Finance Blog number 1

Ford reported its best annual earnings since 1998 on Friday, making 2011 the second most profitable year in the company’s 109-year history.

But much of the profit was attributed to a non-cash gain, as it put a large tax credit from past losses on its balance sheet that will shield it from taxes in the future. Excluding that credit, the automaker posted full-year and quarterly earnings that fell short of last year’s profit as well as analysts’ forecasts.

Shares of Ford (, Fortune 500) tumbled as much as 7.4% in early trading on the earnings miss before recouping about half the lost ground after assurances on an investors’ call about earnings guidance moving forward. Shares were down 3.1% in midday trading.

The company’s 2011 net income of $20.2 billion, up from $6.6 billion in 2010, was the best since 1998, when it received a large one-time gain from the sale of The Associates financial unit. About $12.4 billion of the latest profit came from the accounting gain.

Excluding special items, Ford reported operating income of $6.1 billion, or $1.51 a share, down from the $7.6 billion, or $1.91 a share, it earned on that basis in 2010.

Fourth-quarter operating earnings of $787 million, or 20 cents a share, were down from $1.2 billion, or 30 cents, a year earlier. Analysts surveyed by Thomson Reuters had forecast earnings of 25 cents a share.

Pretax earnings for the quarter and full year improved in Ford’s home North American market due to increases in both the pricing and the volume of vehicles sold. The company’s profit margin in the region also improved.

The strong North American results mean that the 41,600 members of the United Auto Workers union will be getting larger profit-sharing payments for 2011.

Full-year payments to the factory workers will average $6,200, up from $5,000 in 2010. But the workers already received more than half of that money in December due to the new labor deal reached in the fall.

The company announced earlier this month that its white-collar workers would get both bonus payments and merit raises for 2011, the first time in four years they’ve received both.

Cool cars from Detroit auto show

Profit fell in Ford’s South American unit and the quarterly loss increased in Europe. The Asia-Pacific region tipped from a fourth-quarter profit a year earlier to a loss this time due to the flooding, but the company had already warned of that loss.

Revenue for the year reached $136.3 billion, up from $120.9 billion in 2010, as it sold 5.7 million cars and trucks worldwide, up 7% from its 2010 total.

Ford Chief Financial Officer Lewis Booth said that the accounting gain was significant for the company because it was a sign that the company is back to making regular profits. It had stopped booking the tax credits back in 2006, despite ongoing losses at that time, because of doubts that Ford would once again be able to make the kind of profits that would allow it to use those credits.

CEO Alan Mulally said he considered the results to be strong, and that Ford missed its profits targets in the quarter due to external factors outside of North America, such as the economic slowdown in Europe and flooding in Thailand that shut factories and affected its supply chain.

He said the company expects Ford’s overall pre-tax operating profit in 2012 to be roughly the same as last year, as better auto profits will be offset by lower earnings from its finance arm.

And he said the company is still well on track to hit the mid-decade target it set last year of significantly better profits and global sales of about 8 million vehicles, an increase of about 40% from 2011 levels.

Van Conway, president of Michigan turnaround consultant Conway MacKenzie, said Ford’s results for the year were good, not great, and management really can’t be blamed for problems such as the downturn in Europe.

"The old line used to be when the economy got a cold, Detroit got pneumonia," he said. "They’re clearly position to weather a storm far better than they did before."

Adam Jonas, analyst with Morgan Stanley, said some of the earnings miss was due to higher engineering and other costs associated with development of new vehicles. He said the outlook remains good for the company.

"2012 may be shaping up to be a very good year for Ford," he wrote in a note Friday.

Ford is the first of the Big Three U.S. automakers to report results. General Motors (, Fortune 500) and Chrysler Group will report next month. But all are expected to post profits, the first time all will be in the black at the same time since 2004. All gained U.S. market share for the first time since 1988. 

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Greece and its private investors are close to a deal that will significantly reduce the country’s debt and pave the way for it to receive a much-needed euro130 billion bailout.

Negotiators for the investors announced the tentative agreement Saturday and said it could become final next week.

Under the agreement, the investors would take a hit of more than 60 percent on the euro206 billion of Greek debt they own.

