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Krugman: Businessmen Don’t Have Any Special Insight Into Crafting Economic Policy

by Jillian Berman on January 13, 2012

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“And greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.” That’s how the fictional Gordon Gekko finished his famous “Greed is good” speech in the 1987 film “Wall Street.” In the movie, Gekko got his comeuppance. But in real life, Gekkoism triumphed, and policy based on the notion that greed is good is a major reason why income has grown so much more rapidly for the richest 1 percent than for the middle class.

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Krugman: Businessmen Don’t Have Any Special Insight Into Crafting Economic Policy

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80 Percent of ‘Eligible’ Homeowners Can’t Be Helped By Federal Program

by Loren Berlin on January 9, 2012

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Less than 20 percent of homeowners who theoretically qualify for a government mortgage modification are actually eligible, according to data released Monday by the Treasury Department. Although roughly 4.6 million U.S. homeowners have missed at least two mortgage payments — making them technically eligible for Making Home Affordable, the federal government’s flagship homeowner assistance program — a whopping 80 percent of those borrowers cannot be helped by the program. According to the Treasury report, just 900,000 homeowners actually qualify for a loan modification under Making Home Affordable. Dean Baker, an economist and co-director of the Center for Economic and Policy Research, said that fact reflects the program’s low goals. “If 900,000 are eligible, and this is your main program for helping underwater borrowers, and we know that not all 900,000 can be helped, this doesn’t look very ambitious,” he said. The numbers reinforce just how far short the program, initiated by President Barack Obama with much fanfare in early 2009, has fallen short of its goals and fuel critics’ assertions that the program is largely ineffective. “This program, in its design, is set up to help a very small portion of people,” said Baker. (Under Making Home Affordable, homeowners who aren’t yet delinquent in mortgage payments but are at risk of imminent default might also qualify for loan modifications. The Treasury data did not include that population.) Borrowers are locked out of the federal program for a myriad of reasons, including the kind of loan they have and the property at issue. Not covered by the program: rental properties, “manufactured” homes, homes with Federal Housing Administration loans, and homes with Department of Veteran Affairs loans. Many borrowers can’t get help because their monthly mortgage payment is deemed affordable, irrespective of whether it actually is for the borrower. The idea behind the loan modification program is to make the monthly mortgage payment more affordable, defined as a payment that is less than 31 percent of the borrower’s total monthly debt payments (think car payments, student loans, credit cards, etc.). One-third of homeowners who would otherwise qualify are ineligible because they already have a mortgage payment that meets this criteria, according to the Treasury report. Borrowers who have abandoned their property are also ineligible, the assumption being that they are not committed to their home. “If you look at the large number of vacant properties, I think that speaks to the fact that, in many cases, the borrowers were reached too late in the game,” said Baker. “The borrower assumed they’d lose their home so they walked away. You could say those people aren’t eligible, but they might have been if we’d reached them earlier.”

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80 Percent of ‘Eligible’ Homeowners Can’t Be Helped By Federal Program

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With Obama Appointment, Jeopardy Champ Takes On Payday Lenders

January 4, 2012

The new government agency tasked with looking after the best financial interests of ordinary consumers finally has a leader. President Barack Obama defied Republican congressional opposition and used a recess appointment to install his nominee, former Ohio Attorney General Richard Cordray, as the top watchdog at the Consumer Financial Protection Bureau. The move caps six months of combat over the direction of the bureau, but is just the latest chapter in the fight over the shape of Wall Street Reform and Consumer Protection Act, the controversial financial regulation law that Obama signed in 2010 that created the new agency. With Cordray in place, the bureau, which already regulates consumer practices at banks with assets of more than $10 billion, can assume its full powers to make or enforce rules governing certain non-bank financial companies, including payday lenders, mortgage brokers and private student loan companies. Consumer advocates applauded Obama’s move. “For all the ire aimed at banks, there are many serious problems for consumers posed by non-bank financial companies,” said Lauren Saunders, managing director of the National Consumer Law Center. Cordray has said that expanding the bureau’s reach to non-bank financial institutions would be his first order of business . “I’ve got a big job to do,” Cordray told Reuters . A former five-time Jeopardy! champ, Cordray attracted notice as Ohio attorney general for aggressively pursuing some of the architects of the financial crisis, including credit rating agencies. He was also the first attorney general to sue a mortgage servicer over robo-signing. Republicans quickly criticized the recess appointment. “The #CFPB position had not been filled for one reason: the agency it heads is bad #4jobs and bad for the economy,” House Speaker John Boehner (R-Ohio) said on Twitter. But consumer advocates say the decision is good for the most financially vulnerable Americans. “We applaud the president for battling through the dysfunction of a Congress that finds itself in the grip of Wall Street,” said Bart Naylor, a consumer advocate at Public Citizen. Payday lenders, including some banks and credit unions, often make loans at 400 percent annual interest or more. The consumer agency cannot set interest rate caps, but it will have authority to go into payday shops and examine their records and practices, in the same way that regulators do now at banks. It’s not clear what changes the agency could impose, but at a minimum better disclosure to customers about hidden fees and the dangers of compounding interest is expected. The bureau will also oversee “larger participants” in other financial industries, including credit reporting agencies, which Saunders said make frequent and damaging mistakes. “They affect every aspect of people’s financial lives and yet have received little scrutiny,” she said. “It is a nightmare dealing with them.” The consumer agency is currently trying to decide how to define the larger participant mandate. Interestingly, the big banks, which have otherwise opposed the bureau at every step, have sided with consumer advocates who are seeking for as broad a definition –and as such, as many companies — as possible. “Comparable accountability across all providers of comparable financial products and services is a fundamental mission” of the new agency, the American Bankers Association said. Senate Republicans, led by Sen. Richard Shelby (R-Ala.), had held up the Cordray nomination for six months. They promised to continue to block Cordray, who is currently serving as the agency’s enforcement chief, until Dodd-Frank is amended to make the agency more accountable. “No bureaucrat will have more power over the daily economic lives of Americans than this director,” Shelby said from the floor of the Senate shortly before the a vote to move the nomination forward failed last month. Without more oversight, the agency’s actions will lead to bank failures, he said. The Republicans said they wanted more control over the agency’s purse strings and a board of commissioners rather than a single director to oversee the agency — moves that would weaken the bureau, consumer advocates said. The Republican position matched that of Washington’s most prolific lobbying force, the U.S. Chamber of Commerce, which pushed a House bill that would replace the director with a five-member commission. A total of 34 industry groups list the bill as a lobbying priority, according to a Center for Public Integrity analysis of federal records, representing 183 industry lobbyists. At least 86 once worked for the government. The Chamber spent nearly $30 million in lobbying on financial regulation and a host of other issues in the first three quarters of 2011. It tasked 21 lobbyists to work bills that would restructure the agency. In addition to the chamber, the most active opponents of the bureau’s current structure include the American Bankers Association, the Financial Services Roundtable, the Independent Community Bankers of America and the Consumer Bankers Association. Consumer Financial Protection Bureau spokeswoman Jennifer Howard did not respond to a request for comment about the Cordray appointment.

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JPMorgan Chase Sued Over Allegedly Misrepresenting Mortgage Loans

January 3, 2012

JPMorgan Chase & Co has been sued for $95 million by the trustee for securities marketed in 2005 by the former Bear Stearns Cos over alleged misrepresentations regarding the underlying mortgage loans. US Bank NA wants to force JPMorgan to buy back the mortgage loans because of alleged breaches of representations and warranties regarding the Bear Stearns Asset Backed Securities Trust 2005-4, for which it serves as trustee. It also said JPMorgan has refused to provide the underlying loan, as the trust documents require, so it can investigate the extent of the alleged breaches. The unit of US Bancorp said it made its request at the direction of a majority certificate holder in the trust. US Bank also sued Bear Stearns and its former EMC Mortgage Corp unit. JPMorgan bought Bear Stearns in 2008. A JPMorgan spokeswoman did not immediately respond to requests for comment. The lawsuit was filed on Friday in the New York State Supreme Court in Manhattan, and publicly docketed on Tuesday. It is one of many lawsuits seeking to hold banks responsible for investor losses over mortgages that may have been toxic, defective or improperly underwritten. The case is Bear Stearns Asset Backed Securities Trust 2005-4 v. EMC Mortgage Corp et al, New York State Supreme Court, New York County, No. 650003/2012. Copyright 2011 Thomson Reuters. Click for Restrictions .

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U.S. Remains Top 2012 Property Investment Pick, Survey Finds

January 1, 2012

NEW YORK (Ilaina Jonas) – The United States will remain the top choice of most global commercial real estate investors in 2012, but the country has lost ground to Brazil which ranked No. 2 this year, according to a survey released Sunday. While the United States offers the most stable and secure option in commercial real estate, investors said improvement in rent and occupancy growth and the repeal of a 1980 foreign investment tax would have the strongest impact on their investment decisions, according to the 20th annual survey of Association of Foreign Investors in Real Estate (AFIRE) members. For about the past year or so, investors in U.S. commercial real estate have focused on gateway cities such as New York, Washington, Boston, San Francisco and Los Angeles, driving prices up and yields down. Meanwhile commercial property in Brazil, with its bubbling economy and safer investment environment, has become a hot spot for global investors. Sao Paulo, Brazil’s largest city, jumped to the fourth best city for real estate investment dollars in 2012, up from 26th place last year. The United States is still very desirable and was second behind the UK in attracting cross border investment in 2011, according to Real Capital Analytics preliminary figures. “The negative is it doesn’t promise a whole lot of capital appreciation because the prime markets are already fully priced,” AFIRE Chief Executive Officer James Fetgatter said. “By no means will Brazil replace the U.S., at least not in the forseeable future. Brazil is considered now a much safer place to invest and a place where you can get capital appreciation and good yield.” AFIRE’S survey respondents hold more than $874 billion of real estate globally, including $338 billion in the United States. Sixty 60 percent of respondents said they plan to increase their investment in U.S. real estate in 2012, down from a record 72 percent last year, according to the 20th annual survey. Some 42.2 percent said they believed the United States in 2012 would offer the best opportunity for the price of their commercial real estate investments to increase, down from 64.7 percent last year’s survey. The United States lost ground to Brazil, with 18.6 percent saying Brazil’s property market offered the best growth opportunity for their investment dollars. That’s up 14.2 percentage points, moving Brazil up to second place from fourth, and pushing China down to No. 3, according to the AFIRE survey. Seventy percent of respondents picked one of the three countries as their favorite, while the remaining 30 percent had top choices from 13 other countries on five continents. Respondents said they would invest more in U.S. commercial property if the fundamentals of rent and occupancy growth were stronger. Another U.S. barrier respondents cited was the Foreign Investment in Real Property Tax Act (FIRPTA). The 1980 act, originally designed to protect farm property from foreign ownership, subjects foreign buyers to both their domestic and U.S. taxes when they sell their investment, unless their home country has a taxation treaty with the United States. FIRPTA opponents have argued that the act unfairly penalizes foreign investors of real estate. Such double taxation does not apply if they buy U.S. stocks or bonds. As for the top cities for foreign investment in 2012, New York remained No. 1. London moved up to No. 2 from No. 3, swapping ranks with Washington. Sao Paulo was fourth, and San Francisco moved up to No. 5 from No. 10 last year. Europe’s sovereign debt problems and looming recession pushed most of the countries there – except for a few such as Switzerland and Poland – off the map for real estate investors. Germany lost about half its support among respondents in terms of stability and price appreciation, according to the survey. Emerging markets also seem to be getting more popular among potential investors. Respondents identified 25 countries they would consider for investment, up from 18 last year. Brazil topped the list, with China in second place, as each did last year. Turkey moved up to No. 3 from No. 7 last year. India and Vietnam each dropped down one spot, to No. 3 and No. 4 respectively. Appearing for the first time were Colombia, at No. 10, Hungary at No. 12, and Qatar at No. 17. As for U.S. commercial real estate, respondents said that this year they would most likely invest in apartment buildings, the fourth consecutive year multifamily topped the list. Of all the types of U.S. commercial real estate, the multifamily sector has not only recovered from the post-2007 real estate slump but rents and occupancy are even stronger than before. Warehouse and distribution centers ranked second, up from No. 5 last year. Office properties were third, up a notch from No. 4. Retail properties – shopping centers and malls – slipped to No. 4 from No. 2. Hotels ranked No. 5, down from No. 3 last year. The survey was conducted in the fourth quarter by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business. (Reporting By Ilaina Jonas; Editing by Richard Chang) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Getting A Job Not Always The Last Hurdle For Long-Term Jobless

December 30, 2011

For the long-term unemployed, getting a job isn’t always the end of the story. Randy Howland spent most of this past year working at a $10-an-hour customer service job. He used to make six figures. With this job, he was settling, just so he could have the satisfaction of working. It was essentially a call-center job.

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Two Directors Resign From Board Of Struggling Company

December 27, 2011

Two Eastman Kodak directors resigned from the board last week, the struggling photography company said in a filing with U.S. regulators on Tuesday. Both directors – Adam Clammer and Herald Chen – were representatives of private equity firm KKR & Co on Kodak’s board. Kodak said Clammer and Chen notified the company of their resignations on December 21. Kodak did not give any further details as to why the directors resigned, and a spokesman was not immediately available for comment. Kodak earlier this year drew down on its revolving credit facility and on November 3 told investors that it may need to issue new debt or complete a multibillion-dollar patent sale to survive the next year. Kodak has hired Jones Day, a law firm known for restructuring cases, as well as restructuring firm FTI Consulting, but has denied that it intends to file for bankruptcy. It has been struggling to cope with the collapse of its film business. (Reporting By Michael Erman, Additional reporting by Greg Roumeliotis; Editing by Gary Hill) Copyright 2011 Thomson Reuters. Click for Restrictions .

