payment

Google Doesn’t Want Your Money, Just Your Data

by on May 26, 2011

Huffington Post…

Google may have unveiled a digital wallet, but it’s not your money they care about. It’s your data. The Internet giant announced plans to roll out the Google Wallet this summer, a mobile app that allows users to swipe their phones at the register using near-field communication (NFC) technology, instead of carrying a credit card. Google has partnered with Citibank, Mastercard, First Data, Sprint and certain retailers to back up the product, making it the first digital wallet to launch with such a comprehensive collection of partnerships. But analysts say despite Google’s speed in getting its product to market and the range of its partnerships, the digital wallet space is still too young to proclaim Google the definitive victor, especially given that the Google Wallet will work on only one phone, with one credit card, from one bank, for a handful of retailers. And it may not even be competitors in the payment space that truly have cause for concern, but rather the other Internet companies looking to tap into the consumer data Google now has special access to. “They have some very significant challenges ahead of them,” said Rick Oglesby, senior analyst at the Aite Group, a financial research and consulting firm. “There are a tremendous number of players in the space. Google’s hitting the ground first. They have a big first mover advantage, but they have to work hard to continue the momentum.” Experts say that Google’s approach to its Google Wallet sticks with traditional payments methods: It relies on users’ existing credit cards and uses the infrastructure that has been in place for years. By partnering with the companies that manage payments at every level–the banks that issue cards, the card companies, the companies behind cash register technologies, the security management for the card data–Google makes it clear that it’s not trying to displace traditional financial institutions or ways of paying. Google won’t be taking a cut of transaction fees, leaving credit card companies’ revenue untapped. Instead, Google Wallet targets at other companies aiming to provide their own digital wallet systems. The field is already crowded with players ranging from credit card company Visa to upstart startup Square to wireless-carrier effort ISIS. Though not yet official, it’s also been rumored that Apple’s next iPhone will have near field communication . “Moving data back and forth to effect a payment — they’re not going to try and worry about that,” said Oglesby. “What they’re also trying to do, what all these providers are trying to do, is this new business component: providing a wallet.” Though the Google Wallet is the most complete iteration of a digital wallet to hit the market, its limitations mean that for ordinary people, it won’t make much of a splash. “I would say from a consumer perspective this isn’t terribly significant,” said Oglesby. “But for the payment business it’s very significant. It’s someone getting on the ground and taking NFC and saying, ‘I’m going to make it work today.’” Analysts say the ultimate benefit Google gains from controlling such mobile wallet technology may have very little to do with the payments space. Through the Wallet, Google could gather huge amounts of customer data keyed to local actions and mobile use, a hugely valuable set of data that everyone on the web is working to get their hands on. “The competition will be with the coupons and the targeted offers,” said Aaron McPherson, a practice analyst at IDC Financial Insights, a financial technology research firm. “Because that’s where you have to get customer information — that’s the holy grail.” Google could use its access to customers to drive the successful deployment of its Google Offers , the system of local deals and discounts tied to the Wallet. By serving up these special offers at the time people plan to spend money, specified to the place they are shopping, Google will have a huge advantage over rival deals sites like Groupon. “They get very, very granular information pertaining to what you buy, when you buy, and that information is gold,” said Nick Holland, senior analyst at the Yankee Group, a tech research firm. “In one fell swoop they have trumped anything from Foursquare or Groupon. Now Google owns location-based advertising in the physical world.” While Visa has announced plans to utilize NFC in the future in conjunction with its own digital wallet, and wireless-carrier backed ISIS has also decided to turn to credit card companies for a mobile wallet service, neither has actually delivered a concrete plan for how they might do so. Despite the fanfare, Google Wallet will have to work towards widespread customer adoption to achieve success. Though the digital wallet may appeal in a futuristic way, it’s not clear that it will actually be more convenient than carrying a physical wallet. After all, if your cell phone runs out of battery, there too goes your money. “When it comes to making payments with your primary credit card in North America, it’s really not that difficult. It’s not like it’s a big challenge for me to take my credit card out and swipe it,” said Brad Strothkamp, a principal analyst at Forrester Research, a tech research firm. “Any time we try to get the customer to change habits, there has to be a significant incremental benefit to the customer to essentially change behaviors they’ve had for 20 years. That is not a small task.” Google and its competitors face the difficulties inherent in forging a path through unexplored territory. It’s worth noting that the three major contenders in the field all come from entirely different industries, with Visa as the only company that actually deals in payments as its primary business. Google has managed to sidestep the rest by bringing in the wide cast of operators that control the different aspects of the payment industry, though it remains to be seen if financial companies like Visa, also pursuing mobile payments, will prove to be uncooperative in the future. Still, experts suggest that competitors might have anywhere from 12 to 18 months to ready their products without falling too far behind, as customer adoption of such technologies will likely be hampered by the lack of NFC enabled phones, small number of participating retailers, and the cooperation of credit cards and banks. “It’s great that they’re doing this and it will get everybody moving a little more quickly, but it’s not going to take over the world tomorrow,” said Oglesby. “It’s still going to take some time to play out.”

