassley remarked in a speech last month. “Plants will be shuttered and workers will be let go.”

The biodiesel industry already is working at just 15% capacity in the face of the global economic slowdown and falling prices.

He said the industry already is working at just 15% capacity in the face of the global economic slowdown and falling prices for biodiesel, with employment in the industry now down by about 29,000 jobs from the healthier months of 2008.

While the Senate formally reconvenes on Jan. 20, Houston-based Renewable Biofuels continues to operate its big plant in Port Neches, Texas, at a lower rate of production a year after it opened. Spokesman Charles Deister said the facility employs up to 50 people and that the tax credit remains vital for its business.

“The investment community has placed several billion dollars behind the industry, and the lapse of the tax credit and the EPA’s failure to enforce the Renewable Fuel Standard does not send a positive message to Wall Street,” Deister commented.

While the petroleum industry uses biodiesel as a blending ingredient, the main fossil-fuel trade group in Washington, the American Petroleum Institute, hasn’t issued any major statements supporting the biodiesel tax credit.

“The API believes that the market should determine what fuels are economically viable, and that all fuels should stand on their own merits and not rely on government subsidies,” said its spokeswoman, Karen Matusic. “If there is a biodiesel tax credit, it should be applied to all forms of biodiesels.”

She added that a joint project between Tyson Foods Inc. and ConocoPhillips to convert animal fats into renewable diesel did not qualify for the tax credit.

Biodiesel industry stunted as tax credit expires

NEW YORK/ZURICH (Reuters) – Hopes of a takeover battle over British confectioner Cadbury (CBRY.L) receded as Nestle (NEXN.VX) ruled itself out as a suitor and Kraft (KFT.N) sweetened its hostile 10.2 billion pound ($16.4 billion) offer.

Shares in Cadbury fell as much as 2.4 percent after Switzerland's Nestle, the world's biggest food group, said it did "not intend to make, or participate in, a formal offer" for

Kraft meanwhile sought to win over Cadbury shareholders by offering to use the full net proceeds from a $3.7 billion sale of its North American frozen pizza unit to Nestle (NESN.VX) to raise the cash portion of its offer by 60 pence a share to 360 pence. It kept the overall size of the offer unchanged by reducing the share element by an equivalent amount.

"Kraft Foods is doing this because of the desire expressed by some Cadbury security holders to have a greater proportion of the offer in cash," Kraft said in a statement. The U.S. company added that some of its own shareholders had asked it be "more sparing" in its use of Kraft shares in its bid.

Cadbury has so far rejected Kraft's share and cash offer but was not immediately available for comment on Tuesday.

The maker of Dairy Milk chocolate has described Kraft's approach as derisory, while investors in the company have said Kraft would need to substantially raise the bid to attract their interest.

"This doesn't really change anything. It was never really the form of the deal that was the problem, it was always the price," said one top 20 Cadbury investor.

Some investors have, however, said in the past that a higher cash component would make the Kraft's offer more palatable.

"ONE-HORSE RACE"

Kraft said it will give detailed terms of the alternative by January 19, the last day Kraft is allowed to amend its cash offer under British takeover rules. The U.S. food maker also extended its deadline for shareholders to accept its offer to February 2.

The Kraft offer will allow Cadbury shareholders to opt for more cash in lieu of some of the new Kraft shares they would have been entitled to receive.

The price at which Cadbury shareholders can opt for a higher cash portion will be set as the market price of Kraft shares, translated into pounds sterling, at the close of business the day before Kraft announces the terms of the cash alternative payday advance low fees.

Nestle's sale of a majority stake in eye care group Alcon (ACL.N) to Novartis (NOVN.VX) this week has left it with plenty of cash for acquisitions, even after launching a new 10 billion Swiss franc share buyback, which had fueled speculation it could enter the fray for Cadbury.

"The decision not to pursue Cadbury was always clear despite market speculation to the contrary. Now it's in the open," said independent analyst James Amoroso. "As I have repeatedly maintained, the Cadbury race is a one-horse race. Now Kraft has some more cash to put behind the bid."