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More Than One-Third Of Layoffs At One Big Bank To Hit NYC

December 27, 2011

More than one-third of job cuts at Morgan Stanley will likely hit workers in New York City. Nearly 600 of the 1,600 job cuts that Morgan Stanley announced last month will probably come from New York City, according to a regulatory filing cited by Bloomberg. The Morgan Stanley layoffs are just one part of a wider trend; Wall Street firms have said they will eliminate more than 200,000 jobs around the world this year. Thomas DiNapoli, the New York State Comptroller estimated earlier this year that 10,000 New York-based employees of the securities industry will lose their jobs by 2012, according to The New York Times . Bank of America announced in September that it would slash 30,000 jobs over the next few years to save $5 billion. Since the announcement, BofA employees have been flooding rival banks with resumes , Reuters reported last month. Still, they may be hard-pressed to find a job. Citigroup is planning to cut 4,500 jobs over the next few quarters, while Barclays said in August that it would slash 3,000 jobs. UBS plans to reduce its workforce by one-tenth over the next five years. Though financial industry workers may be plagued by constant layoff announcements, those who survive will likely be handsomely rewarded. Seven big banks’ pay data indicate that Wall Street compensation is on track to exceed 2010 levels , according to an analysis from the Public Accountability Initiative. New hires are also raking it in. Banks also boosted their use of “guaranteed bonuses” — or the practice of guaranteeing employees a bonus before they’ve ever made a trade — in 2010, The Institute for International Finance found. Wall Street workers seem prepared for a boost. Most financial industry employees say they expect to get the same or higher bonus as what they got last year. Still, if last year’s pattern holds true, the workers may not get their wish. Wall Street bonuses dropped 9 percent in 2010 .

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Greek Retailers See Worst Holiday Season In Decades

December 27, 2011

ATHENS (Reuters) – Greece’s stores had their worst Christmas in decades, with retail sales dropping by 30 percent compared with the same period last year as the economic crisis shattered consumer confidence, the ESEE retail federation said on Tuesday. “Nine out of 10 Greeks are less generous, not out of choice but out of necessity,” ESEE said. “Retailers endured a Christmas gloom that chipped away any optimism they had before the holidays.” The sharp drop in sales came despite widespread discounts by retailers in the run-up to Christmas. Greeks have been suffering wage and pension cuts, rising inflation and a recession now into its fourth year, which has slashed living standards and forced them to cut spending. Clothing and footwear sales dropped 40 percent, electrical goods by 30 percent, and sales in the food and drinks sector by 15 percent compared with the same period last year, ESEE said. (Reporting by Karolina Tagaris, editing by Jane Baird) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Rich Less Likely To Be Attuned To Others’ Suffering, Study Finds

December 22, 2011

Social psychologists are making an argument that Occupy Wall Street protesters have been saying for months: Many rich people just aren’t in the habit of thinking of others. According to researchers at the University of California-Berkeley, people who grew up in economically comfortable circumstances are less attuned to the suffering of other people . In multiple trials that involved both questionnaires and physical-response tests, the researchers found that young adults whose upbringing involved some degree of financial struggle were quicker and more likely to register signs of empathy than young adults who came from affluent backgrounds. Such conclusions are especially relevant now, as the Occupy movement continues to focus national attention and criticism on the growing divide between rich and poor . While some wealthy people have defended themselves as merely embodying the ideals of American capitalism — a system where, the argument goes, anyone can make it to the top if they’re willing to work hard — many Occupy protesters have offered a less flattering theory: that the rich, as a class, simply aren’t concerned with the well-being of anyone else. The findings of the UC Berkeley team seem to suggest that this might be true, though the researchers make a point of saying it’s likely the result of inexperience on the part of the rich, not necessarily malice. “It’s not that the upper classes are coldhearted,” Jennifer Stellar, a social psychologist at UC Berkeley and the lead author of the study, is quoted as saying in a press release. “They may just not be as adept at recognizing the cues and signals of suffering because they haven’t had to deal with as many obstacles in their lives.” This particular piece of research appeared earlier this month in the journal Emotion , but one of the academics involved in the study, psychologist Dacher Keltner, has published at least twice before on the correlation between economic struggle and empathetic response. Last October, Keltner was part of a research team that found that wealthy people had greater difficulty reading facial expressions . In August, Keltner and others argued that financial security seems to be associated with an impulse to think about oneself more than others — and that a dozen separate studies had produced the same implication . But the relationship between wealth and compassion may work both ways. In 2005, researchers found that if a stock trader suffers from some kind of emotional impairment — that is, brain damage that prevents them from fully experiencing their own emotions — it may allow them to make more profit on the market , since they can make decisions based more firmly in rationalism. And in what may be a more extreme example of the same phenomenon, research published earlier this year suggests that some stockbrokers actually have a more pronounced competitive streak than diagnosed psychopaths .

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Credit Agency Warns Debt Could Lead To U.S. Downgrade

December 22, 2011

NEW YORK (Daniel Bases) – Fitch Ratings on Wednesday warned again that the United States’ rising debt burden was not consistent with maintaining the country’s top AAA credit rating, but said there would likely be no decision on whether to cut the rating before 2013. Last month, Fitch changed its U.S. credit rating outlook to negative from stable, citing the failure of a special congressional committee to agree on at least $1.2 trillion in deficit-reduction measures. “Federal debt will rise in the absence of expenditure and tax reforms that would address the challenges of rising health and social security spending as the population ages,” Fitch said in a statement. “The high and rising federal and general government debt burden is not consistent with the U.S. retaining its ‘AAA’ status despite its other fundamental sovereign credit strengths,” the ratings agency said. In a new fiscal projection, Fitch said at least $3.5 trillion of additional deficit reduction measures will be required to stabilize the federal debt held by the public at around 90 percent of gross domestic product in the latter half of the current decade. Fitch, when it lowered its outlook to negative, had said it was giving the U.S. government until 2013 to come up with a “credible plan” to tackle its ballooning budget deficit or risk a downgrade from the AAA status. “A key task of an incoming Congress and administration in 2013 is to formulate a credible plan to reduce the budget deficit and stabilize the federal debt burden. Without such a strategy, the sovereign rating will likely be lowered by the end of 2013,” Fitch reiterated. Rival ratings agency Standard & Poor’s cut its credit rating on the United States to AA-plus from AAA on August 5, citing concerns over the government’s budget deficit and rising debt burden as well as the political gridlock that nearly led to a default. On November 23, Moody’s Investors Service, warned that its top level Aaa credit rating for the United States could be in jeopardy if lawmakers were to backtrack on $1.2 trillion in automatic deficit cuts that are set to be made over 10 years. The plan for automatic cuts was triggered after the special congressional committee failed to reach an agreement on deficit reduction. Moody’s said any pullback from the agreed automatic cuts to take effect starting in 2013 could prompt it to take action. (Reporting By Daniel Bases; Editing by Leslie Adler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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FBI Reportedly Investigating Fannie Mae, Freddie Mac For Role In Subprime Crisis

December 22, 2011

It’s been a bad month for Fannie Mae and Freddie Mac. The Securities and Exchange Commission announced last week that it was suing half a dozen former executives from the mortgage giants, including the ex-CEOs of both companies. Now, the Federal Bureau of Investigation is reportedly asking questions about Fannie and Freddie’s behavior in the months preceding the financial crisis, according to The Daily. At issue is whether Fannie and Freddie — two of the largest mortgage companies in the country, and the recipients of a major government bailout in September 2008 — misled the public and investors about the relative risk of their loans in the lead up to the financial crisis, the Daily reports. The matter has serious implications, since many allege that mortgage lenders’ enthusiasm for making loans to homeowners with shoddy credit, and banks’ penchant for using those loans as financial instruments, are among the principal reasons for the housing crash and financial crisis. The SEC’s lawsuit probes much the same question, hitting six former executives at the two companies with charges of security fraud , and accusing them of continuing to hold onto questionable loans even after the magnitude of the risk became clear. Neither company is directly named as a defendant in the SEC’s suit. The SEC appears to be framing that suit as a response to critics who have accused the agency of going easy on the major banks and financial institutions who played a central role in the financial meltdown, according to The New York Times . However, it’s unclear whether the SEC’s pursuit of Fannie and Freddie alumni will assuage taxpayer ire or merely inflame it further, since, as CNBC recently pointed out, it’s taxpayers who may end up paying the legal fees for the six defendants named in the suit, as Fannie and Freddie are now owned by the government. One of the defendants in the SEC suit — Daniel Mudd, the former CEO of Fannie Mae — announced this week that he would be taking a leave of absence from his current position as CEO of Fortress Investment Group, citing the need to focus on “matters outside of Fortress.”

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Moody’s Downgrades Belgium’s Credit Rating

December 16, 2011

Moody’s on Friday cut Belgium’s credit ratings by two notches, saying “fragile sentiment” in the euro zone may cause funding stress for countries with high public debt burdens. The ratings agency lowered Belgium’s local- and foreign-currency government bond ratings to Aa3 from Aa1. The new rating has a negative outlook, which signals another downgrade is possible in a couple of years. (Reporting By Walter Brandimarte and Daniel Bases; Editing by Dan Grebler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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New York City Faces ‘Extreme Downside Risk’ From European Debt Crisis: Report

December 16, 2011

(Joan Gralla) – New York City’s economy faces an “extreme downside risk” from Europe’s debt crisis because its banks hold over $1 trillion of assets in the city, where they are active lenders, according to a new report released on Thursday. The city’s economy is intertwined with Europe’s because non-financial companies have significant ties to European companies while millions of tourists from this region visit the city every year, according to the report by City Comptroller John Liu. “In light of these widespread commercial interactions, adverse effects on the City’s economy from Europe’s debt crisis appear alarming and lend greater urgency to addressing existing budget issues,” Liu said in a statement. This potential problem could bedevil New York City’s finances, which already are being pressured by the job-cutting downturn of its prime industry: Wall Street. The Democratic comptroller warned that Mayor Michael Bloomberg might be underestimating some risks. The list includes the difficulty of negotiating labor contracts for teachers and supervisors with no wage increases for the past round of bargaining and the possibility that cash-poor New York state will cut $200 million in aid. A mayoral spokesman, saying Bloomberg had warned that New York City’s economic outlook was uncertain, added: “He has kept the city’s fiscal house in order while delivering services that continue to produce record results through two historic downturns.” The kinds of risks that Liu indentified could help widen the city’s budget gaps to $1.7 billion in the current accord, $3.2 billion in fiscal 2013, $4.4 billion in 2014 and $5 billion in 2015. The city’s current budget is balanced. Bloomberg, a political independent, has forecast smaller gaps of $2 billion in 2013, $3.8 billion in 2014 and $4.9 billion in 2015. On the positive side, the comptroller estimated that the city’s five pension funds will cost less than Bloomberg predicted, which could save more than $1 billion from the current fiscal year to 2015. Though New York City typically benefits when the stock market rises, as it sweeps in higher tax collections from profitable banks and brokerages and individuals with capital gains, there is a plus to the market’s current roller-coaster ride. “The Comptroller’s Office believes that continued stock market volatility and low interest rates will further encourage institutional investors to shift portfolios towards commercial real estate, especially in premium markets such as New York City, thereby stimulating transactions of commercial property,” the report said. (Reporting By Joan Gralla) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Vast Majority Of Americans Would Blow The Whistle Under New Protections

December 12, 2011

NEW YORK (Svea Herbst-Bayliss and Terry Baynes) – Four months after U.S. financial regulators opened a whistleblower office, more than three-quarters of polled Americans said they would blow the whistle under the protections and incentives now offered by the government. According to a poll released on Monday, 78 percent of Americans said they would report wrongdoing in the workplace as long as they could do it anonymously, without retaliation, and claim a monetary award. At the same time, 68 percent of those surveyed did not know the new SEC whistleblower program existed, the survey found. Law firm Labaton Sucharow, which established a whistleblower practice this summer, commissioned the telephone poll of 1,007 households. Tipsters who provide original and useful information about securities law violations can now earn up to 30 percent of the total penalty the SEC collects from a company. The agency’s new program, which is part of the Dodd-Frank financial regulatory law, allows whistleblowers to remain anonymous and includes protections against employer retaliation. Corporations mounted a fierce campaign to block the new rules, arguing that they could undermine companies’ internal compliance programs. Business groups also warned that the new program could result in a barrage of frivolous tips from whistleblowers seeking hefty rewards. In a November report, the SEC said it had received 334 whistleblower tips in the seven weeks between August 12, when the rules took effect, and the financial year’s end on September 30. The Labaton Sucharow poll found that more than one-third of Americans surveyed had first-hand knowledge of wrongdoing in the workplace. People with more education were more likely to become whistleblowers, the survey found, suggesting that more senior employees were privy to misconduct that could trigger a government enforcement action. The government expects the whistleblower office to have a significant effect on the cases brought in the future, Labaton Sucharow’s Jordan Thomas said when he discussed the firm’s poll findings. Until last summer, Thomas was an assistant director at the SEC, where he helped develop the whistleblower program. He moved to Labaton Sucharow in June to launch the firm’s whistleblower practice, devoted exclusively to representing people who report federal securities violations to the SEC. (Reporting by Svea Herbst-Bayliss and Terry Baynes; Editing by Lisa VonAhn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Report: Countries Face A ‘Great Challenge’ Economically For The Foreseeable Future

December 12, 2011

An OECD report due for release this month will say markets and governments face an uphill struggle to fund themselves next year amid extreme uncertainty over the euro zone and the global economy, the Financial Times said on Monday. The report will say that financial stresses are likely to continue with the unpredictability of markets threatening the stability of many governments that need to refinance debt. “(On occasion), market events seem to reflect situations whereby animal spirits dominate market dynamics, thereby pushing up sovereign borrowing rates with serious consequences for the sustainability of sovereign debt,” Hams Blommestein, head of public debt management at the Organisation for Economic Co-operation and Development, is quoted as saying. For the foreseeable future it will be a “great challenge” for a wide range of OECD countries to raise large volumes in the private markets, with so-called rollover risk a big problem for the stability of many governments and economies, the article said. The OECD says, according to the FT, that the gross borrowing needs of OECD governments are expected to reach $10.4 trillion in 2011 and will increase to $10.5 trillion next year – a $1 trillion increase on 2007 and almost twice as much as in 2005. (Reporting by Stephen Mangan; Editing by Nick Macfie) Copyright 2011 Thomson Reuters. Click for Restrictions .