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Google Doesn’t Want Your Money, Just Your Data

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Smokefree RE/AL Components Clears Customs Monday, Allowing Shopping Cart Operational in Next Few Days

by on May 18, 2011

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Newt Gingrich Businesses Owed Unpaid State Taxes

May 14, 2011

ATLANTA — Companies run by Republican presidential candidate Newt Gingrich have faced overdue tax bills in four states worth more than $6,000, according to records reviewed by The Associated Press. The tax liens, which generally allow governments to seize assets or property to settle tax bills, ranged in size from a $195 property tax bill in the Atlanta suburbs to $1,969 in unpaid Missouri taxes. Most of the liens were paid shortly after tax authorities filed them. One exception was in Pennsylvania, where Gingrich Holdings Inc. last week paid off a $1,599 lien for unpaid corporate income taxes just days before Gingrich formally announced he would run against Democratic incumbent Barack Obama. Gingrich spokesman Rick Tyler said Gingrich and his firms were unaware of most of the tax liens until being contacted this week by the AP. “When an issue has arisen, we’re anxious to resolve the issue and get the taxes paid,” Tyler said. “We want to be in compliance with all the states.” Georgia State University professor Jack Williams, who teaches multistate taxation, said he most commonly sees liens filed against businesses in financial distress. Other contributing factors could be poor record-keeping or aggressive tax collectors. “The lien stage is about as deep into the process you get before the taxing authority seizes your assets and sells that,” Williams said. Until deciding to run for president, Gingrich was the CEO of Gingrich Holdings Inc., the parent company of firms that manage his book and TV contracts, produce documentary films, offer consulting services and oppose Obama’s health care overhaul. Tyler said Gingrich’s businesses are financially healthy. Last week, Gingrich Holdings paid off a lien worth $1,599 for corporate income taxes that court records show dates back to 2002. Pennsylvania Department of Revenue spokeswoman Elizabeth Brassell said privacy laws forbid her from discussing the case further. Tyler said the problem appears to have started in 2002 when state officials rejected a tax return on a technicality. While the company believed it had satisfied the bill, it paid off the lien earlier this month after learning of the remaining balance, Tyler said. In 2009, a Gingrich Holdings subsidiary paid $2,654 in Missouri tax liens for unpaid withholdings taxes and sales or use tax. Court documents show Gingrich’s company still faces a $688 lien for more withholding taxes, although Tyler said Gingrich’s company previously paid the bill and blamed state officials for failing to note the payment. He said Gingrich’s company expects to receive paperwork from Missouri officials acknowledging the payment in several days. Missouri Department of Revenue spokesman Ted Farnen said privacy laws ban him from discussing the case. One of Gingrich’s now-defunct businesses, Gingrich Enterprises Inc., faced a flurry of tax liens in Indiana. It satisfied some and believes the rest are paperwork problems. In 2002, records show Gingrich Enterprises resolved Indiana tax liens totaling $1,349. Tyler said he did not know Friday what caused those tax bills. Gingrich had delivered speeches in the state before and after the liens were issued and may have received speaking fees. The company filed paperwork in Georgia showing it was dissolving in November 2002. The next month, Indiana officials filed the first of 43 more liens against the company. Tyler said Gingrich officials alerted Indiana this week that the company went out of business in late 2002 and never owed state taxes after that. He said Gingrich expects to receive a letter from Indiana officials acknowledging that decision shortly. Indiana Department of Revenue spokeswoman Stephanie McFarland said she could not discuss the case, citing confidentiality laws. Business records show the mailing address for the firm was a post office box and the home of Gingrich’s ex-wife, Marianne Gingrich. She said she previously alerted Indiana officials that the company closed and supplied them with ways to contact her ex-husband. She now throws away some of the bills. “If Indiana really wanted money from him, they could find him,” she said. ___ Associated Press news researcher Judith Ausuebel in New York and reporter Charles Wilson in Indianapolis contributed to this report. Ray Henry can be reached at . http://twitter.com/rhenryAP

