Parmalat shares hit by US ruling

Shares in Italian dairy group Parmalat have dived after the firm was ordered to pay Citigroup $364m in damages.

Parmalat had accused Citigroup of actions that contributed to its collapse in 2003, but a New Jersey court found in favour of Citigroup.

Parmalat had been seeking about $2bn in damages from Citigroup, but the US bank had countersued.

Parmalat's shares were suspended early on Tuesday morning, and when trading resumed they fell almost 19%.

Hiding losses

Parmalat collapsed in December 2003 after uncovering a 4bn-euro hole in its accounts. It sued Citigroup, accusing the bank of helping to cover up the corrupt activities of Parmalat officials.

Specifically, it accused the US bank of ignoring warning signs at the Italian company in order to secure high advisory fees and bonuses for its bankers, and of helping the company to hide its losses by providing loans that did not appear as debt on Parmalat's balance sheet.

Citigroup argued that it believed Parmalat was financially healthy and that it was deceived by the diary giant.

It claimed to have lost $699m at the time of Parmalat's bankruptcy filing.

Legal battle

Following the ruling by the New Jersey court, Parmalat said it planned to "continue to pursue all legal remedies at its disposal to hold Citigroup accountable for its role".

Parmalat also said the damages award was subject to review by a bankruptcy court in Parma, Italy.

Andrea Hurst, spokeswoman for Citigroup, said: "Citi is pleased with the verdict. We have said from the beginning that we have done nothing wrong."

Parmalat emerged from bankruptcy in 2005. Chief executive Enrico Bondi has filed many lawsuits against former Parmalat bankers and auditors, including Bank of America and auditor Grant Thornton International.

Growth worries force euro lower

The euro fell to a 19-month low against the dollar in early Tuesday trading on growing concerns among investors about faltering European economic growth.

The single European currency dropped to a low of 1.3237 dollars before rallying slightly to 1.3243 near mid-afternoon.

The US dollar gained strength after US Federal Reserve boss Ben Bernanke signalled on Monday there could be new plans to stimulate the US economy.

The news calmed investors, with the Dow Jones index closing up 4.7%.

There are growing fears that the world's largest economy is heading towards recession and although Mr Bernanke stopped short of saying the US was in recession, he said the American economy was now in a "very serious slowdown".

Speaking to the US House of Representatives' budget committee on Monday, he said consideration of a fiscal package by the Congress now seemed "appropriate".

On 15 July, the dollar hit $1.6038 to the euro - a record low in value for the greenback against the single European currency.

But since then, the dollar has gained 20%, fuelled by speculation it will take advantage of a slowing European economy.

'More inequality' in rich nations

The gap between rich and poor in most wealthy nations has widened, the Organisation for Economic Co-operation and Development (OECD) has said.

Across the 24 OECD countries where data was available, the cumulative rise in inequality was 7% over the past 20 years, the Paris-based group said.

But this was not as large a rise as had been expected, it said.

Since 2000, income inequality had risen sharply in the US and Germany and declined in the UK, Mexico and Greece.

But the OECD report, which covers a period of two decades between 1985 and 2005, said the UK still had one of the highest levels of income inequality in the developed world.

The 'Hello' effect

The report found that the income of the richest 10% of people was, on average, nearly nine times that of the poorest 10%.

But the size of the income differentials varies, with the greatest disparity in Mexico, which has a ratio of 25 to one, followed by Turkey and the US.

The most equal distribution of wealth is in the Nordic countries, including Denmark, Sweden and Finland.

"The increase in inequality, though widespread and significant, has not been as spectacular as most people probably think it has been," the report said.

It added that the difference between what the data indicated and what people thought was likely to reflect the "Hello magazine effect", meaning that people read widely about the super-rich and imagined many people lived the life of luxury.

Children and low-skilled workers were more likely to be poor than the population in general, said the OECD, which represents the world's richest countries.

Meanwhile, pensioner poverty has fallen in many countries, with those around retirement age seeing the biggest increases in incomes over the past 20 years.

