Financial thoughts

Matthew Boddy graduated with more debt than the average university student – and without fully appreciating how hard it would be to repay.

The shock didn’t hit him until he had been out of school for six months. That is when students must start repaying government loans plus the interest for the previous six months.

"They tacked on another $2,000 (for interest)," recalls the graduate of mathematics and English literature, who completed his second undergraduate degree in 2007 and has since found work in market research. "It was very surprising to me. People enter into these loans at 18 and they don’t know the consequences."

The Toronto resident faced monthly payments in the range of $600. He has since become an expert in seeking temporary interest relief – as a matter of necessity.

His wife has lost her job, the labour market has tightened and he cannot afford the loan payments on his own. His experience holds valuable lessons for other recent graduates because a student loan is the one debt you cannot reduce or clear away through bankruptcy within the first five to seven years after graduation.

Laurie Campbell, executive director of Credit Canada, a non-profit credit counselling service, says graduates who anticipate having difficulty finding a job should apply for relief from interest charges right away.

Federal and Ontario student loan programs currently offer interest relief, but only for six months at a time and not indefinitely. The National Student Loans Service Centre manages both the federal and Ontario Student Assistance Program. Both agencies have websites with information about repayment requirements, relief programs, tax credits for interest on government loans and online calculators.

"A lot of people think they don’t have to pay (student loans) for six months, but that period isn’t interest-free," Campbell says.

"So, if you aren’t going to be in a position to pay, you have to get to the government quickly about it. They make you pay the interest before you can qualify (for relief). It gets messy."

Campbell adds, "We are seeing more people coming in with student loans who can’t get jobs and we say to them, `You cannot ignore this. You need to get on to interest relief. You need to access the programs available before you fall behind. Then it’s almost impossible to catch up.’"

Statistics Canada reports about 27 per cent of 2005 graduates with bachelor’s degrees still owed an average of $16,200 in government loans two years after they graduated in 2005. Another 15 per cent owed an average of $31,600 in government and other loans.

Fully 43 per cent of those owing more than $25,000 reported having difficulty paying their loans, although fewer than 11 per cent were unemployed in 2007 cheap payday loans.

It’s likely unemployment among recent grads has risen, but Statistics Canada was unable to provide figures yesterday. Many recent graduates may only find short-term jobs with no benefits at the start of their working careers.

"I’ve applied for interest relief on three separate occasions," Boddy says. "In the first, bad advice left my application stalled at various stages, and resulted in my credit (rating) being damaged. I was denied (and) told I could do an appeal. (I) proved my point with a budget showing my living expenses, (but was) rejected.

"The second time was months later when I was in a different situation – my wife lost her job – and, after many delays and follow-ups, was approved.

"The third time, just this month, I followed instructions exactly, and two to three separate times in the process it was stalled because of errors (at the) student loans call centre.

"I’ve come to the conclusion that, even if you follow the instructions perfectly, they’ll omit telling you something, or lose a form, or something else, to delay the process. You literally need to call five to 10 times in a month to get it approved, or even make sure it’s processed."

A spokesperson for Human Resources and Skills Development Canada was unable to arrange an interview yesterday about the number of graduates seeking interest relief and the time it takes to get approved.

Ottawa has announced it will begin to phase out interest and other debt relief options for borrowers under the Canada Student Loans Program beginning Aug. 1. They will be replaced by a new program known as the repayment assistance plan or RAP.

Payments will be geared to income, with a limit of 13.3 per cent of a borrower’s monthly gross income for federal loans and 20 per cent in provinces where governments adopt the RAP for their loans. No payments on federal loans will be required for those individuals with a gross annual income of $20,000 or less. For those required to make only partial payments, Ottawa will pay the remainder to ensure payments can cease after 15 years or 10 years for persons with permanent disabilities.

Borrowers who are not eligible for the repayment assistance plan will be able to apply to extend their repayment period to reduce their monthly loan payments.

More information is available at CanLearn.ca, which includes a repayment assistance calculator.

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Bankrupt automaker Chrysler LLC "went around the world" searching for a business partner but only Italy’s Fiat was willing to strike a deal after last year’s economic tumble, a former Chrysler executive told a federal judge Wednesday.