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Payments Industry Veteran, Walt Levengood, to Help Drive aurionPro’s Thriving Payments Business

May 12, 2011

Walt Levengood Joins aurionPro as President, Payments Where He Will Bring His Extensive Experience Developing and Implementing Electronic Payment Programs to Help Expand aurionPro’s Payments Offerings

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Mortgage Rates Jump In Another Blow To Housing Market

February 10, 2011

NEW YORK — The days of the absurdly low mortgage rate are over. The average rate for a 30-year home loan rose above 5 percent this week for the first time since last April – just as Americans are feeling more secure in their jobs and confident about the economy, and just before the big spring home-buying rush. Freddie Mac said Thursday that the average rate was 5.05 percent, almost a full percentage point higher than in November, when it hit a 40-year low. Economic signals suggest the recovery is gaining momentum. New claims for jobless benefits came in this week at the lowest in three years, and the unemployment rate has fallen nearly a full percentage point in two months. Americans are spending more and saving less. The exception is the beleaguered housing market. Record foreclosures have forced home prices down, and last year was the worst for sales in more than a decade. About the only good news was that qualified buyers could get the deal of a lifetime from their lenders, if they had the means – and the stomach – for the market. Now rates are rising, and analysts expect that will continue through the end of the year, to about 5.5 percent. The next few months are the busiest for the housing market – about one in three home sales happens in the spring. “It doesn’t help,” says Greg McBride, a senior financial analyst with Bankrate.com. “Any increase in mortgage rates takes away buying power and dilutes the incentive to refinance.” Rates have been rising since the fall, mostly because of fears that higher inflation is coming. Investors have been demanding higher yields on Treasury bonds ever since the Federal Reserve announced its program to pump up the economy by spending $600 billion to buy government debt. Mortgage rates tend to track the yield on the 10-year Treasury note. Mortgage rates are still extremely low by historical standards. Anyone who bought a house 30 years ago might remember paying 18 percent on their loan. And many analysts say low lending rates are less likely to persuade people to buy than, say, reasonable home prices or a steady job market. “You’ll see some effect on demand, but it’s really how secure people are in their jobs and how much money they feel they have relative to their homes,” says Cristian deRitis, an economist specializing in housing for Moody’s Analytics. “Many of those people just won’t buy a house,” says Wells Fargo senior economist Mark Vitner. “They’ll hold off.” Home prices are expected to fall at least 5 percent more this year. Because of the feeling that the home isn’t the failsafe investment it used to be, renting is more attractive. Especially when some analysts say it could be years before prices return to their pre-recession peak. That may be contributing to the fact that, despite record inventory levels of affordable homes in nearly half of U.S. cities, mortgage applications continue their downward slide as buyers remain on the sidelines. “Believe it or not, what I’m seeing, and I’m working with first-time homebuyers, they are not as affected by the interest rate as they are by getting a down payment,” says Julie Longtin, a real estate agent with RE/MAX Cityside in Providence, R.I. “That’s what is holding them back.” On a $200,000 loan, the payment difference between today’s rate and November’s is less than $100 a month – hardly enough by itself to spook a buyer. If rates continue to rise, as many predict they will, the housing market will be in for yet more trouble. “Six percent would do serious damage if it happened in a very short period of time,” said Patrick Newport, U.S. economist at IHS Global Insight. Even 6 percent would be a bargain for homebuyers historically. Rates were in double digits through most of the 1980s. It wasn’t until 1991 that rates consistently stayed below 10 percent. At the peak of the credit bubble in July 2006, the 30-year fixed mortgage was 6.76 percent. All this leaves buyers wondering: What is the new normal for interest rates? “We’re turning to a more normal mortgage rate environment, says Guy Cecala, publisher of the trade magazine Inside Mortgage Finance. “That pretty much means the 30-year in the 6 percent range. I don’t think rates will be going down.” ___ AP Business Writer Derek Kravitz in Washington contributed to this report.

