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Jacob S. Hacker and Paul Pierson: The Great Disconnect

by on December 15, 2010

If an economic catastrophe befalls Americans and no one in power hears it, did it happen? That was the question raised by a new Yale/Rockefeller Foundation report released yesterday that looks at the economic experiences of Americans during the Great Recession. Since one of us (Hacker) was a coauthor, we obviously gave it extra attention. Yet the picture it painted — based on a two-wave survey between March 2008 and September 2009 — was only confirmation of what most Americans know: there’s a lot of economic pain out there. According to the report, more than 90 percent of Americans experienced at least one major economic “shock” during these 18 months: a substantial drop in wealth or income, a large increase in nondiscretionary spending (such as medical costs), or similar dislocation. Even if you ignore big wealth losses — ubiquitous because of the fall in the housing and the stock markets — roughly 7 in 10 Americans saw their earnings substantially decline or their nondiscretionary expenses substantially rise. Nearly a quarter saw their income fall by 25 percent or more. Even more worrisome, those who experienced these shocks were much more likely to report serious economic deprivation (going without food, housing, or medical care because of the cost). And this was true for middle-income families as well as the least advantaged. Indeed, more than half of families with incomes between $60,000 and $100,000 that experienced employment or medical disruptions reported being unable to meet at least one basic economic need. Against this backdrop, the tax-cut deal brokered by President Obama looks like very weak tea. Extended unemployment benefits are a vital lifeline that will encourage spending to revive the economy, and the temporary cut in payroll taxes will provide an important, albeit modest and short-lived, boost. But a huge chunk of the bipartisan deal is tax cuts that the Congressional Budget Office has judged singularly ineffective as economic tonic, including massive cuts for the richest of Americans and their heirs that will pile on future debt, exacerbate inequality, and crowd out other, more effective measures — all for little or no short-term economic gain. What about a major effort to create jobs to rebuild our crumbling roads, bridges, and transportation system? Nope. What about giving more relief to struggling states that are laying off teachers and first responders? Nada. Perhaps we could step up the implementation of the health care law to provide expanded Medicaid benefits during this weak recovery, when millions of Americans are still losing their jobs and health insurance. Are you kidding? That the tax-cut deal may well be the best that Obama could have gotten only makes the joke crueler. What’s wrong with our politics that so much hardship evokes so little response? At the event launching the Yale/Rockefeller foundation report, the panelists — Ezra Klein of the Washington Post , Larry Mishel of the Economic Policy Institute, and Stuart Butler of the Heritage Foundation — seemed genuinely puzzled by this question. Even Butler, an astute conservative thinker who saw the report as a chance to have a real conversation about the level and distribution of economic risk in the United States, appeared not to have a precise response. Two answers floated around the room. The first is that our political system is so dysfunctional that even political leaders deeply worried about what’s happening just don’t see any prospect for serious action. Klein fingered the Senate filibuster, which has showed its ugly head again and again during the lame-duck session. With an intense conservative minority in the Senate, everyone from the president to those peddling deficit-reduction proposals to liberal democrats simply assumes that nothing that involves direct job creation or serious public spending or increased revenues — even revenues gained by letting tax cuts expire — is feasible. But there was second hypothesis: Maybe a good chunk of the political class is just so insulated from the realities in the report that they don’t feel the same sense of urgency that most Americans do. Things are terrible on Main Street, but on Wall Street, Pennsylvania Avenue, and K Street, they don’t look so gloomy. How else can we explain why everyone in Washington was talking about deficit reduction (at least until they decided to blow another hole in the budget), even while polls show that Americans ranked it way, way below fixing the economy? It’s not clear which is scarier — that our leaders don’t think they can lead, or that they don’t want to. Either way, the middle-class economy keeps falling, and no one is there to hear it. Jacob S. Hacker and Paul Pierson are the authors of Winner-Take-All Politics: How Washington Made the Rich Richer–And Turned Its Back on the Middle Class

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Video: Butler Says Drug Failure Puts Pressure on Lilly Revenue: Video

by on August 17, 2010

Aug. 17 (Bloomberg) — Tony Butler, an analyst at Barclays Capital, talks about Eli Lilly & Co.’s decision to stop development of one of two Alzheimer’s drugs the company has in final testing after trials showed the treatment didn’t work. Butler speaks with Suzanne O’Halloran on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Toronto-Dominion Buys Three Failed Banks in Florida as 2010 Toll Hits 50

April 16, 2010

By Dakin Campbell and Sean B. Pasternak April 17 (Bloomberg) — Toronto-Dominion Bank , Canada’s second-largest lender, agreed to buy three Florida-based financial institutions as those and five other failures brought the number of 2010 closures to 50. Toronto-Dominion added $3.1 billion in deposits to the $117 billion it holds in two other U.S. lenders, according to a company statement. The lender picked up 69 branches in yesterday’s purchases, bringing its total in Florida to 100. “These were all in locations that were in our master plan,” for new branches, Toronto-Dominion Chief Executive Officer Edmund Clark said yesterday in a telephone interview. “It would have taken us five years to have built that many branches, so it just speeds up our development.” Lenders are collapsing amid losses on residential and commercial real estate loans which pushed the FDIC’s list of “problem” banks to the highest level since 1992 in the fourth quarter. Banks in Michigan, Massachusetts, California and Washington state were also closed yesterday by U.S. and state regulators, who named the Federal Deposit Insurance Corp. as receiver, according to statements on the agency’s Web site . FDIC Chairman Sheila Bair said on Feb. 23 that the pace of failures may exceed last year’s total of 140. Toronto-Dominion, which has about 1,000 U.S. branches, has spent more than $15 billion over five years buying Portland, Maine-based TD Banknorth and Cherry Hill, New Jersey-based Commerce Bancorp. The Toronto-based lender acquired the Florida assets and deposits of Clement-based AmericanFirst Bank, First Federal Bank of North Florida in Palatka and Riverside National Bank of Florida of Fort Pierce. People’s United People’s United Financial Inc., which has $21.6 billion in assets, purchased Butler Bank of Lowell, Massachusetts, to expand its footprint, according to a company statement. People’s CEO Philip Sherringham said in July that the bank had been in contact with the FDIC on buying a failed lender. Regulators also closed Innovative Bank, of Oakland, California, and sold its operations to Los Angeles-based Center Bank, the FDIC said. Tamalpais Bank of San Rafael, California, was also shuttered and its operations were turned over to San Francisco- based Union Bank, which paid a two percent premium to acquire $487.6 million in deposits. City Bank of Lynnwood, Washington was closed by regulators who moved its deposits and the majority of the assets to Whidbey Island Bank. Coupeville, Washington- based Whidbey paid a one percent premium to the FDIC to assume $1.02 billion in deposits. State regulators and the FDIC were unable to find a buyer for Lakeside Community Bank, of Sterling Heights, Michigan, which was closed and deposits paid out, the FDIC said. To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net ; Sean B. Pasternak in Toronto at spasternak@bloomberg.net .

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FDIC Closes Six Banks: 48 Shut Down In 2010

April 16, 2010

WASHINGTON — Regulators on Friday shut down eight banks – three in Florida, two in California, and one each in Massachusetts, Michigan and Washington – putting the number of U.S. bank failures this year at 50. The Federal Deposit Insurance Corp. took over the three Florida banks: Riverside National Bank in Fort Pierce, with $3.4 billion in assets; First Federal Bank of North Florida in Palatka, with $393.3 million in assets; and AmericanFirst Bank in Clermont, with assets of $90.5 million. TD Bank Financial Group, a division of Canada’s TD Bank, agreed to acquire the deposits and nearly all the assets of the three Florida banks. The FDIC also seized Innovative Bank, based in Oakland, Calif., with about $269 million in assets; Tamalpais Bank of San Rafael, Calif., with about $629 million in assets; City Bank, based in Lynnwood, Wash., with about $1.1 billion in assets; Butler Bank in Lowell, Mass., with $268 million in assets; and Lakeside Community Bank in Sterling Heights, Mich., with $53 million in assets. Los Angeles-based Center Bank agreed to assume the assets and deposits of Innovative Bank. San Francisco-based Union Bank is acquiring the assets and deposits of Tamalpais Bank. Whidbey Island Bank, based in Coupeville, Wash., is assuming the deposits of City Bank and $704.1 million of its assets. People’s United Bank in Bridgeport, Conn., agreed to assume the assets and deposits of Butler Bank. The FDIC couldn’t find a buyer for Lakeside Community Bank. First Michigan Bank in Troy, Mich., will take over the failed bank’s direct deposit operations for federal payments, such as Social Security and veterans’ benefits. Depositors’ money is insured up to $250,000 per account by the FDIC, which is backed by the government. Last year, 140 banks failed in the U.S. That was the highest annual number since 1992 during the peak of the savings and loan crisis. The failures last year cost the FDIC’s insurance fund more than $30 billion. Twenty-five banks failed in 2008 and three in 2007. FDIC Chairman Sheila Bair has predicted that the number of bank failures will peak this year and be slightly more than in 2009. __ Paradis reported from New York.