Tom LaSorda, who retired from his position as Chrysler’s president when the company filed for bankruptcy on April 30, said Chrysler started looking into a merger or global strategic partnerships in the fall of 2006.

The testimony came in a bankruptcy court hearing to determine the fate of Chrysler. The proceeding, before Judge Arthur Gonzalez, lasted well into the evening and was set to continue at 10 a.m. on Thursday.

Chrysler and its lawyers argued for a swift resolution to its plan to restructure the company, while a group of dealers and creditors opposed it. Gonzalez is widely expected to soon approve the bankruptcy.

According to LaSorda, Chrysler sought a deal with Volkswagen, Tata and several Chinese automakers, but they expressed little interest in a deal. The company was particularly interested in a foreign automaker that had a strong portfolio of small cars.

When auto sales took a sharp dive last year, Chrysler intensified its search, hoping to get cash as part of a deal to shore up its dwindling capital reserves. But the recent market meltdown killed near-deals with foreign automakers Nissan and Kia.

"We couldn’t bring anyone to the altar to bring us five cents," LaSorda testified. "No one would bring us a nickel."

At the end of 2008, Chrysler was not only unable to find a white knight that would give it cash infusion, but Fiat was the lone car company that was even willing to negotiate, LaSorda said payday loans.

"I cannot force another auto company to sign a deal with me; Fiat was the only company that submitted a term sheet to us," he said. "We were very lucky to get a player like Fiat."

To keep the company afloat, Chrysler received $4 billion from the Treasury Department in December 2008 and $4 billion more this year. But after many of the company’s creditors rejected a debt-for-equity swap to help the company restructure, the Obama administration forced the automaker to seek Chapter 11 bankruptcy protection.

Chrysler is hoping to go in and out of bankruptcy in just one or two months. A source close to the matter said that Chrysler would likely emerge from bankruptcy protection at the shorter end of that term.

Chrysler is seeking to pull its best-performing factories and dealerships out of bankruptcy and sell them to a newly-formed incarnation of itself, called Chrysler Group. The company would then join with Fiat, selling it an initial 20% stake that could go up to 35%.

Rival General Motors (GM, Fortune 500) also faces a looming bankruptcy filing after its bondholders roundly rejected the company’s equity for debt swap proposal on Wednesday. 

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OTTAWA – The federal government is calculating the full value of the expected cost of the bailout of the battered auto sector – up to $7 billion for Ottawa alone – in its new budget deficit projection, an official says.

A rough estimate suggests the government is booking about $7 billion in new spending as part of its revised $50 billion deficit calculation. That amounts to just less than half of the $16 billion increase in the deficit announced Tuesday, a development that has sparked a political furore in the Commons.

The federal government had included $2.7 billion in loans to GM Canada and Chrysler Canada as part of the 2009-2010 budget brought down in late January.

However, with negotiations on a General Motors Corp. (NYSE: GM) bailout continuing, and the Chrysler restructuring inching along in a New York bankruptcy court, the cost to Ottawa and Ontario of rescuing the two companies' Canadian divisions has not been finalized.

But the broad outline of how much the two governments will be on the hook for in the North American auto restructuring is coming into focus, and it's much larger than anything previously reported.

According to the New York Times, GM has confirmed that the U.S. government will ante up US$50 billion for the Detroit-based automaker, making Canada's contribution between $8.25 billion and $11.1 billion, depending on the calculation of production share in Canada.

As with the Chrysler arrangement, the Canadian governments will advance their share in the form of repayable loans and by buying an equity share that could be as much as 10 per cent.

Along with the $3.37 billion going to Chrysler, the auto sector bailout could approach $14.5 billion for Ottawa and Ontario, which have agreed on a two-thirds, one-third split respectively.

Speaking to reporters late Wednesday, Industry Minister Tony Clement said his government was booking the entire two per cent equity stake in Chrysler and a proportion of loans in the budget shortfall.

In response to a question, an official with the minister said Thursday that for extra prudence, the government is writing off in the budget the entire $2 budget car insurance.26 billion federal portion.

"As part of the Chrysler deal is a straight forward repayable loan and the another part converts funds into equity in the company; each of those parts will count differently on the government's books, so the true fiscal impact to the government is not fully determined as yet," said Pema Lhalungpa, Clement's press secretary.