Here’s how it would work: private investors would receive new bonds whose face value is half of the existing bonds. The new bonds would have a longer maturity and pay an average interest rate of slightly less than 4 percent (compared with an estimated 5 percent on the existing bonds).

Without the deal, which would reduce Greece’s debt load by at least euro120 billion, the private investors’ bonds would likely become worthless. Many of these investors also hold debt from other eurozone countries, which could also lose value in the event of a Greek default.

The agreement taking shape is a key step before Greece can get a second, euro130 billion bailout from its European Union partners and the International Monetary Fund, although there are other issues involved before Greece can get that aid. This would be Greece’s second bailout. The EU and the IMF signed off on a euro110 billion aid package for Greece in May 2010, most of which has already been disbursed.

Greece faces a euro14.5 billion bond repayment on March 20, which it cannot afford without additional help.

Private investors hold roughly two-thirds of Greece’s debt, which has reached an unsustainable level _ nearly 200 percent of the country’s economic output. By restructuring the debt held by private investors, Greece and its EU partners are hoping to bring that ratio closer to 120 percent by the end of this decade.

In return for the first bailout, Greece’s public creditors _ the International Monetary Fund, the European Union and the European Central Bank _ have unprecedented powers over Greek spending. However, austerity alone will not fix Greece’s problem. The country must also find ways boost its economic output, which at the moment is shrinking.

If no debt-exchange deal is reached with private creditors and Greece is forced to default, it would very likely spook Europe’s _ and possibly the world’s _ financial markets. It could even lead Greece to withdraw from the euro.

The banks, insurance companies and other private holders of Greek bonds are being represented by Charles Dallara, managing director of the Washington-based Institute of International Finance, and Jean Lemierre, senior adviser to the chairman of the French bank BNP Paribas.

The main creditor negotiators will leave Greece on Sunday and will remain in close consultation with Greek and other authorities.

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U.K. retail sales rose in December as stores cut prices to lure consumers during the year-end holiday shopping season.

Sales including fuel rose 0.6 percent from November, when they fell a revised 0.5 percent, the Office for National Statistics said today in London. The December increase matched the median forecast of 21 economists in a Bloomberg News survey. From a year earlier, sales were up 2.6 percent.

The gain may not be maintained as U.K. unemployment rises, inflation outpaces wage increases and consumer confidence falls. With global growth cooling and the euro-area crisis damping export demand, concerns are growing that Britain is heading for another recession. A report today indicated Chinese manufacturing shrank for a third month in January.

European Central Bank Governing Council member Ewald Nowotny said Standard & Poor

America’s retailers enjoyed a record 2011 and their first $400 billion sales months ever. But the final month of the year was a dud.

Sales eked out a 0.1 percent increase in December, lifting sales to a seasonally adjusted $400.6 billion.

It was the second straight month that sales have topped $400 billion. The government revised November sales to show a 0.4 percent gain, twice the original estimate.

For all of 2011, sales totaled a record $4.7 trillion. That was a gain of nearly 8 percent over 2010 _ the largest percentage increase since 1999.

Steady sales gains have fueled a 20 percent surge from the low during the Great Recession. Monthly sales are even 6 percent above their pre-recession high. The figures confirm evidence that the economy was strengthening as 2011 ended.

Still, December’s increase was the weakest in seven months. Excluding volatile auto purchases, overall sales actually fell 0.2 percent. It was the first such drop since May 2010.

Part of the reason was lower gasoline prices. Those prices reduced sales at gasoline stations by 1.6 percent. Excluding gas stations, overall retail sales would have risen 0.3 percent in December.

Another factor was heavy discounting during the holiday shopping season. Many retailers said they had to offer cut prices in December to attract shoppers.

Separately, more people applied for unemployment benefits last week, the government said. Applications rose 24,000 to a seasonally adjusted 399,000. But the gain was largely due to companies letting go of workers after the holiday season.

Economists downplayed the increase. It followed three months of declines that had reduced the number of unemployment applications to their lowest level in more than three years.

