udge to rule on Chrysler franchise terminations

NEW YORK – A bankruptcy judge will rule Wednesday on whether Chrysler can terminate the franchise agreements of 789 of its dealers as part of its ongoing restructuring.

U.S. Judge Arthur Gonzalez is expected to hear testimony from Chrysler LLC executives, as well as dealers during the hearing.

Auburn Hills, Mich.-based Chrysler maintains that it needs to reduce its dealer base to a leaner network of about 2,400 dealers in order to emerge from Chapter 11 bankruptcy protection as a stronger company.

Chrysler claims that many of the dealerships in question, which amount to about a quarter of its dealer population, were chosen because they are either unprofitable or located too close to other Chrysler dealerships.

But the dealers argue that they don't cost the automaker anything, just make it money by selling Chrysler's cars and trucks.

They maintain that if Gonzalez approves Chrysler's motion it will result in the shuttering of hundreds of dealerships and thousands of workers will lose their jobs.

A group representing about 300 of the dealers slated to lose their franchises have filed an objection. They also earlier objected to Chrysler's motion to sell the bulk of its assets to a group led by Italy's Fiat Group SpA, because it was tied to the plan to eliminate the dealerships.

A trio of dealers testified during the third and final day of the sale hearing, saying that their businesses would mostly likely be forced to close if they lost their franchises.

In addition to the dealers group, attorneys for several individual dealers have also filed objections.

Separately, the U.S. Court of Appeals for the Second Circuit agreed late Tuesday to hear an appeal by a trio of Indiana state pension and construction funds of Chrysler's sale to Fiat. Arguments will begin Friday, The Wall Street Journal said, citing the court's order.

Gonzalez said in his ruling late Sunday that a speedy sale was needed to keep the value of Chrysler from deteriorating and would provide a better return for the company's stakeholders than if it had chosen to liquidate.

But the Indiana funds, which own $42.5 million of Chrysler's $6.9 billion in secured debt, aggressively objected, saying the sale does not provide a big enough return for secured debt holders, while paying off unsecured stakeholders.

Chrysler requested Monday that the sale be certified for immediate appeal in order to move the case quickly to U.S. District Court. It's unclear how much the appeal could delay the sale's closing and Chrysler's emergence from court oversight.

Chrysler has said that any delay could cause the deal with Fiat to crumble, as the Italian automaker has the option of pulling out if the sale does not close by June 15.

Also on Wednesday, the Senate Commerce Committee is scheduled to hold a hearing on GM and Chrysler dealership closings.

GM Chief Executive Fritz Henderson and Chrysler President James Press, along with John McEleney, chairman of the National Automobile Dealers Association, and other dealers, are expected to testify.

Banks shares feel pressure from capital raises

NEW YORK – Financial stocks came under pressure Tuesday as several big banks scrambled to raise capital to help repay government bailout funds. A negative outlook on the sector from Moody's also weighed on stocks.

JPMorgan Chase & Co., American Express Co. and Morgan Stanley all priced stock offerings at a slight discount on Tuesday, while Goldman Sachs Group Inc. sold part of its stake in Industrial & Commercial Bank of China.

The moves came as the banks try to prove to regulators that they can raise money without relying on guarantees against losses from the Federal Deposit Insurance Corp. Many banks that received federal bailout funds last fall have balked at the increased government scrutiny and restrictions on executive compensation that are contingent to the funding.

A spate of recent stock offerings have been a welcome sign that banks can once again go to the public to raise capital, but they are dilutive to future earnings and current shareholders' stakes. Shares of banks have often sold off immediately after capital raises are announced.

JPMorgan shares dropped $1.29, or 3.6 percent, to $34.82 in early afternoon trading after the bank priced a $5 billion stock offering at $35.25 per share — a 2.4 percent discount to Monday's closing stock price.

American Express shares fell $1.38, or 5.3 percent, to $24.61, while Morgan Stanley shed 69 cents, or 2.3 percent, to $29.20. Goldman Sachs lost $2.05 to $142.28.

Meanwhile, a group of analysts at Moody's Investors Service led by Curt Beaudouin reaffirmed a negative credit outlook on the U.S. banking industry, which weighed on shares. The ratings agency estimated that U.S. banks will take about $470 billion of loan and security losses through 2010.

"Due to these asset quality problems, many U.S. banks will be unprofitable in 2009, putting stress on capital levels," the analysts wrote.

While the government's stress test results released early last month have cleared up some of the concerns about banks, analysts say the industry's credit problems are far from over so long as housing prices are falling and unemployment is rising.

The stress tests determined that 10 of the 19 largest U.S. banks needed to raise $75 billion in fresh capital to withstand potential future losses.

A number of banks the government said needed more capital, such as Bank of America Corp. and Wells Fargo & Co., have recently completed stock offerings to bridge that gap in reserves.

Banks that were deemed to have sufficient capital, like JPMorgan and American Express, have been working to prove they can stand on their own without reliance on government funding.

Other decliners Tuesday included Wells Fargo, which fell $1.01, or 4 percent, to $24.42, and U.S. Bancorp, which lost 99 cents, or 5.2 percent, to $17.91. Citigroup Inc. shares dropped 17 cents, or 4.6 percent, to $3.52.

Bucking the trend, shares of SunTrust Banks Inc. shot up more than 10 percent as the regional bank announced plans to speed up its capital raising efforts to meet a $2.2 billion capital shortfall.

Morgan Keegan & Co. analyst Robert Patten subsequently raised his rating on the stock to "Outperform" from "Market Perform," noting that the details of the capital-raising plan clear up concerns about potential dilution.

Bank of America wins in $1 billion-plus California lawsuit

NEW YORK (Reuters) – California's highest court on Monday ruled that Bank of America Corp (BAC.N) need not pay a potential $1 billion or more to customers who claimed the bank illegally raided Social Security benefits to collect fees.

Plaintiffs in the class-action case had accused the largest U.S. bank of dipping into their Social Security direct deposit accounts between 1994 and 2003 to collect fees for overdrafts and other debts.

A San Francisco trial court in 2004 ordered the Charlotte, North Carolina bank to pay $284.4 million of damages, plus up to $1,000 to each customer who suffered substantial emotional or economic harm. The case was filed on behalf of more than 1.1 million customers, many of whom were elderly or disabled.

In 1974, the California Supreme Court had ruled that a bank may not satisfy a credit card debt by deducting fees owed from a separate checking account containing deposits that "derived from unemployment and disability benefits."

But in Monday's unanimous ruling, the court distinguished the current case by saying the transactions at issue occurred "within a single account" rather than in multiple accounts.

It said policy concerns about setting off independent debt, such as the importance of providing people "with a stream of income to defray the cost of their subsistence," were not present in this case.

"We do not agree with plaintiffs that there is no meaningful difference between satisfying a debt external to an account and recouping an overdraft of an account from funds later deposited into that same account," Justice Carlos Moreno wrote for the court.

Monday's ruling upheld a 2006 appeals court decision that had reversed the trial court ruling. Paul Miller, a disabled former photojournalist, was the original plaintiff in the case, and a jury had awarded him $275,000.

James Sturdevant, a lawyer for the bank customers, in a statement labeled Monday's decision "disgraceful," and called for laws making clear that "exempt benefits are exempt, without qualification and without special exceptions for national banks, which are among the most avaricious of creditors."