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`Clash of the Titans’ Is Top Weekend Movie With $61.4 Million Ticket Sales

April 4, 2010

By Esmé E. Deprez and Linda Sandler April 4 (Bloomberg) — “Clash of the Titans,” a 3-D adventure based on Greek mythology, was the top film at U.S. and Canadian theaters this weekend, bringing in $61.4 million in ticket sales for Time Warner Inc. “Why Did I Get Married Too” opened in second place, posting $30.2 million for Lions Gate Entertainment Corp. , Hollywood.com Box-Office said today in an e-mailed statement. “Clash,” starring Sam Worthington and Liam Neeson , is competing for 3-D screens with Walt Disney Co.’s “Alice in Wonderland” and DreamWorks Animation SKG Inc.’s “How to Train Your Dragon,” which was the top movie last weekend. A remake of the 1981 film, “Clash” follows Perseus, the son of Zeus, who embarks on a quest to protect earth from Hades, god of the underworld. “Clash’s” strong debut was fueled by moviegoers’ excitement over 3-D, said Paul Dergarabedian , president of the box-office division of Hollywood.com, in an e-mail. “With three of the top five films in this format, there is no question that 3-D is here to stay.” “Clash” posted the biggest Easter debut ever, beating out the $40.2 million “Scary Movie 4” had in receipts in 2006, Hollywood.com said. ‘The Last Song’ Second place’s “Why Did I Get Married Too,” a comedy sequel from director Tyler Perry , follows four couples on vacation. “How to Train Your Dragon” fell to third place, taking in $29.2 million. Distributed by Viacom Inc.’s Paramount Pictures, “Dragon” features the voices of Jay Baruchel and Gerard Butler and tells the story of a young Viking who unexpectedly becomes the owner of one of the creatures. The film has taken in $92.3 million in two weeks. “The Last Song” opened in fourth place with $16.2 million for Disney. The drama, based on the novel by Nicholas Sparks , stars Greg Kinnear and Miley Cyrus as an estranged father and daughter who learn to bond through a shared love of music. Sales Rise “Alice in Wonderland” dropped to fifth place from second with $8.3 million for Disney. The Lewis Carroll tale, re- imagined in 3-D by director Tim Burton , has made $309.8 million in the U.S. since its March 5 release. Sales for the top 12 films rose 14.3 percent to $170.2 million from $148.9 million a year earlier, Hollywood.com said. Year-to-date receipts total $2.84 billion, up 10.3 percent from a year earlier. Attendance has increased 8.1 percent this year. The following table has figures provided by studios to Los Angeles-based Hollywood.com. The amounts are based on actual ticket sales from April 2 and April 3 and estimates for today. Rev. Avg./ Pct. Total Movie (mln) Theaters Theater Chg. (mln) Wks ================================================================ 1 CLASH OF THE TITANS $61.4 3,777 $16,256 — $64.1 1 2 WHY DID I GET MARRIED 30.2 2,155 13,991 — 30.2 1 3 HOW TO TRAIN DRAGON 29.2 4,060 7,192 -33 92.3 2 4 THE LAST SONG 16.2 2,673 6,062 — 25.6 1 5 ALICE IN WONDERLAND 8.3 2,980 2,774 -53 309.8 5 6 HOT TUB TIME MACHINE 8.0 2,771 2,887 -43 27.8 2 7 THE BOUNTY HUNTER 6.2 3,118 1,988 -48 48.9 3 8 DIARY OF A WIMPY KID 5.5 2,842 1,944 -45 46.2 3 9 SHE’S OUT OF MY LEAGUE 1.463 1,390 1,053 -58 28.7 4 10 SHUTTER ISLAND 1.462 1,356 1,078 -54 123.4 7 11 GREEN ZONE 1.2 873 1,394 -64 33.1 4 11 THE GHOST WRITER 1.1 656 1,730 -33 11.0 7 Top 12 Films Grosses This Week Year Ago Pct. (mln) (mln) Chg. =================================== $170.1 $148.9 14.2 Year-to-date Revenue 2010 2009 YTD YTD Pct. (mln) (mln) Chg. =================================== $2,838 $2,574 10.3 Year-to-date Attendance: 8.1% To contact the reporters on this story: Esmé E. Deprez in New York at edeprez@bloomberg.net ; Linda Sandler in New York at lsandler@bloomberg.net .

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Dreamworks’ `Dragon’ Beats `Alice’ as Top Weekend Film With $43.3 Million

March 28, 2010

By James Callan and Michael Tsang March 28 (Bloomberg) — “How to Train Your Dragon,” DreamWorks Animation SKG Inc. ’s 3-D adventure, displaced “Alice in Wonderland” as the top film at U.S. and Canadian theaters this weekend, posting $43.3 million in ticket sales. “Alice” dropped to second after three weeks at No. 1, Hollywood.com Box-Office said today in an e-mailed statement. The Tim Burton movie has made $293 million for Walt Disney Co. in domestic theaters after four weeks of release. “How to Train Your Dragon,” which features the voices of Jay Baruchel and Gerard Butler , played in 3-D at more than half of the 4,055 theaters and in 185 in Imax venues, according to Box Office Mojo. The movie is competing for 3-D screens with “Alice” and News Corp.’s “Avatar,” the Sherman Oaks, California-based researcher said. “Clash of the Titans,” from Time Warner Inc., opens next weekend. “How to Train Your Dragon,” distributed for Dreamworks Animation by Viacom Inc.’s Paramount Pictures, tells the story of a young Viking who unexpectedly becomes the owner of one of the mythical creatures. DreamWorks’ last release, “Monsters vs. Aliens,” took in $198 million domestically, according to Box Office Mojo. “Hot Tub Time Machine,” starring John Cusack , opened in third place with $13.7 million for Metro-Goldwyn-Mayer Inc. The R-rated comedy follows four men at a ski resort who are transported back in time to the 1980s, where they get a chance to alter their lives. To contact the reporters on this story: James Callan in New York at jcallan2@bloomberg.net ; Michael Tsang in New York at mtsang1@bloomberg.net .

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CEOs Defy Obama With More Cash Compensation Instead of Pay-for-Performance