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U.S. Worried About IMF Loans To Europe

December 10, 2011

WASHINGTON (Lesley Wroughton) – The prospect of European heavyweights like Italy or Spain turning to the IMF for rescue loans is worrying the United States and other nations that fear they could suffer losses on funds they have extended to the IMF. The International Monetary Fund cannot be expected to step in as a substitute for a stronger commitment by Europe which needs to assume the brunt of any losses on emergency loans, a senior US official said on Friday. Despite the International Monetary Fund’s stable record – no borrower has ever defaulted on an IMF loan and no country has ever lost money lending to the IMF – there are concerns about the IMF’s growing exposure to the euro zone. That exposure could take a quantum leap if Italy and Spain need bailouts, a level of assistance that would almost certainly dwarf the loans already approved for Greece, Ireland and Portugal in deals engineered with the European Union. Emerging markets, which are contemplating lending more money to the IMF — which couples monetary assistance with tough conditions that seek to ensure a country does not default — have also raised concerns in the IMF about the risks to the fund’s capital, officials from emerging nations told Reuters. A crucial European Union summit ended on Friday with a historic agreement to draft a new treaty for deeper integration in the euro zone in an effort to rein in a debt crisis that started in Greece two years ago and has continued to spread. Worries about the IMF’s risk are also brewing among congressional lawmakers. Four U.S. lawmakers who met with IMF chief Christine Lagarde this week expressed unease over the risk the fund would take on with a bigger role in Europe. A request for a big IMF loan for Italy or Spain would put the United States, which holds veto power over most IMF lending decisions, in an uncomfortable spot. The American public is still stung by the U.S. government’s big bailouts for banks during the 2007-09 financial crisis and fears that mounting U.S. debts imperil the nation’s future. With President Barack Obama facing a tough battle for re-election in November, the White House is not keen to appear as Europe’s savior, and the administration’s message to Europe has consistently been: Put more of your own money on the line. Indeed, Republican lawmakers are seeking to yank a $108 billion loan the United States approved for the IMF in 2009, a move that would undercut Washington’s ability to influence the conditions attached to IMF loans. “If the United States wants to help Europe find a way out of its current debt crisis, we must be a strong, world economic leader, not merely the lender of last resort,” Republican Senator Jim DeMint wrote in The Wall Street Journal on Friday. “Members of the Obama administration must focus all of their efforts on strengthening the U.S. economy and balancing our budget, rather than on continuing to borrow from China to pay for Europe’s out-of-control debts,” he added. DeMint said he would seek to force another vote to stop U.S. Treasury Secretary Timothy Geithner from supporting more European bailouts. The Senate voted 55-44 in June against a proposal by DeMint to repeal IMF loan authority. Domenico Lombardi, a former IMF board official now at the Brookings Institution in Washington, said even if the U.S. Congress rescinded the loan, it would not prevent the IMF from lending to Europe. He said the international community has a stake in ensuring the euro zone crisis does not spread further. PREFERRED CREDITOR The IMF enjoys an understanding among its members that borrowing nations will always pay the IMF back ahead of private creditors. However, the scale of borrowing troubled euro zone countries might need raises the specter that one of the nation’s could default on an IMF loan. The IMF has about $380 billion available for lending, a figure outstripped by Italy and Spain’s debt refinancing needs. Italy needs to roll over 340 billion euros (290.5 billion pounds) in debt next year, while Spain needs to refinance 120 billion euros. “The problem with some of these countries now is you’re getting to a point where (debt) is large enough that defaulting on the IMF is attractive enough if you want to reduce your debt,” said Raghuram Rajan, a former IMF chief economist now at the University of Chicago’s Booth School. “I’m not saying the euro area will act at cross purposes with the fund. But when it comes to writing down the debt, will the euro area respect the (preferred) status of the IMF?” European leaders agreed at a summit on Friday to provide 150 billion euros in bilateral loans to the IMF to tackle the crisis, with another 50 billion euros coming from non-European countries. National central banks in the euro zone would pump the capital into the IMF. The funds would not count as a contribution toward Europe’s IMF quotas, which determine its voting power in the fund. WHOSE MONEY IS THIS ANYWAY? There are two ways of channeling the money to the IMF, either through the fund’s general resources or a so-called IMF-administered account. Any lending from the IMF’s general resources would spread the risk across the entire IMF membership. In an administered account, the countries contributing would take the losses in the case of default. Thus far, Europe has indicated it is legally easier for its funds to be part of general resources. When it comes to additional resources to battle the euro zone debt crisis, the United States prefers the second option, which would put most of the risk on Europe and none on the United States. The Obama administration has argued for months that Europe needs to put more capital on the line. “The key point is that official funding must also bear losses if necessary,” Rajan wrote in a recent column. “Consequently, if support is channeled through the IMF, the fund will need a guarantee from the euro zone that it will be indemnified in case of a (debt) restructuring.” Mario Blejer, a former Argentine central bank governor, argues that Europe should take care of its own and bear the full risk of any default. “The IMF’s seniority is an unwritten principle, sustained in a delicate equilibrium, and high-volume lending is testing the limit,” Blejer and Eduardo Levy Yeyati, a senior fellow at the Brookings Institution, wrote recently. “From this perspective, the proposal to use the IMF as a conduit for ECB resources — thereby circumventing restrictions imposed by European Union’s treaties — while providing the ECB with preferred-creditor status, would exacerbate the Fund’s exposure to risky borrowers,” Blejer and Yeyati said. “This arrangement could be seen as an unwarranted abuse of Fund seniority that, in addition, unfairly frees the ECB from the need to impose its own conditionality on one of its members.” ($1 = 0.7482 euros) (Editing by Tim Ahmann, Leslie Adler and Andrew Hay) Copyright 2011 Thomson Reuters. 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Olympus’s Ousted CEO Presses On With Battle To Win Back His Job

December 10, 2011

TOKYO (Tim Kelly) – Olympus Corp’s ousted CEO, Michael Woodford, flies to Japan on Tuesday to press on with a battle to win back his job, as media reported that prosecutors plan to raid the homes of suspects in a $1.7 billion accounting fraud at the camera maker. Woodford wants to meet potential candidates for a new management team for which he will also seek shareholder and investor backing when the board comes up for election at an extraordinary shareholders’ meeting, possibly in February. He will leave Japan on Friday morning, an assistant in Tokyo said in an e-mail. The visit comes as Olympus prepares to issue its earnings before a Wednesday deadline in order to avoid being delisted by the Tokyo Stock Exchange. Even if it does meet the deadline, the 92-year-old maker of endoscopes and cameras could still be dumped from the exchange if its accounting misstatements were large enough. The board, slammed in an independent report on the accounting scandal dragging down the company, has said it plans to stay in place for the time being. Nearly all the current directors served during Olympus’s 13-year cover-up of investment losses. Olympus President Shuichi Takayama said on Wednesday that the earliest an extraordinary meeting to pick the new board could be held was late-February. Takayama, who took over after the scandal broke in October, said the management would not resign before the meeting and would pick its own slate of candidates. PROSECUTORS TO RAID Japanese prosecutors, with police and the securities watchdog, have decided to raid the homes of potential suspects and offices linked to the Olympus accounting scandal next week, media reported on Saturday. The prosecutors’ investigation is expected to cover a total of more than 10 locations, including the main office of the camera maker, Jiji news agency said. Prosecutors are also planning to interview former president Tsuyoshi Kikukawa, who told the independent investment panel set up by Olympus last month that he had only learned about the scandal recently, Jiji said. Olympus has seen its existence threatened by the scandal, in which senior executives cooked the books in a $1.7 billion scheme to hide investment losses. Olympus shares have lost about half their value since Woodford blew the whistle on the accounting problems. The independent panel made up of six legal and accounting experts, described the management as rotten to the core. In order to remove them, Woodford will need the support of most shareholders, including Japanese stock holders, who have yet to voice support for the former president. (Reporting by Tim Kelly and Chikafumi Hodo; Editing by Jonathan Thatcher) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Revenues Of U.S. States Back To Pre-Recession Levels

December 8, 2011

WASHINGTON (Lisa Lambert) – Total tax revenues of U.S. states returned to pre-recession levels in the 2011 third quarter, a public policy institute reported on Thursday, but revenue growth slowed during the period, a worrisome trend for states concerned that economic clouds are gathering as they begin drafting their budgets for next year. Total tax collections in 48 states rose by 7.3 percent in the July-to-September quarter, the Rockefeller Institute of Government reported. “After seven quarters of growth, overall state tax revenues have recovered to pre-recession figures,” said the institute. “Most states have not yet returned to peak levels, however, because those levels came several months into the Great Recession.” The institute’s study did not include data from Hawaii and New Mexico. States had experienced a slight lag from when the economic recession began in 2007 and when the fall in employment, housing prices and consumption hit their coffers. Their revenues reached record highs at the start of the recession, before plummeting in 2008. In much the same way, states are only now beginning to register the recession’s end, which officially was in June 2009, and are eager for revenues to return to the 2008 peaks. Despite the growth in revenues in the July-to-September quarter, a period that is the first fiscal quarter for most states, the rate failed to match growth in the second quarter. “This is a noticeable slowdown from the 10.8 percent year-over-year growth reported in the second quarter of 2011,” said the institute. The European debt crisis, stock market declines, and other economic troubles on the national level have states worried recent revenue improvements will not last. During the recession, their revenues fell sharply for five straight quarters, many to the lowest levels in more than 20 years. Because all states except Vermont have constitutional mandates to balance their budgets, they responded to falling revenues by hiking taxes and slashing spending, often in emergency sessions. After closing more than $500 billion budget gaps over four years, according to the National Conference of State Legislatures, they have few lifelines left. Numerous states instituted temporary tax hikes that are now expiring, and large infusions of funds from the federal government under the economic stimulus plan that helped bridge gaps ended last year. Among the 48 states in Rockefeller’s study, only Delaware, Iowa and Missouri failed to show gains in tax revenues during the third quarter. Moreover, 11 states reported double-digit growth in total tax collections. Personal income taxes, which provide the bulk of revenues for many states, grew 9.2 percent from the same quarter the year before. Sales taxes were up 3.9 percent, in the fourth consecutive quarter of growth. Illinois, Texas and Alaska had the largest rises in tax collections. In Illinois the gain was mostly fueled by legislated tax increases that took effect in January, and Alaska’s strength throughout the recession has rested on oil and mineral prices. Next month, state legislatures and governors will return to work, and to drafting the budgets for the next fiscal year. A slowdown could complicate their abilities to estimate how much money will be available to spend. A recent report by the National Governors Association and the National Association of State Budget Officers found that already 17 states are expecting budget gaps for next fiscal year totaling $40 billion. (Editing by Leslie Adler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Poor Looking For Bargains, Rich Opting For Luxury As Christmas Nears

December 7, 2011

Adriana Garcia won’t be buying her family Christmas gifts this year. The 26-year-old from Huntington Park, California lost her job as a teacher’s assistant last year and now works part-time at a Jamba Juice near Los Angeles. Her husband, a security guard unable to work since hurting his hand three months ago, is not yet getting his disability checks. The couple spends on the basics: food and rent. “I don’t really care about the presents,” said Garcia. Kelly Lenehan, a 40-year-old ultrasound technician and former paparazzo from Los Angeles, lost her job in her new field in early November, and is also planning a low key holiday. “It can’t be the way I want it to be, and that’s the difficult thing about it,” she said. A record turnout two weeks ago on Black Friday, the day after Thanksgiving, when tens of millions of Americans, lured by bargains, hit stores to kick their holiday shopping into high gear, belied how much many Americans still struggle. Stores such as Kohl’s Corp and Gap Inc’s Old Navy and J.C. Penney Co Inc all reported sales declines in November, as shoppers proved more frugal than television images of in-store bedlam would have suggested. Meanwhile, bargain basement chains like Dollar General have been on a tear. The National Retail Federation expects holiday retail sales to be up 2.8 percent, below last year’s 5.2 percent increase. In contrast, sales at luxury stores like Saks Fifth Avenue and Nordstrom Inc have soared all year and their November sales — Saks’ same-store sales rose 9.3 percent — show holiday sales are off to a strong start. “I’ve been fortunate to have a good year, so I am feeling good. Trying to kick start the economy,” said Andrew Rothstein, a 40-year-old investment banker with TD Waterhouse shopping at Saks Fifth Avenue’s flagship store in Manhattan last week. Unemployment slipped last month to 8.6 percent, in part because many job seekers simply gave up looking. The rising cost of food and fuel is adding to the pinch, curbing the spending power of millions and delaying a meaningful recovery in consumer spending. Adam Morales, a 64-year-old retiree from Louisiana on a fixed income, said he’ll spend less on gifts for his five children and seven grandchildren. “The price of living went up so much,” he said. “Last year, I spent $25 on each one. This year I will have to spend $10,” he said. Retailers know how hard it is for shoppers this year: Wal-Mart Stores Inc brought back its layaway program after a five-year break. Even people making decent money are being cautious. Aldo Inoster, a stock broker from Queens, New York, will limit his Christmas gifts to family members. “It has to be a very sweet deal to get us out shopping,” said Inoster, 50, while shopping at an Old Navy in New York’s Herald Square on Thanksgiving. FOR THE RICH, GETTING BACK TO NORMAL At the high end of the widening income gap, many Americans are shopping like it’s 2007 again. On Friday night, stores on Manhattan’s luxury avenues were packed, with people waiting several turns before being able to use the elevator at Tiffany’s store on Fifth Avenue. Luxury chain Neiman Marcus said last week it has sold out of the ten 2012 Ferrari sports cars it offered in its Christmas book of fantasy gifts for $395,000 each. Yet for all the talk of luxury’s rebound, sales at chains like Saks remain below levels prior to the 2008 financial crisis, which stopped high end shopping in its tracks. Many wealthy Americans don’t think the economy is out of jeopardy. Peter White, principal of a technology staffing company in Houston, said business is picking up though he is still not going gangbusters with shopping this year. “One of the reasons we’re up here is because things are starting to slowly turn around,” said White, who took his family to New York for a Christmas shopping trip that included a visit to Tiffany on Friday. “I would never have made this trip two years ago.” Nonetheless, the wealthy don’t pull back much on luxury even when markets are rough, as they have been, because their “spending money” is not tied up in the stock market, said Jonathan Bergman, a vice president at Palisades Hudson Financial Group, whose clients include CEOs and have median accounts of $5 million. Millionaires, who account for nearly half of U.S. luxury sales, have enough cash to keep up their spending habits even if their income droops for a year, said Boston Consulting Group senior partner Jean-Marc Bellaiche. “The fact that you make a little bit less this year will not affect your ability to buy a $3,000 watch,” he said. (Reporting by Phil Wahba and Dhanya Skariachan in New York, Lisa Baertlein and Martha Sanchez-Avila in Los Angeles; Editing by Steve Orlofsky) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Vacant Homes Impose Big Costs On Cities: GAO Report