Bank of America said it was pleased with the ruling, which it said rejected "a challenge to account balancing practices followed by every bank in California and across the nation."

Shares of Bank of America ended down 6 cents, or 0.5 percent, at $11.21 on the New York Stock Exchange.

The case is Miller v. Bank of America, California Supreme Court, No. S149178.

Three banks take steps toward repaying government

NEW YORK – Morgan Stanley, JPMorgan Chase & Co. and American Express Co. moved closer to repaying government bailout money, announcing a series of new stock sales.

The stock offers disclosed late Monday and Tuesday are a precondition for the financial companies to pay back loans received under the Troubled Asset Relief Program last fall. The Treasury Department is expected to announce next week the first group of banks that will be allowed to repay the money.

Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. said banks want to sell stock so they can repay TARP as soon as possible, and also to take advantage of investors' current appetite for financial stock.

"The market (for bank stocks) could be open for another three weeks, it could be closed in three days," Miller said.

Hundreds of banks received funds as part of the $700 billion program last fall as the government tried to break a logjam in lending and in credit markets. The largest recipients are now itching to unburden themselves of the loans and the government oversight that comes along with them, although the government must approve any applications from banks to repay the funds.

"They want to get out from under the 'Scarlet T' as fast as possible," Miller said.

A big reason why banks are anxious to repay the money is because TARP limits how much they can pay their executives. The companies say that has made them less able to attract and retain talented employees.

Treasury Department spokeswoman Nayyera Haq declined to comment on the TARP repayment process.

JPMorgan priced an offer Tuesday to raise $5 billion, while American Express said it would raise $500 million and Morgan Stanley said it would raise $2.2 billion. Goldman Sachs Group Inc. and Bank of New York Mellon Corp. have previously raised funds with the goal of repaying TARP funds as well.

Keefe, Bruyette & Woods Inc. analysts said the savings banks would get from repaying government loans would far outweigh the negative effect that new shares would have on banks' stock prices. Analyst David Konrad increased his earnings estimate for JPMorgan based on its stock offer, while analyst Sanjay Sakhrani said repaying the loans could increase earnings for the year by as much as 20 cents per share.

Morgan Stanley received $10 billion in TARP funds, while JPMorgan received $25 billion and American Express received about $3.4 billion. In return for the loans, the government received preferred shares and warrants to purchase common stock. It is still unclear how much it will cost banks to repurchase the warrants.

The wave of stock offers comes less than a month after banks began going to the market to help meet capital shortfalls outlined by the government's stress tests. The tests were designed to see if 19 of the nation's largest financial firms would need additional capital to cover further losses if the economy worsened.

Both JPMorgan and American Express did not need additional funds, but Morgan Stanley was told it needed $1.8 billion. After the stress test results were announced, Morgan Stanley immediately raised $3.5 billion in stock, more than covering that shortfall.

Other banks also said to have shortfalls against potential future losses embarked on capital raising efforts as well, including Bank of America Corp, which needs to raise the most cash, $33.9 billion. As of Tuesday the bank said it has raised almost $33 billion through stock offerings, asset and investment sales and the conversion of preferred shares to common stock.

Like other major banks, BofA has also said it would like to repay the TARP funds as soon as possible, but it will first have to complete its stress-test related capital raise before applying to repay TARP.

BofA, JPMorgan, others raise $19 billion

NEW YORK (Reuters) – Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and several other banks said they have raised more than $19 billion as lenders scramble to extricate themselves from Washington's grip.

Lenders are trying to show regulators they are capable of functioning without government support. The Federal Reserve will announce next week which of the 19 big lenders that underwent "stress tests" will be allowed to repay government bailout funds.

"Markets are providing an avenue for banks of all sizes and stripes to raise money unless you are at death's door," said Gary Townsend, co-founder of Hill-Townsend Capital in Chevy Chase, Maryland. "The market also seems to be making an assessment that credit problems are manageable and that the environment is improving. In my view, that is correct."

JPMorgan sold $5 billion of stock, Morgan Stanley (MS.N) $2.2 billion and American Express Co (AXP.N) $500 million at a discount to Monday's prices after the Fed imposed new capital-raising requirements on large banks hoping to repay the Treasury Department's Troubled Asset Relief Program.

Goldman Sachs Group Inc (GS.N), which also hopes to exit TARP, sold $1.9 billion of its stake in Industrial and Commercial Bank of China (601398.SS) (1398.HK).

Meanwhile, Bank of America said it has raised close to $33 billion since early May, including $7 billion over six days, closing nearly all of the $33.9 billion capital shortfall that regulators found through its stress test. The largest U.S. bank said it expects to "comfortably exceed" that sum.

Also, KeyCorp (KEY.N) said it has raised $1.3 billion, including $1 billion from selling stock, to help plug a $1.8 billion shortfall, while SunTrust Banks Inc (STI.N) late Monday sold $1.4 billion of stock to help fill a $2.2 billion hole.

Of the 19 banks to undergo stress tests that assessed their readiness for a deep recession, 10 were ordered to raise $74.6 billion. The others had enough capital.

American Express shares closed down 4.9 percent to $24.71, Bank of America rose 1.8 percent to $11.41, Goldman fell 0.8 percent to $143.13, JPMorgan fell 4.5 percent to $34.50, KeyCorp rose 1.7 percent to $4.82, Morgan Stanley rose 0.7 percent to $30.09 and SunTrust rose 15.5 percent to $15.94.

NEW RULES

The Fed said large banks hoping to repay TARP must show an ability to access public equity markets, sell long-term debt without government backing, lend sufficiently, meet their funding obligations and support their subsidiaries.

American Express, Bank of New York Mellon Corp (BK.N), BB&T Corp (BBT.N), Goldman, JPMorgan, Morgan Stanley, State Street Corp (STT.N) and U.S. Bancorp (USB.N) have signaled their intent to repay the government, people familiar with the matter have said. Some of the requests have not been made public.

Many banks have complained about the increased government scrutiny and pay restrictions that accompany TARP funds. To free themselves from Washington, banks still need to buy back or get rid of government warrants to buy their shares.

"For any bank that can raise capital and pay off TARP, they should so they can get the government out of their hair," said Joseph Gordon, president of Gordon Asset Management LLC in Durham, North Carolina.

Repaying TARP could leave banks "free and clear, like a real American free citizen, corporate citizen, like we were in the past," JPMorgan Chief Executive Jamie Dimon said on a conference call on Monday.

More than 600 banks took TARP money, and about 20 have paid it back, Treasury Department data show.

American Express took $3.4 billion, Bank of America $45 billion, Bank of New York Mellon $3 billion, BB&T $3.1 billion, Goldman $10 billion, JPMorgan $25 billion, KeyCorp $2.5 billion, Morgan Stanley $10 billion, State Street $2 billion, SunTrust $4.9 billion and U.S. Bancorp $6.6 billion.

Discounts, not efficiency, drive US auto sales up

DETROIT – Americans bought more cars in May than in any other month this year, drawn by fire sale prices that pushed General Motors and Chrysler's sales above expectations despite their forays into bankruptcy protection. Overall sales were still 34 percent lower than a year ago.

But low gas prices encouraged the sale of bigger vehicles while small cars stacked up on dealer lots. That could be a problem for the Obama administration, if the demand for more fuel-efficient vehicles drops just as it is forcing the U.S. auto industry to produce more of them.