March 25, 2010

By Alexis Leondis, Jessica Silver-Greenberg and Tara Kalwarski March 25 (Bloomberg) — Total compensation for U.S. chief executive officers shrank by 8.6 percent last year, according to data compiled by Bloomberg BusinessWeek. Boards offset some cuts in stock awards and options by boosting CEO salaries and bonuses, the data show. With pay packages under pressure from President Barack Obama and shareholder activists, average compensation fell by 8.6 percent to $9.81 million for the 81 CEOs whose companies’ proxy statements were examined. While option awards were slashed by 30 percent, cash earnings, including non-equity incentive rewards, rose 8.3 percent. Cash became king in corner offices because boards acquiesced to CEOs’ desire for dependable income, according to interviews with 15 compensation experts. Executives, whose pay packages were typically negotiated in 2008 and early last year, weren’t willing to give up salaries for long-term, stock-based awards that could decline in value. “When the economy is reeling, the most stable form of pay isn’t stocks, it’s cash,” said Sam Pizzigati, an associate fellow at the Institute for Policy Studies in Washington who has written about executive compensation and shareholder activism. “In rough times, the surest thing is cash, and that’s what they went for.” That isn’t the direction preferred by the White House. “To the extent there is more emphasis on cash than stock, that’s unfortunate,” said Kenneth Feinberg , the U.S. special master on executive compensation, who was appointed by Obama in June 2009. “We’re pushing the other way.” New Disclosure Rules Assuming the trend holds for other Standard & Poor’s 500 companies, CEO compensation may have fallen for the third year in a row. The average pay package declined in 2007 and 2008, when it was off roughly 40 percent from its 2000 high of $14.6 million, according to research by assistant finance professors Carola Frydman of the Massachusetts Institute of Technology and Dirk Jenter of Stanford University. The proxies that Bloomberg reviewed include the most complete pay summaries that companies have ever been required to provide. For the first time, the Securities and Exchange Commission has mandated that the full value of stock and option awards appear in proxy statements covering the year in which they were given. The awards’ value was divided among several years in the past. For a look at how S&P 500 CEOs fared under the new disclosure rules, Bloomberg compiled data from proxies for companies whose fiscal years ended on Dec. 31, 2009, and that had been filed as of March 12. For comparison purposes, only CEOs serving in that capacity in 2008 and 2009 were included. ‘Hot Spotlight’ Printer maker Lexmark International Inc. , based in Lexington, Kentucky, cited challenging economic conditions in its proxy as the reason for freezing salaries. The CEO of Morris Township, New Jersey-based Honeywell International Inc. , David Cote , 57, requested that he not be awarded a bonus because of the recession. Directors agreed — and his total pay was reduced by 57 percent. Compensation committees also exercised caution to avoid criticism, said Tim Smith , a senior vice president at Walden Asset Management, a money manager in Boston. “The hot spotlight of public attention is on companies more than ever,” Smith said. The 20 financial institutions among the 81 companies cut CEO compensation in 2009 by almost $28.1 million to $176.1 million — accounting for 37 percent of the overall pay lost. Eleven were banks that received money from the Troubled Asset Relief Program and had to adhere to federal guidelines that restricted cash bonuses for top executives. Nothing for Lewis Vikram Pandit , CEO of New York-based Citigroup Inc. , voluntarily slashed his annual salary to $1 in February 2009. His package exceeded $38 million in 2008, when the bank’s stock price fell 77 percent. Pandit, 53, vowed not to take a raise or receive incentive compensation until Citi — 27 percent owned by the U.S. — returns to profitability. At Charlotte, North Carolina-based Bank of America Corp., Kenneth D. Lewis received no cash, bonus or equity compensation in 2009. Lewis, 62, retired on December 31. Not all TARP recipients showed restraint. Last August, San Francisco-based Wells Fargo & Co.’s compensation committee approved upping CEO John Stumpf’s base salary more than fivefold to $5.6 million, all but $900,000 of which was awarded in shares that vested over the rest of the year. Stumpf, 56, received a total pay package of $21.3 million, 136 percent more than in 2008. It was boosted because TARP rules made the bank unable to “reward him appropriately” in other pay categories, said Melissa Murray , a spokeswoman for the bank. ‘No Teeth’ Another possible explanation for the decline in overall compensation was pressure from shareholders, according to John Keenan , a strategic analyst at the American Federation of State, County and Municipal Employees union in Washington. More than 100 resolutions seeking advisory roles on executive compensation were submitted last year, up from 7 in 2006, Keenan said, and 64 companies have agreed to give shareholders a say on pay. The resolutions that have passed are typically nonbinding. “It’s policing executive pay with something that has no teeth,” said Frank Glassner , CEO of San Francisco-based Veritas Executive Compensation Consultants LLC. The gain in cash forms of pay and the decrease in stock and option awards moved the companies further away from compensation aligned with long-term performance, according to the data compiled by Bloomberg. Greener Pastures “This is exactly the opposite message that was meant to be imparted by President Obama, Feinberg and the other preachers from D.C.,” said Graef Crystal , a pay analyst who examined the data for Bloomberg. At 43 of the 81 companies, salaries and bonuses increased. Salaries alone rose an average 8.9 percent. “That is a large increase in any year, but few Americans received any raises at all and many lost their entire income,” Crystal said. “The increase for CEOs seems a gross insult.” Salaries might have gone up been because boards saw stock- based awards as too volatile and wanted to offer more stable cash income as a retention tool, said Paul Sorbera, president of the executive recruiting firm Alliance Consulting in New York. Stock options don’t have as much “holding power on executives” as they once did and some companies felt they had to offer CEOs more cash so competitors wouldn’t “steal their talent away,” said Steven Hall , managing director of New York- based Steven Hall & Partners, an executive compensation consulting company. “Some of these executives need to be paid $20 million” or they might leave for greener pastures. ‘Far Too Greedy’ Option awards declined by 30 percent, the biggest drop in any form of compensation, according to the data. Some boards didn’t want to give out large option awards because of the potential for gains that would later make the awards look excessive, according to Kenneth Raskin , a lawyer in the New York office of White & Case who represents CEOs in pay negotiations. “CEOs didn’t want the stock price to rise dramatically and in a year seem far too greedy,” said Ira T. Kay, an independent compensation consultant in New York. Boards cut stock awards by 11.7 percent, putting less emphasis on options and more on stock awards, which compensate a CEO even when a share price stagnates. For options to pay off, stock prices have to climb. The greater relative reliance on share awards “misaligned” CEO and shareholder interests, according to a February report by the Corporate Library, a shareholder governance research firm in Portland, Maine. Shortfalls and Windfalls Meanwhile, bonuses — including what the proxies call “non-equity incentive plan compensation” — rose 7.9 percent in 2009 to an average $2.07 million. Nine of the 81 CEOs took home a bonus in one category or the other, after receiving none in 2008. They included Columbus, Georgia-based Aflac Inc.’s Daniel Amos, 58, who was awarded $4.1 million, and Midland, Michigan-based Dow Chemical Co.’s Andrew Liveris , 55, who received $4.5 million. Some performance goals for long-term awards are being reduced in the still-uncertain economy, Veritas’s Glassner said. “Companies haven’t raised the bridge,” said Glassner. “They’ve just lowered the river.” Glassmaker Corning Inc., based in Corning, New York, altered its performance measurements “given the great uncertainty in accurately forecasting the impact of the global recession” in order to “alleviate any unintended shortfalls or windfalls in actual bonus payouts,” the company said in its filing. CEO Wendell Weeks , 50, received $4.8 million in an annual incentive bonus, up from $301,584 in 2008. Bigger Payday Ray Irani , CEO of Los Angeles-based Occidental Petroleum Corp., ranked first among the 81 executives with a $31.4 million pay package in 2009. Irani, 75, stands to get a bigger payday this year — a $58.5 million cash award from an incentive plan tied to the company’s return on equity, or earnings divided by book value, a common measure of performance. Irani will get the payout if Occidental attains a 54 percent cumulative return over three years, according to the company’s proxy. The company achieved a 94 percent cumulative rate in 2004 to 2006, in the three calendar years before the target was set. Occidental’s compensation committee rewarded Irani in 2009 for continuing “to place Occidental among the best performers in the oil and gas industry,” according to the company’s 2010 proxy statement. The board’s focus on return on equity is meant to encourage “the effective use of capital” in profitable, long-term investments, the proxy said. ‘An Actuarial Value’ Pension plans gained an average of 15.4 percent or $1.27 million. One reason: the 8.3 percent rise in salary and bonus drove up the current value of what companies promised to pay CEOs in retirement, typically calculated as a percentage of their annual income. While pension values in proxies are mostly book entries, not cash outlays, they reflect changes in the real amount a CEO would get if he took his pension in a lump sum. Dallas-based AT&T Inc. put $8.99 million into CEO Randall Stephenson’s pension plan, the biggest such contribution. Under the retirement plan, Stephenson, 49, will get a pension equal to 60 percent of his highest average salary and bonus in three of his last 10 years at the company. Although he’s not currently eligible for retirement, his pension is valued at an estimated $31 million today. McCall Butler , a spokesman for AT&T, said Stephenson’s pension gain was “an actuarial value, not part of his actual taxable income.” Fewer Private Planes In a letter to shareholders last April supporting a say-on- pay resolution, Carole Lovell, president of an AT&T retiree association, said that the company’s “executive compensation policies continue to exhibit all the worst excesses and abuses.” The resolution did not win a majority. In the 81 filings, “all other compensation” — including perquisites like private planes, security details and country club memberships — declined by 23.2 percent. One casualty: Lincoln National Corp. CEO Dennis Glass , 60, whose “other” pay dropped to $308,463 from $2.26 million. Glass’s 2008 perks included $82,901 for personal use of aircraft, according to the proxy. His perks in 2009 cost $16,600 for matching charitable contributions and financial planning, said Laurel O’Brien , a spokeswoman for the Philadelphia-based insurer. 180 Shareholder Resolutions Companies are backing off on criticism triggers like private planes because “these kinds of perks just aren’t worth it,” said David Gordon, an executive compensation consultant at Frederic W. Cook & Co. Inc. in Los Angeles. “They are a small fraction of overall compensation, but have the ability to get 50 percent of the attention.” Scrutiny of pay isn’t likely to go away. RiskMetrics, an investor consultant, counts 180 resolutions concerning executive compensation around the country. Legislation in Congress that would mandate say-on-pay votes may have led some activists to “feel the battle has been won,” said Doug Friske, head of the global executive compensation practice at New York-based Towers Watson & Co. The House passed the measure, which is part of the financial regulation overhaul bill in the Senate. Tim White, a partner with Dallas-based Kaye/Bassman International, an executive recruiter, ties shareholder pressure to the U.S. recession that began in 2007 and may now be abating. “In difficult times, there is always a clamoring for the fat cats to make less money,” White said. He predicted executive compensation will rise as the economy strengthens. To contact the reporters on this story: Alexis Leondis in New York at aleondis@bloomberg.net ; Jessica Silver-Greenberg in New York or jsilvergreen@bloomberg.net ; Tara Kalwarski in New York at or tkalwarski2@bloomberg.net

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Rio Tinto Said to Be in Talks to Sell Alcan Packaging Unit to Sun Capital

March 24, 2010

By Anne-Sylvaine Chassany and Brett Foley March 24 (Bloomberg) — Rio Tinto Group , the world’s second-largest aluminum producer, is in talks to sell its Alcan cosmetics-packaging unit to the European unit of private-equity firm Sun Capital Partners Inc., according to three people with knowledge of the negotiations. Sun European Partners LLP had been competing with firms, including the Carlyle Group and Paris-based Butler Capital Partners, for the assets, said two of the people who declined to be identified because an agreement hasn’t been reached. Alcan Packaging Beauty makes containers for the cosmetics industry at 26 sites in Europe, Asia and the Americas. It had sales of $932 million in 2008 and employed 8,500 people, according to the unit’s Web site. The price may reach 100 million euros ($133.4 million) and the transaction involves significant restructuring costs, two of the people said. Nick Cobban , a spokesman for London-based Rio, declined to comment. Tom Roberts, external spokesman for Boca Raton, Florida-based Sun, and Rosanna Konarzewski, a spokeswoman for Carlyle, and an official from Butler Capital also declined to comment. Rio sold more than $10 billion of assets and raised $15.2 billion in a London share sale in June to pay debt it took on when it bought Canadian aluminum producer Alcan Inc. for $38.1 billion in 2007. Rio also agreed in June to create an iron-ore venture with BHP Billiton Ltd., with BHP pledging to make a payment of $5.8 billion to Rio when the deal is completed. The sale would follow Rio’s agreement in August to sell most of the Alcan packaging unit to Australia’s Amcor Ltd. Rio agreed last year to sell another part of the packaging unit to Bemis Co. Rio Chief Financial Officer Guy Elliott said last month the company still has to sell part of Alcan’s engineered products unit, which makes products for aerospace and defense uses. It no longer plans to sell its borax and talc units, he said Feb. 2. To contact the reporters for this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net ; Brett Foley in London at bfoley8@bloomberg.net .