December 6, 2011

The foreclosure crisis is costing cities at a time when they can least afford it. Millions of homes in America are standing vacant, and in many cases they represent a financial sinkhole for their communities . Local governments — forced to absorb the costs of maintaining or razing these homes, and seeing property taxes plummet in response to the spread of urban blight — are increasingly shouldering the burden of the country’s slumping housing market, according to a report released Tuesday by the U.S. Government Accountability Office. Assuming responsibility for millions of vacant homes comes as just one more source of economic pressure for many American cities, which are straining to do more with less in an atmosphere of budget cuts and dwindling tax revenues . The report notes that the number of vacant properties in the United States grew by more than 50 percent between 2000 and 2010 — a decade that included two recessions and a catastrophic collapse of the national housing market. In 2000, there were about 6.8 million vacant homes in the U.S., according to the GAO. By 2010, that number had jumped to 10.3 million — a rise encompassing countless homeowners in default, with their wealth all but erased in the sharp plunge of real estate values that accompanied the burst of the housing bubble. The rapid spread of vacant homes has taken a toll on local governments, which often incur costs as a result of so many properties standing empty. The municipal costs of high foreclosure rates have been observed for some time , but the GAO report makes clear the scope of the problem. While the upkeep and maintenance of a vacant home is technically the responsibility of either the homeowner or the mortgage owner, in practice it often falls to the town, which has to pay for basic services — like cutting the grass, boarding up windows and draining swimming pools — to keep the property from falling into total disrepair. Alternatively, the town can have the vacant property demolished. Either way, the tab for cities and towns is often high. Detroit, for example, has paid $20 million to demolish 4,000 properties in the past two and a half years, the GAO found. Communities incur costs in other ways as well. The GAO noted that vacant homes are often associated with crime and accidental fires, which require the attention of police and fire departments, thus tying up city resources. And cities often see their property taxes fall as vacant homes drive down the value of homes around them. The foreclosure crisis — which has pushed home values down to historic lows in recent years, and directly resulted in many of the vacancies that came into being between 2000 and 2010 — is thought to be less than halfway over , according to a recent report from the Center for Responsible Lending. This week, the Occupy Wall Street movement — which has faced increasing resistance in its attempts to inhabit various public spaces — aligned itself with distressed homeowners in a day of mass action. Occupy protesters moved into foreclosed homes, and took up the cause of homeowners facing eviction, in about 25 cities Tuesday , saying they were working to bring attention to a national crisis.

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Official: Criminal Prosecution Of Financial Crimes May Elude Prosecutors

December 6, 2011

Though often blamed with making the calls that led the country to the brink of collapse, financial executives likely won’t face criminal charges for their practices during the financial crisis, according to a former top U.S. investigator. The Justice Department has decided that prosecution of financial executives is “better left to regulators” to take civil-enforcement actions , David Cardona, who was a deputy assistant director at the Federal Bureau of Investigation until last month, told the Wall Street Journal . “There’s been a realization and a more deliberate targeting by the Department of Justice before we launch criminally on some of these cases,” Cardona told the WSJ . Cardona’s comments come nearly eight months after Senator Carl Levin released a report on Goldman Sachs’ role in the financial crisis, which found the investment bank profited off purposefully deceiving its own clients at the height of the financial crisis. Levin then said he would recommend some of the investment bank’s executives for possible criminal prosecution. Government officials haven’t successfully prosecuted a single Wall Street executive or financial firm since the meltdown, despite many Americans and experts blaming them for the decisions that led to the housing crisis and subsequent financial panic, according to CBS News. In fact, Wall Street executives have offered a litany of others to blame for the crisis: consumers who took out mortgages they couldn’t afford, investors who demanded the opportunity to buy risky securities, policymakers who didn’t anticipate the housing crash — even regulators, according to The New York Times . One of the ways Wall Street firms have escaped criminal punishment is through a Justice Department directive issued in the summer of 2008. The new process, known as deferred prosecution , allows for some leniency if firms investigate and admit their own wrongdoing, the NYT reports. But many have derided the guidelines, saying that they’re allowing perpetrators to get off too easily. One outspoken critic, Judge Jed Rakoff, made a decision last month that may force the SEC to step up its enforcement of financial crimes, but likely won’t lead to more criminal prosecutions. Rakoff rejected a proposed settlement between the SEC and Citigroup, saying the settlement didn’t go far enough to punish the bank because Citi didn’t have to admit wrongdoing. Though the most egregious examples of financial regulators’ softness may be related to the financial crisis, the pattern has been apparent for years. Federal prosecution of financial fraud is on track to fall to a 20-year low , according a recent report from Syracuse University. The number of these types of prosecutions has gotten smaller and smaller since 1999, the report found.

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Coaches Rout Professors In Salary Game

December 2, 2011

Newly hired Urban Meyer will earn $4 million a year as Ohio State’s football coach. The average college professor earns $81,491. Higher learning isn’t required to know that’s a big difference. Too big perhaps? The argument comes up whenever a coach secures a giant contract, as outrage mounts at education’s priorities. The deals play worse in bad times. The Kenan Institute for Ethics’ student arm at Duke University pointed out earlier that Texas Tech University froze $3 million in faculty salary while giving football coach Tommy Tuberville a $500,000 raise to $2 million a year. And what did the school get for its money? Texas Tech finished 5-7, its first losing record since 1992. Tuberville has never won a national championship. Meyer has won two of them at the University of Florida. But neither has made advances in the study of autism, schizophrenia, dementia and fetal alcohol disorder. Joseph Steinmetz has. Steinmetz is a psychology professor and executive dean and vice provost of arts and sciences at Ohio State. He gets paid pretty well at $325,008 a year, according to a public database . But is Steinmetz just 8 percent as valuable to the university as Meyer is? Xiaodong Zhang is an engineering professor and the chair of Ohio State’s Department of Computer Science and Engineering. He helped innovate microprocessors so we can get our information faster, according to his university bio. Zhang makes $217,692. Is Zhang worth just 5 percent of Meyer? Zhang and Steinmetz presumably do not get use of a private jet and millions in bonuses either, as Meyer does. Meyer and the two professors did not respond to requests for comment. Of course, coaches run programs that generate millions for their schools. Meyer is taking over a scandal-plagued team that still turns an $18.2 million profit annually, according to Bloomberg . The university is hoping his presence will perhaps mean Texas-size increases in revenue, as in the University of Texas. The Longhorns go about $70 million in the black every year and pay their coach, Mack Brown, more than $5 million a year. That’s a long look up for Hugh Freeze, the coach at Arkansas State. He occupies the salaried rear of Football Bowl Subdivision coaches, earning a paltry $151,660 a year. Maybe he ought to get into the neuroscience business.

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S&P Downgrades Last Triple-A Rated Bank

November 30, 2011

Dutch cooperative bank Rabobank lost its cherished triple-A rating from Standard & Poor’s as the global banking crisis finally caught up with the only bank still holding the top rating. The unlisted bank had long prided itself on its triple-A rating. It said in the 2007/08 financial crisis it was not tempted to snap up a bargain if it put the rating at risk, and maintains a conservative capital and liquidity stance. Rabo is a major Dutch lender and operates in 47 other countries, with many of its 10 million customers in agricultural areas, echoing its origins as a provider of loans to farmers. But S&P cut its long-term rating on the bank to AA from AAA as part of a sweeping overhaul of its ratings. Credit ratings influence how much a bank pays to borrow funds, and offers a guide to financial health. Some 15 big names were cut, including HSBC and UBS, but Rabo was the only bank in Europe to fall by two notches. “The one that jumps out is Rabobank’s downgrade by two notches, which is more significant given that it was triple-A,” said Carlo Mareels, credit analyst at RBC Capital Markets. Rabobank remains the highest rated privately owned bank in the world, according to S&P. Moody’s still has a Aaa rating on Rabobank, but with a negative outlook, and Fitch rates it AA+. “We are shedding a small tear for Rabobank, which is hanging onto its one remaining triple-A from Moody’s,” analysts at CreditSights said. S&P’s new ratings method puts more emphasis on the health of the banking industry in the countries where the banks operate and reduces the implicit support they get, as countries have said they are less likely to bail out banks in the future. “S&P did not say it literally, but they communicated that a bank can no longer have a triple-A rating,” Rabobank’s Chief Financial Officer Bert Bruggink told Dutch TV program RTL Z on Wednesday. “Nothing is risk free. Even the best countries prove not to be risk free. In that respect I think S&P’s conclusion is a right one,” Bruggink said. (Reporting by Steve Slater, Sarah White and Gilbert Kreijger. Editing by Jane Merriman) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Battle For ‘Mom And Pop’ Investors Getting Heated

November 28, 2011

The fight for mom and pop’s stock orders is getting testy on Wall Street. The New York Stock Exchange wants to give retail investors fractions of a penny in better prices when they trade securities listed there. The plan, unveiled last month, would effectively set individuals apart from funds, brokers and other professionals – who would still pay the publicly displayed prices. It is an effort to induce retail investors back from trading mostly off-exchange at electronic “wholesalers.” And it means the Big Board is effectively taking on the handful of these wholesale market makers, such as Knight Capital Group Inc and hedge fund Citadel, that have been able to get a first look at retail orders and the opportunity to use that information to aid their own trading strategies. If the NYSE wins regulatory approval for the plan, it could change the way many orders circulate, and it could mean slightly cheaper trading for Main Street investors. But that approval isn’t certain given the plan will resurrect a fierce philosophical debate over preferential treatment for some market participants. The U.S. Securities and Exchange Commission has only weeks to decide what to do. “For the first time in a very broad stroke they could approve the ability of exchanges to discriminate by customer,” said Christopher Nagy, managing director of order strategy at TD Ameritrade Holding Corp, the largest U.S. retail brokerage. In a way, much of the commotion is because mom and pop aren’t the savviest of stock traders. Many casual traders don’t even know that their orders rarely end up at the Big Board or Nasdaq. Instead, TD Ameritrade, E*Trade Financial Corp and other online brokers send the orders – up to 12 percent of all U.S. equity trading, according to Rosenblatt Securities — to the wholesale market makers, who fill the orders and pay the broker a small fee for the privilege. The wholesalers are willing to pay the small fee because mom and pop orders are seen as uninformed – or “dumb”, to use the derogatory industry term. Unlike professional investors with sophisticated short-term strategies and quantitative market analysis, retail investors aren’t usually in a position to keep on top of news, rumors or the flow of orders and liquidity, and may sometimes buy or sell based on a hunch. The diversion of these orders to wholesalers is quite legal, and said to give retail investors about a tenth of a penny in better prices, on average, than they would otherwise get on the exchanges. It is also one of the main reasons more than 30 percent of U.S. equity trading takes place off-exchange in the anonymous “dark”, up from about 20 percent in 2007. The payment-for-order-flow by wholesalers and online brokers has frustrated NYSE Euronext and Nasdaq OMX Group Inc, which have seen their market share dwindle over the past decade. NYSE Euronext now has only 35 percent of trading in NYSE-listed stocks, down from 80 percent in 2005. The SEC, meanwhile, has been increasingly uncomfortable with the growing share of dark trading as it is more difficult to regulate. “The vast majority of retail traders don’t know that when they’re trading NYSE stocks, they’re not actually trading at the NYSE,” said market structure author and expert Larry Harris, a finance professor at University of Southern California’s Marshall School of Business. “The NYSE’s proposal is designed to try to recapture some of that retail order flow.” GAME PLAN The NYSE plan, which is called the Retail Liquidity Program, was proposed last month after consultation with the SEC. It is the latest in a long line of attempts by U.S. exchanges to win back retail investors. If exchanges can attract more “dumb” orders to their market, they’ll also attract more institutions and high-frequency trading firms eager to trade against those orders – which is potentially lucrative trading volume. But getting the green light will take work. There is some tough opposition to NYSE’s plan, interviews with wholesale groups and other industry players shows. Overall, though, there is an expectation the SEC will approve an adjusted version of the plan that would give retail investors some sort of exemption for better exchange pricing. Nasdaq as well as Direct Edge, a private exchange operator that handles 10 percent of U.S. equity trading, are expected to propose similar retail-pricing proposals, according to industry sources familiar with the plans. BATS, another private exchange, is expected to criticize parts of NYSE’s plan, said the sources, who requested anonymity. The three exchanges declined to comment. The SEC declined an interview, citing the ongoing public comment period. A raft of letters reacting to the NYSE is expected from brokerages, exchanges and others before the November 30 public comment deadline. The SEC, under Chairman Mary Schapiro, then has until December 16 to decide whether to back the plan or take more time to mull it over, based on the comments. “I would be quite surprised if the SEC were to approve this as is,” said Jamie Selway, managing director and head of liquidity management at Investment Technology Group Inc. “People have played footsie with this issue of price discrimination … but this would be a big step for the SEC.” In detail, here is what the NYSE wants to do: For a one-year pilot, NYSE would create two new classes of market participants: companies such as E*Trade, Charles Schwab Corp or even wholesale firms that are qualified to send bona fide retail orders to the exchange; the second is market makers that are required to provide “potential price improvement” to the orders in an anonymous, or dark, fashion. Retail investors would get at least a tenth of a penny in better prices than the best displayed bid or offer at that moment. The NYSE has not yet said how much it will rebate brokers that send the orders, nor how much it will charge firms that provide the liquidity. It all adds up to a challenge to Knight, Citadel, UBS AG, Citigroup Inc and E*Trade’s market making arm, which are the dominant U.S. retail wholesalers. It could also hurt “dark pool” venues, some run by banks such as Credit Suisse Group AG, where stocks are traded anonymously. TOUGH OPPOSITION The NYSE proposal effectively gives some people in the market preferential treatment over others. This is not allowed at exchanges, though some argue that wholesalers and those running dark pools already offer it. Exchange rules are “not designed to permit unfair discrimination between customers, issuers, brokers, or dealers…” the U.S. Securities Exchange Act says. “My broader concern,” said one brokerage official, “is that the fair access provisions that the exchanges have to abide by are significantly weakened by this.” Joseph Mecane, NYSE Euronext’s co-head of U.S. listings and cash execution, acknowledged he is challenging fair access provisions, but only to an extent. “What we’re essentially arguing is, by making this program only available to retail customers, we’re not unreasonably discriminating against any class,” he said. The SEC would also have to grant the NYSE an exemption to a rule that limits the pricing of stocks to no finer than penny increments — that is, General Electric Co’s shares can only trade hands at $15.08, not $15.085 or $15.0852. In the end, the regulator will have to decide whether NYSE’s plan will bring enough benefit to individual traders and to the public markets to outweigh all the concerns over fairness, and the complaints that it will only complicate an already complicated marketplace. (Reporting by Jonathan Spicer. Editing by Martin Howell) Copyright 2011 Thomson Reuters. Click for Restrictions .