And businesses increased their stockpiles in November to meet rising consumer demand. That gain likely boosted economic growth in the final months of 2011. Companies are rebuilding stockpiles after cutting them last summer amid fears of another recession. It means many anticipate higher consumer spending.

The government’s report on retail sales showed that holiday discounts weakened department store sales. They fell 0.2 percent in December. A broader category that includes department stores like Macy’s and big chains such as Wal-Mart showed an even larger drop last month: 0.8 percent.

Compared with the same time last year, retail sales have risen 6.4 percent.

An earlier survey of 25 major retail chains by the International Council of Shopping Centers found that revenue in December at stores open at least a year rose 3.5 percent over the same month a year ago.

That survey’s figures aren’t adjusted for seasonal changes; the government’s sales figures are. The government report is also a broader gauge. It covers purchases at all retailers, not just at major national chains. It also includes auto dealerships, restaurants and bars, grocery stores and gasoline stations.

Though December’s retail sales were disappointing, analysts said they still expect consumers to help the economy strengthen further, especially because businesses have stepped up hiring payday loan no faxing. More jobs mean more people with money to spend.

“Although consumer spending is not particularly robust, households do continue to spend and provide moderate support for the overall economy,” said Steven Wood, chief economist at Insight Economics.

The strength last month was led by a 1.5 percent jump in auto sales. Furniture store sales rose 1 percent. Hardware stores reported a 1.6 percent increase. But sales at electronics and appliance stores sank nearly 4 percent.

Restaurants and bars fared slightly better over the holidays. Their sales rose 0.7 percent.

The government’s retail sales report is its first look each month at consumer spending, which accounts for roughly 70 percent of economic activity. A healthy report typically signals a stronger economy.

Compared with the same time last year, retail sales have risen 6.4 percent.

This week, the Federal Reserve issued a report saying the final six weeks of 2011 were among the economy’s best last year. The report pointed to higher holiday and auto sales, along with increased travel.

The job market has brightened, too. Employers added 200,000 jobs in December. And the unemployment rate fell to 8.5 percent, the lowest in nearly three years.

Many analysts predict that economic growth rose to an annual rate of roughly 3 percent in the final three months of 2011. That would be an improvement from the summer, when the annual rate was just 1.8 percent. And it’s much better than the 0.9 percent growth rate in the first six months of 2011.

For the holiday season, many retailers drew customers by staying open on Thanksgiving Day or offering sharp discounts. Discounting helped generate record sales at the start of the shopping season and in the days before Christmas.

U.S. automakers have said that November and December were their two best sales months in 2011. Their U.S. sales rose 10 percent to 12.8 million in 2011, a 23 percent jump from the recession year of 2009.

Chrysler Group reported sales surged 26 percent for all of 2011. General Motors Co. saw sales rise 13 percent for the year. Ford Motor Co. reported an 11 percent gain for 2011.

Because the government’s retail sales report is seasonally adjusted, the current month can be compared with the previous month. But the figures aren’t adjusted for inflation.

A separate government report each month measures consumer spending. It’s an even more inclusive gauge. It covers all spending at retailers _ for both durable goods like cars that are expected to last for years and nondurable goods such as food.

This report also covers spending on services. Services include items such as doctor’s visits, airline tickets, apartment rentals and utility bills. The service category makes up two-thirds of consumer spending and isn’t covered in the retail surveys.

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Labor unions on Wednesday ramped up the pressure on Republican lawmakers to approve a Senate plan that would extend jobless benefits for millions of unemployed Americans.

Congress is deadlocked over how to provide the relief after Republicans in the House of Representatives on Tuesday scuttled a short-term measure that had been approved in the Senate with overwhelming Republican and Democratic support.

Most House Republicans voted against the Senate bill, which would extend by two months long-term jobless benefits and a payroll tax cut for 160 million Americans.

“We’ll be hitting them in the media in their home districts,” said labor union umbrella group AFL-CIO spokeswoman Amaya Tune. “We’ll continue to look at what ways we can shame Republicans for this horrible vote,” she said.

Republicans refused to approve the Senate bill, saying they wanted to work on a full-year extension — a plan Democrats support but have failed to broker because the sides disagree on how to cover the costs.

