AP
Business Highlights
Friday February 27, 7:13 pm ET

Economy shrinks at fastest pace in 26 years

WASHINGTON (AP) -- The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

A much sharper cutback in consumer spending -- which accounts for about 70 percent of economic activity -- along with a bigger drop in U.S. exports sales, and reductions in business spending and inventories all contributed to the largest revision on records dating to 1976.

Looking ahead, economists predict consumers and businesses will keep cutting back spending, making the first six months of this year especially rocky.

Citigroup reaches aid deal with government

WASHINGTON (AP) -- The U.S. government will exchange up to $25 billion in emergency bailout money it provided Citigroup Inc. for as much as a 36 percent equity stake in the struggling bank, greatly increasing the risks to taxpayers as voter unhappiness about the broader bailout program rises.

The deal announced Friday by the company and the Treasury Department represents the third rescue attempt for Citigroup in the past five months. It's contingent on private investors agreeing to a similar swap.

The administration decided to restructure the bailout package for Citigroup again in the hopes that converting $25 billion of preferred shares into common stock would give investors more confidence the bank has sufficient capital reserves to withstand mounting losses on its holdings of mortgages and other loans. While the conversion to common stock will dilute current shareholders' investments, a wider equity base could calm investors since there would be more reserves in place to guard against further losses as the economy sours.

Wall Street slides after Citigroup-government deal

NEW YORK (AP) -- Wall Street ended another unforgiving month with a steep loss -- one that left the Dow Jones industrial average at less than half its record high.

The day's news unsettled investors. Citigroup Inc. agreed to turn over a big piece of itself to the government, a move that fanned worries that other banks would face crippling trouble with bad debt. General Electric Co. slashed its quarterly dividend by 68 percent. Both companies are part of the Dow Jones industrial average, which fell 119 points.

And the government's gross domestic product report showed that the economy fell at a 6.2 percent annual pace at the end of last year, a much faster than expected rate.

For investors, it all added up to a prolonged and increasingly painful recession.

GE cuts quarterly dividend to 10 cents a share

WASHINGTON (AP) -- For the first time since the Great Depression, General Electric Co. is cutting its quarterly dividend, a move that allows the struggling conglomerate to save $9 billion a year as it braces for a tough 2009.

GE, one of the nation's largest companies, said Friday it will pay shareholders a 10-cents-per-share dividend beginning in the third quarter, 68 percent lower than the company's original plan of 31 cents.

The dividend cut -- long predicted by Wall Street -- is the company's first since 1938 and follows similar actions by other industrial companies amid the worst financial crisis in seven decades. Dow Chemical Co. announced its first dividend cut in 97 years earlier this month.

FDIC raising fees on banks, adds emergency fee

WASHINGTON (AP) -- Facing a cascade of bank failures depleting the deposit insurance fund, federal regulators on Friday raised the fees paid by U.S. financial institutions and levied a hefty emergency premium in a bid to collect $27 billion this year.

The Federal Deposit Insurance Corp. now expects that bank failures will cost the insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. The bank failures, 14 already this year following 25 last year, reflect the ravages of rising unemployment and falling home prices that have sent loan defaults soaring.

The industry's biggest trade group said the new insurance fees would place an extra burden on the nation's banks and thrifts, and suggested regulators could reduce the premiums if their economic assumptions end up being overly severe.

Documents on Seroquel show drugmaker knew of risks

TRENTON, N.J. (AP) -- Internal AstraZeneca reports and e-mails written by company officials show they knew a decade ago that their psychiatric drug Seroquel caused diabetes and major weight gain, plaintiffs' lawyers said Friday after releasing dozens of the previously sealed documents.

There are roughly 15,000 plaintiffs suing the British drugmaker.

The plaintiffs claim Seroquel, approved for treating schizophrenia and bipolar disorder, caused diabetes, weight gain and related health problems, from kidney failure and heart attacks to amputations and damage to the pancreas, which makes insulin.

AstraZeneca spokesman Tony Jewell said plaintiffs' lawyers are "mischaracterizing that we knew that it caused diabetes." He said it remains unresolved whether Seroquel causes diabetes, and that AstraZeneca PLC has shared all relevant and required data with the Food and Drug Administration, both before and after the FDA approved Seroquel as safe and effective in 1997.