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Rio Tinto Said to Be in Talks to Sell Alcan Packaging Unit to Sun Capital

March 24, 2010

By Anne-Sylvaine Chassany and Brett Foley March 24 (Bloomberg) — Rio Tinto Group , the world’s second-largest aluminum producer, is in talks to sell its Alcan cosmetics-packaging unit to the European unit of private-equity firm Sun Capital Partners Inc., according to three people with knowledge of the negotiations. Sun European Partners LLP had been competing with firms, including the Carlyle Group and Paris-based Butler Capital Partners, for the assets, said two of the people who declined to be identified because an agreement hasn’t been reached. Alcan Packaging Beauty makes containers for the cosmetics industry at 26 sites in Europe, Asia and the Americas. It had sales of $932 million in 2008 and employed 8,500 people, according to the unit’s Web site. The price may reach 100 million euros ($133.4 million) and the transaction involves significant restructuring costs, two of the people said. Nick Cobban , a spokesman for London-based Rio, declined to comment. Tom Roberts, external spokesman for Boca Raton, Florida-based Sun, and Rosanna Konarzewski, a spokeswoman for Carlyle, and an official from Butler Capital also declined to comment. Rio sold more than $10 billion of assets and raised $15.2 billion in a London share sale in June to pay debt it took on when it bought Canadian aluminum producer Alcan Inc. for $38.1 billion in 2007. Rio also agreed in June to create an iron-ore venture with BHP Billiton Ltd., with BHP pledging to make a payment of $5.8 billion to Rio when the deal is completed. The sale would follow Rio’s agreement in August to sell most of the Alcan packaging unit to Australia’s Amcor Ltd. Rio agreed last year to sell another part of the packaging unit to Bemis Co. Rio Chief Financial Officer Guy Elliott said last month the company still has to sell part of Alcan’s engineered products unit, which makes products for aerospace and defense uses. It no longer plans to sell its borax and talc units, he said Feb. 2. To contact the reporters for this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net ; Brett Foley in London at bfoley8@bloomberg.net .

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Cadillac Plays Down GM Ties to Avoid Bankruptcy Stigma, Craft Own Identity

March 9, 2010

By Keith Naughton March 9 (Bloomberg) — Cadillac, the luxury brand General Motors Co. acquired in 1909 , is distancing itself from the Detroit-based automaker to avoid the stigma of the parent company’s $50 billion U.S.-backed bankruptcy last year. Cadillac is erasing the GM name from its marketing and dealerships, changing e-mail addresses to @cadillac.com from @gm.com and exiting companywide promotions such as the Red Tag Event, said Nick Twork , a spokesman. The separation strategy was “absolutely” driven by GM’s restructuring, he said. “Cadillac, which has really turned itself around with new levels of quality and exemplary products, doesn’t want to be associated with something that will drag it down,” said John Grace, president of marketing consultant BrandTaxi LLC in Stamford, Connecticut. “With GM’s bankruptcy comes lower credibility in the ability to build quality products.” Bolstering Cadillac is central to Chief Executive Officer Ed Whitacre ’s effort to revive GM, which is shedding half its U.S. brands as part of a post-Chapter 11 plan. Cadillacs such as the SRX sport wagon start at $33,330, a 47 percent premium over the Chevrolet Equinox, according to researcher Edmunds.com. The recession and GM’s slide into bankruptcy helped cut Cadillac’s 2009 U.S. sales by 32 percent, compared with the drop of 30 percent for the biggest U.S. automaker. Cadillac’s 14 percent gain this year is the worst among GM’s 4 remaining brands and less than half of the 31 percent companywide jump. Reversing Approach Disavowing the parent company reverses the approach the automaker took five years ago when it began affixing a silver GM badge on all its models. “Our own studies show that consumers place a tangible value on the General Motors name,” GM said at the time. Now, company officials are telling dealers the separation strategy is aimed at avoiding the “negative connotations with GM because of the bankruptcy,” said David Butler, general manager of Suburban Cadillac in Ann Arbor and Troy, Michigan. GM plans to boost Cadillac’s U.S. sales by 28 percent to 140,000 units this year, Butler said. Annual Cadillac deliveries last rose in 2005, climbing 0.3 percent to 235,002, according to researcher Autodata Corp of Woodcliff Lake, New Jersey. “There is a lot of pressure on Cadillac this year because it took such a beating last year,” Butler said. “As Cadillac dealers, we didn’t like being lumped in with the other GM brands, especially when they threw us into the Red Tag sale. We felt it cheapened the brand.” Luxury Buyers Instead of joining the annual year-end sale featuring discounted prices and cash rebates, Cadillac will run its own marketing campaigns that probably will include lease promotions more popular with luxury buyers, said Twork, the spokesman. A new Cadillac ad campaign will debut later this month before a model introduction at the New York International Auto Show on March 31, Twork said. The ads will be the first from Bartle Bogle Hegarty, the New York agency hired in January to replace Modernista! of Boston, he said. “We’re in the process of revamping all the things that face the customer,” Twork said. “The Cadillac brand is best communicated as Cadillac without GM.” Founded in 1902 and bought by GM seven years later, Cadillac is the first unit trying to create distance from the parent company. Chevrolet, Buick and GMC are also starting to play down those ties, said Susan Docherty , GM’s marketing chief. GM’s logo is being removed from the base of signs at dealerships selling other brands, Docherty said, and the automaker is poised to begin research on how customers perceive the company. Customer Mindset “Consumers, in their minds, can separate out the corporation versus the brands,” Docherty said in an interview. “They can separate ‘Hey, I can still fall in love with a CTS coupe, but I may not necessarily be happy with the fact that General Motors had to go through bankruptcy.’” Cadillac held the U.S. luxury-sales title for six decades before being eclipsed by Ford Motor Co. ’s Lincoln in 1998. Since then, GM has been retooling styling and quality to compete with imports such as Toyota Motor Corp. ’s Lexus, now the leader in U.S. luxury sales. Cadillac finished 2009 as No. 4, with 109,092 vehicles compared with Lexus’s 215,975. “Cadillac is critical to GM’s turnaround,” said Jeff Schuster , a J.D. Power analyst in Troy, Michigan. “Certainly from a profitability standpoint, it’s important. But if you can raise the image of Cadillac, that will also buttress the GM brand.” Bailout Taint Whitacre has been working to eliminate the taint of the “Government Motors” tag coined by critics of the federal bailout that gave taxpayers a 61 percent stake in the company. In December, he began repaying GM’s $6.7 billion in federal loans. On March 2, he reorganized the U.S. sales and marketing team for the second time in three months. Cadillac General Manager Bryan Nesbitt was sent back to GM’s design staff, where he worked until July. Three of the brand’s marketing executives also left the company, Twork said. Butler, the Michigan Cadillac dealer, said Toyota set the standard for brand identity when it formed the Lexus luxury line in 1989, omitting any mention of the parent company in marketing or showrooms. GM, he said, should do the same thing. “I don’t think people will forget that Cadillac is a GM product,” Butler said. “But it’s the right thing to do. Customers come to our stores to buy a Cadillac, not a GM.” To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net .

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Lilly CEO Tests Assembly-Line Drug Search to Offset $10 Billion Sales Loss