If Congress fails to extend jobless benefits, nearly 700,000 people would lose them by the second week of January and nearly 2.2 million would be cut off by mid-February, according to the Labor Department. Some 13 million Americans are unemployed, of whom nearly 6 million have been without a job for more than a year cash advance loans.

The AFL-CIO, the largest U.S. labor group, and other advocacy groups such as Working America, the Philadelphia Unemployment Project and the National Employment Law Project are gearing up to push Republicans to vote on the two-month deal.

“We are going to challenge those representatives to get back to work and put these fixes in,” said Mark MacKenzie, president of the AFL-CIO’s New Hampshire office.

The National Employment Law Project is mobilizing thousands of its constituents from unemployed Americans to community advocates to call Republican lawmakers.

“This is pressure on leadership first and foremost but really it is on everybody. Get back here and pass the bill,” said Judy Conti, the federal advocacy coordinator for the project.

Other labor organizers are planning a protest outside Republican House Speaker John Boehner’s office in Ohio later this week.

It was unclear how lawmakers would resolve their differences before the December 31 deadline. Democrats have refused to start negotiating a full-year extension until Republicans pass the Senate’s short-term measure. Republicans have proposed cutting long term benefits from 99 weeks to 59.

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+%3Cp%3E+Former+MF+Global+CEO+Jon+Corzine+returned+to+Capitol+Hill+Thursday%2C+where+he+rejected+allegations+aired+earlier+this+week+that+he+was+aware+of+fund+transfers+from+customer+accounts.%3C%2Fp%3E%3Cp%3ECorzine%27s+testimony+came+two+days+after+Terry+Duffy%2C+head+of+exchange+operator+CME+Group+%28%29%2C+suggested+in+a+separate+Congressional+hearing+that+Corzine+may+have+been+aware+of+unlawful+money+transfers+out+of+customer+accounts+in+the+days+before+MF+Global+filed+for+bankruptcy.%3C%2Fp%3E%3Cp%3E%3Cp%3E%3C%2Fp%3E%3Cp%3E%3Cp%3E%3C%2Fp%3E%3C%2Fp%3E%3C%2Fp%3E%3Cp%3ELawmakers+have+been+probing+the+brokerage%27s+collapse%2C+and+in+particular%2C+the+revelations+that+more+than+%241+billion+in+customer+funds%2C+mostly+from+commodities+accounts%2C+are+still+missing.%3Cbr%3E+%3Cbr%3E+Corzine+has+consistently+said+he+has+no+idea+how+the+money+went+missing%2C+never+ordered+that+customer+funds+be+misused+and+did+not+learn+of+the+massive+shortfall+until+less+than+24+hours+before+the+firm+filed+for+bankruptcy.+In+the+commodities+business%2C+customer+money+at+brokerages+like+MF+Global+%28%29+is+supposed+to+be+protected+at+all+times%2C+even+in+the+event+of+a+bankruptcy.+%3C%2Fp%3E%3Cp%3EBut+Duffy+claimed+Tuesday+that+Corzine+was+aware+that+the+firm+had+tapped+customer+accounts+for+its+own+use+in+its+final+days.+%3C%2Fp%3E%3Cp%3ESuch+a+transaction+could+be+legal+under+some+circumstances%2C+and+Duffy+did+not+specifically+say+that+Corzine+himself+had+authorized+illegal+money+transfers.+He+did+say%2C+though%2C+that+the+firm+had+made+at+least+some+transfers+from+customer+accounts+illegally.%3C%2Fp%3E%3Cp%3ECorzine+denied+Duffy%27s+allegations+Thursday%2C+saying+he+%26quot%3Bdid+not+in+any+way+know+about+the+use+of+customer+funds+on+any+loan+or+transfer.%26quot%3B+In+the+firm%27s+last+hours%2C+he+added%2C+he+learned+of+the+massive+hole+in+customer+accounts+but+did+not+know+how+it+was+formed.