"Until the deal is complete, the government estimates the fiscal impact at its most conservative number or simply put dollar for dollar."

She said although the government does not yet know the final tally on the General Motors rescue, "to be safe the government is calculating numbers very prudently in order to be as truthful as possible with Canadian taxpayers."

Canadian Auto Workers economist Jim Stanford criticized the practice of writing off the total estimate of the rescue package as a cost to government.

He noted that the deal will involve the purchase of GM shares and loans, which have a value.

"It's a loan, not a bailout," he said. "A loan is very different from a direct expenditure and it's coming from the EDC (Export Development Canada) not the government.

"You could make a loan-loss provision as a bank does on what will be repaid and what won't, but you certainly wouldn't make a 100 per cent loan loss provision."

General Motors has been given until May 31 to submit a restructuring plan that would be acceptable to the three governments footing the bill – Washington, Ottawa and Ontario.

The company took another important step toward meeting that deadline Thursday with a deal with bond holders, who would take up to 25 per cent of the restructured company in return for US$27-billion in debt.

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Business advocates started scrambling on Tuesday to figure out whether Supreme Court nominee Judge Sonia Sotomayor would be good or bad for companies.

But one thing was clear: If confirmed, she will be able to make her mark on business issues quickly, because a handful of key cases are already on the docket.

Companies and legal experts are scouring Sotomayor’s past opinions to glean clues about how she could rule on business issues.

The Supreme Court has already agreed to consider several high-profile cases in the new term, which starts Oct. 5.

"The stakes are incredibly high with respect to business issues," said Elizabeth Nowicki, an associate professor who teaches business law at Tulane University in New Orleans.

Among the issues are questions about corporate governance and securities fraud, Nowicki said.

In fact, the high court added a new one to the roster on Tuesday. The justices agreed to consider a case involving Merck & Co. (MRK, Fortune 500) that addresses how long investors can wait before making a securities fraud claim.

President Obama said he wants the Senate to confirm Sotomayor by the time of the congressional August recess, according to senior administration officials.

If confirmed, Sotomayor, 54, would be the first Hispanic and the third female Supreme Court Justice. She has been a federal judge since 1992, after being appointed to a federal trial court bench in New York by President George H.W. Bush. She was elevated to the appeals court by President Clinton in 1997.

One of Washington’s most powerful business groups indicated it will play a role over the next few weeks.

"The Chamber intends to be deeply involved in the confirmation process as it unfolds," Robin Conrad, executive vice president of the National Chamber Litigation Center, an arm of the U.S. Chamber of Commerce, in a statement.

When it comes to business issues, it can be difficult for lobbyists to predict how a judge will rule once they are on the court. Judicial leanings often don’t match typical ideological patterns, legal experts say.

For example, outgoing Justice David Souter was a Republican appointee but was considered a moderate on most business issues.

"People are going to be focused on the liberal versus the conservative question, but business cases tend to cut across those lines," said Lauren Goldman, an appellate attorney with Mayer Brown.

Souter was considered pro-business when it came to limiting punitive damages, or monetary awards that go beyond compensating to punish the at-fault party payday advance. In 2008, Souter wrote the high court’s decision to slash almost $2 billion from punitive damages that Exxon Mobil Corp. (XOM, Fortune 500) had originally been ordered to pay for the 1989 Exxon Valdez oil spill off the coast of Alaska.

"Justice Souter has been reliably hawkish with jury awards to punitive damages, but it remains to be seen whether Sotomayor would follow the same path," said Stephen Kinnaird, an appellate attorney at Paul Hastings.

Generally speaking, Sotomayor is also considered pretty moderate, at least when it comes to other issues businesses care about, such as limiting class action lawsuits and pre-empting state laws with federal laws, several attorneys said. She has ruled for investors and companies in many different types of cases.

"Both investors and corporations are going to be holding their breath to see what she does in the first few cases, because she just has no clear ascertainable bias for companies or investors, which is ideal," Nowicki said.

What’s on the docket? In the upcoming the case of Merck v. Reynolds, the Supreme Court will consider how long investors can wait to file a securities fraud suit.