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European Bank Using Emergency Facilities To Tackle ‘Very Dramatic’ Problem

November 24, 2011

BRUSSELS (Ben Deighton) – Franco-Belgian bank Dexia (DEXI.BR) is accessing emergency liquidity facilities in Belgium, France, Spain and Italy, a banking source said on Thursday, as analysts described its liquidity situation as “very dramatic.” The source said the bank was making use of the Emergency Liquidity Assistance (ELA) facility of the Belgian central bank as well as “national central banks in France, in Spain, in Italy,” where Dexia has units. One analyst said the fact Dexia was tapping national central banks’ liquidity via the European Central Bank network showed how bad the situation had become for the lender. “The emergency window of the ECB … is very expensive, so it shows that the liquidity situation is very dramatic,” the analyst said, speaking on condition of anonymity. “At some point you run out of unencumbered assets to post at the ECB, and then the only way to fund yourself is via the ELA, which is clearly not a good sign,” the analyst said. Dexia and the central banks of France and Belgium both declined to comment. The source added that Dexia would try to raise money on markets again after the finalization of a 90 billion euro ($120 billion) guarantee scheme agreed in October by France, Belgium and Luxembourg. Belgian Finance Minister Didier Reynders said Wednesday that he hoped to reach an agreement with the European Commission about the restructuring plan for Dexia (DEXI.BR) in the coming days. ($1 = 0.7490 euros) (Additional reporting by Dan Flynn in Paris; Editing by Luke Baker and Will Waterman) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Futures Industry Reconsiders Customer Bailout After MF Global Disaster

November 24, 2011

CHICAGO (Ann Saphir) – In November 1986, shaken by traders’ losses after a brokerage went bust, the U.S. futures industry considered, and then rejected, the notion of insuring customer funds in a broker default. The collapse last month of MF Global Holdings Inc, and hundreds of millions of dollars of still-missing customer money, is forcing a rethink of that 25-year-old decision. Executives at the National Futures Association have been talking with senior management at CME Group Inc and other market participants about how best to safeguard customer funds in future broker bankruptcies, Dan Driscoll, NFA’s chief operating officer, told Reuters in an interview. Under discussion is the feasibility of a government-sponsored insurance fund modeled after the Securities Investors Protection Corporation (SIPC). Another option is an industry-sponsored bailout fund, Driscoll said. Neither response would prevent a broker’s misuse of customer funds, as CME has said happened with MF Global, but some type of insurance could help restore shattered faith in the industry, helping allay growing fears that money parked at futures brokerages simply is not safe. “In the past, one reason there hasn’t been a SIPC is there hasn’t been a clearing firm that went bankrupt and lost customer funds,” Driscoll said. “Now there is. It’s a big amount of money, and it really has an impact on customer confidence.” But questions about how to pay for such insurance hang over the debate. Both schemes could make trading more expensive, forcing brokers — many of whom have seen profit margins shrivel — to push more costs down to customers. MF Global was one of the biggest U.S. futures brokerages until it filed for bankruptcy protection on Oct 31, after revelations it had made a bad $6.3 billion bet on European sovereign debt, sparked a liquidity crunch. Customers are still struggling to get their frozen funds back, and the bankruptcy trustee estimates that as much as $1.2 billion in customer funds has simply disappeared. CME, which puts the estimate of lost money significantly lower, has offered $50 million to repay customers stuck with losses after the final accounting. A CME spokeswoman declined to comment on whether CME would support an industry-wide bailout fund for customers. “Could there be a SIPC-type approach for futures? Yes,” said Don Horwitz, of Oyster Consulting in Chicago. “It’s not as if they could just overlay it, there are some costs, but this will be one of the things I’d think would be considered.” After the collapse of the Bernie Madoff ponzi scheme in late 2008, SIPC raised its broker assessments from a flat $150 per firm per year to a quarter of a percent of yearly operating revenues, costing bigger firms hundreds of thousands of dollars, Horwitz said. All told SIPC collected $410 million last year. Talks among industry leaders so far have been one-on-one, Driscoll said, but in “coming days” there would be an effort to bring participants around a table to hash out a formal set of proposals. TOW TRUCK? Adopting an insurance scheme, particularly one modeled after that used to backstop securities markets, would be an about face for the futures industry, which has long said its customer funds are safer and its markets more reliable and transparent than the highly regulated world of stock trading. Created in 1970 to help restore confidence to the securities markets, SIPC has authority to use its funds to pay back securities customers up to $500,000 per account when brokerages fail. The insurance, which is funded by member brokers, does not cover futures accounts. The futures industry seeks to protect customers by requiring brokers to wall off customer accounts from their own funds. The system is an important selling point for CME, which touts the stringency of fund segregation in materials aimed at winning business from fund managers. The safety of customer fund segregation was also among the reasons that NFA cited when it recommended against adopting a bailout fund 25 years ago, in the wake of the collapse of Volume Investors, a brokerage on New York’s Commodity Exchange. With $13.7 million in customer funds, it was one of the largest futures brokerage failures of its time. By contrast, MF Global had about $5.5 billion in funds when it went under. COMEX — which is now owned by CME — in the end spent $3.6 million repaying traders who lost money in the bankruptcy. The payout equaled about 12 percent of the average customer funds held by a futures broker at the time. Futures trading has skyrocketed since then; an equivalent payout today would come to $170 million, based on the latest figures on futures customer funds published by the Commodity Futures Trading Commission. In a 122-page report entitled “Customer Account Protection Study,” dated November 20, 1986, the NFA concluded that insolvencies were so rare and fund segregation and other protections so strong that “it does not appear that even retail customers would require a public commitment to account insurance to maintain participation in the futures industry.” Post MF Global, that argument no longer passes muster. Trader anger at the brokerage and its regulators is mounting, and many smaller market participants are pulling or threatening to pull their money from futures markets. Volume Investors’ 1985 failure affected fewer than 100 traders. MF Global had tens of thousands. Industry executives say that if industry does not come up with its own solutions, change will be foisted on it. “I don’t think they’ll get off without a fix,” Horwitz said. Not all market participants support the idea. John Roe, a Chicago broker and former MF Global customer, said he fears an insurance scheme would only encourage risk taking by assuring traders there will always be a savior ready to pick up the pieces should something go wrong. “When there’s a car wreck, do you look for a better tow truck?” Roe asked. “Let’s build a better car.” (Reporting by Ann Saphir; Editing by Alden Bentley) Copyright 2011 Thomson Reuters. Click for Restrictions .

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The Economic Battlefield Of The NBA Lockout

November 21, 2011

By David Berri of Freakonomics With the NBA away, sports fans are looking for something to satisfy their need to watch teams strive for victory. Well, why not take a look at the teams competing in the lockout? Okay, maybe this is a contest only a sports economist could love. But while it may not appeal to everyone, the labor dispute is still best thought of as a contest between two teams. The first team is the NBA owners. The owners are the dominant buyer in the world market for elite basketball talent, so they have substantial monopsony power. In the other corner are the players, who are currently trying to disband their union. This union gave the players monopoly power in the sale of elite basketball talent (more specifically, in helping to determine the conditions under which individual players would sell their services). When a monopsony meets a monopoly on the economic battlefield, the outcome is determined by bargaining. And in that case, bargaining power – or what we call leverage – means everything. Read the entire post at Freakonomics. Or more here: – Paying People to Quit: What Law Schools Can Learn From Zappos – One More Time: Most Notable Quote of 2011 – Turkey Sex: The Way It’s Done Now

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Black Friday 2011: Millions More Plan To Shop This Year, Survey Finds

November 17, 2011

Americans plan this year to go shopping in greater numbers on Black Friday, the biggest shopping day of the year and unofficial kick-off the holiday spending season. Some 152 million shoppers say they will hit stores on November 25, the day after U.S. Thanksgiving, up 10.1 percent from 138 million people last year, according to a survey by the National Retail Federation, an industry group. For the November-December period, the NRF previously forecast retail sales would rise 2.8 percent to $465.6 billion, in what executives and analysts have said will be a more competitive season than last year. Major retailers are leaving little to chance. For instance, discount retailer Target Corp and department stores Macy’s Inc and Kohl’s Corp are opening their doors earlier than ever, at midnight on Thanksgiving. The survey, which polled 8,502 people between November 1 and November 8, also found that 17.3 percent of people will look for Black Friday deals on retailers’ Facebook page and 11.3 percent on group buying sites such as Groupon Inc and Living Social. (Reporting by Phil Wahba in New York; editing by Andre Grenon) Copyright 2011 Thomson Reuters. Click for Restrictions .

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German Finance Minister: Eurozone States Must Give EU More Power

November 12, 2011

BERLIN – Euro zone states must do more at a European level and pass some of their responsibilities for budget setting and fiscal policy to European institutions to find a way out of the debt crisis, Germany’s Finance Minister was quoted on Saturday as saying. Wolfgang Schaeuble told Germany weekly news magazine Focus that Italy would be able to overcome its problems, which stemmed from a confidence crisis on the markets. “The actual economic data is not so bad. The problems just need to be tackled… These are also solvable by Italy itself. What Rome must overcome is nothing like the mountain Greece must climb,” he said in an interview published on Saturday Although Europe now had a more stringent growth and stability pact which allows the chance to intervene much earlier, countries also had to do more at European Union level, he said. “The pressure of the crisis is allowing things to happen which otherwise wouldn’t be possible… the bigger the crisis the greater the need for change.” “The sense that this will bring us much further in the end helps me through the frustrating times.” To better ensure euro zone members respect their commitments, existing European Union treaties should be modified to give European Commission officials the same kind of enforcement powers for budgetary matters that they already have in the realm of competition issues, he said in a separate interview with Le Monde. “Why wouldn’t the membership of the commission in charge of putting the agreements into effect not have the same rights as the competition authority,” he asked the French paper. “Why does the right exist for violations of European laws to appeal to the Court of Justice of the European Union but not violations of the Stability Pact?” Schaeuble also reiterated that France and Germany needed to keep pushing their proposal for a financial transactions tax even if there is reluctance on the part of some EU members. “If we don’t find a solution for the 27 EU members, it must then be discussed on the level of the euro zone,” he said. “Those who want to be leaders must move forward. That’s the case with France and Germany.” The tax proposal, formally made to the Group of 20 leading economies earlier this month by billionaire Bill Gates, failed to win the backing of the G20 although French President Nicolas Sarkozy has said he still plans to pursue the idea. (Reporting by Alexandra Hudson and Christian Plumb; editing by Patrick Graham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Richard Barrington: Federal Reserve Update: November 2011

November 9, 2011

It should be no surprise that the Federal Open Market Committee (FOMC) announced virtually no new action in its November 1-2 meeting. At this point, Ben Bernanke is like a poker player who has already drawn his last card and pushed his remaining chips into the center of the table: all he can do now is watch how the game plays out. In its statement following the meeting, the FOMC expressed optimism that the pace of economic growth was accelerating, while inflation was abating. The optimism on economic growth is borne out by last week’s advance estimate of third-quarter Gross Domestic Product; the optimism about inflation is less supported by the most recent data on the Consumer Price Index. But in light of the continued high rate of unemployment, the FOMC will continue to keep current interest rates low in an attempt to stimulate the economy. The federal funds rate In its statement, the FOMC announced that it will continue to keep the federal funds rate in a range between 0 and 0.25 percent, a policy it expects will continue at least to mid-2013. As a result, you can expect savings account interest rates , CD rates, and money market rates to remain low–perhaps not as long as through the middle of 2013, but certainly for the remainder of this year. The FOMC also announced that it will continue to buy long-term Treasuries and mortgage-related securities. These moves are designed to push long-term interest rates–especially mortgage rates–even lower than they are today. MoneyRates.com Interest Rate Forecast: 2011-2012 For the time being, there is no reason to expect that the FOMC will not follow through on its commitment to keep the fed funds rate near zero through the middle of 2013. There are really two things that could knock the FOMC off of that commitment: unusually strong economic growth, or a continued rise in inflation. Even in the case of strong economic growth, the FOMC is likely to exercise an abundance of caution before raising rates, at least until the unemployment rate is substantially slower. That makes inflation the most likely candidate to cause the Fed to change its position sooner than expected. The following are dates of the FOMC meetings scheduled for the remainder of 2011 and 2012, along with the MoneyRates.com forecast of the target fed rates that will come out of those meetings. Note that for the time being, these forecasts assume the FOMC will stick to its low interest rate pledge, with the only twist being a shift towards the higher end of the range as time goes on. December 13th, 2011: 0 to 0.25 percent January 24th-25th, 2012: 0 to 0.25 percent March 13th, 2012: 0 to 0.25 percent April 24th-25th, 2012: 0 to 0.25 percent June 19th-20th, 2012: 0 to 0.25 percent July 31st, 2012: 0.25 percent September 12th, 2012: 0.25 percent October 23rd-24th, 2012: 0.25 percent December 11th, 2012: 0.25 percent The original article can be found at Money-Rates.com : ” Federal Reserve update: November 2011 ”