%3C%2Fp%3E%3Cp%3EInvestigators%2C+however%2C+have+been+developing+a+clearer+picture+of+just+what+went+wrong.+Rep.+Randy+Neugebauer+of+Texas+said+at+Thursday%27s+hearing+that+a+Congressional+investigation+had+shown+that+MF+Global+moved+at+least+%24700+million+out+of+customer+accounts+in+the+days+before+its+bankruptcy+%26quot%3Bto+meet+liquidity+needs+of+the+firm%26quot%3B.+%3C%2Fp%3E%3Cp%3EThis+was+apparently+done+without+putting+the+collateral+in+place+to+make+such+a+transaction+legal%2C+according+to+Neugebauer%27s+account.%3C%2Fp%3E%3Cp%3EThe+allegations+follow+on+similar+claims+from+CME+Group%2C+which+says+MF+Global+broke+the+law+in+using+customer+funds+for+its+own+benefit+%3Ca+href%3D%22http%3A%2F%2Fpayday-loans-cheap.com%22%3Epayday+loans+guaranteed+no+fax%3C%2Fa%3E%3C%21–+.+–%3E.+Duffy+also+claimed+Thursday+that+the+firm+had+falsified+accounting+statements+to+conceal+the+shortfalls+in+customer+accounts.%3C%2Fp%3E%3Cp%3ERegulators+under+scrutiny%3A+Witnesses+also+appeared+in+the+latter+half+of+Thursday%27s+hearing+from+the+New+York+Federal+Reserve+Bank+and+from+regulators+including+the+Securities+and+Exchange+Commission+and+the+Commodity+Futures+Trading+Commission.%3C%2Fp%3E%3Cp%3ELawmakers+quizzed+them+on+how%2C+in+an+era+following+the+global+economic+meltdown%2C+regulators+could+allow+another+big+financial+institution+to+fail%2C+and+lose+more+than+%241+billion+of+its+customers+money+in+the+process.+%3C%2Fp%3E%3Cp%3EThomas+Baxter%2C+general+counsel+of+the+Federal+Reserve+Bank+of+New+York%2C+testified+on+Thursday+that+his+agency+had+scrutinized+MF+Global+for+more+than+two+years+before+giving+it+the+green+light+to+trade+U.S.+securities.+%3C%2Fp%3E%3Cp%3EBut+there+were+some+major+compliance+issues+along+the+way+which+the+brokerage+eventually+fixed%2C+he+said.+%3C%2Fp%3E%3Cp%3EBaxter+said+the+U.S.+Commodity+Futures+Trading+Commission+found+that+the+company+failed+to+supervise+traders%2C+neglected+to+transmit+accurate+prices+of+its+natural+gas+options+and+didn%27t+maintain+written+records+of+at+least+one+of+its+clients.%3C%2Fp%3E%3Cp%3E%3C%2Fp%3E%3Cp%3E+%3C%2Fp%3E%3Cp%3EFurthermore%2C+MF+Global%27s+parent+company+was+based+in+Bermuda%2C+he+said%2C+noting+that+the+Fed+requires+its+primary+dealers+to+be+domiciled+in+the+U.S.%3C%2Fp%3E%3Cp%3EBut+MF+Global+fixed+all+of+these+issues%2C+said+Baxter%2C+and+that%27s+why+the+Fed+finally+approved+the+now-bankrupt+brokerage+to+trade+in+U.S.+securities.%3C%2Fp%3E%3Cp%3E%26quot%3BThe+New+York+Fed+designated+MF+Global+as+a+primary+dealer+to+meet+our+highly+specialized+needs%2C+and+we+followed+our+primary+dealer+policy+to+the+letter+without+fear+or+favor%2C%26quot%3B+said+Baxter%2C+in+prepared+testimony+to+a+Congressional+subcommittee.%3C%2Fp%3ELame+responses+from+CEOs%3Cp%3EThe+Fed+designated+MF+Global+as+a+primary+dealer+in+February+and+conducted+due+diligence+on+the+company+through+October%2C+%26quot%3Bwhen+its+financial+condition+deteriorated+abruptly+and+quickly%2C%26quot%3B+said+Baxter.%3C%2Fp%3E%3Cp%3EMoody%27s+downgraded+MF+Global+on+Oct.+24+and+the+following+day+the+brokerage+reported+its+%26quot%3Blargest+quarterly+earnings+loss+ever%2C%26quot%3B+said+Baxter.+At+that+point%2C+he+said+the+Fed+blocked+MF+Global+from+dealing+securities.%26nbsp%3B+%3C%2Fp%3E++%3Cp%3E%3Ca+href%3D%27http%3A%2F%2Fmoney.cnn.com%2F2011%2F12%2F15%2Fnews%2Fcompanies%2Fmf_global_fed%2Findex.htm%27+rel%3D%27nofollow%27%3ESource%3C%2Fa%3E%3C%2Fp%3E+