Merck investors want billions of dollars because, because they claim the company mislead them about clinical trial results that linked the pain medication Vioxx to heart attacks. Merck argues the investors waited too long to file, but a lower court offered a more lenient time frame for investor cases to be filed.

Business groups are closely following at least two other pending cases.

The Supreme Court has agreed to consider a constitutional challenge to the Sarbanes-Oxley Act, a series of corporate governance measures passed in the wake of the Enron collapse in 2002.

The court will consider whether the selection and removal of Public Accounting Oversight Board members violates the constitution on separation of powers. But companies that don’t like the accounting board and other strict rules imposed by the Sarbanes-Oxley Act are keen to have the entire act considered unconstitutional, which is possible.

In another case, the Supreme Court has agreed to consider whether an investment adviser’s fees were too high and violated standards set by the Investment Company Act of 1940. 

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Cannibalization of laptop computer sales by lower-priced netbooks is currently about 20 percent, “less than speculation”, Intel’s European sales chief told Reuters on the fringes of a company event.

Christian Morales said netbook sales were about 16 percent of all notebook sales globally, and a little higher in western Europe. In Britain and Italy they may account for as much as a quarter of all notebook sales, he said on Wednesday.

Intel has for now cornered the fast-growing market for inexpensive netbooks, made for simple functions such as surfing the Web, with its “Atom” processors. Many fear that that fast market growth may be at the expense of higher-priced laptops.

“We have seen some cannibalization of Celeron by Atom,” Morales said in a presentation to analysts in London, referring to Intel’s processors for budget notebooks.

He said Intel’s profit margins for Atom were higher than those for the much older Celeron processors.

Twenty percent cannibalization would mean that 20 percent of netbooks sold would otherwise have been sales of full notebooks.

Stacy Smith, finance chief of the world’s biggest chipmaker, said notebooks would be Intel’s main growth driver for years to come, propelled by a continuing trend toward mobility personal loans.

Morales reiterated that inventories, which had been built up by electronics makers and retailers who had underestimated the impact of the recession, were now seen in balance with demand.

“From an inventory standpoint, we think it is really optimized for current levels of business,” he said. “Supply-chain confidence is much higher.”

Morales said eastern Europe and Turkey were currently the weakest areas of his Europe, Middle East and Africa patch, although Russia and the other former Soviet CIS states had seen some improvement in the past weeks.

He said he saw greater potential to sell inexpensive netbooks in Africa if the cost of Internet access, which he said was more than $100 a month in most of the continent, could be brought down.

“This is where we are working very actively with governments,” he said.

(Reporting by Georgina Prodhan; Editing by Jon Loades-Carter)

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Boeing Co. leaders say that the U.S. military’s airlift needs are growing and that a Pentagon proposal to halt future orders for the C-17 Globemaster III cargo plane is premature.

Boeing, whose defense unit is headquartered in St. Louis, is trying to rally support for the C-17 on multiple fronts — arguing that ceasing production would erode the U.S. industrial base, costing thousands of jobs at Boeing plants and those of its main suppliers. But Boeing officials also emphasize the plane’s strategic value.

"Right now, since 9/11, the airplane has been flying at about a 15 percent higher rate than was anticipated," said Donald A. Anderson, Boeing’s C-17 program manager in St. Louis. "In addition, they’re talking about rebasing troops in the United States. They’re talking about an increase in the size of the Marines Corps and the Army.

"So it seems like the airlift requirements are growing. And you need airlifters to meet those needs."
Starting with Secretary of Defense Robert Gates’ announcement in early April and continuing through last week, the Pentagon has said it can get by with the 205 C-17s that are either in service or on order. The Air Force also uses the Lockheed Martin C-5 Galaxy to transport weapon systems, cargo and personnel to overseas locations.

Republican Sen. Christopher "Kit" Bond and Democratic Sen. Claire McCaskill, both of Missouri, have written letters supporting more orders of the C-17, and Machinists Union officials have traveled to Washington to show their support for a program that supports 900 jobs in St. Louis.

"This is high political theater," said analyst Richard Aboulafia of The Teal Group in Fairfax, Va. "The bottom line is I don’t think the line is threatened. But it is up to everybody from Department of Defense to Congress to Boeing to the unions to make it look as though it were."

