What's Important in the Financial World (2/6/2012) Greek Settlement, GM Profit Target

Time has finally run out for Greece. The European Union, European Central Bank and International Monetary Fund have said they are tired of waiting to see if Greece can cut is budget again. Some members of Parliament in the southern European nation say the requested cuts are too great. Unions have staged powerful protests to show the government they will not give in to demands for wage cuts. “If we determine that it’s all going wrong in Greece, then there won’t be a new program — and that means in March you’ll have a declaration of bankruptcy,” Luxembourg’s Jean-Claude Juncker, who chairs euro finance meetings, told Der Spiegel magazine. It is unlikely that Juncker would make his opinion so public if the need for a deal was no more than a day or two away.

China’s GDP Growth

The IMF cut its forecast of China’s GDP growth this year. Given the uncertainties about the global financial markets and the GDPs of many nations, that move it not unusual. What is shocking is the size of the negative forecast — China’s GDP growth rate could drop 4% from the current estimate of 8.2%. And the 8.2% is a number reached by a downward revision by the IMF less than two months ago. It is hard to fathom that an economy that has grown at more than 10% a year for the past decade could face such a shock. It is the IMF’s acknowledgement that the entire world could teeter into recession, and that the problems in Europe could effect both China’s trade with that region, but also with the U.S. The latter will not avoid the slump either, the IMF must reason, despite recent, strongly positive signs.

Foreclosure Abuse Deal

State attorneys general and U.S. regulators are just a day from a settlement with Ally Financial, Bank of America (NYSE: BAC), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC) and JPMorgan (NYSE: JPM) over mortgage foreclosure abuses. The settlement would help current homeowners. Some would be allowed to refinance current home loans. Others would get financial assistance. Even if the deal is closed, the implementation could take months. It will take at least that long to sift through which homeowners are worthy of aid, and then to process them to help those who deserve it. The entire face value of the settlement will be $25 billion.

GM Profit Forecast

General Motors (NYSE: GM) says it can make $10 billion a year for the next several years. That would mark a tremendous comeback from its 2009 Chapter 11 filing. It also would validate the decision of the U.S. government to bail out the car company. The challenge GM faces as it presses its goal is that the world’s largest car manufacturers, Volkswagen and Toyota (NYSE: TM), expect to do as well as GM. Toyota just raised its sales forecasts to levels that would take it to a record in units shipped next year, if it can reach the numbers. VW has attacked the U.S. market because it needs American sales to allow it to keep pace with its two major rivals. GM has momentum, but its profit forecasts are large enough to make an uphill battle.

Douglas A. McIntyre