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Grant Cardone: Never Be Ripped off by Credit Cards Again

February 2, 2011

Use the credit card companies and don’t let them use you! It is unnecessary for anyone to ever find themselves the victim of their credit cards. Because the current credit card industry is under tremendous attack by things like the CARD Act Implementation, competition, and the threat of a shift from plastic to mobile credit, the smart consumer is in a great position today if they know how to play the game. While credit cards have gotten a bad reputation for victimizing people with late fees, penalties, and high interest rates, the informed customer is in a position to turn the tables. Here are some secrets to help you take advantage of the credit card companies rather than having them take advantage of you. 1) Be in Control: Most people get a credit card as victims and agree to being taking advantage of. Reverse this by making your decision to only use them for their convenience factor without paying to do so. I never pay interest, sign up fees or late fees on a card — I use them. They don’t use me. 2) Pay Off the Balance in Full: I never carry a balance with the credit card company no matter how attractive the rate. If you can’t pay it off at the end of the month, don’t use it. This doesn’t take just commitment, but it takes an agreement from everyone in the family that credit cards are only used as an accounting device, its convenience, and only when you can pay it off. 3) Negotiate your rate: If you are going to have a recurring balance, which I don’t recommend, call and negotiate directly with the company. You have every right, and should, call and ask to have the advertised rate lowered. Also, the better your credit and payment history, the better your chances of selling this to them. 4) Customize Your Due Date: Let’s say your paycheck comes on the 15th and 30th, but your credit card bill is due on the 5th. To improve your cash flow and not put yourself under unnecessary pressure, coordinate the due date that best fits your cash flows. You don’t need stellar credit to make this call and ask for the change. 5) Ask to Have a Late Fee or Interest Fee Removed: If you have a good history of on-time payments and then find a late fee or interest fee on the statement because you didn’t get your payment in by the due date this time, ask that it be removed. I have done this successfully on over a dozen occasions. Ask for mercy that they remove the fee to reward you for your past good behavior. If the person you speak with can’t do it, ask for a supervisor and make it clear that you are willing to close the card out if they don’t remove it. 6) Negotiate the Annual Fee: There is tremendous competition for your business today. There’s no reason for you to pay for the use of a credit card. Even a $35 fee a year over a period of 5 years is $175. I’d personally much rather spend that on my wife. Tell the issuer that you want to use their card but don’t want to pay the fee. Chances are they won’t want to lose your business. While credit cards can be seen to victimize people they can also be an asset when used correctly. They provide convenience, act as the perfect accounting for expenses, accumulate travel points and cost you nothing. As long as you can be aware and responsible of how you make use of your credit cards, you’ll find that they can be great assets to your life. With estimates of over 1 billion Visa, Mastercards and Amex cards in circulation just in the US, it would be important that you make a decision to use your credit cards to benefit your household rather than participating in the credit card company victimizing you. Grant Cardone is a NY Times Best Selling Author and Sales Training Expert.

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Should Foreclosed Borrowers Be Able To Rent Their Old Homes?