February 25, 2010

By Arlene Weintraub and Meg Tirrell Feb. 25 (Bloomberg) — Shortly after he became chief executive officer of Eli Lilly & Co. in April 2008, John Lechleiter , a former lab scientist, sent his senior executives a gift. It was a small digital clock counting down, second-by- second, to Oct. 23, 2011. That’s the day the drugmaker’s $5- billion-a-year schizophrenia pill, Zyprexa, goes off patent. Next to the countdown were four words: “Do what we do.” The message: Lilly must pick up the pace of drug development so it can replace revenue lost when three top- selling medicines lose patent protection in the next few years, Lechleiter said in an interview in his Indianapolis office. The company stands to lose $10 billion in annual sales to generic competition by the end of 2016, almost half of its 2009 revenue, one of the steepest percentage losses resulting from patent expirations among the six biggest U.S. drugmakers . Pfizer Inc. , the buyer of Wyeth, and Merck & Co. , which acquired Schering-Plough Corp., turned to consolidation to help solve their patent issues, to mixed reviews from investors. Lechleiter said he’s taking a different path, even as Lilly’s stock fell 11 percent last year. His push isn’t to get bigger, it’s to get faster, he said. When Lilly faced challenges before, “each and every time the answer has been new, innovative products,” said Lechleiter, whose office wall displays the Periodic Table of Elements, the foundation tool for chemists, his first career as a Ph.D. from Harvard University in Cambridge, Massachusetts. Two-Product Mission Lechleiter’s mission is to introduce two new products a year starting in 2013, helped by a restructured development process based on an assembly line of tasks, roughly akin to the automobile manufacturing process. Each step is designed to work in concert to make the final product quickly and efficiently. Shareholders say they aren’t convinced, an opinion supported by the stock’s worst-in-the-industry performance last year in the Standard & Poor’s 500 Pharmaceuticals Index , which rose 14.2 percent in 2009. “Investors seem to price Lilly’s stock as if it will never develop another drug,” said Michael P. Krensavage , manager of Krensavage Partners LP, a hedge fund that owns Lilly shares, in a telephone interview. Lilly rose 8 cents to $34.04 yesterday in New York Stock Exchange composite trading. The shares have dropped 4.7 percent in 2010. Lilly suffered two high-profile failures in July and August, when a multiple sclerosis drug candidate and an osteoporosis product fell short of expectations in clinical trials. Lilly’s blood-thinner Effient, approved in July, only pulled in $27 million in revenue in 2009, competing against Bristol-Myers Squibb Co. ’s $6 billion-a-year Plavix. ‘Late-Stage Research’ Lechleiter’s efficiency-focused initiative is “clever, but how much money will it save?” said Tony Butler , an analyst at Barclays Capital in New York who recommends holding Lilly stock. “We need to see the fruits of late-stage research in risky areas like Alzheimer’s.” Butler is one of 12 analysts who rate Lilly as a hold, according to Bloomberg data. Six recommend selling the stock, and five rate it as a buy, the data show. “There’s always the risk — will these molecules make it or not?” Lechleiter said, referring to Lilly’s 64 drugs in development. “But my response and, I believe, Lilly’s has to be, ‘Where do we find and how do we bring forth new innovation as quickly and cost-effectively as possible?’ That’s what we’re working on.” As a first step, Lechleiter in September placed every department that plays a role in turning molecules into medicines under one roof, from the people who assess side effects to those who deal with the U.S. Food & Drug Administration in getting final marketing approval. Intent on Speed The unit, dubbed the Development Center of Excellence, is intent on speed and willing to try new strategies, Lechleiter said. While testing drugs is usually carried out in three phases, Lilly plans to use just two in some cases. Last year, instead of having one clinical trial determine the best dose for a new diabetes drug, then a second to determine effectiveness, Lilly tested several doses at once. Statisticians assessed the data in real time, allowing researchers to drop dosages that weren’t working. Once the best dose was known, researchers tested it on the same group of patients, rather than recruiting new ones for a separate study. The company may save 14 months on projects streamlined in this manner, said Timothy J. Garnett , Lilly’s chief medical officer. ‘Critical Chain’ Lilly is also adopting a technique known in industrial manufacturing as “critical chain,” which prioritizes individual tasks to save time, Garnett said in an interview. Previously, people working on a 30-page report might also be involved in other projects at the same time, so they might be given three weeks to return a finished project. Now, they may get seven days to complete the task, with specific instructions on their schedule and which person in the chain they need to pass the project along to next. “If we say, ‘you only have a week, but that’s your No. 1 priority,’ it will only take a week. There’s a self-fulfilling element to it,” Garnett said. In the past, Lilly’s drug-development process worked under a single umbrella system. Lechleiter has created five independent business units with top managers of each responsible for data and determining whether they want to bring products through clinical development. In this, Lilly is joining Pfizer and Bristol-Myers, both based in New York, in trying to narrow potential product targets. Lilly’s units focus on cancer, diabetes, established markets, emerging markets and animal health. ‘Giving License’ “We’re trying to give license to our discovery and development scientists to really think about how you do these things in different ways,” Lechleiter said. “We’ve got to see timelines speed up.” Critics say critical chain may be a bad fit with drugmaking. Assembly line processes “work better in jobs that are predictable,” said Richard “Erik” M. Gordon , assistant professor at the University of Michigan’s Ross School of Business in Ann Arbor. The process of developing a medicine is filled with uncertainties, and timelines can be thrown off- kilter by external forces, such as delays at the FDA. For Lechleiter, the changes at Lilly reflect a lifetime built around his fascination with the promise of science. He received his bachelor’s degree from Xavier University in Cincinnati, graduating summa cum laude with a degree in chemistry in 1975. He received his doctorate in 1980. ‘Loved Problem Solving’ Paul A. Wender , now a chemistry professor at Stanford University near Palo Alto, California, was Lechleiter’s mentor and Ph.D. adviser at Harvard. He remembers a young man who “loved problem-solving.” Wender’s lab was focused on reducing the number of steps needed to make new compounds — experience Lechleiter found useful when straight out of graduate school he joined Lilly’s agricultural division making herbicides. One of Lechleiter’s first challenges was to develop a more cost-effective way to make a particular molecule, Wender recalled. “He solved that problem, and simultaneously developed an enabling technology that allowed others to progress with their research,” Wender said. Three years after he joined Lilly, Lechleiter’s career path changed. He was pegged as a budding manager and placed on a track designed to broaden his skills. Built Persona Since becoming CEO, Lechleiter has developed a persona as a communicator within the company. He maintains two blogs on Lilly’s intranet and attends Wednesday morning meetings where Lilly scientists present their work. Though it has been more than two decades since he worked at a lab bench, he said he’s not afraid to ask a question or two. “Usually I preface it by saying something like, ‘Excuse me if I’m really ignorant,’” Lechleiter said. Tall (6 feet, 1 inch) and affable, Lechleiter uses his hands when making a point, and smiles as he touts Lilly’s pipeline. He’s a devoted fan of the Indianapolis Colts , sharing that passion with many of his employees. The company dyed the water in the fountain in front of its headquarters the hometown team’s shade of blue the week before the Feb. 7 Super Bowl in support of the Colts’ effort to win a National Football League championship. Lilly Endowment Lechleiter’s Indianapolis pride may put him in good stead with the company’s No. 1 shareholder: the Lilly Endowment , a foundation that supports the city and state through charitable grants. The Endowment, founded in 1937 by the Lilly family through gifts of company stock, owns 135.7 million shares, or about 12 percent of Lilly, according to Bloomberg data. The CEO is also unafraid to challenge Wall Street. Lilly spent 21 percent of revenue on research and development in the most recent quarter — outpacing the industry’s average R&D spend, which is closer to the mid-teens. “A lot of investors say: ‘Unless you cut back, you may be spending 24 percent of sales on R&D,’” Lechleiter said. “I say: ‘So what? That’s what we’re here to do.’” Meanwhile, Lechleiter’s Zyprexa countdown clock keeps ticking. He’s got about 600 days to prove his strategy will help cushion Lilly when it hits the patent cliff. To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net ; Arlene Weintraub in New York at Aweintraub1@bloomberg.net

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Davos Is Closest Most London Bankers Will Get to Swiss Move Post Bonus Tax