+%3Cp%3E+What+fiscal+pact%3F+There+is+little+sign+that+last+week%27s+European+summit+even+happened%2C+judging+from+the+high+cost+of+sovereign+debt+and+the+weakness+in+European+markets.%3C%2Fp%3E%3Cp%3ELast+Friday%2C+European+leaders+–+with+the+exception+of+Britain%27s+David+Cameron+–+pledged+to+form+a+tighter%2C+more+deeply+integrated+fiscal+bond+among+member+states.+Of+course%2C+most+of+the+countries+still+need+to+get+parliamentary+approvals+before+moving+forward.%3C%2Fp%3E%3Cp%3E%3Cp%3E%3C%2Fp%3E%3Cp%3E%3Cp%3E%3C%2Fp%3E%3C%2Fp%3E%3C%2Fp%3E%3Cp%3EOne+of+the+most+crucial+aspects+of+the+fiscal+pact%2C+which+was+masterminded+by+Germany%27s+Angela+Merkel+and+France%27s+Nicolas+Sarkozy%2C+was+to+force+eurozone+members+to+maintain+responsible+budgets.+Countries+would+face+sanctions+if+they+allow+their+deficits+to+stray+above+3%25+of+their+gross+domestic+product.%3C%2Fp%3E%3Cp%3E%26quot%3B%5BThe+summit%5D+is+clearly+a+stepping+stone+to+fiscal+union+but+there+are+still+a+lot+of+hoops+to+jump+through%2C%26quot%3B+said+Nick+Stamenkovic%2C+fixed+income+strategist+at+RIA+Capital+Markets+in+Edinburgh%2C+Scotland.+%26quot%3BPeople+are+getting+more+and+more+nervous+for+the+outlook+of+Europe+and+the+lack+of+political+agreement.%26quot%3B%3C%2Fp%3E%3Cp%3EBond+buyers+showed+little+indication+that+they+felt+any+better+about+European+debt+in+Italy+on+Wednesday.+Italy%27s+%26euro%3B3+billion+auction+of+five-year+notes+met+with+relatively+strong+demand%2C+but+resulted+in+a+high+yield+of+6.47%25.%3C%2Fp%3EEuropean+debt+saga+far+from+over%3Cp%3EAnd+yields+on+Italy%27s+10-year+bonds+remain+closer+to+7%25+than+6%25.+That+7%25+level+is+closely+watched+since+it+typically+starts+to+flash+bailout+warning+signs.%3C%2Fp%3E%3Cp%3EGreece%2C+Ireland+and+Portugal+got+bailed+out+shortly+after+their+yields+crossed+that+mark%2C+though+the+bailouts+weren%27t+triggered+until+they+went+even+higher.+%3C%2Fp%3E%3Cp%3EItalian+bond+yields+have+risen+above+7%25+before.+While+many+experts+think+Italy+can+manage+those+levels+for+a+bit%2C+it+is+the+third-largest+economy+in+the+eurozone+and+third-largest+bond+issuer+in+the+world.+In+other+words%2C+it%27s+too+big+to+fail+but+also+too+big+to+bail+out.%3C%2Fp%3E%3Cp%3ELast+week%27s+formation+of+the+fiscal+union+was+supposed+to+keep+bond+yields+in+check.+But+the+only+thing+that+could+really+put+a+lid+on+rising+yields+would+be+a+promise+from+the+European+Central+Bank+that+it+will+step+in+to+buy+more+bonds.+But+that+didn%27t+happen.%3C%2Fp%3E%3Cp%3EThe+central+bank%27s+president%2C+Mario+Draghi%2C+has+stood+firm%2C+saying+the+ECB%27s+only+mandate+is+to+manage+inflation+%3Ca+href%3D%22http%3A%2F%2Fpay-day-loans-4all.com%22%3Echeap+pay+day+loans%3C%2Fa%3E%3C%21–+.