January 20, 2011

This post has been updated On Wednesday, the New York Times published an op-ed by the former mayor of Greenport, N.Y., David E. Kapell, with a powerful suggestion for helping struggling homeowners and fixing the mortgage crisis. But according to officials at Treasury and the Department of Housing and Urban Development, the idea won’t be in the works any time soon, if ever. The program proposed by Kapell, also referred to as the “Right to Rent” suggests instead of booting homeowners facing foreclosure out onto the street, they should be allowed to stay in their houses — as renters. The program, proposed by economist Dean Baker, poses the question: If structured bankruptcy was possible for the American automobile industry and those big banks, why not American homeowners? Kapell lays out how it would work: The borrower would lose ownership of his home, but be allowed to remain as a tenant paying fair rent for a reasonable period after foreclosure, with the requirement that he cooperate in the foreclosure. He’d pay fair market rents as published by the federal government, ensuring a clear, national standard. If the borrower couldn’t afford to pay market rent, existing federal rent-subsidy programs could be extended to help tide him over. He concludes with a plea to the administration: “Congress has done a good job of saving big business with structured bankruptcy plans. Now it must to use the same tool to save American homeowners.” At the moment, though, it’s unclear whether or not a “right-to-rent” plan has enough support in Washington. “While we continue to review this concept, we have found several challenges that we believe would limit this type of assistance from making any significant impact in the market,” David Stevens, Federal Housing Administration Commissioner, wrote in an email. “Although we are not currently pursuing this option, the Obama Administration continues to work toward reforming the housing finance system and the mortgage servicing system in a way that puts consumers first and helps keep more Americans in their homes.” The Obama administration’s signature anti-foreclosure effort — HAMP — has been roundly regarded as a failure. As the Huffington Post reported last October: “Far from helping at-risk homeowners, the Home Affordable Modification Program has actually made some homeowners worse off, according to the Special Inspector General for the Troubled Asset Relief Program — also known as the Wall Street bailout. The Treasury Department set aside $50 billion from TARP, plus another $25 billion from taxpayer-owned Fannie Mae and Freddie Mac, to give mortgage servicers thousand-dollar incentives to reduce monthly mortgage payments by modifying eligible homeowners’ loans. But more people have been bounced from the program than have been helped by it.” “Treasury supports alternatives that provide a graceful exit for homeowers who have experienced a hardship and cannot continue to support their mortgage,” U.S. Treasury Department spokeswoman Andrea Risotto wrote in an email, citing programs such as “the Home Affordable Foreclosure Alternatives (HAFA) Program which provides options for homeowners looking for a short sale or deed-in-lieu of foreclosure.” Risotto wouldn’t say what she thought of the “right-to-rent” program in particular, noting only that while the Treasury supports helping struggling homeowners, “we need to stop short of saying we would support this in particular given that we don’t have enough information one way or the other.” A senior administration official listed several key obstacles to right-to-rent: concerns about the landlord role that banks would be required to play, difficult accounting implications, and the payment gap between the mortgage payments and rent imposed through the settlement process. In short, it’s unclear who would take the losses in such a program. The official also mentioned the potential moral hazard involved where borrowers might chose to get out of debt because they know they would be able to stay in their homes. But as Kapell wrote, this last excuse is tired: “Any effort to help homeowners by forgiving some of their loans is said to create a moral hazard, rendering it politically toxic. But without help, homeowners continue to struggle, foreclosures continue to mount and the housing industry continues to drag down the economy.” Correction: a previous version of this post mistated Risotto’s words. She was referring to HASA, the Home Affordable Foreclosure Alternatives Program which provides options for homeowners looking for a short sale or deed-in-lieu of foreclosure, instead of HAMP, the Home Affordable Modification Program which is set up to help eligible home owners with loan modifications on their home mortgage debt

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Bank Of America’s Mistaken Foreclosure Reportedly Ruined Couple’s Finances

December 30, 2010

Yet another nightmare story has emmerged involving a mistaken foreclosure. Bank of America reportedly put a Connecticut family’s home in foreclosure despite the fact that the couple never missed a payment — and was actually in the process of refinancing their mortgage with the bank. According to CTWatchdog.com , Shock Baitch and his wife Lisa (Friedman) Baitch wanted to refinance their mortgage with Bank of America, but a bank representative reportedly put the couple into the Home Affordable Modification Program, the Obama administration’s much-maligned foreclosure prevention initiative. The program was created to help struggling borrowers. Unfortunately, the Baitch’s weren’t struggling. In an interview with CTWatchdog.com , Baitch was understandably livid: “Bank of America lied and submitted fraudulent information to the credit bureaus and now I am literally and financially paying for it,” Baitch said. “I looked into help with a consumer counseling service, but we can’t participate because our income is too low to meet the payment requirement. I looked into bankruptcy, but we have too much equity in the house. I cannot meet the minimum payments now on the credit cards…” The Baitch’s story is one of a growing number of seemingly mistaken foreclosures involving mortgage servicers, may of which have left homeowners to pay for the legal and administrative costs required to rectify their situation. In October, Bank of America admitted there had been problems with some foreclosures. And while the mortgage servicing industry has repeatedly stated that the problems involve only a handful of homeowners, housing advocates aren’t so sure. In December, the Associated Press took an in-depth look at the subject. In addition to an investigation launched by all 50 states , the AP found homeowner lawsuits in Florida, Nevada, Texas and Pennsylvania, and class action suits in Kentucky and California. Here’s more from the AP: “This is the worst I’ve ever seen it,” says Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates. Diane Thompson, a lawyer with the National Consumer Law Center, has defended hundreds of foreclosure cases. “In virtually every case, I believe the homeowner was not in default when you looked at the surrounding facts. It is a widespread problem throughout the country.”