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Mortgage Applications Surge

November 9, 2011

Applications for U.S. home mortgages surged last week, driven by increased refinancing demand as interest rates dropped, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, climbed 10.3 percent in the week ended Nov 4. “Treasury rates dropped last week, as renewed turmoil in Europe once again led to a flight to quality, and 30-year mortgage rates dropped to their second lowest level of the year,” Mike Fratantoni, MBA’s vice president of research and economics, said in a statement. The MBA’s seasonally adjusted index of refinancing applications rose 12.1 percent to its highest level in a month. Fratantoni said some lenders saw even bigger increases. Fixed 30-year mortgage rates dropped 9 basis points to average 4.22 percent. The refinance share of total mortgage activity rose, after declining for three weeks, to 78.6 percent of applications from 77.1 percent the week before. The gauge of loan requests for home purchases gained 4.8 percent. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA. (Reporting by Leah Schnurr; Editing by Leslie Adler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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The Most Mentioned Wall Street Firm In Media This Year

November 8, 2011

The story is just one of many the media stories published about Goldman Sachs this year. For the third time in a row, the investment bank was mentioned more than any other Wall Street firm by global media outlets this year, according to a study by HighBeam Research, cited in DealBook. Goldman netted nearly 16 percent of all media mentions of Wall Street firms during the first 10 months of 2011, followed by HSBC, Deutche Bank and Morgan Stanley, the survey found. With so much controversy surrounding the financial industry, Goldman’s top ranking may not be such a good thing for the investment bank. Goldman may have received the bulk of media mentions because it’s often targeted as a major symbol of Wall Street’s worst tendencies . Regardless of reputation, Goldman has been associated with some notable media stories this year. A former director at the investment bank, Rajat Gupta surrendered last month in a high-profile insider trading case. The bank also suffered its second loss ever as a public company last quarter , posting a total revenue decline of 60 percent since the same period last year. Jon Corzine, former CEO of MF Global — the securities firm that’s come under scrutiny after filling for bankruptcy — also used to head Goldman . Another big story that may have boosted Goldman’s presence in the media: Occupy Wall Street. The investment bank reportedly told its employees last month to stay away from the protests in Zuccotti Park. In addition, Goldman dropped out of backing and attending a credit union fundraiser after finding out that Occupy Wall Street would be an honoree. Coverage of the Occupy movement reached the same level as that of the Tea Party in early October, according to a study by the Pew Research Center cited in The New York Times . In addition, the protests took up 7 percent of national media coverage during the first week of October. Though Goldman ranked number one of Wall Street firms in mentions in traditional media, another bank has been getting slammed on social media recently. Eighty-seven percent of Bank of America mentions on social media in the past year were negative, according to Marketwire. BofA was roundly criticized by consumers and law makers after announcing that it would charge customers $5 per month to use their debit cards starting in 2012. The bank ultimately back-tracked from the fee earlier this month.

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German Chancellor: Europe Has A Long Road Ahead

November 5, 2011

BERLIN – German Chancellor Angela Merkel said on Saturday it would take a decade before the euro zone was in a better position and there was much work left to be done to solve the bloc’s sovereign debt crisis. “(It will) certainly take a decade until we are in a better position again,” Merkel said in her weekly podcast. “We have a whole chunk of work ahead of us, I’ve got to say.” Merkel spoke a day after the euro zone failed to secure new money at a G20 summit from potential investors such as China and Brazil for its efforts to overcome the debt crisis. Uncertainty about efforts to tackle the crisis persisted on Saturday. Greek Prime Minister George Papandreou, who survived a confidence vote on Friday but is expected to step down, said negotiations to form a coalition government would start soon. He called for a broad-based government to secure a bailout from the euro zone, the main weapon in Europe’s battle against the spreading economic crisis. Merkel said all of Europe had overspent for years but welcomed that all euro zone members had agreed to a debt brake like Germany’s. “Almost all European countries have spent more over the years than they earned,” she said. (Reporting by Annika Breidthardt; Editing by Susan Fenton) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Bank Transfer Day, OWS Share Sentiments But Take Different Approaches

November 5, 2011

“How do you kill a bank?” mused Christopher Guerra on a blustery morning at Zuccotti Park. “Strip it of its capital. You can’t defeat banks head-on because they’re too powerful.” Guerra, 27, said he hopes Bank Transfer Day — a social media push that encourages consumers to pull their money out of banks and deposit it into credit unions by or on Nov. 5 — will help to deprive banks of some of the money they need to function. Occupy Wall Street and Bank Transfer Day aren’t officially affiliated, but the two movements draw their strength from similar sentiments: consumers tired of relying on big banks that they argue take advantage of them through lending practices and fees. Though the push for the bank transfer movement began with Kristen Christian, a 27-year-old Los Angeles-based entrepreneur, Occupy Wall Street protesters have become some of the most visible supporters of Bank Transfer Day, allowing them to drive the conversation surrounding Saturday’s deadline. Christian told the HuffPost this week that she’s appreciative of the support she’s gotten from Occupy Wall Street protesters such as Guerra, but she added that she hopes the movement doesn’t take any more “disruptive actions” — such as the protest in a New York City Citibank last month that resulted in two-dozen arrests — in the name of taking money out of banks. Conor Reed, who was arrested in the Citbank protest, said that while some may act individually to commemorate Bank Transfer Day, he hopes the actions spark a larger conversation. But he also said he’s concerned that police may “harass” bank transfer activists that are working non-violently. “My hope is that tomorrow people will go to banks together, hold rallies outside, slowly and sweetly transfer their accounts to gum up business as usual, share the reasons for their activities with other customers, and then open the horizons for social action more widely,” Reed wrote in an e-mail to HuffPost Friday. For the protesters’ part, it seems they have no plans for an organized, mass run on the banks; instead they’re looking to draw attention to the cozy relationship between government and the banking industry. Activists associated with Occupy Wall Street plan on Saturday to march from Liberty Plaza to Foley Square — the site of the New York Supreme Courthouse — to protest a deal that government officials are negotiating with banks to settle allegations that the companies illegally foreclosed on homeowners. “People are still furious at the banks and so the question is, how do we change them?” asked Max Berger, one of the organizers of Saturday’s march. “It’s all about holding the banks accountable and not letting their political allies off the hook.” Christian’s call and the Occupy protests have touched a nerve with consumers and likely with banks as well. Christian said she sent out Facebook event invitations to 500 of her friends after Bank of America announced in September that it would charge customers $5 per month to use their debit cards. The page now shows tens of thousands attending Bank Transfer Day. An even more tangible measure of the movement’s success: The Credit Union National Association estimates that 650,000 customers have opened new accounts at credit unions since Bank of America announced the fee. More than 80 percent of the credit unions that saw an increase in new account openings attributed the boost to big bank fees or a mix of reactions to the fees, and the Bank Transfer Day push. Christian and other Bank Transfer Day advocates say one way to for consumers to take back control of their money is to move it to credit unions, which are often tied to specific locations and function as non-profit cooperatives. “They don’t take out the risky loans,” said Deborah Butler, one of the protesters at Zuccotti on Friday. “They know who they’re loaning to.” Mark Bray, a member of the Occupy Wall Street Press Team, said the protests can’t take credit for the bank’s decision to scrap the fee, but he thinks it’s changed the conversation for some consumers, who before wouldn’t have thought of taking a stand against something like a bank fee. “Fundamentally, [Bank of America dropped the charge] because people don’t want to pay the fee and they were switching banks,” Bray said. “We’re creating a climate where these kinds of things can happen.” For some activists at the park, the relationship between the two movements works both ways. Louis Daniel, a former foreman for an independent contractor, said he thinks Bank Transfer Day will show the public that Occupy Wall Street “actually means business.” Daniel has been out of work for eight months. “I imagine just regular old people, dressed in regular old clothes going in and saying ‘I want to pull my money out,’” Daniel, 31, said. “It seems like they’re coming in to make a deposit and they’re not.” Even if consumers decide to withdraw their funds in a relatively laid-back fashion, Thadeus Umpster, a protester who was at Zuccotti on Friday, said he hopes the banks will feel the sting. “I hope it’s more than a message, I hope it hurts them,” Umpster said. “People are not happy with the banks, the system. The more people that participate, the more clear that will be.” Umpster said Bank Transfer Day will also have the benefit of helping people across the country connect with the protesters in Zuccotti Park. “People who haven’t been able to get down here will be able to participate,” he said. Though Umpster said he was upset by the bank fees, for him, Bank Transfer Day is about taking a stand against more than just added charges. He cited banks’ checkered history of discriminatory loan practices. Another protester at the park, Ayenay Abye, said she agreed, arguing that banks used predatory lending practices, which are partly to blame to the financial meltdown. In the aftermath of the crisis, critics alleged that banks targeted low-income borrowers and encouraged them to take out home loans that they normally wouldn’t qualify for during the housing boom. In one example of the criticism, the Department of Justice is investigating Wells Fargo for allegedly directing African-American borrowers into high-cost, subprime loans. “They take our money and discriminate against us,” Abye said. “It’s important for communities to have control over their own resources.” For his part, Bray says he thinks transferring money from banks to credit unions is one tangible way for Occupy Wall Street to get its message across. “What it shows is that the movement as a whole isn’t about not buying things, it isn’t about hiding your money under a mattress, it’s about valuing the material conditions of working people,” Bray said. “It’s a reasonable step, it’s a concrete step and it’s something that we can do as consumers.”

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Country Finds $78 Billion Surprise

October 29, 2011

Germany is 55.5 billion euros ($78.7 billion) richer than it thought due to an accountancy error at the bad bank of nationalized mortgage lender Hypo Real Estate (HRE), the finance ministry said. Europe’s largest economy now expects its ratio of debt to gross domestic product to be 81.1 percent for 2011, 2.6 percentage points less than previously forecast, it said. The HRE-linked bad bank FMS Wertmanagement FMSWA.UL was set up after HRE was nationalized in 2009, so that HRE could transfer the worst non-performing assets to an off-balance sheet bank guaranteed by the German state. “Apparently it was due to sums incorrectly entered twice,” said a ministry spokesman on Friday, adding the reason for the error still needed to be clarified. The government nonetheless welcomed the news which pointed to a further reduction of Germany’s debt mountain, which remains above the European Union’s Maastricht requirement for 60 percent of GDP. However, the opposition Social Democrats (SPD) expressed astonishment at the extent of the accountancy error, for which they see the government as responsible. “This is not a sum that the Swabian housewife hides in a biscuit tin and forgets,” said SPD parliamentary leader Thomas Oppermann. “To overlook such a sum is completely irresponsible.” Swabians, from the south-west of Germany, are renowned for their savings skills. Of the total sum uncovered at FMS, 24.5 billion euros is for 2010 and 31 billion euros is for 2011. “HRE’s bad bank is a state-owned bank for which (Finance Minister) Wolfgang Schaeuble is responsible,” Oppermann added. “He is responsible for the bank being managed and supervised in an orderly way, and this clearly was not the case.” FMS Wertmanagement was created when toxic loans and securities with a face value of 173 billion euros were transferred from HRE in October last year, creating Germany’s largest bad bank. ($1 = 0.705 Euros) (Reporting by Sarah Marsh and Thomas Seythal) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Obama’s Efforts To Aid Homeowners Fall Shorts

October 24, 2011

It was a critical plan to jump-start the economy. President Obama pledged at the beginning of his term to boost the nation’s crippled housing market and help as many as 9 million homeowners avoid losing their homes to foreclosure. Nearly three years later, it hasn’t worked out.

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Iraq’s ‘Frontier Investors’ Unlikely To Be Scared Off By U.S. Exit

October 23, 2011

BAGHDAD (Serena Chaudhry) – Foreign investors eager to snap up development projects in key oil producer Iraq are unlikely to balk after the United States withdraws all its troops at the end of the year as long as security does not deteriorate. U.S. President Barack Obama said on Friday all U.S. forces would leave Iraq at the end of 2011 as scheduled, almost nine years after the 2003 U.S.-led invasion that toppled dictator Saddam Hussein. Iraq is trying to rebuild after decades of war and economic sanctions and needs investment in every sector. The OPEC member country has signed a series of deals with international firms to develop its oil fields, the fourth-biggest in the world. Foreign investors like oil majors Royal Dutch Shell and BP and bank HSBC are already pouring billions of dollars into Iraq and a U.S. pullout will likely not thwart foreign firms for an extended period, especially those with long-standing interests in the country. “Any impact on investment will be short-term and quite muted, assuming the security situation doesn’t deteriorate drastically,” said Economist Intelligence Unit’sAli al-Saffar. “This is primarily because Iraq has only really managed to attract (beyond the oil sector), frontier investors who have some level of appetite for risk so far. These more adventurous investors know the risks associated with doing business in the country, and have become quite adept at dealing with them.” Iraqi security forces continue to battle a stubborn Sunni insurgency and Shi’ite militias, and bombings and killings still occur on a daily basis despite a sharp drop in violence from the height of sectarian fighting in 2006-07. For investors on the ground, primary concerns center around kidnapping threats and attacks on development sites. Oil pipelines are targeted by insurgents in the north and south. Some production at the southern Rumaila oilfield was stopped this month when two bombs hit pipelines. Most foreign companies with a footprint in Iraq hire personal security guards for their protection and analysts say it is unlikely the departure of U.S. troops by year-end will raise extensive concern. “For quite some time, investors have been operating in Iraq without very much in the way of assistance from the U.S. military so they may not notice a big difference following the withdrawal,” said AKE Group senior risk consultant John Drake. MORE CONFIDENCE Iraq’s government aims to attract $86 billion in investment by 2014 under a five-year economic development plan. Rehabilitation of the oil, housing, agriculture and power sectors are seen as most pressing. The head of Iraq’s National Investment Commission, Sami al-Araji, said in July the country had secured around $6 billion in investment for licensed projects so far this year. Examples of deals include a $472 million contract with Italy’s Saipem for an oil export facility expansion and sub-sea pipeline and a 100,000-unit housing project with South Korea’s Hanwha Engineering & Construction. Foreign investors have also been net buyers on the Iraq Stock Exchange (ISX) so far this year, buying 66 billion shares to end-September with a volume of $110 million, according to ISX chief executive Taha Abdulsalam. “The complete pullout will probably slow down flows to ISX in the short-term, but overall this news is priced into the market by serious investors,” said Carl Wahlquist Ortiz, investment manager at City of London Investment Management in Dubai. “Typically, if you’re looking at Iraq, you’re looking for something a bit more risky, generally speaking.” Iraq’s stock market is still relatively small compared to international exchanges and its regional counterparts, but volume on the local bourse is expected to rise as more companies, particularly the local mobile phone firms, list. “It (the withdrawal) has to bring more confidence in the political and economic management of Iraq and confidence in the capability of enforcing security,” saidAmar Essa al-Jawahiri, an independent industrial and investment consultant in Baghdad. Iraq’s northern Kurdish region is a prime example of a part of Iraq where foreign investment and construction is booming. The area has been a place of relative calm since becoming a semi-autonomous zone under Western protection in 1991 and is widely regarded as a safe haven. (Editing by Jim Loney and Mike Nesbit) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Median Income Falls To 10-Year Low As Number Of Millionaires Grows