January 28, 2010

By Dylan Griffiths and Warren Giles Jan. 28 (Bloomberg) — Toscafund Asset Management LLP decided to stay in London last year after looking at Geneva, Dubai and the Channel Islands as the U.K. increased taxes on high earners. Prime Minister Gordon Brown ’s one-time, 50 percent levy on bankers’ bonuses hasn’t changed that stance. “I’m a victim of high taxes, but I’m a realist and the grass isn’t greener,” said Savvas Savouri , who runs the Metriks hedge fund at Tosca , which has about $4.5 billion under management. “In terms of physical infrastructure, London is unparalleled.” While U.K. bankers may grumble about rising taxes when they join peers this week at the World Economic Forum in Davos, Switzerland, few are likely to return as permanent residents. The new taxes don’t undercut London’s importance as a global financial center or the lure of its theaters, museums and restaurants, Savouri said. Financial professionals who consider moving will find a shortage of housing and spaces in international schools, according to Swiss real estate agents. While some hedge funds and private equity firms will relocate because they are convinced tax increases show the U.K. is becoming less welcoming to the finance industry, the cost of moving is prohibitive for banks and other large firms, said Kevin Rex , who advises wealthy people on financial decisions, including where to base their companies. “If you’re looking to be in a hub as a financial professional to earn money, then you can’t get much better than London,” said Rex, a partner at Summit Financial Resources Inc. in Parsippany, New Jersey. “And the quality of life is good. Some clients say it’s a civilized version of New York.” Jobs Exodus Forecast Chancellor Alistair Darling ’s Dec. 9 announcement that the U.K. would impose a supertax on banks paying bonuses of more than 25,000 pounds ($41,000) triggered criticism from the financial industry and headlines about an exodus of jobs. London Mayor Boris Johnson , a member of the opposition Conservative Party, said Jan. 11 that as many as 9,000 bankers may leave London. There were 201,000 financial jobs in London in 2007, according to International Financial Services London, which promotes the U.K. finance industry. HSBC Holdings Plc Chief Executive Officer Michael Geoghegan told Sky News that higher taxes are hurting London as a financial center. The bonus levy comes as the U.K. raises its top income tax rate to 50 percent and rescinds tax breaks for foreigners who live in the U.K. “I know a large number of bankers are moving out of the U.K.,” Geoghegan said. “They can move because they have opportunities in Switzerland and other places to set up their business.” ‘Lot of Hype’ There is no sign of a big increase in financial professionals moving to Switzerland, said Judith Wuarin, who founded a relocation firm in Geneva eight years ago. “I’m reading that hundreds of people are coming, but like bird flu there’s a lot of hype,” she said. Threats of large-scale departures aren’t credible, and London’s financial industry will probably create at least 100,000 jobs in the next decade, said Savouri, 43. London’s appeal is underlined by the presence of the world’s largest markets for insurance, reinsurance, foreign exchange, international bond trading and non-ferrous metals, as well as being the center of half of Europe’s investment banking activity, he said in a Jan. 13 report. ‘Mono-Cultural Cities’ The lure of London extends to its theaters and the world’s richest soccer league, said Savouri, who supports Arsenal, currently second in the English Premier League. His team is set to attract more than 60,000 supporters to its north London stadium when Manchester United visits later this week. Geneva’s Servette FC, 13th in the Swiss second division, has attracted an average of 3,100 spectators this season. “From its top flight football clubs, wide range of restaurants and theaters, and large expatriate communities, London is attractive to individuals in a way that more mono- cultural cities such as Paris, Geneva and Hong Kong will never be able to match,” Savouri said. That hasn’t deterred everyone. Eight London hedge funds decided in December to relocate to Switzerland, with more showing interest this month, said David Butler , one of the founders of Kinetic Partners LLP, which advises hedge funds on relocation. He expects London to lose as many as 1,300 people, or 20 percent of its hedge fund industry, to Switzerland, with 800 of those opting for Geneva. “There are enough managers in Geneva to make it a worthwhile club,” Butler said. “Some people love it and some people hate it, but all the guys I’ve moved over are still here.” BlueCrest Eyes Geneva BlueCrest Capital Management Ltd., a London-based hedge fund firm that oversees about $15.4 billion, plans to open a Geneva office because of the U.K.’s new 50 percent tax rate. As many as 50 people may move to Switzerland, BlueCrest Chief Financial Officer Andrew Dodd said in an interview. Each Swiss canton sets its own income tax rates, with Geneva’s top rate at 44 percent and Zurich at 40.3 percent, according to Swiss law firm FBT. The absence of a capital gains tax makes Switzerland attractive to hedge fund managers who invest in their own products, said John Melsom , a partner at Tiresias Capital , which has about $540 million under management. That made Geneva both a financial and lifestyle choice when he left London in 2008. “I’m a very keen skier, and it’s a less punitive jurisdiction generally,” said Melsom, 30, who is renting a chalet in Morzine, across the border in France, this winter. “For big houses on the lake and apartments in the center of Geneva, it’s very expensive, but it was still worth it.” ‘A Bit Boring’ Zurich and Geneva placed in the top three for quality of living in a survey of 215 cities published by Mercer Consulting in April, with London ranked 38th. Those rankings, based on 39 measures such as political stability, crime, personal freedom, health and sanitation, don’t tell the whole story, Rex said. “Even though Switzerland has a reputation for being a serene, peaceful place, it also has a reputation for being a bit boring and that is a particular concern for spouses,” he said. “A lot of financial professionals work such long hours that the family member that really deals with the city and makes the dinner reservations is the spouse.” Rosetta Stone With a population 40 times larger than Geneva, scale is part of London’s draw. While the Art & History Museum is one of Geneva’s most popular attractions, it drew 206,820 visitors in 2008 compared with 5.93 million at the British Museum , home to the Rosetta Stone and Elgin Marbles, according to the museums. Schools are the “biggest headache” for families relocating to Geneva, said Wuarin, who founded the relocation company. At the International School of Geneva , where fees can total 28,000 francs ($26,740) a year, applications for next September are almost double the number of likely vacancies. Keir Ashton, chief legal officer for Europe and the Black Sea at Louis Dreyfus & Cie.’s commodities trading business in Geneva, said he has already put his two-year-old son on the waiting lists for all of the canton’s international schools after moving from New York 18 months ago. Geneva’s vacancy rate of 0.21 percent, less than a tenth of London’s, means that housing is also an issue for those settling in the canton . The median price of a four-bedroom house in Geneva was 1.62 million francs ($1.56 million) in the third quarter, 22 percent more than the average property price in Kensington and Chelsea, London’s most expensive borough. James Persse advises rich Britons who are considering relocating in his capacity as managing director for the U.K. and Ireland at Barclays Wealth in Switzerland. “We always ask, ‘When can we meet your wife?’ because nine-times out of 10 it’s a family decision,” Persse said. “You need to be prepared to speak a little French and get involved in the local culture. But we also tell people, if you prefer sun and fast living to snow and lakes there are plenty of other low-tax choices with better weather.” To contact the reporter on this story: Dylan Griffiths in Geneva at dgriffiths1@bloomberg.net Warren Giles in Geneva at wgiles@bloomberg.net

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Recession Sends Older Americans To Food Pantries

November 28, 2009

ALBANY, N.Y. — Older Americans who were raised on stories of the Great Depression and acquired lifelong habits of thrift now find themselves crowding soup kitchens and food pantries in greater numbers for the first time after seeing retirement funds, second jobs and nest eggs wiped out by recession. “What we see in line is lots of gray hair, lots of walkers,” said Marti Forman, CEO of The Cooperative Feeding Program in Fort Lauderdale, Fla. The help is crucial for many fixed-income seniors, who can’t always keep up with rising food prices. “It’s a lifeline. It just means that you can function,” said Ronald Shewchuk of Ithaca, N.Y. “Otherwise we would have to sell our house. I don’t know what we would do. Go to an old age home.” The number of seniors living alone who seek help from food pantries in the U.S. increased 81 percent to 408,000 in 2008, compared to 225,000 in 2006, according to the U.S. Department of Agriculture. Overall, 4.7 million households used American food pantries in 2008, compared to about 3.7 million in 2006. “Seniors thought they were OK, but they’re not OK,” said Virginia Skinner, director of Development at The Association of Arizona Food Banks in Phoenix, citing the downturn in the area’s housing market. Catholic Charities USA, which has 170 agencies across the country helping the needy, issued a 2009 third-quarter report that found a 54 percent increase in requests for food and services from seniors nationwide compared to the same period last year. Despite the increased need, it can be difficult for some older people to come forward and seek help. “They’re of a generation that feels they took care of themselves, and now in these desperate straits they don’t want to acknowledge it,” said Catholic Charities spokesman Roger Conner. “With seniors and retirees – people that were planning for that period of their life – they are often very proud and very private, and they want no one to know of the difficulties they might be experiencing.” Shewchuk, a 72-year-old retired technician, said he’s been struggling to pay his bills and keep up with rising food costs. He said he and his wife Helen, 75, never needed charity before and used to volunteer at their local soup kitchen. This year, they started using it five days a week and getting assistance from food banks and the state. They have no children. “We just have Social Security and a small pension, and we just can’t make it with the mortgage payments and the gas and electric and so forth,” Shewchuk said. “It’s just draining our resources.” At St. Mary’s Food Bank in Phoenix, 64-year-old Sherry Whittemore was collecting her monthly box of canned juice, pasta, beans and vegetables. She began coming to the food bank in January after losing her customer relations job at a Fry’s Electronics store. “I thought I would be able to get a job soon, but that’s just unrealistic,” Whittemore said. Even with a temporary job helping people with vocational training and unemployment payments, she has had to tap into about $14,000 in savings. Hubert Scheid, 76, drives a Lexus and owns a two-bedroom condo in Fort Lauderdale, Fla., but says he has depleted his savings and works part time as a security guard to pay for rent, food and medication. Even then, it’s still not enough. But he makes too much money to qualify for most assistance. For the Thanksgiving holidays, he expected to get a food box and turkey from The Pantry of Broward. “I owned a Porsche. I had all the trimmings, the way you want to live when you’re young and successful,” Scheid said. “I went from rags to riches and from riches back to rags. You can’t get help because you have it too good, but you don’t have it good enough.” Older people also have the added disappointment of no cost-of-living increase in Social Security checks this year. “Seniors were hit with the decline in the stock market,” said Mark Dunlea, executive director of the Hunger Action Network of New York State. “It’s unsettling when you lose a lot of your investment.” The New York City Coalition Against Hunger released a report on the city’s soup kitchens and food pantries that found that 68 percent of responding agencies were seeing an increase in senior citizens. Hunger Solutions Minnesota said this month that food-shelf visits from older people increased 26 percent in the first half of this year, compared to the same period in 2008. Anthony Butler, executive director of St. John’s Bread and Life, a Brooklyn food pantry and soup kitchen, said some of the newest needy were volunteers, comfortable in their retirement. Now they’re clients. “People thought they would get by. They were surprised they would have to use a place like ours,” he said. “We get a lot of that.” In Phoenix, Whittemore started volunteering at St. Mary’s as a way to give back for the food she was receiving and also because she thought her situation would be short-term. Though people are respectful, she can’t help feeling self-conscious. “I’d like to be on that end,” Whittemore said, pointing to a group of volunteers handing out Thanksgiving turkeys, “instead of this end.” ___ Associated Press Writers Terry Tang in Phoenix and Kelli Kennedy in Fort Lauderdale, Fla., contributed to this report.