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Patrice Peyret: Why you should care about hidden interchange fees in 2011

December 29, 2010

On December 16, 2010, The Federal Reserve Board proposed a new rule that would lower by as much as 84 percent the $16.2 billion in fees that merchants pay annually when you swipe your debit card at their cash registers. ( The Fed asked for public comments on the proposal by February 22, 2011 .) The idea is that merchants will save money and pass along savings to you. Immediately, large U.S. banks and credit card issuers attacked the proposed rules as a threat to their industry, a handout to merchants who get out of paying their fair share of money network costs, and a booby-prize for consumers who gain no assurance of savings but almost surely would face higher banking fees. See ” Debit Card Fee Cap Could Mean Higher Prices for Consumers ” Behind the proposed new rules and the arguments against them are some key questions: Why should you care? What are the real costs? Who should pay? Why Care? According to the Fed, debit card use in the United States now exceeds all other forms of noncash payments. The interchange fee that merchants pay when you use your debit card is largely hidden from you, but it funds a network of technology and services that ensure you can trust using your debit card without risking your bank account. Like all infrastructure, this network requires money to build, maintain, operate and improve. Banks will not operate these networks for free, so if merchants pay less, it’s likely that you will pay more, either directly or indirectly, to use your debit cards. What does it cost to operate? The new Fed proposal caps the fee for running a debit card transaction at between 7 and 12 cents, a huge reduction from the average of 44 cents per transaction charged currently. That’s the Fed’s estimate of costs. The real costs are much harder to measure. These technology costs are fairly easy to estimate. No physical money actually moves when you swipe your debit card at the store. Only digital information gets exchanged between the merchant’s bank and your bank. In this way, the debit card network is kind of like the wireless phone network that carries text messages from phone to phone. What’s difficult to measure is the cost of security, reliability and exception handling. If money was lost or misrouted at the same rate as text messages, we would all be stashing hard cash under our mattresses. For reliability, the banks use debit networks operated by Visa, MasterCard and others, and they are good. Even during the week before Christmas, the networks route card transactions from anywhere in the world to anywhere else in under two seconds. More importantly, the network operators handle problems. You can’t unsend a text message, but you can reverse a debit payment. And you can get help on the phone when you need it. Although banks’ customer service isn’t always perfect, the rules and processes for handling mistaken or fraudulent card transactions work well enough for us to trust the banks with our money. The reason it’s hard to measure support costs when there’s a problem is that no fewer than three parties are involved: the merchant’s bank, your bank, and the payment network in the middle. Unlike the decreasing costs of transmitting bits of information across digital networks, the human-intensive costs of managing fraud risks and providing customer support have increased. Factoring the human costs across three levels of intermediaries is very nearly impossible. Who should pay? And how much? It’s good to pry open the debit card to improve transparency and foster more competition. But I was surprised that the Fed picked such a low range — 7 to 12 cents — as an interchange cap while admitting that it had not considered all aspects of the problem (such as customer support costs) and was not sure if it would serve the interest of consumers. The proposed cap is not a good first step. It will surely ignite an endless debate by less-than-candid incumbents about why the chosen number is wrong. It also avoids the question of who will pay the debit network operating costs if the merchants don’t do so? The banks aren’t interested in losing money, so it’s reasonable to assume the consumers would pick up the merchant’s share by some means or another. I’m curious about a different approach based on positive pricing and transparency. Today, banks use a form of negative or “penalty pricing” in which they offer you “free” checking accounts and debit cards but make money from your mistakes in the form of overdraft fees and such. Instead of penalizing you for mistakes, what if banks offered a menu of services that you chose to pay for upfront, including a small price for using your debit card? You could shop around for the best deals and know you’re not going to get hit with hidden fees. It would help fund the cost of operating debit networks while relieving merchants — many of them small, local stores – of bearing the full cost of the network. There are complications to a positive pricing approach, but overall, letting you see what you’re actually paying and giving you the choices must be better than meddling with behind-the-scenes fees in ways that you’ll probably end up paying for anyway. Disclosure: I am CEO of Plastyc , a company that offers prepaid card services (prepaid cards are a sub-category of debit cards). My company is not directly affected by the proposed interchange rules, which only apply to prepaid card issuers with assets of $10 billion or more.