Some analysts still think another suitor might emerge, however, given that U.S.-based Hershey (HSY.N) and Italy's Ferrero are still both waiting on the sidelines.

"We think that Hershey is keen to make a deal with Cadbury," analysts at Numis wrote in a research note.

"In reality Nestle is acting as a fund provider to the Cadbury deal and we would not be surprised to see the Swiss group play that role again by buying assets from Hershey, the Kit Kat brand in the U.S. being an obvious candidate."

Hershey and Ferrero have both indicated they are contemplating bids, although bankers say there are significant barriers.

PRICEY PIZZAS

Nestle said the frozen pizza business it is buying from Kraft, which had 2009 sales of $2.1 billion, would boost its earnings per share in the first full year of ownership and that synergies, at an estimated 7 percent of sales, would be fully realized within five years.

"Nestle's acquisition of the Kraft pizza business is certainly not a cheap one," said Richard Withagen, analyst at SNS Securities who has a "reduce" rating on Nestle shares and a price target of 44 Swiss francs. "While the company has a strong track record in realizing synergies, it needs them to make this deal value accretive."

(Writing by Paul Hoskins; editing by Hans Peters and Andrew Callus)

Kraft sweetens Cadbury offer, Nestle rules out bid

The best way to prepare for the new security measures at the airport? Pretty much as you did for the old rules, experts say.

That means becoming familiar with the Transportation Security Administration rules on what is allowed in carry-on and checked bags. A detailed list of the rules for items like liquids, holiday foods and gifts — don’t wrap them — is available at www.tsa.gov.

And then, when waiting in line at the security checkpoint, use the time to prepare.

“Have your Ziploc bag on top, take your laptop out of your carry-on and put it on top in the gray bin, and that makes things go a lot faster,” said Michael Conway, a spokesman for the Detroit Metropolitan Wayne County Airport.

As for traveling families, David Magaña, a spokesman for Dallas Fort Worth International Airport, suggested this: “Talk to your children. Envision the whole trip and pretend it all out so they understand they’re going to go through the magnetometer by themselves so they understand what they are going to see.”

But perhaps the most important piece of advice is not to overreact. Don’t get to the airport hours before your flight. It won’t help, and it may even cause more problems.

“What we’ve been seeing over the last four days is a huge clump of people in the morning,” Mr. Conway said. “These experts are saying ‘show up at the airport four hours before your flight.’ It’s not necessary. There’s a huge clump of people checking in at 6 a.m. creating an artificial backup.”

Suzanne Treviño, the T.S.A. spokeswoman at Los Angeles International Airport, reminded travelers to make sure prohibited items were not unintentionally packed.

“We’re finding passengers that mistakenly left items like ammunition and knives and other things they used on a camping trip or hunting trip,” Mrs. Treviño said.

Even items in checked bags can cause delays.

A traveler in Phoenix packed a belt adorned with a rhinestone-encrusted hand grenade, Mrs. Treviño said. A bomb appraisal unit had to be called in to examine the bag.

“We encourage passengers to think about what they are wearing and putting into their baggage that might cause unwittingly a security incident for us,” Mrs loan until payday. Treviño said.

But preparing for any new security measures is not straightforward. The T.S.A. has purposely been vague about what travelers will encounter, other than more police at the airport and additional layers of security.

“Passengers should be prepared for additional measures of security, but we can’t say what they are,” said Lauren Gaches, a spokeswoman for the T.S.A.

The stepped-up security will be most obvious on international flights bound for the United States. Passengers will be searched twice: at the main security checkpoint and again at the gate.

“T.S.A. requires additional checks of the passengers and cabin baggage,” said Olivier Jankovec, director general of the Airports Council International Europe.

“It is a solution for an emergency like what we are going through, but it cannot be sustainable from an operational point of view on an ongoing basis,” Mr. Jankovec said.