October 20, 2011

Americans’ incomes are falling, perhaps a reason why pessimism about their personal finances is now the lowest it’s been in a decade. The median income fell in 2010 for the second year in a row to $26,364 , a 1.2 percent drop from 2009, and the lowest level since 1999, according to David Cay Johnston at Reuters. Meanwhile, U.S. households are growing increasingly concerned about their finances with more than 20 percent of adult Americans rating their financial situation as “poor,” a Gallup poll finds. That’s a larger share than the 16 to 19 percent of Americans who viewed their finances as poor during and after the recession. It’s also the highest percentage since 2001, the first year of the survey, according to Gallup. In some ways, the financial crisis has taken more of a toll on the employed during the recovery. Indeed, Americans’ incomes have fallen more during the recovery than they did during the recession. Incomes dropped 6.7 percent during the recovery between June 2009 and June 2011, compared to a 3.2 percent drop during the recession from December 2007 to June 2009, a study from former Census Bureau officials found. And it will take some time to get incomes back to where they were before the recession. The U.S. median income has declined 7 percent in the last 10 years and while economists expect incomes to rise over the next decade, it likely won’t be enough to return to pre-recession income levels, the Wall Street Journal reports. Not everyone is suffering, however. The number of workers making $1 million or more actually rose to nearly 94,000 last year from 78,000 in 2009, according to Reuters. Still, most employed workers don’t expect much in the near future. Nine out of 10 American workers say they don’t expect to get a salary increase in the next year that will be enough to compensate for rising food and fuel prices, a June American Pulse survey found. Meanwhile, Gallup’s Basic Necessities Index — a measure of Americans’ access to food, shelter and health care — fell earlier this month to lows on par with recession levels. Corporations may finally be feeling the pain of a sluggish recovery too, MSNBC reports. As CEOs continue to report their company earnings for the last quarter, their outlooks for the future will likely include belt-tightening measures , according to MSNBC.

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WATCH: BofA Branch Reportedly Refuses To Allow Protesters To Close Accounts

October 16, 2011

Should people who are tired of paying extra fees be allowed to close their bank accounts in protest? One Bank of America official reportedly doesn’t think so. According to Addicting Info , two women involved with the Occupy Santa Cruz movement in California walked into a Bank of America branch earlier this week and attempted to close their bank accounts. In response, the bank manager threatened to lock the doors and call the police on them. Her reasoning? You can’t be a customer and a protester at the same time, the manager said. Central Coast News contacted Bank of America about the incident and received a response from the company: Central Coast News has contacted Bank of America to get their side of the story. In an email Colleen Haggerty with Bank of America released this statement to Central Coast News. “It is our responsibility to ensure a safe environment for customers to conduct financial transactions. So, due to the disruptive nature of protests lately and the potential for safety or security issues, we do not allow protestors inside of our banking centers. If a customer who is participating in a protest wishes to conduct bank business, including close an account, we ask them to come back when they are not protesting or they may also conduct their bank business at a nearby branch away from protest activities.” Haggerty also said that Bank of Ameica, “respect everyone’s ability to exercise their first amendment rights, however we also have to balance safety and business needs for all customers.” According to Central Coast News , “The women said that they would return to Bank of America the next day, sans signs, and close their accounts taking their ‘money away from the banking elite and into a local credit union.’” WATCH VIDEO OF THE ENCOUNTER ABOVE

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Report: Tax Cuts For The Wealthy Cost U.S. Millions Every Hour

October 14, 2011

Tax cuts for America’s top earners are costing everyone, every hour of every day, a new report from the National Priorities Project finds. Tax cuts for the wealthiest five percent of Americans cost the U.S. Treasury $11.6 million every hour, according to the National Priority Foundation. America’s top earners will get an average tax cut of $66,384 in 2011, while the bottom 20 percent will get an average cut of $107. The report comes as party leaders wrangle over the best way to curb the nation’s budget deficit, protesters around the world demonstrate against income inequality and corporate greed and Republican presidential candidates offer their economic plans to voters. Former pizza company CEO and Republican presidential candidate, Herman Cain, has been getting lots of attention in recent weeks for “999 Plan” which would cap the corporate, income and sales tax rates at 9 percent. President Barack Obama unveiled his deficit reduction plan last month , which aims to curb the national debt through a combination of tax cuts and increased spending. The plan includes a proposal to increase taxes on millionaires — the so-called Buffett rule, name for famed billionaire investor Warren Buffett. In an August op-ed in The New York Times , Buffett argued that lawmakers should put an end to tax breaks for the “super-rich.” After Obama announced the proposal Republican leaders criticized the Buffett rule calling it “class warfare.” Still, there are some Republicans who support increasing taxes on the wealthy. Former Federal Reserve Chairman Alan Greenspan — a registered Republican — told CNBC earlier this month that he supports allowing the George W. Bush-Era tax cuts for the wealthy to expire. That could because the tax cuts are weighing on the national debt. The non-partisan Center for Budget and Priorities found that the Bush tax cuts costs about the same as the shortfall from Social Security in the ten years after they were signed into law. If the U.S. reverted to Clinton-era marginal tax rates, the U.S. Treasury would net an additional $72 billion annually , according to Citizens for Tax Justice. In addition, increasing taxes on the wealthy could also help to narrow the widening wealth gap. The net worth of the bottom 60 percent of U.S. households — about 100 million households — is lower than that of Forbes 400 richest Americans. Tax cuts for the wealthy provided Americans making more than $1 million with a $128,832 benefit, while Americans earning from $40,000 to $50,000 got an $860 benefit on average .

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Regulators Ask Public Companies For First Time To Disclose Cyber Attacks

October 14, 2011

BOSTON/WASHINGTON (Jim Finkle and Sarah N. Lynch) – U.S. securities regulators formally asked public companies for the first time to disclose cyber attacks against them, following a rash of high-profile Internet crimes. The Securities and Exchange Commission issued guidelines on Thursday that laid out the kind of information companies should disclose, such as cyber events that could lead to financial losses. Senator John Rockefeller had asked the SEC to issue guidelines amid concern that it was becoming hard for investors to assess security risks if companies failed to mention data breaches in their public filings. “Intellectual property worth billions of dollars has been stolen by cyber criminals, and investors have been kept completely in the dark. This guidance changes everything,” Rockefeller said in a statement. “It will allow the market to evaluate companies in part based on their ability to keep their networks secure. We want an informed market and informed consumers, and this is how we do it,” Rockefeller said in a statement. There is a growing sense of urgency about cyber security following breaches at Google Inc, Lockheed Martin Corp, the Pentagon’s No. 1 supplier, Citigroup, the International Monetary Fund and others. Tom Kellermann, chief technology officer of security firm AirPatrol Corp, said that the SEC guidance tells companies to report cyber attacks and disclose steps to remediate problems. “They must also incorporate cyber events into their material risk reports,” said Kellermann, who has advised U.S. President Obama on cyber policy. The SEC gets into specifics, telling companies what type of data they might need to provide investors. “Examples of estimates that may be affected by cyber incidents include estimates of warranty liability, allowances for product returns, capitalized software costs, inventory, litigation, and deferred revenue,” it says. (The document can be accessed on the SEC’s website: www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm ) A report out earlier this month found that U.S. banks are losing ground in the battle to combat credit and debit card fraud because they balk at the expense of higher security. Globally, however, security is improving in the payment industry, according to data from The Nilson Report, a California trade publication. There is some hope of U.S. legislation to address the problem, although the House of Representatives appears more interested in tackling it piecemeal while the Senate is opting for a more far-reaching approach. Most of the concern has been focused on critical facilities like nuclear power, electricity, chemical and water treatment plants. (Reporting by Sarah N. Lynch in Washington and Jim Finkle in Boston; Editing by Gary Hill, Bob Burgdorfer and Carol Bishopric) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Goldman, Citi among banks on list for Hyundai Oilbank’s IPO

October 14, 2011

By Ju-min Park SEOUL (Reuters) – Hyundai Oilbank, South Korea’s smallest crude oil refiner, has narrowed down a group of banks to handle its up to $2 billion IPO planned for early next year, with Goldman Sachs, Credit Suisse, and Citigroup among the firms selected, sources with direct knowledge of the matter said on Friday. The list of five foreign banks and 10 local banks will be shortened further for final selection on or around October 21, one of the sources said. The other foreign banks on the so called short list include, BofA-Merrill and BNP Paribas. Woori Investment & Securities and Daewoo Securities are among the local banks placed on the list. The world’s largest shipbuilder, Hyundai Heavy Industries Co Ltd , which owns a 91.1 percent stake in Hyundai Oilbank is running the public float process. South Korean corporates typically choose multiple underwriters for their stock offerings, often spreading out responsibility across foreign and local banks for large deals. Such a practice often prompts complaints from the banks, knowing their fee will have to be shared with all involved. Still, banks bid aggressively for these large, high-profile deals, as these transactions help seal a relationship with a corporate for future transactions, assuming all goes well. Even for a low fee, such deals also helps boost banks’ ranking status on league table credits, which they use for external marketing and internal progress checks. The offering’s early stages comes at a brutal time for equity offerings, given the market volatility. The company, it’s top shareholder and the banks hope the deal’s target date of next May or June will come when markets settle. Mirae Asset Life Insurance has delayed its plan to next June after deciding to offer preferred shares to private equity funds. Sources say it will be the largest South Korean IPO since the $4.4 billion offering by Samsung Life Insurance last year. A Hyundai Heavy spokesman declined to comment. All the banks mentioned either declined to comment or could not immediately be reached. Other local banks on the deal include Samsung Securities , Korea Investment & Securities, Mirae Asset Securities

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Analysis: Wall Street banks profit from their weakness

October 14, 2011

By Lauren Tara LaCapra NEW YORK (Reuters) – The tempestuous bond markets of the third quarter could result in surprising gains for U.S. banks, but investors are unlikely to be impressed. JPMorgan Chase & Co said on Thursday that about one-fourth of its profit in the quarter resulted from an accounting oddity known as debt valuation adjustments, or DVAs. They are paper gains that occur when investors price more risk into a company’s bonds, leading to a reduction in liabilities. Investors, dismayed that so much of JPMorgan’s profit came from an accounting quirk rather than cash-generating business, sent the bank’s shares 4.8 percent lower. Its Wall Street rivals are likely to report similar results, analysts said. “We’re likely to see these DVA gains across all of the big capital markets players,” said Shannon Stemm, a financial stock analyst at Edward Jones. Before JPMorgan’s results, analysts had forecast DVA gains of $1 billion for Morgan Stanley, and $300 million for Goldman Sachs Group Inc . But because the two banks faced more severe bond-market stress than JPMorgan during the third quarter, they may report even larger DVA figures, analysts said. Those gains could be the only profits the two banks have to show for the quarter. The rule that pertains to DVA, known as FAS 159, is part of rulemakers’ efforts to make balance sheets more transparent by forcing companies to record changes in the market values of some assets and liabilities. But the rules can make a company’s financial statements more confusing, too, as when Lehman Brothers recorded a DVA gain of $1.4 billion just days before it filed for bankruptcy. As the European debt crisis intensified in the third quarter, most U.S. bank debt weakened as investors grew jittery about the exposure of U.S. financial institutions. Morgan Stanley’s debt was among the worst performing of the major banks, indicating that it may record the biggest gain, analysts said. But experts cautioned that forecasting DVAs is difficult, because every bank funds its operations with a different combination of debt, and companies have some leeway for valuing the liabilities, particularly when they trade infrequently. “It drives me crazy as an analyst,” said Jack Kaplan, of Carret Asset Management, which has $1.4 billion in assets under management and holds JPMorgan shares and some Morgan Stanley debt. “It’s nearly impossible to predict and you don’t know if the rest of the market is factoring it in or not.” HARD TO PREDICT Morgan Stanley, in particular, has seen enormous paper gains and losses that were difficult to forecast. The bank reported a DVA gain of $1.4 billion in the third quarter of 2008 as the credit crisis reached its pinnacle, only to post a DVA loss of $6 billion the following period after the U.S. government stepped in with a multibillion-dollar bailout. Analysts on average are forecasting a profit of 30 cents per share for Morgan Stanley, according to Thomson Reuters I/B/E/S. But it looks as though the only reason analysts see the bank in the black is a big DVA gain they are factoring in. Half of the 24 analysts who cover Goldman believe the company will report its second loss in 50 quarters as a public company, according to Thomson Reuters I/B/E/S. The average estimate is a profit of 15 cents per share. The estimates would be lower if not for hundreds of millions of dollars’ worth of expected DVA gains. Of course, none of that means investors or analysts view DVA as a good thing, nor do they equate changes in debt value as the same kind of income banks earn from fees or changes in asset values. “People consider DVAs accounting noise,” said Matthew Morris, director of corporate advisory services in the Dallas office of RGL Forensics. “It’s counter to common sense because as the company weakens this is somehow a net positive thing” (Editing by Dan Wilchins and Steve Orlofsky)

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Uniqlo starts U.S. expansion, eyes 200 stores