+–%3E.%3C%2Fp%3EECB+willing+to+help+banks%2C+not+governments%3Cp%3E%26quot%3BThey%27re+not+going+to+intervene+on+behalf+of+Italy+because+they+believe+that+these+countries+should+get+their+fiscal+house+in+order+and+they+shouldn%27t+do+their+dirty+work+for+them%2C%26quot%3B+said+Stamenkovic.%3C%2Fp%3E%3Cp%3EOther+symptoms+of+European+economic+weakness+include+the+plunge+of+the+euro+to+its+lowest+level+since+mid-January+and+the+collective+decline+of+the+stock+markets.+Since+Friday%27s+summit%2C+London%27s+FTSE+%28%29%2C+the+DAX+%28%29+in+Frankfurt%2C+and+the+CAC+40+%28%29+in+Paris+have+all+dropped+between+1%25+and+4%25.%3C%2Fp%3E%3Cp%3EAdding+to+the+jitters+are+downgrade+worries.+Standard+%26amp%3B+Poor%27s+put+most+of+the+17+eurozone+members+on+notice+last+week+that+they+could+face+potential+downgrades.+The+ratings+agency+also+warned+the+EU%2C+several+banks+and+Europe%27s+rescue+fund+that+they+could+all+face+downgrades.%3C%2Fp%3E%3Cp%3EThe+warnings+all+came+ahead+of+last+Friday%27s+summit+and+the+S%26amp%3BP+has+said+it+hoped+to+complete+it%27s+decision-making+process+earlier+than+the+normal+90-day+window.%3C%2Fp%3E%3Cp%3E%3C%2Fp%3E%3Cp%3E+%3C%2Fp%3E%3Cp%3EMario+Monti%2C+the+newly-anointed+prime+minister+of+Italy%2C+was+clearly+annoyed+by+the+stigma+that%27s+been+attached+to+countries+relying+upon+economic+intervention%2C+when+the+purpose+of+that+intervention+is+to+avoid+international+contagion.%3C%2Fp%3E%3Cp%3E%26quot%3BIt+is+impossible+to+trace+a+border%2C+as+Germany+would+like+it%2C+between+the+virtuous+and+sinful+countries%2C%26quot%3B+he+told+Italian+senators+Wednesday.%3C%2Fp%3E%3Cp%3EMeanwhile%2C+German+Chancellor+Angela+Merkel+touted+the+plan+to+her+Parliament+Wednesday.+%26quot%3BWe+have+decided+to+correct+constructional+mistakes+that+were+made+at+the+beginning+of+the+economic+and+monetary+union%2C%26quot%3B+she+said.+%26quot%3BThe+answer+in+this+situation+could+not+be+to+do+nothing.%26quot%3B%3C%2Fp%3E%3Cp%3EYields+on+German+10-year+bonds+slipped+below+2%25%2C+once+again+cementing+their+Teutonic+reputation+as+a+bastion+of+economic+strength+and+stability.%3C%2Fp%3E%3Cp%3E%26quot%3BThe+whole+deal+seems+to+be+unraveling+in+our+faces%2C+and+that+is+clearly+benefiting+German+bunds+at+the+expense+of+peripheral+markets%2C+particularly+Italy%2C%26quot%3B+said+Stamenkovic.%3C%2Fp%3E%3Cp%3EThe+French+10-year+bond+yield+also+declined%2C+sliding+to+3.2%25.+%3C%2Fp%3E%3Cp%3E–+CNN%27s+Stephanie+Halasz+and+Hada+Messia+contributed%26nbsp%3B+%3C%2Fp%3E++%3Cp%3E%3Ca+href%3D%27http%3A%2F%2Fmoney.cnn.com%2F2011%2F12%2F14%2Fmarkets%2Feurope_debt%2Findex.htm%27+rel%3D%27nofollow%27%3ESource%3C%2Fa%3E%3C%2Fp%3E+