"The great migration away from fuel efficiency is once again under way," said Mike Jackson, chairman and chief executive of AutoNation Inc., the nation's largest automotive retailer. "The price of gasoline determines the type of vehicles consumers buy. Period."

All major automakers including Toyota and Honda posted drops from last year, with Ford Motor Co. benefiting from the financial woes of its Detroit competitors and recording the smallest decline at 24 percent.

GM and Chrysler have pegged their recoveries to fuel efficiency — Chrysler with small cars from Fiat SpA, GM with new American-built compacts and subcompacts, and both with plans for electric vehicles. It could take months of expensive gas for people to buy their new products.

Almost every small-car model saw significant drops in sales compared with May of last year, which was a record month for many models as gas headed for $4 per gallon.

Honda's Civic was off 61 percent, Ford saw Focus sales drop 54 percent, and GM's Chevrolet Cobalt was down 52 percent. Even Toyota's Corolla, the perennial small-car leader, saw sales drop 55 percent.

Yet sales of Ford's midsize Fusion jumped 9 percent, with four-cylinder engines making up 70 percent of the sales. Chevrolet's Malibu sales were down 11 percent, a far lower decline than the rest of the market.

Jackson said gasoline price instability makes it difficult for automakers to decide what models to produce and dealers to decide which ones to stock.

"I was an idiot last July when I didn't have enough fuel-efficient vehicles, and now I'm an idiot because I have fuel-efficient vehicles," he said in an interview Tuesday, calling for a revenue-neutral gas tax increase to keep the price stable at $4 per gallon.

Early in the month, Honda had thousands of Civics stacked up in the lots of a closed Ford plant west of Cleveland, stored there from factories in Ohio and Canada. Many have since been shipped to dealers, the company said.

Jackson said all automakers' small cars suffered, but Honda was hit harder as a company because it is the most fuel efficient.

"Honda is perfectly positioned for $4 per gallon gasoline and is out of favor at $2 per gallon. It becomes a headwind for them."

Jackson said he is changing his dealers' mix to larger vehicles, from midsize cars up to sport utilities, because that's what people want to buy.

But George Pipas, Ford's top sales analyst, said the trend to more efficient vehicles is continuing. Premium gasoline is back to $3 per gallon in California, said Jesse Toprak, executive director of industry analysis for the auto Web site Edmunds.com.

"We know the downsizing of the American vehicle has been taking place for several years and is still going on," he said. "I think the midsize segment does have some appeal, but don't forget fuel efficiency is still key."

Ford said its May U.S. sales fell 24 percent from last year but rose 20 percent from April, and its share of the U.S. market rose to the highest level since 2006.

"The winner is still Ford out of all automakers in terms of their May performance and the trending so far this year," Toprak said.

Although Chrysler's sales were off 47 percent, the decline was about the same as it was in the months before the Auburn Hills, Mich., automaker filed for Chapter 11 bankruptcy protection.

The company said its sales were pulled lower because it didn't sell to fleet buyers such as rental car companies, but retail sales to individual buyers were the best they've been all year.

With 789 dealers set to be severed from the company next week, many of those purchases were encouraged by deep discounts. Chrysler had the highest average incentive among automakers last month — $4,159 per vehicle, according to Edmunds.

GM, which saw its sales drop 29 percent in the month leading up to its bankruptcy protection filing on Monday, ranked second in incentives at $3,783 per vehicle. Even Honda, where sales dropped 42 percent, raised incentives to a record $1,626.

"GM and Chrysler are still outperforming our expectations by a little," Toprak said. "It seems like the fire sale message came across pretty strong."

But Mark LaNeve, GM's vice president of North American sales and marketing, said GM's incentives were the same as last May.

"We have great competitive deals out there, but with the mere fact that our incentive spending did not go up is evident that we did not, and will not, resort to fire-sale tactics due to any kind of bankruptcy proceedings or discontinued brands," he said on a conference call with reporters and industry analysts.

GM intervention by U.S. raises free trade questions

WASHINGTON (Reuters) – Two months ago President Obama stood with other Group of 20 nations' leaders in London and pledged not to introduce protectionist measures in the global economic crisis.

Now some are wondering whether the Obama administration's decision to rebuild General Motors Corp by taking majority government ownership, and getting the global company to make more cars in the United States, breaks the spirit, if not the letter, of that pledge.

"We (the United States) are looked to as the leader of free markets," said Claude Barfield, a resident scholar and trade expert at the American Enterprise Institute in Washington.

He worries some of the signals sent this week in the U.S. help for General Motors "will come back to haunt us in terms of the competitiveness of U.S. corporations, and in terms of furthering U.S. public policy goals."

But other analysts say it will be hard for some countries in Europe and Asia to challenge U.S. subsidies for favored companies, if they are doing the same thing.

"Other governments are providing rescue packages in the automotive sector. And that has political relevance and to a certain extent, legal relevance," said John Magnus, a trade litigator with the Washington law firm Miller Chevalier.

General Motors has filed for bankruptcy protection to begin a fast-track restructuring. The company that emerges will be 60 percent owned by the U.S. government, which is giving GM a $30 billion cash infusion. The governments of Canada and Ontario will take a 12 percent stake.

BOLSTERING U.S. OUTPUT

Obama said explicitly on Monday that part of the plan was to shift more production back to the United States.

"As this plan takes effect, GM will start building a larger share of its cars here at home, including fuel-efficient cars. In fact, if all goes according to plan, the share of GM cars sold in the United States that are made here will actually grow for the first time in three decades," the president said.

Ron Gettelfinger, president of the United Auto Workers, said the union got a commitment from the company to build a subcompact car at a U.S. factory, instead of increasing imports from Asia.

"It should be built here if it's going to be sold here," he told Reuters last week.

The Obama administration denied on Monday reports that it had insisted that European automaker Opel be barred from the U.S. and Chinese markets after GM sells a majority stake, saying that any such decisions were up to GM.

But Barfield said U.S. actions over GM provided an excuse for other countries like China that want to build up domestic auto industries. "The Chinese will love this," he said.

Asked if the government help for GM could make the United States vulnerable to complaints by other countries before the World Trade Organization, Magnus noted that such trade cases were expensive to mount -- and foreign automakers would have to prove they were harmed by the U.S. subsidies.

"Plain vanilla domestic subsidies are relatively hard to challenge," he said.

Economic analyst Ed Gresser at the Democratic Leadership Council said the GM deal was "not something foreign governments can jump up and down about and say it's outrageous, the way they did jump up and down about the 'Buy American' legislation." He was referring to clauses in a $787 billion U.S. economic recovery plan that Obama signed in February.

In any case, Gresser said, "the spirit of the G20 wasn't that governments should feel duty-bound to let major industries collapse."

GM strikes Hummer deal with China machinery maker

DETROIT/NEW YORK (Reuters) – General Motors Corp said on Tuesday it reached a tentative deal to sell its Hummer brand to a privately held Chinese heavy machinery maker, part of an effort to drop four unprofitable vehicle lines and leave bankruptcy as a leaner company.

GM, a day after filing for bankruptcy, said in a statement that it reached a memorandum of understanding with Sichuan Tengzhong Heavy Industrial Machinery Co for the sale. Tengzhong said it will retain Hummer's senior management and operational team.