It will be up to the pilots on those flights to decide whether to restrict passenger movement or the use of blankets or other items often held on passengers’ laps during the last hour of flight. Some airlines are turning off in-flight audio and video navigation programs that let passengers know the status of the flight.

The T.S.A. also issued a last-minute extension to hundreds of pilots authorized to carry firearms under the Federal Flight Deck Officers Program.

One airline captain said that before his flight left a European airport recently, he walked down one aisle of the airplane and back up the other, greeting each passenger.

“I wanted to have a bit of two-way interface about who was on board,” said the pilot, who did not want to be identified because he was not permitted by his airline to speak to the press. “I wanted to see who wanted to make eye contact and see that everyone is acting vaguely normal.”

What to Expect as Airport Security Rules Are Tightened

NEW YORK (Reuters) – A top executive at American International Group Inc (AIG.N) has resigned because of pay curbs imposed by the Obama Administration's pay czar, the insurer announced on Wednesday.

Anastasia Kelly, AIG's vice chairman for legal, human resources, corporate affairs, and corporate communications resigned effective December 30 for "good reason" under the terms of the insurer's executive severance plan.

Kelly's resignation comes after Kenneth Feinberg, who is charged with monitoring pay levels at companies that received taxpayer funds, imposed pay caps for AIG's top executives guaranteed payday loans.

The insurer also announced that Suzanne Folsom, chief compliance and regulatory officer, has left to pursue other opportunities.

It said it has already begun looking for successors for both officials.

(Reporting by Steve Eder, Paritosh Bansal; Editing by Gary Hill)

AIG executive resigns after pay clash

NEW YORK (Reuters) – JPMorgan Chase & Co (JPM.N) has sued a former private banking executive arrested last year in Argentina on criminal charges, accusing him of stealing $2.8 million from a customer's account.

The second-largest U.S. bank filed its civil lawsuit on Monday against former vice president Hernan Arbizu, 17 months after his July 2008 arrest in Buenos Aires.

U.S. prosecutors charged Arbizu in a 15-count indictment unsealed that month with embezzling $5.4 million from customers at JPMorgan and a prior employer, UBS AG (UBSN.VX).

In its complaint filed in Manhattan federal court, JPMorgan accused Arbizu of arranging for funds to be wired to a customer account at UBS from which he had also stolen funds.

"Arbizu committed this theft by lying to JPMorgan employees, falsifying documents, and forging the JPMorgan customer's signature on wire transfer authorizations, in order to mislead JPMorgan to believe that the JPMorgan customer had directed these transfers," the complaint said.

JPMorgan said Arbizu served wealthy clients in Argentina and Chile before fleeing to Argentina in the spring of 2008. It said it fired Arbizu on May 30 of that year, and has reimbursed its customer.

Reached by e-mail, Arbizu said he "had no idea" about the lawsuit and would consult with his lawyer business cards types. He also said he is trying to settle a related probe by the Financial Industry Regulatory Authority (FINRA), a U.S. brokerage regulator.

Counsel for Arbizu could not immediately be reached for comment. UBS spokesman Kris Kagel declined to comment. A spokesman for U.S. Attorney Preet Bharara in New York had no immediate comment. A FINRA lawyer handling Arbizu's case did not immediately return a call seeking comment.

Arbizu is in his early 40s, and face up to 30 years in prison if convicted on the criminal charges, which include wire fraud, bank fraud, embezzlement and identity theft. He remains in Argentina pending extradition, JPMorgan said.

The civil case is JPMorgan Chase Bank NA v. Arbizu, U.S. District Court, Southern District of New York, No. 09-10496. The criminal case in the same court is U.S. v. Arbizu, No. 08-cr-615.

(Reporting by Jonathan Stempel; Additional reporting by Juan Lagorio in New York and Fiona Ortiz in Buenos Aires; editing by Gunna Dickson and Robert MacMillan)

JPMorgan sues private banker accused of embezzling