October 14, 2011

By Phil Wahba NEW YORK (Reuters) – Fast Retailing Co Ltd’s Uniqlo is launching its U.S. expansion this week with the opening of a flagship store in Manhattan that will anchor a global push to rely less on its home market of Japan. In addition to the Fifth Avenue location, opening on Friday, Uniqlo is also opening a store in New York’s Herald Square next week, bringing its U.S. total to three locations. The new stores will be the chain’s two biggest. The retailer’s goal is to eventually have 200 stores in the United States and U.S. sales of $10 billion by 2020. Uniqlo, run by Japanese billionaire Tadashi Yanai, is directly challenging rivals such as Spain’s Inditex SA , Sweden’s Hennes & Mauritz AB and U.S.-based Gap Inc with stores a stone’s throw away from theirs on Manhattan’s major shopping strips. All these chains are trying to tap the growing market for fashionable clothes, such as cashmere sweaters and lightweight down jackets, at lower prices among U.S. consumers who are likely to have a reduced purchasing power for some time. “Even people who don’t have much money have the same desire to wear something nice,” Yanai told Reuters on Thursday through an interpreter. Its rivals are well established in the United States. H&M opened its first U.S. location in 2000 and now has more than 100. In 2010, it had U.S. sales of some $1.3 billion. Zara has 49 stores here, including seven in New York. Uniqlo has had a single U.S. store, in New York’s SoHo district, since 2006. But H&M appeals to younger shoppers who change their wardrobe more quickly, while Zara’s shoppers are a bit older, leaving room for Uniqlo, an industry analyst said. “Uniqlo brings in a broader customer base and is a bit more classic and tailored,” said NPD Group Chief Industry Analyst Marshal Cohen. “They will appeal to a slightly more affluent shopper.” But the U.S. expansion is modest compared with Uniqlo’s plans for Asia, especially China, Southeast Asia and South Korea. Of the 4,000 stores it hopes to operate by 2020, up from 1,000 now, some 70 percent will be in those countries. Sales in Japan, which account for three quarters of Fast Retailing’s sales, fell 6 percent in the last business year. Uniqlo has 843 stores in Japan. “The (Asian) middle class will grow,” Yanai said. “It’s a gold rush.” The New York stores, which will attract U.S. and foreign tourists, as well as taste-makers, are central to its global strategy. “This is our showcase for the world,” Yanai added. (Reporting by Phil Wahba; editing by Andre Grenon)

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European Banks Will Need Capital In Excess Of $133 Billion: Ireland

October 8, 2011

DUBLIN (Carmel Crimmins and Lorraine Turner) – There is general agreement that European banks will need fresh capital well in excess of 100 billion euros ($133.8 billion) and it will likely come from a variety of sources, including the euro zone rescue fund, Ireland’s finance minister said on Saturday. Germany and France are split ahead of key talks on Sunday over how to strengthen shaky European banks. Paris is keen to tap the euro zone’s 400 billion rescue fund, the EFSF, to recapitalize its own banks and Berlin is insisting the fund should be used as a last resort. The International Monetary Fund (IMF) has said European banks need 200 billion euros in additional funds. “I think there is general agreement that it will be significantly in excess of 100 billion (euros),” Michael Noonan told reporters on the sidelines of an economic forum in Dublin. “I know that some of the big German banks that I was talking to personally intend raising money on the market so it will be private funding. Other banks would like to avail of the EFSF fund. Other banks will rely on their sovereign governments to provide the capital so there is going to be a range of ways of doing it.” “I think the principle should be that sovereign governments are responsible for their banking system on the advice of the European Central Bank.” “If banks can’t capitalize themselves, either by issuing equity to the market or by getting exchequer funds then obviously they would have the option of requesting EFSF funding. When we recapitalized our banks here we went the EFSF option.” Noonan said recent credit rating downgrades of Spain and Italy reflected frustration at Europe’s failure to solve a long-running sovereign debt crisis. “There is certainly an impatience that Europe should resolve the problems of the euro zone and do it pretty quickly,” he said. Ireland’s banks were at the heart of its financial crisis and subsequent EU-IMF bailout and earlier this year Dublin put a 70 billion euros bill on recapitalizing its lenders. Noonan is currently looking at ways to try and restructure nearly 31 billion euros worth of promissory notes, a form of IOU, used to recapitalize shuttered lenders Anglo Irish Bank and Irish Nationwide Building Society. The notes carry an interest bill of 17 billion euros, spread out over 20 years and Noonan would like to tap the EFSF to pay off the remaining amount outstanding, nearly 44 billion euros, and then repay that money to the EFSF over a longer timeframe and at a lower interest rate. “We are moving on it with colleagues in Europe and they have given no commitment but they are prepared to proceed on the basis of joint policy papers, which we have just commenced to draft now.” “I want to position ourselves in a changing European situation so that Ireland’s interests are studied carefully and taken into account in any wider solution that goes forward in the next month.” (Reporting by Carmel Crimmins; Editing by Alison Birrane) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wall Street CEOS May Be Held Accountable If Their Bank Breaks Rule

October 8, 2011

WASHINGTON (Dave Clarke) – Regulators are considering holding Wall Street chief executives legally liable if they allow certain types of proprietary trading on their watch. Regulators due to reveal the Volcker rule proposal next week are expected to ask whether CEOs should have to certify, or “attest,” that their bank has put in place the proper systems to make sure no proprietary trading is taking place. The idea is that holding CEOs personally accountable will add a strong deterrent effect to the Volcker rule. The rule, called for in last year’s Dodd-Frank financial oversight law, bans banks from trading for their own profit in securities, derivatives and some other financial instruments. The bank industry is already balking at the legal burden and compliance headache that would come with a CEO certification. “The whole Volcker rule proposal envisions having an army of nannies overlooking the work of the people who actually work with customers,” said Wayne Abernathy, a senior official with the American Bankers Association. “How much more does an attestation bring that that doesn’t bring?” A CEO certification approach may be similar to 2002′s Sarbanes-Oxley law. That law, put in place after major accounting scandals at Enron and Worldcom, has the power to send executives to prison and make them pay multimillion-dollar fines for submitting false certifications on corporate disclosures. It is unclear if regulators will seek CEO imprisonment or hefty fines as potential penalties for violating the Volcker rule. Whatever regulators might put in place, fines would be a far more likely punishment if any are ever doled out, banking lawyers said. Supporters of the proposal contend it would force the CEO to be more involved and accountable. “Placing personal and legal responsibility directly with a corporation’s top executive is key to ensuring financial firms comply with the Volcker Rule and stop engaging in the risky activities that led to billion-dollar taxpayer bailouts,” Sen. Carl Levin said in a statement to Reuters. The crackdown on proprietary trading, which has some exemptions, is known as the Volcker rule after former Federal Reserve Chairman Paul Volcker, who championed the reform. The rule will mostly impact large banks including Goldman Sachs, JPMorgan Chase and Citigroup. Supporters contend that large banks whose customers receive deposit insurance from the government should not be engaging in risky trading activities that could put these deposits in jeopardy. Despite banks’ concerns, regulators may go easier on the issue of CEOs’ legal liability than the industry’s worst fears. In January the Financial Stability Oversight Council, the panel of regulators headed by the Treasury Department, released recommendations for enforcing the Volcker rule. Included in this list was requiring a CEO to certify their compliance efforts’ “effectiveness.” A draft of the rule to be considered next week by regulators does not explicitly call for a CEO certification and instead solicits feedback on whether it should be in a final rule. The draft, first posted online by the American Banker on Wednesday, could be changed before the Federal Deposit Insurance Corp meeting on Tuesday and the Securities and Exchange Commission meetings on Wednesday on the proposal. Banking lawyers say the certification could work similarly to Sarbanes-Oxley. “The idea is they want to have a human being on the line saying it is true,” said Bradley Sabel, a partner with Shearman and Sterling law firm. But even some critics of the banking industry who argue the government has not done enough to respond to the 2007-2009 financial crisis question whether upping a CEO’s legal responsibility will make much of a difference. “I count myself among those who would like some CEOs’ heads on a stick but I don’t think this is the right way to go about it,” said Cornelius Hurley, director of Boston University’s Morin Center for Banking and Financial Law. “At the end of the day he is going to rely on the representations of his advisers anyway and all this does is make sure he doesn’t sleep at night.” (Reporting by Dave Clarke, Editing by Matthew Lewis) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Mohamed A. El-Erian: Why Good Companies May Get Even Cheaper for Awhile

October 2, 2011

Should investors buy good companies trading at historically attractive prices? This simple question is rightly on the mind of many investors as they survey the damage inflicted by the third quarter’s sharp and generalized collapse in global equity markets. It has already enticed some to buy at prices that, as Warren Buffet observed this week for his company, appear below “intrinsic value.” According to conventional wisdom, this simple question has an equally simple answer — “of course” — that is supported by the vast majority of historical cases. And it is an answer that would seem particularly appropriate today given that so many multinationals are still in great financial shape, pay relatively high dividends and trade at compelling historical valuations. But before acting on conventional wisdom, investors should ask themselves why so many unthinkables have turned into reality over the last few months. By doing so, they would be forced to consider important qualifiers arising from historic structural changes buffeting the global economy and, therefore, financial markets. Cheap stocks and corporate bonds can get a lot cheaper before regaining their footing. This is especially true when the combination of too much debt and too little income growth forces a system to delever, as is increasingly the case these days. In such a world, markets are driven by top-down economic and policy factors (“macro”) rather than company earnings and balance sheets. It is also a world in which “bad technical” can result in price behavior that deviates significantly from “fundamentals,” and for a long time. The dilemma confronting investors is essentially the same as that facing a home buyer looking at a good house in a rapidly-deteriorating neighborhood. It makes sense to buy if, and only if, the neighborhood is likely to stabilize, the buyer has the ability to hold on to the property, and he/she secures a sufficient price discount on account of the inherent uncertainty. Investors with “permanent capital,” like Mr. Buffet, are particularly well placed to strike this volatile balance. Yet they should only do so if they also believe that the combination of a bad macro and bad technicals will not, in itself, cause company fundamentals to deteriorate substantially and, thus, lower intrinsic values. Economists have a term for this. They call it “multiple equilbria.” It is a dangerous path-dependent phenomenon where one bad situation materially increases the risk of a subsequent situation that is even worse. It is the basic reason why so many well-run companies prefer to accumulate cash that earns virtually no interest income rather than invest and hire. These dynamics are particularly worrisome today as market after market falls victim to volatile and destabilizing feedback loops fueled by weak economic growth, high unemployment, debt overhangs, fragile banks and inept policymaking. It is most evident in Europe where just the prospect of firesales can, and has totally destabilized intrinsic values. It also threatens the US where too many politicians and policymakers remain asleep at the wheel. Have no doubt, there will be lots of opportunities down the road to buy good companies at cheap prices. If you do so today, you are betting that markets can escape decisively the grips of both bad macro and bad technicals. This is not a call on companies. It is about policymaking in Athens, Berlin, Frankfurt, Rome, and Washington DC. Mohamed A. El-Erian is CEO and co-CIO of PIMCO, and author of “When Markets Collide”. This post originally appeared at CNBC.com

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Poll: Majority Of Global Investors Back Buffett Rule

September 30, 2011

The majority of global investors support boosting taxes on households earning at least $1 million, according to a Bloomberg poll released Friday. Sixty-three percent of global investors said they support the so-called Buffett rule — named for billionaire Warren Buffett, who proposed raising taxes on the “super-rich” in an op-ed in The New York Times . American investors were less supportive than their colleagues around the world; forty percent backed the rule, according to the poll. But the majority of American voters are in favor of taxing the rich. Nearly three-quarters of Americans said they supported the Buffett rule , according to a poll released earlier this week by the website Daily Kos. Two-thirds of Americans also support raising taxes on households earning more than $200,000 , a recent Gallup poll found. And A majority of Republicans also support the rule, according to the Daily Kos poll. Still, the partisan rhetoric surrounding the measure may tell a different story. After Obama proposed the Buffett rule earlier this month as part of a larger plan to cut the national deficit using a combination of tax cuts and spending increases , Republican leaders accused him of stoking “class warfare.” In the op-ed, Buffett wrote that his tax rate is lower than that of everyone else working in his office . Buffett suggested raising tax rates on those making $1 million or more both as a way to “stop coddling” the rich and as a way to spur economic growth. Still, some argue that even if the Buffett rule were to survive and become law, it would do little to curb the budget deficit. Daniel Indiviglio of The Atlantic wrote earlier this month that if tax rates on the rich went back to pre-Bush-tax-cut levels they would bring in 4.5 percent of the 2009 national deficit. But many governments around the world think a Buffett rule-type law would help to solve their budget woes. France and England have boosted taxes on their wealthy , according to The New York Times , and Spain, Greece, Japan and Italy are considering doing the same. European investors had the highest level of support for the Buffett rule at 78 percent , the Bloomberg Poll found, while 69 percent of Asian investors back it. The Buffett rule may have less than half the support of U.S. investors, according to the Bloomberg poll, but it’s backed by one prominent American. Def Jam co-founder Russell Simmons told MSNBC on Thursday that he wants the U.S. government to raise his taxe s. The hip-hop mogul, who is worth an estimated $340 million, took a page out of Buffett’s book saying in the interview: “All my employees — every single one — paid more taxes than I did.”

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SEC Finds ‘Apparent Failures’ At 10 Credit Rating Agencies

September 30, 2011

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission staff found “apparent failures” at each of the 10 credit rating agencies it examined, including Standard & Poor’s and Moody’s, the agency said on Friday in its first annual report of credit raters. The SEC staff said concerns include failures to follow ratings methodologies, failures in making timely and accurate disclosures and failures to manage conflicts of interest. The SEC’s annual report was required by last year’s Dodd-Frank financial oversight law. The staff report did not single out by name any credit-rating agency for questionable actions. It also said the SEC has not determined that any of the report’s findings constituted a “material regulatory deficiency” but said it might do so in the future. “We expect the credit rating agencies to address the concerns we have raised in a timely and effective way, and we will be monitoring their progress as part of our ongoing annual examinations,” said Norm Champ, deputy director of the SEC’s Office of Compliance Inspections and Examinations. The SEC’s report covers 10 credit-rating firms including Moody’s Corp, McGraw-Hill Cos Inc’s Standard & Poor’s and Fimalac SA’s Fitch Ratings. Congress first empowered the SEC to closely regulate the firms in 2006, and Dodd-Frank gave the agency even greater powers over the industry. Credit raters have been widely criticized for fueling the financial crisis by giving inflated ratings to toxic subprime mortgage securities. On Monday McGraw-Hill disclosed that the agency might charge its Standard & Poor’s unit with breaking securities laws. SEC Enforcement Director Robert Khuzami told Reuters this week that the agency faces hurdles proving wrongdoing at credit-rating agencies, pointing to the complexity of the cases and the industry’s strong legal defenses. (Reporting by Andrea Shalal-Esa, Aruna Viswanatha, Karey Wutkowski, editing by Gerald E. McCormick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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