GM said Tengzhong will also enter into a long-term contract assembly and key component and material supply agreement with GM.

Under the deal, which is subject to regulatory review and is expected to close in the third quarter, Tengzhong will assume Hummer's existing dealer agreements.

Financial terms were still under discussion and will not be disclosed, GM said. Bankers have said Hummer could fetch about $100 million in cash in addition to other commitments.

The deal marks the first time that a Chinese buyer has acquired a brand from one of the struggling U.S. automakers.

Chinese parts suppliers and automakers have shopped for U.S. automotive assets, including those at also-bankrupt Chrysler LLC, but no deals have been completed despite the enormous pressure on U.S. automakers in recent years to cut costs.

Based in the Chinese province of Sichuan, Tengzhong makes special-use vehicles, highway and bridge structural components, construction machinery and energy equipment.

Tengzhong was formed in 2005 through a series of mergers and, according to its website has 4,800 employees, compared with GM's 243,000. The Chinese firm said in a joint statement with GM that it would expand into the premium off-road vehicle segment.

"We will be investing in the Hummer brand and its research and development capabilities, which will allow Hummer to better meet demands for new products such as more fuel-efficient vehicles in the U.S.," Tengzhong CEO Yang Yi said.

Tengzhong's website (www.sctengzhong.com:8080/tengzhong/weben/gytz.jsp) did not indicate whether the company has experience running plants overseas or of producing passenger vehicles of any kind.

GM said earlier on Tuesday that the buyer of Hummer, who it did not initially identify, would contract to build the H3 model SUV and the H3T pickup truck at GM's plant in Shreveport, Louisiana, through at least 2010.

In addition, GM said the investor would fund future vehicles for Hummer and invest in alternatives to the heavy gas-guzzling engines that are the hallmark of the brand.

In Shreveport, where 800 workers work on a single shift building Hummer H3 and H3T models, there was relief that a new buyer would keep the line running for at least a while longer.

"We're just excited that Hummer may live on," said Morgan Johnson, president of UAW Local 2166, which represents workers at the GM plant.

DIMINISHED EXPECTATIONS

GM had expected Hummer to fetch more than $500 million when it went on sale a year ago.

The automaker said in a court filing on Monday that the sale could not proceed on "reasonable terms" due to tight credit and concerns about GM's financial condition.

Part of the problem has been that the military-derived Hummer has become an emblem of excess, turning consumer tastes against the brand's macho styling and prices that can top $71,000. U.S. sales fell by more than two-thirds in January-April.

First seen as multipurpose, off-road military vehicles, Hummers were originally built by AM General. Its first model was the Humvee, built for the military. GM bought the Hummer brand from AM General in 1999. AM General still makes the Humvee for the U.S. military.

After losing $88 billion since 2005, GM is in the process of cutting debt, workers and brands in bankruptcy. It is seeking to sell its Saab and Saturn brands this year and plans to discontinue Pontiac by the end of 2010.

That would leave a smaller GM to be rebuilt around the Chevrolet, Cadillac, GMC and Buick brands. Together those account for more than 80 percent of current sales.

Credit Suisse is acting as exclusive financial adviser and Shearman & Sterling is international legal counsel to Tengzhong on the transaction. Citi is financial adviser to GM.

GM to sell Hummer to Chinese company

General Motors Corp. took a key step toward its downsizing on Tuesday, striking a tentative deal to sell its Hummer brand to a Chinese manufacturer, while also revealing that it has potential buyers for its Saturn and Saab brands.

China's Sichuan Tengzhong Heavy Industrial Machinery Co. said Tuesday afternoon that it reached an agreement to acquire the brand from GM for an undisclosed ammount. The Detroit automaker had announced Tuesday morning that it had a memorandum of understanding to sell the brand of rugged SUVs, but it didn't identify the buyer.

Sichuan Tengzhong deals in road construction, plastics, resins and other industrial products, but Hummer would be its first step into the automotive business.

GM said the sale will likely save more than 3,000 U.S. jobs in manufacturing, engineering and at various Hummer dealerships. Tengzhong said it will assume GM's existing agreements with Hummer dealers.

"We will be investing in the Hummer brand and its research and development capabilities, which will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S," Chief Executive Yang Yi said in a statement.

As part of the proposed transaction, Hummer will continue to contract vehicle manufacturing and business services from GM during a transitional period. For example, GM's Shreveport, La., assembly plant would continue to contract to assemble the H3 and H3T through at least 2010, GM said. AM General LLC in Mishawaka, Ind., makes the larger H2 under contract for GM.

Hummer will keep its existing management team and remain based in the United States, the companies said. Tengzhong said it expects to expand the brand's dealer network worldwide, including to China.

"GM is close to a sale of its Hummer brand, which is good news for the 3,000 Americans who will be able to keep their jobs, the two American plants that will remain open and the more than 100 Hummer dealers that should be able to stay in business all around the country," White House spokesman Bill Burton said earlier in the day.

On Monday, the Shreveport plant, which has about 800 workers, escaped being among 12 plants that GM said would be shut down by next year. The plant, which employed 3,000 several years ago, also produces Chevrolet and GMC pickups.

Johnny Bell, 59, who has worked at GM for 28 years, said many workers are still concerned about the plant's long-term future.

"Good news is good news, but we want all the news," he said. "We're concerned about what happens after 2010."

Morgan Johnson, head of the United Auto Workers local at the plant, said GM indicated to the union that pickup assembly would continue in Shreveport through 2012.

"We're just happy that the doors are still open considering all the plant closings," said Sharon Brock, 52, who has worked at the sprawling plant for 26 years.

GM also said Tuesday that it has 16 buyers interested in purchasing its Saturn brand, while three parties are interested in the Swedish Saab brand.

Chief Financial Officer Ray Young told reporters and industry analysts on a conference call that GM is continuing to pursue manufacturing agreements with a new Saturn buyer.

GM would like to sell the money-losing Saturn brand's dealership network, contracting with the new buyer to make some of its cars while the buyer gets other vehicles from different manufacturers.

At the same time, bridge loan discussions with the Swedish government are progressing, Young said.

GM, which filed for Chapter 11 bankruptcy protection in New York on Monday, is racing to remake itself as a smaller, leaner automaker. In addition to its plan to sell the Hummer, Saab and Saturn brands, GM will also phase out its Pontiac brand, concentrating on its Chevrolet, Cadillac, Buick and GMC nameplates.

The company hopes to follow the lead of fellow U.S. automaker Chrysler LLC by transforming its most profitable assets into a new company in just 30 days and emerging from bankruptcy protection soon after.

But GM is much larger and complex than its Auburn Hills-based rival and isn't up against Chrysler's tight June 15 deadline to close its deal with Fiat Group SpA.

Sharon Lindstrom, managing director at business consulting firm Protiviti, said the companies pose different challenges. But as with Chrysler, she notes that the Treasury Department made sure many of GM's moving parts were in order ahead of time so a quick bankruptcy reorganization might be possible.

"They had a lot of their ducks in a row because the terms of the government financing forced them to get all the parties to the table in a very, very short period of time," Lindstrom said.

Separately, the German government said Tuesday it paid out the first euro300 million ($425 million) in bridge loans to GM's Adam Opel GmbH division. The loans are part of a deal to shrink GM's stake in Opel and shield it from GM's bankruptcy protection filing in the U.S.