The Defense Department has not sought funding for the C-17 in the last three years. But Congress has stepped in to add funding for more of the $202 million planes through supplemental defense appropriations bills.

Bond and Boeing officials have asked why Gates would halt C-17 orders while there is a study under way into the military’s future air-mobility needs. The results are expected this fall.

"But yet we’re making that decision now to stop the airplane," Anderson said. "So it seems somewhat premature online payday loans."

Bond said shutting down production of the C-17 is a "dangerous gamble" and warned that the U.S. can’t afford to "lose the capability to transport safely our troops and equipment to anywhere in the world."

In a letter to President Barack Obama, McCaskill said the U.S. is "literally flying the wings off these planes," and added "this is not the time to end its production, especially in light of projected global mission sets for the U.S. military."

Both legislators also have gone to bat for Boeing’s St. Louis-built F/A-18 Super Hornet, whose future was placed in limbo under the latest Pentagon spending plan.

The C-17 is assembled at a plant in Long Beach, Calif. But the cargo door, cargo ramp, landing-gear pods, nose and engine pylons are built in St. Louis.

A November 2008 report by the Government Accountability Office recommended "careful planning to avoid shutting down the C-17 line prematurely." Both Boeing and the Air Force believe shutting down and restarting production "would not be feasible or cost effective," the report found.

The GAO cited the high costs of hiring and training a new work force, reinstalling equipment to proper working condition and re-establishing a supplier base.

Boeing has delivered the C-17 to other countries, including Australia, Canada and the United Kingdom. The United Arab Emirates has announced its intent to buy four of the planes, and Qatar has ordered two and exercised an option on two additional C-17s.

But Anderson said international sales alone are not enough to sustain the C-17 line. Boeing officials say maintaining C-17 sales to the U.S. Air Force is necessary to keep the price of the planes competitive in the international market.

Defense analyst Loren Thompson of the Lexington Institute in Arlington, Va., said the C-17 is the best strategic airlifter ever built and "a very cogent case" can be made that terminating production at 205 planes would be too early. At the moment, he said, its future will be dictated by Congress.

"Here’s the bottom line to C-17," Thompson said. "If Congress doesn’t add money, there won’t be any more."

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Boeing Co. leaders say that the U.S. military’s airlift needs are growing and that a Pentagon proposal to halt future orders for the C-17 Globemaster III cargo plane is premature.

Boeing, whose defense unit is headquartered in St. Louis, is trying to rally support for the C-17 on multiple fronts — arguing that ceasing production would erode the U.S. industrial base, costing thousands of jobs at Boeing plants and those of its main suppliers. But Boeing officials also emphasize the plane’s strategic value.

"Right now, since 9/11, the airplane has been flying at about a 15 percent higher rate than was anticipated," said Donald A. Anderson, Boeing’s C-17 program manager in St. Louis. "In addition, they’re talking about rebasing troops in the United States. They’re talking about an increase in the size of the Marines Corps and the Army.

"So it seems like the airlift requirements are growing. And you need airlifters to meet those needs."
Starting with Secretary of Defense Robert Gates’ announcement in early April and continuing through last week, the Pentagon has said it can get by with the 205 C-17s that are either in service or on order. The Air Force also uses the Lockheed Martin C-5 Galaxy to transport weapon systems, cargo and personnel to overseas locations.

Republican Sen. Christopher "Kit" Bond and Democratic Sen. Claire McCaskill, both of Missouri, have written letters supporting more orders of the C-17, and Machinists Union officials have traveled to Washington to show their support for a program that supports 900 jobs in St. Louis.

"This is high political theater," said analyst Richard Aboulafia of The Teal Group in Fairfax, Va. "The bottom line is I don’t think the line is threatened. But it is up to everybody from Department of Defense to Congress to Boeing to the unions to make it look as though it were."

The Defense Department has not sought funding for the C-17 in the last three years. But Congress has stepped in to add funding for more of the $202 million planes through supplemental defense appropriations bills.

Bond and Boeing officials have asked why Gates would halt C-17 orders while there is a study under way into the military’s future air-mobility needs. The results are expected this fall.