Covidien plc will spin off its Hazelwood-based drug business, turning it into an independent company that may restore the historic corporate name of Mallinckrodt.

Covidien, based in Dublin, makes medical devices and medical supplies in addition to drugs. The proposed spinoff also will have its legal headquarters in Ireland, largely for tax reasons, company executives said in a conference call.

But the spinoff’s U.S. operation will be based in Hazelwood, and its new CEO will work from here. Spokesman Steve Littlejohn said the company has not made a final decision on its name, “but chances are good that it will be Mallinckrodt.”

Covidien’s pharmaceutical business has $2 billion in sales, with two-thirds of that coming in the U.S. market. It turned an operating profit of $318 million this fiscal year.

The drug business is a large provider of acetaminophen, the ingredient in Tylenol, and the largest U.S. supplier of opioids; both are pain medicines. Other lines include contrast products used with medical imagery and nuclear medicine products.

The pharmaceutical operation currently employs about 2,500 people in metro St. Louis. A company spokesman said the move should have no immediate impact on jobs here. Some jobs might be added as the firm sets up its own administrative operation.

Analysts had speculated that Covidien might get rid of the drug operation. Although profitable, it is less lucrative than the rest of Covidien and demands a higher investment in research and development. The drug operation earns a 16 cent operating profit for every dollar of sales, compared with 28 cents for the rest of the company.

The drug operation has a “lumpy” revenue history, notes analyst Aaron Vaughn of Edward Jones in Des Peres. The division is largely a generic drugmaker, and that sector suffered through a price war in past years, he noted.

“We thought they would be getting the business right-sized so that they could spin it off and let it grow on its own,” he said.

Covidien Chief Executive Jose Almeida said the pharmaceutical drug division’s performance had improved in recent years.

“We’re confident the business can now stand on its own,” he said in a conference call Thursday morning.

He said the company had been thinking about shedding the business for several years, citing “major differences” between drugs and Covidien’s other medical products. The operations have different business models, sales channels, customers and capital requirements, and demand different talents, he said.

Separating the operations would allow both to focus on their own strategies, Almeida said. Shareholders also might get more value over the long term, he said.

The drug business “definitely needs some investment,” said analyst Jeff Jonas of Gabelli & Co. in an interview with Bloomberg News. “They need to find new products, invest in the pipeline. That’s a multiyear process.”

Research and development consumes 7 percent of revenue in the drug division, compared with 4 percent in the rest of Covidien.

The spinoff would be in the form of a stock distribution, tax-free to U.S. shareholders, the company said. That tax-free aspect made the option of a spinoff superior to the alternative of selling the unit, company officials said.

The spinoff could take 18 months to complete and would need approval of regulators.

Bloomberg News, citing unidentified sources, reported last summer that Covidien had tried to sell the unit, but talks broke down.

Almeida said he has picked a CEO for the new company, although he didn’t name the person. The person is a ’strong leader” with “broad pharmaceutical experience,” Almeida said, and will join the spinoff from another company.

The drug operation is now headed by Matt Harbaugh, the drug division’s chief financial officer serving as interim president. Based in Hazelwood, he has led the unit since the previous president left last year.

Besides its Hazelwood headquarters, the drug unit has a research operation in Webster Groves, a nuclear medicine facility in Maryland Heights and a plant just north of downtown St. Louis.

That plant sits on what was the Mallinckrodt family farm. G. Mallinckrodt & Co. was founded there in 1867 and grew up as a chemical and drug firm. It refined uranium for the Manhattan Project, which created the atomic bomb during World War II.

Avon Products acquired Mallinckrodt in 1982. Avon sold the company to International Minerals and Chemical Corp. in 1986, which later changed its own name to Mallinckrodt.

In 2000, Tyco bought the company. After Tyco went bankrupt amid scandals, its health care operations were spun off as Covidien in 2007.

Without the drug business, Covidien would have $9.6 billion in sales. Covidien’s remaining business makes trays, hypodermic needles, retractors, pumps for patient feeding and pain management, and other medical devices.

Covidien stock rose $1.39 to $43.55 on Thursday.

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