Canadian auto supplier Magna International Inc. and Russian-owned Sberbank will acquire 55 percent of Opel.

A sale of the Hummer brand had been expected. Chief Executive Fritz Henderson had said in April that the automaker was expecting final bids from three potential buyers within the month.

Eric Lane, vice president of Baton Rouge, La.-based Gerry Lane Enterprises, which has four dealerships — including one offering Hummers — welcomed the sale.

Lane said a lack of new products and the recession figured into the Hummer equation much more than last year's runup in gasoline prices. "I haven't had a single owner complain about mileage. Nobody buys a Hummer because of the gas. You don't buy a vehicle for $60,000 and worry about the price of gas."

Critics had seized on the rugged but fuel-inefficient Hummer as a symbol of excess as GM's financial troubles grew and gas prices rose. Sales at Hummer, which is known for models with military-vehicle roots, have been in a steep slide since gasoline prices rose to record heights last summer. For the first five months of this year, Hummer sales are down 64 percent.

GM nailed down deals with its union and a majority of its bondholders and arranged the Opel deal in order to appear in court Monday with a near-complete plan to quickly emerge with a chance to become profitable.

The government has said it expects GM to come out of bankruptcy protection within 60 to 90 days. By comparison, the judge overseeing Chrysler's case approved the sale of its assets to a group led by Italy's Fiat in just over a month. Some industry observers think Chrysler could emerge as early as this week.

During Monday's hearing, GM attorney Harvey Miller stressed the magnitude of the case and the importance of moving GM through court oversight as fast as possible. He noted that the automaker only has about $2 billion in cash left.

"If there's going to be a recovery of value, it's absolutely crucial that a sale take place as soon as possible," Miller said in his opening statement.

The automaker wants to sell the bulk of its assets to a new company in which the U.S. government will take a 60 percent ownership stake. The Canadian government would take 12.5 percent of the "New GM," with the United Auto Workers union getting 17.5 percent and unsecured bondholders receiving 10 percent. Existing shareholders are expected to be wiped out.

U.S. Judge Robert Gerber moved swiftly through more than 25 mostly procedural motions during the automaker's first-day Chapter 11 hearing.

Gerber set GM's sale hearing for June 30, putting it on a path similar to that of Chrysler. Objections are due on June 19, with any competing bids required to be submitted by June 22.

Gerber also gave GM immediate access to $15 billion in government financing to get it through the next few weeks, and interim approval for use of a total $33.3 billion in financing, with final approval slated to be ruled on June 25. The funds are contingent on GM's sale being approved by July 10. Gerber also approved motions allowing the company to pay certain prebankruptcy wages, along with supplier and shipping costs.

The sheer size of GM makes it a more complicated case than Chrysler.

GM made twice as many vehicles as Chrysler's 1.5 million last year and employs 235,000 people compared with Chrysler's 54,000. GM also has plants and operations in many more countries, meaning it will likely have to strike separate deals to navigate the bankruptcy laws of those places.

Henderson said GM has learned a few things by watching Chrysler's case.

"Certainly the court showed that it can address 363 (sale) transactions in an expeditious fashion," Henderson said at a news conference Monday. "Particularly in our case with what will be a very large 363 transaction."

GM's filing for Chapter 11 bankruptcy protection is the largest ever for an industrial company. GM, which said it has $172.81 billion in debt and $82.29 billion in assets, had received about $20 billion in low-interest loans before entering bankruptcy protection.

Analysis: Gov't firmly behind the wheel at GM

President Barack Obama now owns General Motors, even though he insists he's taking it out only for a spin.

Hours after the government sent GM into court Monday to file for Chapter 11 protection, Obama declared, "What I have no interest in doing is running GM."

But with a 60 percent equity stake in the carmaker and $50 billion in taxpayer money riding on GM's success, the federal government is far from a hands-off investor.

Obama and his economic team stress that the government's goal is to get GM back on its feet, maximize the return to taxpayers, and exit quickly from its involvement. But as one administration official put it, there is an inevitable tension between those objectives.

And the snap in that tension could sting — politically for Obama, economically for the auto industry and fiscally for the taxpayer.

How well a leaner GM adjusts after a trip through bankruptcy court is an open question. So is the payback to taxpayers. Administration officials already have warned that $2 of every $5 pumped into GM might be difficult to recover.

Given the economic crisis, the Obama administration's aggressive intervention is a defining moment for capitalism. Whether the president's actions serve as a private sector lifeline or a tether is a question that Obama and his economic team must confront not only with GM and Chrysler, another bailed-out automaker, but with the financial sector as well.

But the sheer size of GM's bankruptcy protection filing, the magnitude of the government's role and the company's status as a fallen symbol of American industry might make this intervention perhaps the most remarkable — and among the riskiest.

"There is a huge wish list of things they want," Julian Zelizer, a professor of history and public affairs at Princeton, said of the administration. "They don't want any risk for taxpayers, at the same time they are promising potential rewards for taxpayers. They don't want to run this forever, but at the same time it's a failed company and they're taking on responsibility for it without any clear exit strategy. The longer the promise, the bigger the potential disappointment for people."

It's certainly not lost on the administration that automakers have a huge presence in Indiana, Michigan, Ohio, Wisconsin and Missouri — all potential battlegrounds in a presidential contest. Whether voters there will remember the 66 percent of GM jobs Obama helped retain, or the 34 percent that GM had to shed to satisfy Washington, won't be known until the next election.

The administration's role to date has certainly been forceful.

The president a month ago forced Rick Wagoner out as GM's CEO. The Treasury Department dictated what bondholders should get for the $27 billion they held in GM debt. Obama's team determined that GM needed to downsize so that it could break even if auto industry car sales remain at 10 million vehicles a year, instead of the 16 million auto sales threshold it needs today.

And on Treasury's instructions, GM will replace a majority of its board members in consultation with the Obama administration.

Monday's Chapter 11 filing by GM was enough to spark a new round of partisan criticism. House Republican leader John Boehner of Ohio asked, "Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?"

Eager to put a benign tone on their interventionist role, the White House and the Treasury Department issued a set of "principles for managing ownership stake."

In the principles, the administration acknowledges that in "exceptional cases" of substantial assistance to the private sector, it reserves the right to set up conditions to protect taxpayers, promote financial stability and encourage growth.

But, Obama stressed: "The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions."

The head of Obama's auto task force, Steven Rattner, explained that those fundamental decisions would include the selection of directors and major issues such as the acquisition or the merger of the company.

"No plant decisions, no job decisions, no dealer decisions, no color of car decisions," he added. "Those are all going to be left to management."

For the president, though, doing little could prove to be quite demanding.

The administration already has proposed tougher fuel efficiency requirements by which GM will need to abide. The government also has pumped billions into the auto company's lending arm and assured consumers that it will backstop GM warranties, putting it only a few bureaucratic steps away from fixing a transmission.

And if Obama doesn't find cause to meddle, Congress very well might. The administration declared that it will have no say in what dealerships are closed in the Chrysler and GM restructuring, but members of Congress have tried to step in, asking that dealers be given more time to wind down.