Labour market changes

Launching the report in Paris, OECD Secretary-General Angel Gurría warned of the dangers posed by inequality and the need for governments to tackle it.

"Growing inequality is divisive. It polarises societies, it divides regions within countries, and it carves up the world between rich and poor," he added.

In developed countries, governments had been taxing more and spending more on social benefits to offset the trend towards more inequality, but the effectiveness of these policies had declined, the OECD said.

As an example, OECD countries spend three times more on family policies than they did 20 years ago and yet single-parent households are three times as likely to be poor.

Poverty is defined as applying to households with less than half the median income.

"Trying to patch the gaps in income distribution solely through more social spending is like treating the symptoms instead of the disease," said Mr Gurría.

He urged governments to act to increase education opportunities and job prospects for blue collar workers and to offer welfare-in-work to working-class families to boost income.

Bernanke supports higher spending

US Federal Reserve chief Ben Bernanke has said more government spending may be needed to combat economic weakness.

A fresh round of stimulus would be a good idea, he told the US House of Representatives budget committee.

Although Mr Bernanke stopped short of saying the US was in recession, he said the American economy was now in a "very serious slowdown".

Hopes of a fresh economic stimulus package pleased investors, with the main Dow Jones index ending up 4.7%.

"Consideration of a fiscal package by the Congress at this juncture seems appropriate," said Mr Bernanke.

His comments were welcomed by Democratic leaders in Congress, who called on Republicans and the White House to work together to formulate a plan.

A White House spokesman said it would have to wait and see what Democrats, who control both halves of Congress, put forward.

'Serious consequences'

A series of crises in the housing, credit and financial sectors have badly hit the US economy.

Many analysts are forecasting the US economy will shrink later this year and early next year. This would meet the classic definition of a recession - which is two quarters of negative growth.

However, some economists believe the economy is already in a recession, something that Mr Bernanke more than hinted at.

"We are in a very serious slowdown in the economy which has very serious consequences for the public," he said.

"Whether it's called a recession or not is of no consequence."

'Promoting growth'

In his speech before the committee, Mr Bernanke suggested that Congress should design a stimulus package so that it would be "timely and well-targeted".

He said it should limit the longer-term impact on the government's budget deficit, which hit a record high in the last financial year.

Any government spending would need to kick in quickly to encourage people and businesses to boost spending and help the economy during the period in which economic activity would be otherwise weak, he said.

The Federal Reserve chairman also said the package should include provisions that would aid the jammed credit markets, which has been a major factor in the economy's slowdown.

"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," he said.

"Such actions might be particularly effective at promoting economic growth and job creation," he added.

Tech firms warn of lower profits

Texas Instruments (TI) and computer hardware maker Sun Microsystems have both warned of lower future profits.

Based on recent weak order trends, TI said it now expected earnings per share of 30-36 cents in the last three months of 2008, below forecasts.

The warning came as the chip firm reported quarterly net income of $563m, down from $776m last year.

Sun Microsystems warned it would report a wider-than-expected loss in the final quarter of the year.

As most industries suffer from the global squeeze on credit and a consumer slowdown, so many technology firms are feeling the effects from a drop in demand.

Streamlining

"Our outlook for the fourth quarter is for revenue to decline substantially based on weak order trends over the past few months," said Rich Templeton, TI chairman, president and chief executive.

As a result, the Dallas-based firm said it had aggressively reduced inventory and would continue to do so until the end of the year.

TI also said it was in talks to sell part of its business of making wireless chips - the division that makes off-the-shelf chips for mobile phone handsets.

It said the move would help it cut costs by more than $200m a year.

The Dallas-based firm said it would focus on investing in custom-design chips, which are used in many smartphones.

Separately, Sun said it expected to report a net loss for the final three months of 2008 of 25-35 cents a share, surprising analysts who had expected the firm to post a net loss of 16 cents a share.

"Sun and its customers are seeing the impact of a slowing economy," said chief executive Jonathan Schwartz in a prepared statement.