Wednesday, February 13, 2008

YRC to cut 1,100 jobs

(Reuters) - North America's largest trucking company, YRC Worldwide Inc (YRCW.O: Quote, Profile, Research), said on Wednesday that as part of its plans to shut 27 service centers it will cut approximately 1,100 jobs.

In a presentation to analysts that was filed with the U.S. Securities and Exchange Commission, Chief Executive Bill Zollars said the company expects cash proceeds from property sales of between $8 million to $10 million.

YRC said that as part of the restructuring plan more than 600 trucks and 1,200 trailers would be removed from its fleet.
 

Cuomo to Sue UnitedHealth, Probe Reimbursement Policy

(Bloomberg) -- New York Attorney General Andrew Cuomo said he plans to sue UnitedHealth Group Inc. and will issue 16 subpoenas in an industrywide probe of how U.S. insurers compute ``reasonable and customary'' rates to limit payouts.

Cuomo said he plans to sue Minnetonka, Minnesota-based UnitedHealth, the largest U.S. health insurer, over deceptive practices in the reimbursement policy it links to such charges, which he claims seriously shortchange patients and involve a conflict of interest.

``When insurers like United create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need,'' Cuomo said in a statement today.

Cuomo said he will subpoena UnitedHealth, Aetna Inc., Cigna Corp. and Empire Blue Cross & Blue Shield over their reimbursement practices.

UnitedHealth's Ingenix unit provides data that sets ``reasonable and customary'' rates, which put a ceiling on reimbursement to patients, Cuomo said. When patients go out of network, health insurance companies generally cover only 80 percent of `reasonable and customary' charges.

Cuomo said a six-month investigation showed Ingenix has a ``defective and manipulated'' database that most health insurance companies use to set reimbursement rates for out-of-network expenses. The probe found that two subsidiaries of United ``dramatically under-reimbursed'' patients for out-of-network expenses using information from Ingenix.

United Falls

UnitedHealth fell $2.28, or 4.7 percent, to $45.99 at 12:02 p.m. in New York Stock Exchange composite trading.

``This is obviously going to be a negative for the company,'' said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Connecticut, in a telephone interview. ``These things typically take a long time to work their way through. It does make it more difficult for United to argue that they have fixed their challenges.''

UnitedHealth Group Inc., WellPoint Inc., Aetna Inc. and other health insurers fell in New York trading this morning in anticipation of Cuomo's announcement.

Don Nathan, a spokesman for UnitedHealth, had no comment before the announcement.

Ingenix, with $1.3 billion in revenue last year, markets services to detect health-care fraud, identify preferred doctors and hospitals for insurers and help drugmakers run trials of new medicines. The company has said it has contracts with 1,500 health insurers, including rival Aetna Inc., as well as 200,000 doctors, 3,500 hospitals, 140 drug companies and government agencies.
 

Fed Interest-Rate Cuts Fail to Lower Borrowing Costs

(Bloomberg) -- The Federal Reserve's interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.

Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co. Rates on so-called jumbo mortgages, those above $417,000, have increased in the past month, making it tougher to sell properties and risking further price declines.

``It's the clogging up of the credit markets that worries me most,'' Harvard University economist Martin Feldstein said in an interview in New York. ``The Fed has done a lot of cutting, the question is whether it's going to get the traction that it did in the past.''

Banks and investors are demanding greater compensation for offering credit as losses mount on subprime-mortgage securities and concerns grow that ratings of bond insurers will be cut. Elevated borrowing costs mean Fed Chairman Ben S. Bernanke will have to reduce rates further to revive the economy, Fed watchers said.

``The problem is that every piece of news we're getting continues to be bad,'' said Stephen Cecchetti, a former New York Fed bank research director, and now a professor at Brandeis University in Waltham, Massachusetts. ``They will have to ease more. It's the only thing they can do.''

`Close to 50-50'

Feldstein, who heads the National Bureau of Economic Research, the group that sets the dates for U.S. economic cycles, said the chance of a recession is ``close to 50-50.''

Traders now see a 100 percent chance of at least a half- point reduction at or before the Federal Open Market Committee's March 18 meeting, up from 68 percent on Jan. 31, when the Fed cited tighter credit conditions as a reason for lowering rates. Futures show 20 percent odds of a three-quarter point move.

Futures rallied even after a government report today showed retail sales rose 0.3 percent in January from December, against the median forecast in a Bloomberg News survey for a decline. Economists said the gain, led by car and gasoline purchases, wasn't enough to indicate Fed rate cuts are affecting spending.

Bernanke may give an update of his outlook tomorrow when he testifies before the Senate Banking Committee at a hearing on the economy and financial markets. Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox are also scheduled to appear.

Bond Premiums

The extra yield investors demand to buy investment-grade U.S. corporate bonds rose to 2.37 percentage point Feb. 12 from 2.24 percentage point on Jan. 21, Merrill data show. For high- risk, high-yield securities, premiums over Treasury securities have risen a quarter-point, Merrill data show.

``The increase in credit spreads has sort of worked against our policy,'' San Francisco Fed President Janet Yellen told reporters at her bank yesterday. ``The fact that the spreads went up so dramatically really resulted in an effective tightening of financial conditions that our cuts were partly meant to address.''

Those cuts were the fastest since the federal funds rate became the principal policy tool around 1990. The Fed lowered the rate by 75 basis points on Jan. 22 in an emergency move, then by an additional 50 basis points at the regular meeting on Jan. 30. A basis point is 0.01 percentage point.

More Rate Cuts

Beyond March, traders expect quarter-point rate reductions at the following FOMC meetings in April and June, based on futures prices on the Chicago Board of Trade.

In the market where banks lend to each other, borrowing costs have receded since the Fed began special auctions of funds in December. The three-month dollar London Interbank Offered Rate fell to 12 basis points over the Fed's target rate today, from more than 1 percentage point above it two months ago.

Yellen acknowledged in a Feb. 7 speech, repeated yesterday, that borrowers with greater default risk are paying more for loans. The markets for securities backed by mortgages ``are not functioning efficiently, or may not be functioning much at all,'' she said.

``As long as the credit strains remain and might even still be intensifying, it certainly supports the case for continuing to ease aggressively,'' said Brian Sack, a former Fed research manager who is now senior economist at Macroeconomic Advisers LLC in Washington. ``We don't need spreads to come down. We do need them to stop widening.''