"But yet we’re making that decision now to stop the airplane," Anderson said. "So it seems somewhat premature instant credit report."

Bond said shutting down production of the C-17 is a "dangerous gamble" and warned that the U.S. can’t afford to "lose the capability to transport safely our troops and equipment to anywhere in the world."

In a letter to President Barack Obama, McCaskill said the U.S. is "literally flying the wings off these planes," and added "this is not the time to end its production, especially in light of projected global mission sets for the U.S. military."

Both legislators also have gone to bat for Boeing’s St. Louis-built F/A-18 Super Hornet, whose future was placed in limbo under the latest Pentagon spending plan.

The C-17 is assembled at a plant in Long Beach, Calif. But the cargo door, cargo ramp, landing-gear pods, nose and engine pylons are built in St. Louis.

A November 2008 report by the Government Accountability Office recommended "careful planning to avoid shutting down the C-17 line prematurely." Both Boeing and the Air Force believe shutting down and restarting production "would not be feasible or cost effective," the report found.

The GAO cited the high costs of hiring and training a new work force, reinstalling equipment to proper working condition and re-establishing a supplier base.

Boeing has delivered the C-17 to other countries, including Australia, Canada and the United Kingdom. The United Arab Emirates has announced its intent to buy four of the planes, and Qatar has ordered two and exercised an option on two additional C-17s.

But Anderson said international sales alone are not enough to sustain the C-17 line. Boeing officials say maintaining C-17 sales to the U.S. Air Force is necessary to keep the price of the planes competitive in the international market.

Defense analyst Loren Thompson of the Lexington Institute in Arlington, Va., said the C-17 is the best strategic airlifter ever built and "a very cogent case" can be made that terminating production at 205 planes would be too early. At the moment, he said, its future will be dictated by Congress.

"Here’s the bottom line to C-17," Thompson said. "If Congress doesn’t add money, there won’t be any more."

Source

DETROIT — With General Motors’ long-anticipated day of reckoning a little more than a week away, nearly all signs are pointing to the wounded auto giant limping its way into bankruptcy court, but experts say that might not be as bad as once expected.

Car and truck buyers, they say, may not be as fearful of Chapter 11 as once thought, as evidenced by Chrysler’s stronger-than-expected sales in the two weeks after it took the dreaded step into court.

"I think in this case and in the eyes of the consumer, uncertainty is the enemy," said Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates. "Once they know what happened, it at least is better than uncertainty."

GM borrowed an additional $4 billion from the government Friday on top of $15.4 billion it previously received. It faces a June 1 government-imposed deadline to finish restructuring or be forced into bankruptcy court. Restructuring demands from President Barack Obama’s administration include cutting labor costs, reducing debt, shedding dealerships and brands, and closing excess factories.
The company this week reached cost-cutting deals with Canadian and U.S. unions that still have to be ratified by members, but GM’s unsecured bondholders have resisted an offer to take a 10 percent stake in the company to wipe out $27 billion in debt.

But even if GM files for Chapter 11, Chrysler’s performance since its April 30 filing has made analysts optimistic that GM sales won’t "fall off a cliff" as the CEO predicted in February.

Chrysler’s sales to individual buyers are down 40 percent so far this month when compared with May of last year, a little worse than the overall market, down around 35 percent, the company has said.

Schuster said that’s better than he expected, and he predicted GM might fare even better if it goes into Chapter 11 electronic check payday advance. "Maybe optimistic is a little too strong, but I think there could be potential for, once it’s announced and once we understand how it’s going to work, the potential for an uptick in the second half of the year," he said.

With the government announcing that it would back GM and Chrysler warranties, people are taking advantage of deals to get cars on the cheap, said David Koehler, a clinical marketing professor at the University of Illinois at Chicago.

"I think consumers right now know cars last for a long time," he said. "What they’re looking at is the deals. I don’t anticipate the doom and gloom that GM said, that this was going to kill them."

As June 1 fast approaches, there’s still an outside chance that GM could somehow pull it all together and complete restructuring out of bankruptcy court, said John Pottow, a University of Michigan professor who specializes in bankruptcy.

Since the unions have given concessions and settled, there is pressure on GM’s bondholders to do the same or risk becoming the entity that drove GM into bankruptcy, he said.