House Speaker Nancy Pelosi, D-Calif., and Majority Leader Steny Hoyer, D-Md., asked administration officials on a Sunday night conference call how they would prevent sending GM manufacturing jobs overseas to China. Last month, several lawmakers were furious the administration didn't speak out publicly when GM considered importing a fuel-efficient car made in China. GM has since announced it will build the car in the U.S. in one of the plants that had been targeted for closing.

And even in their criticism, Republicans themselves suggest a more hands-on approach by the president. Rep. Eric Cantor of Virginia, a member of the House Republican leadership, said the infusion of money means "taxpayers deserve far better oversight and accountability."

That could mean occasionally getting under GM's hood.

GM strikes tentative deal to sell Hummer brand

General Motors Corp. took two key steps toward its downsizing on Tuesday, striking a tentative agreement to sell its Hummer brand and obtaining the first payout of federal loans for its European division.

Detroit-based GM said it has reached a memorandum of understanding with a buyer for Hummer, though it did not name the buyer or the price. The automaker said the sale will likely save more than 3,000 U.S. jobs in manufacturing, engineering and at various Hummer dealerships.

"We're not today in a position to be able to identify a buyer. It was part of the agreement," GM Chief Executive Fritz Henderson told CBS's "The Early Show." "We believe the buyer is quite capable of closing."

Separately, the German government on Tuesday said it paid out the first euro300 million ($425 million) in bridge loans to GM's Adam Opel GmbH division. The loans are part of a deal to shrink GM's stake in Opel and shield it from GM's bankruptcy protection filing in the U.S.

Over the weekend, the German government agreed to lend GM's Opel unit $2.1 billion. The loans are necessary to close a deal in which Canadian auto parts maker Magna International Inc. and Russian-owned Sberbank will acquire 55 percent of Opel.

GM, which filed for Chapter 11 bankruptcy protection in New York on Monday, is racing to remake itself as a smaller, leaner automaker. It is hoping to follow the lead of fellow U.S. automaker Chrysler LLC by transforming its most profitable assets into a new company in just 30 days and emerging from bankruptcy protection soon after.

But GM is much larger and complex than its Auburn Hills, Mich.-based rival and isn't up against Chrysler LLC's tight June 15 deadline with Fiat.

Sharon Lindstrom, managing director at business consulting firm Protiviti, said the companies pose different challenges. But as with Chrysler, she notes that the Treasury Department made sure many of GM's moving parts were in order ahead of time so a quick bankruptcy reorganization might be possible.

"They had a lot of their ducks in a row because the terms of the government financing forced them to get all the parties to the table in a very, very short period of time," Lindstrom said.

In addition to Hummer, GM has been trying to sell its Saab and Saturn brands. It will also phase out its Pontiac brand, concentrating on its Chevrolet, Cadillac, Buick and GMC nameplates.

A sale of the Hummer brand had been expected. Chief Executive Fritz Henderson had said in April that the automaker was expecting final bids from three potential buyers within the month.

GM nailed down deals with its union and a majority of its bondholders and arranged to sell off most of its Opel operations in Europe in order to appear in court Monday with a near-complete plan to quickly emerge with a chance to become profitable.

The government has said it expects GM to come out of bankruptcy protection within 60 to 90 days. By comparison, the judge overseeing Chrysler's case approved the sale of its assets to a group led by Italy's Fiat Group SpA in just over a month. Some industry observers think Chrysler could emerge as early as this week.

During Monday's hearing GM Attorney Harvey Miller stressed the magnitude of the case and the importance of moving GM through court oversight as fast as possible. He noted that the automaker only has about $2 billion in cash left.

"If there's going to be a recovery of value, it's absolutely crucial that a sale take place as soon as possible," Miller said in his opening statement.

The automaker wants to sell the bulk of its assets to a new company in which the U.S. government will take a 60 percent ownership stake. The Canadian government would take 12.5 percent of the "New GM," with the United Auto Workers union getting 17.5 percent and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

Attorneys for GM stakeholders packed the stuffy courtroom well ahead of the automaker's first-day Chapter 11 hearing. U.S. Judge Robert Gerber moved swiftly through the agenda's more than 25 mostly procedural motions.

Gerber set GM's sale hearing for June 30, putting it on a path similar to that of Chrysler. Objections are due on June 19, with any competing bids required to be submitted by June 22.

Gerber also gave GM immediate access to $15 billion in government financing to get it through the next few weeks, and interim approval for use of a total $33.3 billion in financing, with final approval slated to be ruled on June 25. The funds are contingent on GM's sale being approved by July 10. Gerber also approved motions allowing the company to pay certain prebankruptcy wages, along with supplier and shipping costs.

The sheer size of GM makes it a more complicated case than Chrysler.

GM made twice as many vehicles as Chrysler's 1.5 million last year and employs 235,000 people compared with Chrysler's 54,000. GM also has plants and operations in many more countries, meaning it will likely have to strike separate deals to navigate the bankruptcy laws of those places.

GM Chief Executive Fritz Henderson said GM has learned a few things by watching Chrysler's case.

"Certainly the court showed that it can address 363 (sale) transactions in an expeditious fashion," Henderson said at a press conference Monday. "Particularly in our case with what will be a very large 363 transaction."

GM's filing for Chapter 11 bankruptcy protection is the largest ever for an industrial company. GM, which said it has $172.81 billion in debt and $82.29 billion in assets, had received about $20 billion in low-interest loans before entering bankruptcy protection.

Morgan Stanley to raise $2.2 billion in capital

Morgan Stanley said Tuesday it will raise $2.2 billion through a stock offering as part of a plan to satisfy preconditions for repaying a government loan it received last fall amid the deepening credit crisis.

The government has said that in order for a bank to repay the money it received under the Troubled Asset Relief Program, it must be able to access public equity markets. Hundreds of banks received funds as part of the program last fall as the government tried to bolster the stagnant credit and lending markets.

Morgan Stanley received $10 billion as part of the $700 billion program.

Banks must receive formal approval to repay the funds after they have satisfied government requirements. Morgan Stanley said it has yet to receive formal approval to repay the cash, but hopes to receive the OK to pay back the loan by the end of June.

Some of the shares being sold as part of the offering will be purchased by existing shareholders China Investment Corp. and Mitsubishi UFJ Financial Group Inc.

Morgan Stanley could issue an additional $110 million in stock to cover over-alottments.

Shares of Morgan Stanley fell 39 cents to $29.50 in premarket trading. Most banks that have completed stock sales in recent weeks saw their share price initially fall after the announcement.

As the equity market has rallied in recent months and credit markets show signs of opening back up, banks have been able to raise cash through stock offerings. Last fall as the credit crisis worsened, financial firms were essentially shut out of raising new capital to help protect against mounting investment and loan losses, forcing them to rely on government loans to help support battered balance sheets.

On Monday, both American Express Co. and JPMorgan Chase & Co. announced similar stock offers ahead of plans to repay the TARP funds. American Express is issuing $500 million in stock, while JPMorgan will raise $5 billion through its offer.

JPMorgan received $25 billion as part of the government program and American Express received about $3.4 billion in funds.

Plane debris found in path Air France jet took

An airplane seat cushion, a life jacket, metallic debris and signs of fuel were found in the middle of the Atlantic Ocean on Tuesday by Brazilian airplanes searching for a missing Air France airliner.