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RTG Ventures, Inc.’s New Commercial Director for iPayu Outlines Strategy

December 7, 2010

NEW YORK, NY–(Marketwire – December 7, 2010) – RTG Ventures, Inc. ( OTCBB : RTGV ) has appointed Jasper Dalgliesh, a senior executive with experience in both corporate and entrepreneurial mobile and telecommunications sectors, to the position of Consultant, Commercial Director for its Payment Systems Division. Prior to joining RTG Ventures, Dalgliesh’s global role with Vodafone, AT&T, Global Crossing and T-Mobile was to leverage technology for commercial advantage to increase revenues and market share. He has also served as a commissioned officer in the British Army with the Life Guards and as a helicopter pilot in the Army Air Corps. Dalgliesh holds an MBA from Cranfield University.

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Merton and Joan Bernstein: Mistake About Social Security Distorts Sunday New York Times Budget Exercise

November 15, 2010

Sunday’s New York Times , focused on national deficits, introduces its section on Social Security with the statement that, “Social Security is projected to run a deficit by 2015…” There follows a menu of Social Security proposed reductions to avert such a dreadful outcome. You’ll be relieved to hear that the statement is incorrect. But, then you’ll be concerned that the media, deciders and opinion makers and the public, used to depending upon the Times for solid information, will consider the budget debate with that major distortion in mind. The facts: In 2015, the Social Security trustees’ latest report projects program outlays will exceed Social Security payroll tax revenues slightly. But Social Security has two other dedicated income streams. In 2015 one source — taxes on the benefits received by high earners — just about cancels that difference. The third stream — interest on money borrowed by the Treasury from the Social Security Trust fund — would add $154 billion in revenues. So, official projections for 2015 show Social Security generating a surplus of $151 billion. Some pooh-pooh that interest owed by Treasury as IOUs. But IOUs (more formally called “bonds” or “debt obligations”) are what public and private trust funds hold. And among those securities, U.S. Treasury obligations are bought by other nations’ central banks and private investment funds because U.S. Treasuries are so highly valued around the world. Those Treasury obligations came into the Social Security Trust Fund because, since 1983, Treasury borrowed the portion of Social Security income left over after the program paid all benefits when due. Those surpluses and the taxes from high earners were a purposeful part of the 1983 Social Security legislation, designed to provide a long-term cushion for the program and to assure the public that Social Security was socking away funds to supplement payroll tax revenues when needed. Those surpluses now total some $2.5 trillion and will grow to about $4.2 trillion by 2024 enabling the payment of full benefits through 2037. . Social Security participants have already paid for those benefits. So any Treasury borrowing is, not to pay for Social Security, but to repay the borrowing from the Social Security trust fund; that was used largely to pay for the unfunded Iraq and Afghanistan wars and offset the Bush tax cuts. But for that borrowing, income and corporate taxes would have been higher and/or U.S. payments for non-Social Security activities would have been smaller. It would seem fair that the beneficiaries of those wars — certainly not the men and women who waged them, nor their families — but rather the contractors who made out like bandits (which some were) and the general public and corporations spared higher taxes — should replace those funds. That’s an entirely different allocation of future burdens than cutting Social Security as so widely proposed in discussions of deficit reduction. The New York Times ‘ error was not some minor or a technical glitch but a mistake that distorts the whole exercise the Times put before its readers to decide how to reduce projected deficits. Polls repeatedly show popular support for modest increases in the payroll tax, proposals absent from the Times budget exercise. One very gradual change starting in 2015, after the recession is over, would increase the payroll tax by one-twentieth of one percent for both employees and employers for twenty years. That boost would banish more than two-thirds of Social Security’s small long-term shortfall. In combination with raising the taxable amount of wages to its historic level, would make Social Security solvent for 75 years. Both poll very favorably. Preserving, and indeed improving, Social Security should be a top domestic priority. Social Security, the nation’s most effective anti-poverty program, is the mainstay of our retirees, providing the largest source of retirement income. The recession decimated private pensions and savings devices like 401(k)s and IRAs, making Social Security even more vital to seniors, the disabled and their families — over 50 million people. It makes no sense for Republicans to adamantly insist on extending the Bush tax breaks for the wealthiest Americans, at the cost of $4 trillion, while reducing the most important income support program for the rest of the population. And despite reassurances that current Social Security recipients would be unaffected, reducing cost-of-living adjustments, COLA, starting in 2012, is a central feature of such reductions We should not permit the specter of future deficits to further distract our attention and efforts from the most urgent problems millions of Americans already face — the lack of jobs and work income, the loss of millions of homes to foreclosure, and the huge but avoidable non-benefit costs of our health care non-system.