National Amusements wins debt restructuring deal

LOS ANGELES (AP) -- Billionaire media mogul Sumner Redstone's family theater chain, National Amusements Inc., said Friday it has reached an agreement in principle to restructure $1.46 billion worth of debt.

The announcement partially resolves a looming question about the company's finances, and potentially relieves an issue weighing down the shares of Viacom Inc. and CBS Corp., which Redstone controls through National Amusements.

The company said the agreement will extend the maturity of the existing debt to Dec. 31, 2010, with certain repayments due in late 2009 and 2010. The debt would be secured by substantially all of National Amusements' assets.

The company owns more than 1,500 movie theater screens in the U.S., U.K., Latin America and Russia, the land beneath them and large chunks of CBS and Viacom shares.

Sony centers power at top in Stringer

TOKYO (AP) -- Sony sent a message of change Friday in centering power in Chief Executive Howard Stringer, who will also become president and gain greater say over its core electronics business as Japan's iconic electronics maker tackles a painful global slump.

Welsh-born American Stringer, the first foreigner to head Sony Corp., replaces Ryoji Chubachi, who steps down as president April 1 but remains on the board as vice chairman to oversee quality and ecological strategy, and support the new management team.

Chubachi, 61, has overseen the electronics business, which has been battered by shrinking consumer demand and the strong yen. The problems in electronics, including losses in TV operations, are a main reason Sony is tumbling into its first annual net loss in 14 years.

Stringer, 67, introduced a team of four younger executives to spearhead efforts to bring together Sony's sprawling empire, spanning TVs, games, movies and semiconductors, to develop products and services for the digital age.

Stanford investment officer to be released on bond

HOUSTON (AP) -- The chief investment officer of troubled Stanford Financial Group was expected to be released on $300,000 bond Friday after a court hearing in which she was painted alternately as the scapegoat for a massive fraud and as one of the few people who knows where millions stolen from investors is hidden.

Laura Pendergest-Holt, who looked pale and solemn in a black pantsuit, appeared in federal court as new details emerged showing the head of the firm borrowed $1.6 billion from the troubled company's assets.

Pendergest-Holt, who faces charges she obstructed the the Securities and Exchange Commission investigation of the Stanford scandal by lying about her knowledge of the firm's activities and by omitting key details, has to post $30,000 cash, wear an ankle monitor and find a job within 10 days as she heads to Dallas for more hearings in her case.

East European banks get $31 billion support

LONDON (AP) -- Eastern Europe's struggling banks will receive euro24.5 billion ($31 billion) worth of emergency help to shore up their battered finances, leading international financial institutions said Friday ahead of a meeting of regional leaders this weekend.

The European Bank of Reconstruction and Development (EBRD), the World Bank and the European Investment Bank (EIB) said they will provide the package to the region's banking sector to help fund lending to businesses hit by the drying up of previously cheap lines of credit and the contraction in world trade.

By The Associated Press

The Dow Jones industrial average fell 119.15, or 1.7 percent, to 7,062.93. The Dow, at its lowest close since May 1, 1997, is now down 50.1 percent from its record high of 14,164.53 reached in October 2007. It came within 34 points of 7,000, a level it hasn't fallen below since October 1997.

The S&P 500 index fell 17.74, or 2.4 percent, to 735.09. The Standard & Poor's 500 index breached its Nov. 21 trading low of 741.02, which came during the height of the credit crisis. Friday's finish was the lowest for the index since Dec. 18, 1996.

The Nasdaq composite index fell 13.63, or 1 percent, to 1,377.84.

Benchmark crude for April delivery fell 46 cents to settle at $44.76 a barrel on the New York Mercantile Exchange.

In other Nymex trading, gasoline for March delivery fell 1.97 cents to settle at $1.28 a gallon, while heating oil declined 2.82 cents to settle at $1.265 a gallon. Natural gas for April delivery gained 12.1 cents to settle at $4.198 per 1,000 cubic feet.