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Vivus Erection Drug Avanafil Helps Men in 30 Minutes, Company Study Says

November 18, 2009

By Rob Waters Nov. 18 (Bloomberg) — Vivus Inc ., an unprofitable biotechnology company, said its experimental impotence drug helped men achieve erections in as little as 30 minutes in a study, or about twice as fast as Pfizer’s Inc.’s Viagra. Data showing the drug, called Avanafil, acts quickly will help Vivus seek U.S. permission to enter the $3.7 billion erection-drug market in 2011, said Chief Executive Officer Leland Wilson . Vivus shares rose as much as 12 percent. Wilson said he may introduce Avanafil in early 2012. As many as 322 million men worldwide may have erectile dysfunction by 2025, according to an Oct. 19 report by the American College of Physicians. Avanafil will grab market share because it works faster than the market-leading Viagra, which takes an hour to produce results and Eli Lilly & Co.’s Cialis, which takes about two, Wilson said in a telephone interview. “Patients want on-demand therapy because when the mood is right, the mood is right,” Wilson said. “We’ve shown efficacy in 30 minutes and no one else has done that.” Vivus jumped 48 cents, or 5.6 percent, to $9.05 at 10:06 a.m. New York time in Nasdaq Stock Market composite trading, after earlier touching $9.60. The company had risen 61 percent in the year before today. Avanafil could bring in $350 million by 2015, grabbing about the same market share as Levitra, said Jason Butler , an analyst for JMP Securities in New York, in a telephone interview yesterday. The key, he said, will be for Vivus to find a partner willing to spend money on promotion. Viagra, Cialis, Levitra In 2008, Viagra, made by New York-based Pfizer, the world’s biggest drugmaker, had about half of the erectile-dysfunction market. Cialis, made by Indianapolis, Indiana-based Eli Lilly & Co . had 40 percent and Levitra, made by Germany-based Bayer AG 10 percent. “This is a hugely promotion-driven market,” he said. “Viagra and Cialis win because they have sales reps that call on doctors every day of the week and they spend a huge amount on advertising.” Vivus won U.S. approval for its first erection product Muse in 1996, two years before Viagra was cleared for sale. Muse, a product designed to push erection-boosting medicine into the urethra, was quickly displaced by the little blue pill Viagra. Muse had revenue of $18.05 million last year. Vivus also is competing to introduce a new weight-loss drug for obesity patients with Arena Pharmaceuticals Inc. and Orexigen Therapeutics Inc. , both based in San Diego. The Mountain View, California-based company has said it will seek permission from the Food and Drug Administration to sell the treatment, Qnexa, by the end of the year. Partnership Needed While Vivus needs to form a partnership with a major drugmaker to market its erectile dysfunction pill, Wilson said he may wait to make a deal until the company has completed its clinical trials and submitted its application to the FDA. “As we move forward, it will increase our value,” he said. The Vivus study compared three doses of Avanafil to placebos in 646 patients with erectile dysfunction , a condition that affects 15 to 30 million U.S. men, according to a National Institutes of Health Web site. Before the late-stage study, 12 to 14 percent of men achieved erections that allowed them to have sexual intercourse. Men taking the lowest 50-milligram dose got erections 40 percent of the time, while those taking either the 100 milligram or 200 milligram doses achieved erections 57 percent of the time, according to a Vivus statement. Men taking placebos were able to have sex 27 percent of the time. Visual Distortions None of the patients had visual distortions such as those reported rarely by some Viagra and Cialis patients who said the drug added a blue tinge to their vision, Wilson said. The visual changes on those pills cleared up within a few hours, according to an Indiana University study reported April 13. About 85 percent of patients taking the Vivus drug completed the 16-week study. The most-common side effects were headaches, experienced by 7 percent of the men, facial flushing, experienced by 4.6 percent and nasal congestion, experienced by 2.3 percent. Patients in the study were men older than age 18 who had erectile problems for at least six months and excluded those taking nitrate heart medicines. Men using these medicines are also warned not to take the erectile dysfunction drugs on the market. Trials are under way for patients whose erection difficulties are linked to their diabetes , one of the most common causes of impotence, and for men who had surgery for prostate cancer, Wilson said. Viagra works within 30 minutes to 2 hours, according to prescribing information on the drug’s label. The median time to effectiveness is 60 minutes. Cialis, when taken as needed, can work within 30 minutes to 6 hours, according to prescribing information , with effectiveness achieved after a median of 2 hours. The drug can also be prescribed for daily use. To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net .

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Written agreement with Butler Bancorp, MHC and Butler Bancorp, Inc.

November 9, 2009

Written agreement with Butler Bancorp, MHC and Butler Bancorp, Inc.

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Written agreement with Butler Bancorp, MHC and Butler Bancorp, Inc.

November 9, 2009

Written agreement with Butler Bancorp, MHC and Butler Bancorp, Inc.

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Job Losses Point to Slower U.S. Recovery as Unemployment Climbs to 9.8%

October 2, 2009

By Bob Willis Oct. 2 (Bloomberg) — U.S. job losses accelerated last month and the unemployment rate climbed to the highest level since 1983, stark reminders of how the worst financial crisis in more than seven decades may undermine consumer spending and economic growth in the months ahead. Today’s Labor Department figures underscore forecasts for the Federal Reserve to keep its benchmark interest rate near zero through next year, and may spark calls for stronger government efforts to shore up jobs. The dollar tumbled against the yen and euro, while stocks slid before recouping gains. “You will see the economy pulling back,” Richard Yamarone , head of economic research at Argus Research Corp. in New York and most accurate forecaster surveyed for the payrolls loss, said in a Bloomberg Television interview. Payrolls may not return to their previous peak for years to come, he added. Payrolls dropped by 263,000 in September, exceeding the median forecast in Bloomberg’s survey, with losses extending from cash-strapped state and local governments to retailers to builders, today’s report showed. The jobless rate rose to 9.8 percent from 9.7 percent in August, while working hours matched a record low. The Standard & Poor’s 500 Index was little changed from yesterday’s close at 1,029.27 as of 2:39 p.m. in New York after dropping as much as 1 percent earlier. Ten-year Treasury yields rose to 3.22 percent from 3.18 percent late yesterday. The dollar was little changed from yesterday at 89.58 yen. Factory Orders A Commerce Department report today showed that orders placed with factories fell unexpectedly in August, restrained by long-lasting items such as commercial aircraft and construction machinery. Bookings fell 0.8 percent after a revised 1.4 percent increase in July that was larger than previously estimated. Excluding transportation equipment, orders rose 0.4 percent. Fed Chairman Ben S. Bernanke yesterday said economic growth may not be strong enough to “substantially” bring down unemployment, indicating the central bank will be slow to drain the trillions of dollars it’s pumped into the economy. UAL Corp. is among companies cutting jobs on concern spending will fade as government stimulus wanes. “I certainly don’t think we can afford to withdraw the stimulus, without it we’d probably be looking at uglier numbers,” Chris Low , chief economist at FTN Financial in New York, said in a Bloomberg Television interview. “What we are looking at is the lack of small-business job creation that typically marks the beginning of an economic recovery.” ‘Disappointing’ Report September’s losses bring total jobs lost since the recession began in December 2007 to 7.2 million, the biggest decline since the Great Depression. Payrolls were expected to drop 175,000, the median of 84 estimates in a Bloomberg News survey of economists. Forecasts ranged from decreases of 260,000 to 100,000. Job losses peaked at 741,000 in January, the most since 1949. The September unemployment rate matched the median projection. Revisions subtracted 13,000 from payroll figures previously reported for August and July. The bigger-than-forecast decline in September and the jump in the jobless rate are “disappointing,” Christina Romer , President Barack Obama’s chief economist, said today in a Bloomberg Television interview. Asserting that it was important not to put too much emphasis on any one number, Romer, who heads the White House’s Council of Economic Advisers, said the administration was focusing on the overall trend of a slowing in job losses, which showed “we’re moving in a good direction.” Annual Revisions The Labor Department today also published its preliminary estimate for the annual benchmark revisions to payrolls that will be issued in February. They showed the economy may have lost an additional 824,000 jobs in the 12 months ended March 2009. The data currently show a 4.8 million drop in employment during that time. The projected decrease was three times larger than the historical average, the Labor Department said. Most of the drop occurred in the first quarter of this year, probably due to an increase in business closings, the government said. Automatic Data Processing Inc. Chief Executive Officer Gary Butler , who has spent more than three decades at the U.S. payroll processor, said the economy will probably recover at a slower pace than in previous rebounds. In an interview in New York, Butler said he hasn’t yet seen evidence that the government’s stimulus spending is adding jobs. Factory Jobs Today’s report showed factory payrolls fell 51,000 after decreasing 66,000 in the prior month. Economists forecast a drop of 52,000. The decline included a drop of 3,500 jobs in auto manufacturing and parts industries. General Motors Co. this week said it would close the Saturn brand after Penske Automotive Group Inc. broke off discussions to buy the unit. Saturn dealers will have until October 2010 to wind down operations. The Detroit-based automaker said in June a Saturn sale would have saved 13,000 jobs and 350 dealerships. GM had called back some workers after the government’s “cash-for-clunkers” plan cut further into inventories already diminished during the bankruptcy shutdown. Sales of cars and light trucks plunged last month after the $3 billion incentive plan expired in late August. Vehicles sold at a 9.2 million annual pace in September, down from a 14.1 million annual pace in August. Builders, Banks Payrolls at builders dropped 64,000 after decreasing 60,000. Financial firms decreased payrolls by 10,000, after a 25,000 decline the prior month. Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 147,000 workers after falling 69,000. Retail payrolls decreased by 38,500 after a 8,800 drop. Government payrolls decreased by 53,000 after falling 19,000 the prior month. Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by late 2009 and average 9.7 percent for all of next year even as the economy expands at an average 2.6 percent pace in the second half of this year and 2.4 percent in 2010. Fed chief Bernanke told lawmakers in Washington yesterday that he anticipated the jobless rate will hold above 9 percent though 2010. Spending ‘Constrained’ While acknowledging that “economic activity has picked up,” Fed policy makers on Sept. 23 said household spending “remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.” Fed Bank of Boston President Eric Rosengren said the central bank and government should maintain policies to support economic growth and bring down unemployment until a self- sustaining recovery is assured. “I’d like policy to try to stimulate the labor markets as much as possible,” Rosengren said in response to questions following a speech in Boston today. “But the reality is even with stimulated labor markets, we’re likely to see elevated unemployment for the next couple of years.” Today’s report also showed companies cut working hours, pushing weekly earnings lower. The average work week shrank to 33 hours in September, matching a record low, from 33.1 in the prior month. Average weekly hours worked by production workers dipped to 39.8 from 39.9, while overtime decreased to 2.8 hours from 2.9. That brought the average weekly earnings to $616.11 from $617.65. Workers’ average hourly wages rose 1 cent, or 0.1 percent, to $18.67 from the prior month. Hourly earnings were 2.5 percent higher than September 2008, the smallest gain since 2005. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from the prior month and a 2.6 percent gain for the 12-month period. Airlines are also cutting staff. UAL’s United Airlines, the third-biggest U.S. carrier, last month furloughed 290 more pilots under a plan to trim jobs and limit labor costs, while American Airlines said it would furlough 228 flight attendants. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Video: In-Depth Look – Employers Cut More Jobs Than Forecast