"When they make those concessions, it becomes tougher for you not to make those concessions as well because everyone’s doing it," Pottow said, adding that dissident Chrysler creditors gave up their fight as pressure mounted and other stakeholders fell in line.

But with thousands of bondholders, it will difficult to get 90 percent of them to agree.

"There’s no sort of like central negotiating committee of bondholders and unsecured creditors," he said.

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Campbell Soup Co. posted higher quarterly profit, excluding one-time items, helped by higher prices and cost-cutting measures.

The world’s largest soup maker said earnings, excluding restructuring charges, were 48 cents a share in the fiscal third quarter ended May 3, up from 43 cents a year earlier individual health insurance. Campbell’ (CPB, Fortune 500)s year-earlier results exclude a gain from the sale of the Godiva chocolate business and restructuring charges. 

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The former head of the U.S. agency that insures corporate pensions refused to testify Wednesday at a Senate hearing examining allegations that he had improper contacts with Wall Street firms.

Charles Millard, the former director of the Pension Benefit Guaranty Corp., invoked his Constitutional right to avoid self-incrimination after being subpoenaed to testify at a Senate Aging Committee hearing.

"Against the advice of senior leadership, he participated directly in picking the winners" of contracts that eventually went to BlackRock (BLK, Fortune 500), JPMorgan (JPM, Fortune 500) and Goldman (GS, Fortune 500), PBGC Inspector General Rebecca Anne Batts told the hearing.

The contracts were part of a plan PBGC agreed to in early 2008 to boost its returns by investing in a broader range of instruments, including private equity, real estate and international equities.

"He engaged in extensive calling and emailing with Wall Street firms. Mr. Millard said these contacts were OK because these were his friends," Batts said.

After the hearing, a bipartisan group of six senators asked the Justice Department to explore the links between the bidders and the ex-chairman.

The agency, which insures traditional corporate pensions, said Wednesday it had a$33.5 billion deficit for the first half of fiscal 2009, worsening from a $10.7 billion deficit at the end of fiscal 2008. It sees substantial underfunding in plans by automakers, auto parts and other industries.

The agency blamed the ballooning deficit on new pension plan terminations, expectations distressed companies would turnover their retirement accounts to the government and a decline in interest rates which are used to value liabilities.

The Senate committee is chaired by Herb Kohl, who plans to introduce legislation designed to strengthen the PBGC’s board of directors and conflict-of-interest policies. The Wisconsin Democrat is also calling for a $100 million contract won by JPMorgan and Goldman to be rebid.

The PBGC’s inspector general said last week in a draft report that Millard violated a prohibition on contact with bidders seeking agency business faxless online payday advances.

Telephone records and emails showed Millard had contact with BlackRock, Goldman Sachs and JPMorgan Chase, which were later hired to manage real estate and private equity investments.

Batts said she found no criminal activity on the part of the bidders.

PBGC deficit

Lawmakers are increasingly concerned about the PBGC’s financial health as Detroit’s automakers enter bankruptcy or are on its precipice.

"As General Motors (GM, Fortune 500) teeters on the edge of insolvency, hundreds of thousands of workers’ pensions could soon become the responsibility of PBGC," Kohl said.

The agency may also need to step in and help Chrysler LLC, which filed for bankruptcy protection, he said.

Among the automakers, pension underfunding for guaranteed benefits is about $42 billion, the agency said.

Although most private companies with pension plans backed by the agency are not at risk, "the amount of underfunding in pension plans sponsored by financially weaker employers is very substantial," Vince Snowbarger, PBGC acting director, said in testimony prepared for the hearing.

The agency’s exposure cuts across all sectors of the U.S. economy from weak airlines and troubled financial services to healthcare, steel and retail.

Nevertheless, Snowbarger said the agency expects to have enough money to meet its obligations for "many years."

One in seven Americans have traditional pensions known as defined benefit plans, which depend on corporate contributions to pay retirees a set amount. The PBGC was created in 1974 to insure defined benefit plans.

Such plans, which provide retirement benefits based on a worker’s years of service and earnings, were once widely used. In recent years, many companies have sought to replace them with less costly plans that do not guarantee the retirement benefits a worker will receive. 

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