The debris was spotted from the air by Brazilian military pilots searching 410 miles (650 kilometers) north of the Brazilian island of Fernando de Noronha, roughly along the path that the jet was taking before it disappeared with 228 people on board, said Air Force spokesman Jorge Amaral.

There were no signs of life.

Amaral said authorities would not be able to confirm that the debris is from the plane until they can retrieve some of it from the ocean for identification. Brazilian military ships are not expected to arrive at the area until Wednesday.

The discovery came more than 24 hours after the jet bound from Rio to Paris went missing, with all feared dead.

Rescuers were still scanning a vast sweep of ocean extending from far off northeastern Brazil to waters off West Africa. The 4-year-old Airbus A330 was last heard from at 0214 GMT Monday (10:14 p.m. EDT Sunday).

Investigators on both sides of the ocean were trying to determine what brought it down. Potential causes included shifting winds and hail from towering thunderheads, lightning or a combination of other factors.

Citi halts severance payouts to some former execs: report

Citigroup Inc (C.N) told about five former top executives that they will not be paid tens of millions of dollars in promised severance payouts, the Wall Street Journal said, citing people familiar with the matter.

The executives affected include Kevin Kessinger, who was formerly in charge of operations and technology at Citigroup and Michael Klein, former co-head of the company's investment bank, the sources told the paper.

The New York company has already paid more than half of the about $100 million it promised to the former executives, the paper said.

Citigroup officials recently decided to not proceed with the remaining payments, to avoid a possible public backlash over the money, the Journal said, citing people familiar with the situation.

Citigroup spokesman Jon Diat declined to comment to the paper.

U.S. government officials did not demand that Citigroup end its payouts, a person familiar with the discussions told the paper.

A Citigroup spokesman in Hong Kong could not be immediately reached for comment by Reuters.

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General Motors in tentative deal to sell Hummer

NEW YORK – General Motors Corp. said Tuesday that it has tentatively agreed to sell its Hummer brand, a day after the U.S. automaker filed for bankruptcy protection with hopes that it will transform its most profitable assets into a new company within just 30 days.

The Detroit-based company did not name the proposed buyer or the price, but said the sale will likely save more than 3,000 U.S. jobs in manufacturing, engineering and at various Hummer dealerships.

"We're not today in a position to be able to identify a buyer. it was part of the agreement," GM Chief Executive Fritz Henderson told CBS's "The Early Show." "We believe the buyer is quite capable of closing."

Critics had seized on the rugged but fuel-inefficient Hummer as a symbol of excess as GM's financial troubles grew and gas prices rose. Sales at Hummer, which is known for hulking sport utility vehicles like the H3, have been in a steep slide since gasoline prices rose to record heights last summer. For the first four months of this year, Hummer sales are down 67 percent.

GM and other automakers will report May auto sales later Tuesday.

A sale of the Hummer brand had been expected. Chief Executive Fritz Henderson had said in April that the automaker was expecting final bids from three potential buyers within the month.

Other terms of the transaction, which is currently tied to a memorandum of understanding, were not disclosed.

The unnamed buyer is planning to "aggressively" finance Hummer's future product programs, according to GM.

"I'm confident that Hummer will thrive globally under its new ownership. And for GM, this sale continues to accelerate the reinvention of GM into a leaner, more focused and more cost-competitive automaker," Troy Clarke, president of GM North America, said in a statement.

GM is also trying to sell its Saab and Saturn brands and will phase out its Pontiac brand as it concentrates on its Chevrolet, Cadillac, Buick and GMC nameplates.

In advance of Monday's bankruptcy filing by GM, the automaker had agreed on a deal to sell a majority interest in its Adam Opel GmbH unit in Europe.

Under that plan, Canada's Magna International Inc. would get a 20 percent stake in Opel and state-controlled Russian lender Sberbank would take a 35 percent stake. GM will retain a 35 percent holding, while the remaining 10 percent will go to Opel employees.

The proposed deal for Hummer will allow it to continue to contract vehicle manufacturing and business services from GM during the transition process.

The Hummer sale is expected to close by the third quarter's end.

GM sought court protection from its creditors on Monday under Chapter 11 of the U.S. bankruptcy code. The company said it hopes to reshape the company within a month and emerge from reorganization in 60 to 90 days as a profitable entity with fewer employees, factories and dealers.

Allen throws a wrench into expected 'Idol' outcome

Kris Allen beamed with disbelief, shook his head as if to reject that this was really happening and doubled over in shock.

The fact that he'd just beaten rollicking vocal powerhouse Adam Lambert for the "American Idol" title wasn't going to sink in quickly for the unassuming underdog from Arkansas. The only downside to this stunning victory: He was going to have to sing "No Boundaries" one more time.

"I'm sorry, I don't even know what to feel right now. This is crazy," said the 23-year-old from Conway, Ark., as he leaned on host Ryan Seacrest to keep from staggering.

Allen's smooth vocals and boy-next-door image gave him the edge after nearly 100 million viewer votes were cast, turning the theatrical Lambert into the most unlikely of also-rans. When the season started, Allen seemed unsure he had a right to take center stage, let alone stand there and snatch victory from such a formidable rival.

During his "Idol" audition last summer, Allen, hands in his pockets and a newsboy cap pulled down around his eyes, was asked by the judges if he was the best singer around.

"You know, there's probably people who are better than me," was Allen's response, offered in the quiet, low-key spirit he retained despite his growing profile.

Conversely, Lambert's commanding vocal range and stage presence -- and the judges' lavish adoration -- at times turned "Idol" into "The Adam Lambert Show," with the other contestants mere guests. But it turned out that "Idol" viewers could embrace a gifted performer like Lambert, one who sported black nail polish and bold self-assurance, only to a point.

Cowell tipped his hat to both contestants Wednesday night, who shared a moment of musical camaraderie when they joined with Queen on the rock anthem "We Are the Champions."

"To both of you, and I don't normally mean this, I thought you were both brilliant ... the future's all yours," the judge said.

"Adam did win. So did Kris. Nobody lost tonight. These are two champions," said Kiss guitarist Paul Stanley from backstage.

The comments from Cowell and Stanley aren't necessarily empty platitudes. Past contestants can testify that losing the title doesn't mean you're a loser, nor does winning mean you're a shoo-in for superstardom.

Chris Daughtry and Jennifer Hudson, who finished fourth and seventh in their respective seasons, have gone on to huge success. As for "Idol" winners, they range from blockbuster artists like Carrie Underwood to the mostly under-the-radar Taylor Hicks.

Backstage, Lambert was asked about how his second-place finish would be interpreted online.

"The blogs have a lot of opinions, don't they?" he said, smiling and looking relaxed.

His own interpretation?

"I think Kris won because he's a great artist and I was happy to be runner-up to that," he said.

Wednesday's outcome echoed last year's contest, which also looked at the outset like it was going the other way. Cowell all but crowned David Archuleta after the performance finale, calling his a "knockout performance" -- but the victory went to David Cook.

Lambert was such a powerful, unique performer that his fans were allowed a sense of entitlement on his behalf. But his triumph wasn't inevitable. When Allen and Lambert were declared the finalists last week, just 1 million viewer votes separated the pair out of 88 million cast.

Allen bloomed during the season, gaining more assurance onstage and winning viewers over with his heartfelt vocals, modest demeanor and well-scrubbed good looks.