October 2, 2009

Interview and discussion with Gary Butler,ADP’s C.E.O. He says 9.8% unemployment rate is not surprising. (Bloomberg News)

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Solix Biofuels Augments Its Management Team

September 21, 2009

FORT COLLINS, CO–(Marketwire – September 21, 2009) – Solix Biofuels, Inc. (“Solix”), an alternative energy technology company for the large-scale commercialization of microalgae-based fuels and co-products, announced today the addition of two executives to its management team as well as the appointment of Joel Butler as the Company’s new chief technology officer. Dr. Peter Lammers joins Solix as vice president of biotechnology. Prior to joining Solix, Dr. Lammers was the cultivation track lead for the Department of Energy’s Algal Biofuels Roadmap. Considered a foremost authority on large-scale cultivation, Dr. Lammers left a tenured position with New Mexico State University, where he taught courses in chemistry, biochemistry, bioinformatics and molecular genetics for 24 years, to join the Solix team. Dr. Lammers earned his Ph.D in Environmental Biochemistry from Portland State University and was a Postdoctoral associate at the University of Chicago. Dr. Lammers will oversee So

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Judges Punish Wall Street Over Excesses as Regulators Talk About Reforms

September 8, 2009

By Cary O’Reilly and Linda Sandler Sept. 8 (Bloomberg) — As the White House and Congress debate how to regulate financial firms to avoid another economic crisis, judges have assumed the point position in punishing Wall Street for causing the worst recession since the 1930s. The executive and legislative branches have been discussing reforms such as more regulation of hedge funds and transparency for derivatives as a response to the financial crisis that began a year ago. As that battle with a reluctant Wall Street inches forward about how to prevent another disaster, judges are taking the first steps toward the same goal, punishing executives and issuing rulings with national impact. Last week, U.S. District Judge Shira Scheindlin threw out a key free-speech defense that credit raters had used for years to thwart investors’ fraud suits, knocking $1.5 billion off the market value of Moody’s Investors Service Inc. and the parent of Standard & Poor’s LLC. “Judges have lifetime appointments and are freer to act on their conscience than regulators,” said Charles Elson , chair of the University of Delaware’s corporate-governance center. Judges can act more decisively than regulators or politicians because they’re “insulated from the political process,” he said. Free from the pressures of lobbyists, judges typically refrain from showing emotion or expressing opinions during court proceedings to appear impartial. During sentencings in criminal cases, they sometimes let their hair down about their feelings about the damage Wall Street firms or their executives did. In sentencing imprisoned con man Bernard Madoff June 29 to the maximum penalty of 150 years in prison, U.S. District Judge Denny Chin described Madoff’s crimes as “extraordinarily evil.” He made the sentences of Madoff’s various offenses run consecutively, rather than the more common concurrent method. Six Times Longer The sentence was six times longer than those of the chief executives of Enron Corp. and WorldCom Inc. after they were convicted of fraud. “This was not merely a bloodless financial crime that occurred on paper but one that took a staggering toll,” Chin told Madoff in a courtroom filled with victims who spoke before his sentencing. “The breach of trust here was massive.” Frank DiPascali , Madoff’s chief financial officer, got harsh treatment too even though he was helping prosecutors incriminate Madoff’s other co-conspirators. After pleading guilty in August to helping his boss carry out a $65 billion Ponzi scheme, he was immediately sent to jail as a flight risk by U.S. District Judge Richard Sullivan . The judge ignored a request by prosecutors to grant DiPascali bail to make it easier for him to cooperate than if behind bars. ‘Completely Dwarfed’ The proposed bail was “completely dwarfed by the amount of restitution and forfeiture in this case,” the judge said at an Aug. 12 hearing. “It would seem that a $2.5 million bond package thrown on top of that mountain doesn’t count for much.” Former Monster Worldwide Inc. Chief Operating Officer James Treacy , who had proposed no prison time for what his lawyer called a “technical” crime, was sentenced to two years in jail for improperly accounting for backdated stock options. U.S. District Judge Jed Rakoff called Treacy’s conduct, which prosecutors said earned him at least $14.5 million, “appalling.” “It is disgusting that this practice went on,” Rakoff said at a Sept. 3 hearing in Manhattan. Tough sentences like those for Madoff and Treacy “are going to be the way for a while,” said James Cox, a professor of law at Duke University in Durham, North Carolina. “If we’re serious about protecting investors and consumers, we have to understand it’s individuals not entities who commit violations and should be hung out to dry,” he said. ‘Culture of Corruption’ After a jury found Eric Butler , a former Credit Suisse Group AG broker, guilty of securities fraud on Aug. 18, U.S. District Judge Jack Weinstein in Brooklyn told lawyers on both sides that, in their sentencing briefs, they should put Butler’s acts in the context of “how pernicious and pervasive was the culture of corruption” on Wall Street that “brought our financial system to its knees.” Judges are also demanding more accountability from regulators and are urging rule changes to punish wrongdoers. Rakoff last month refused to sign off on Bank of America Corp.’s $33 million settlement with the U.S. Securities and Exchange Commission over bonus disclosures. After an initial explanation that the executives in question relied on lawyers’ advice in not disclosing bonus information, Rakoff demanded a fuller explanation of the deal by Sept. 9. $3.6 Billion in Bonuses The settlement would resolve claims that Bank of America didn’t tell investors it had agreed to let Merrill Lynch & Co. pay as much as $3.6 billion in employee bonuses and incentives. Rakoff asked whether the lawyers who made “decisions that resulted in a false proxy statement” should be “held legally responsible.” Calls to Scheindlin’s and Rakoff’s chambers seeking comment were not returned. U.S. District Judge Gerald Lynch urged Congress in a recent ruling in Manhattan to revisit a 1995 rule that authorizes the SEC — but not private parties — to sue those who aided or abetted a fraud. Under current law, he said he was forced to dismiss a lawsuit in March that was filed by investors seeking to recoup losses from Joseph Collins , a former lawyer for Refco Inc. The futures trader firm went bankrupt after hundreds of millions in hidden debt was found. “It is perhaps dismaying that participants in a fraudulent scheme who may even have committed criminal acts are not answerable in damages to the victims of the fraud,” Lynch said. No Lobbyists Judges aren’t targeted by lobbyists to influence their rulings the way the other branches of government are. They aren’t paid much either compared with the defendants who come before them. The Chief Justice of the United States makes $217,400 — about the same as a junior lawyer at a large New York law firm — and all other U.S. judges make less. Judges in Ohio and Pennsylvania have taken unprecedented actions to slow or prevent foreclosures by Wall Street banks as the impact of the recession, including loss of jobs, made it impossible for homeowners to make mortgage payments — sometimes on homes whose values dropped to less than the amount borrowed. U.S. District Judge Christopher Boyko kicked off the trend of no longer rubber-stamping big banks’ foreclosure requests. In Cleveland in October 2007, he ruled that Deutsche Bank AG couldn’t foreclose on 14 properties because it couldn’t come up with the paperwork to prove it owned the delinquent loans, which had been pooled for a securitization. On the Hot Seat More recently, in August, U.S. Bankruptcy Judge Randolph Haines summoned a Wells Fargo & Co. executive to Phoenix so a bankrupt homeowner could cross-examine him about why his bank had taken months to respond to her request to modify her loan. The homeowner, Bobbi Jean Giguere, wrote the judge after the bank refused to talk with her unless she hired a lawyer, an expense she said she couldn’t afford. She said the bank told her “to abandon her home.” “I can’t do this mentally, emotionally or financially at the time,” she wrote the judge, according to a court filing. “It is and has been my goal to save the home. But I am getting nowhere with Wells Fargo.” After the cross-examination, the judge blocked any foreclosure while authorizing a modification of her mortgage. To contact the reporter on this story: Cary O’Reilly in Washington at caryoreilly100@yahoo.com ; Linda Sandler in New York at lsandler@bloomberg.net .

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Default Jump Curbs Bankruptcy Lending as Recoveries Sink to a 19-Year Low

August 1, 2009

By Richard Bravo July 31 (Bloomberg) — Companies on the verge of bankruptcy are finding it harder and more expensive than ever to get loans to help nurse them back to health. With corporate defaults at a six-year high, so-called debtor-in-possession financings dropped to about 23 percent of businesses failing to make debt payments so far this year, the lowest since at least 2003, according to a strategist at Bank of America Merrill Lynch. Lenders are charging those entering Chapter 11 reorganization a record 7.25 percentage points over benchmark interest rates, on average, even with borrowing costs for issuers of junk-rated bonds the cheapest since September

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