There was also the Danny Gokey factor. Gokey made it to the top three before he fell out of the contest, leaving his supporters up for grabs.

"After the third one leaves, you wonder where do the votes go from that third contestant," Paula Abdul said backstage after Tuesday's singing showdown.

Allen seemed the likely candidate for those viewers' affections, for on- and offstage reasons. Allen and Gokey, 29, of Milwaukee, were downright conservative when compared to Lambert's elaborate staging and wardrobe choices. Allen is a married college student -- his wife was often on hand to root for him -- and has worked as a church worship leader. Gokey, a recent widower, is a church music director.

Lambert, 27, of Los Angeles, brought measured rock flashiness -- daring, not freaky -- with songs including "Whole Lotta Love," the first-ever Led Zeppelin tune on "Idol." He's largely kept his personal life under wraps, saying "I know who I am" when asked about it.

Earlier this week, Allen said he hoped the outcome wouldn't be decided by "having the Christian vote."

"I hope it has to do with your talent and the performance that you give and the package that you have. It's not about religion and all that kind of stuff," he said.

Added Lambert: "It's about music. That's really important to keep in mind."

The finale Wednesday included the usual bag of tricks for extending the show to two hours and delaying the result until the final minutes. There were group numbers, the Golden Idol Award -- semifinalist funnyman Nick "Norman Gentle" Mitchell among the contenders -- and celebrity-contestant combos.

Allen was joined by Keith Urban on "Kiss a Girl," while Lambert stomped the stage in elevator boots and oversized ribbed shoulder pads for a pyrotechnic performance with Kiss.

The female finalists, including Allison Iraheta, opened up for Fergie, who sang "Big Girls Don't Cry" and then was joined by her group, the Black Eyed Peas. Iraheta later dueted with Cyndi Lauper on "Time After Time" and Danny Gokey joined Lionel Richie for two tunes.

Rod Stewart sang "Maggie May" after the male finalists opened for him with "Do Ya Think I'm Sexy."

An offbeat guest was Steve Martin, the actor-comedian who also specializes in the banjo. He played his song "Pretty Flowers" with finalists Megan Joy and Michael Sarver on vocals.

Asked by Seacrest to guess who might win "American Idol," Martin replied: "I know it's a long shot, but I'm hoping I do."

Allen rose to the occasion during Tuesday's performance show, especially with his soulful version of "Ain't No Sunshine." But he was tripped up by "No Boundaries," a power ballad song co-written by judge Kara DioGuardi and ill-suited to his voice.

(One audience wag said the tune's exhortation -- "You can go higher, you can go deeper ... Every step you climb another mountain" -- made it ideal for a Stairmaster exercise machine ad.)

Lambert did a better job with "No Boundaries" and excelled on his reprise of "Mad World" and on "A Change is Gonna Come."

"That was the best I've ever heard you sing -- ever!" exclaimed Abdul.

But it wasn't good enough for "American Idol" voters.

Prabakaran Dead

COLOMBO, Sri Lanka – Sri Lankan army chief Lt. Gen. Sareth Fonseka says troops have defeated the last pockets of rebel resistance in the north and are working to identify Tamil Tiger leader Velupillai Prabhakaran's body from among the dead.

Fonseka spoke Monday after state television announced Prabhakaran's death in battle.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

COLOMBO, Sri Lanka (AP) — Sri Lanka's state television station announced Monday that Tamil Tiger rebel chief Velupillai Prabhakaran has been killed.

Prabhakaran's death would spell the end of a more than three-decade quest by the rebel leader for a separate state for minority Tamils across northern and eastern Sri Lanka.

Rupavahini television, the state broadcaster, broke into its regular programming Monday afternoon to announce Prabakharan's death. They gave no details of how he was killed.

from Yahoo

Sri Lanka army: 4 prominent rebel leaders killed

COLOMBO, Sri Lanka – Troops battling the last pockets of rebel resistance in northern Sri Lanka discovered the bodies of four top Tamil Tigers, including the supreme leader's eldest son and the group's political chief, the military said Monday.

But hundreds of special forces troops and infantry soldiers were scouring the smoking war zone for signs of rebel chief Velupillai Prabhakaran and his top deputies, military spokesman Brig. Udaya Nanayakkara said, after the insurgents declared their quarter-century fight had reached its "bitter end."

"He's still there in that area, we haven't found him yet," Nanayakkara said.

Prabhakaran's capture, dead or alive, is crucial to bringing closure to this war-wracked Indian Ocean island nation. If he were to escape, he could use his large international smuggling network and the support of Tamil expatriates to spark a new round of guerrilla warfare here.

During previous rounds of fighting, Prabhakaran has reportedly told his bodyguards to kill him and burn his body beyond recognition rather than allow his capture.

Tamil Tiger fighters, as well, have been trained to commit suicide rather than be taken, and many wear cyanide capsules around their necks.

Troops were waging gunbattles Monday with the last remnants of the rebel group hiding in bunkers in a tiny area about the size of three football fields placed side by side, Nanayakkara said.

"Mopping up operations are still going ahead in the area," he said.

Earlier, troops found the body of Prabhakaran's eldest son, Charles Anthony, who was reportedly also a leader of the rebel group. Prabhakaran has three children and Charles Anthony — named after a rebel leader who died earlier in the war — was the only one thought to be fighting along with his father.

The Defense Ministry said special forces also found the bodies of the rebels' political wing leader, Balasingham Nadesan, the head of the rebels' peace secretariat, Seevaratnam Puleedevan, and one of the top military leaders, known as Ramesh. The statement said the bodies of many more rebels were scattered about the area and were not yet identified.

The Tamil Tigers were considered one of the world's best armed and most sophisticated insurgencies, with a conventional army, artillery pieces, a significant naval wing and even a nascent air force. But government forces ousted the rebels from the shadow state they controlled across a wide swath of the north in recent months and brought the group to its knees. Thousands of civilians were reportedly killed in the recent fighting.

Senior diplomats had appealed for a humanitarian cease-fire in recent weeks to safeguard the tens of thousands of civilians trapped in the war zone, but the government refused and many here grew angry at what they saw as unwanted foreign interference.

On Monday, more than a thousand angry Sri Lankans protested outside the British Embassy in Colombo, pelting it with rocks and eggs and burning an effigy of British Foreign Minister David Miliband and throwing it inside the compound. Protesters held posters calling Miliband a "white Tiger," and several tried to climb the embassy's high walls.

On Sunday, thousands gathered in the streets of Colombo to dance, sing and let off fireworks as rebel official Selvarasa Pathmanathan admitted the group's defeat.

"This battle has reached its bitter end," Pathmanathan said in a statement e-mailed to The Associated Press. "It is our people who are dying now from bombs, shells, illness and hunger. We cannot permit any more harm to befall them. We remain with one last choice — to remove the last weak excuse of the enemy for killing our people. We have decided to silence our guns."

In an interview with Britain's Channel 4 news, Pathmanathan said he had spoken with Prabhakaran personally and that the rebel leader remained inside the war zone.

The Tamil Tigers are blamed for hundreds of suicide attacks and outlawed as a terror group in the U.S., European Union and India.

The rebels have been fighting since 1983 for a separate state for Sri Lanka's ethnic Tamil minority after years of marginalization at the hands of the Sinhalese majority. More than 70,000 people have been killed in the fighting.