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Mark Hurd Settlement: Ousted HP CEO Settles With Sexual Harassment Accuser

August 8, 2010

SAN FRANCISCO — The woman at the center of the sexual harassment claim that forced the resignation of Hewlett-Packard Co. CEO Mark Hurd revealed her identity Sunday and said she is “surprised and saddened” that Hurd lost his job. Jodie Fisher, 50, knew Hurd through her contract jobs with HP’s marketing department from 2007 to 2009. She was paid up to $5,000 per event to greet people and make introductions among executives attending HP events that she helped organize. Details revealed Sunday show that she has also worked as a saleswoman, an executive at a commercial real estate company, and as an actress. She appeared in some racy R-rated movies in her 30s and most recently was on a dating show called “Age of Love,” in which women competed for the attention of tennis star Mark Philippoussis. Her lawyer, celebrity attorney Gloria Allred, said Fisher is a single mother who is “focused on raising her young son.” Fisher repeated that she and Hurd never had a sexual relationship but neither she nor Allred would discuss details of the harassment claim. That claim set off the chain of events that led to the discovery of allegedly falsified expense reports for dinners Hurd had with Fisher and culminated in Hurd’s forced resignation Friday from the world’s largest technology company. Fisher acknowledged that she and Hurd have settled the matter. A person familiar with the case told The Associated Press that Hurd agreed to pay Fisher but would not reveal the size of the payment. “I was surprised and saddened that Mark Hurd lost his job over this,” Fisher said in a statement. “That was never my intention.” Hurd settled with Fisher on Thursday, a day before he resigned. The settlement did not involve a payment from HP, the person close to the case said. This person, who spoke on a condition of anonymity, was not authorized to speak publicly about the issue. The investigation by HP’s board of directors found that Hurd listed other people as his dinner partners on expense reports when he’d been out with Fisher. HP also claimed Hurd arranged for her to be paid for work she didn’t do. There was only one instance in which that occurred, the person close to the case said, but it was for an event that was canceled at the last minute and that Fisher’s contract required that she would be paid unless an event was canceled 30 days in advance. The amount of money in question wasn’t known. Hurd, 53, insists they were legitimate business expenses. Hurd says the errors in the reports may have been entered unwittingly by an assistant, according to the person close to the case. The company determined Hurd didn’t violate its sexual harassment policy but broke its rules of conduct and irreparably harmed his credibility and integrity. Interim CEO Cathie Lesjak defended the company’s decision on Sunday. She said HP acted appropriately and that investors and big customers she has spoken with have been “extremely supportive.” “They respect how we dealt with the situation with transparency and speed. The bottom line is, the HP brand is strong,” she said on a conference call with reporters. “One thing happened in this company on Friday – that is the CEO left. The rest of the company did not change.” Lesjak declined to give details about the expenses Hurd was alleged to have doctored. HP now must find a new leader to keep it on the course Hurd mapped out. Under Hurd, HP spent more than $20 billion on acquisitions to transform itself from a computer and printer maker dependent on ink sales for profits to a well-rounded seller of hardware and lucrative business services. Hurd, who spent 25 years at ATM maker NCR Corp. before coming to HP in April 2005, became a Wall Street darling. HP’s market value nearly doubled during his five years. In recent weeks, he was in talks for a three-year contract that could have been worth $100 million, the person close to the case said. Those went off track when harassment allegations surfaced, this person said. Hurd will get about $28 million in cash and stock in severance. HP’s stock fell nearly 10 percent to $41.85 in after-hours trading, when the news was released after the close of markets Friday. The company has a deep bench in management and the stock drop was reactive and doesn’t reflect the company’s prospects, an analyst said. “I don’t view his departure as catastrophic,” said Dinesh Moorjani, an analyst with Gleacher & Co. “The strategy is working fine. The level of uncertainty for me is relatively low just given the circumstances. This wasn’t a one-man company.” Internal candidates for a successor could have an edge, given that Hurd and predecessor Carly Fiorina – who got the boot in 2005 over concern about her management style and her decision to buy Compaq Computer – both came from outside HP. Hurd’s ouster is the third in five years at HP’s top echelon. First was Fiorina’s in 2005, then former Chairwoman Patricia Dunn was ousted in 2006 amid a boardroom spying scandal that involved spying on reporters’ and directors’ phone records to suss out the source of leaks to the media. “It says they’re off track in some fundamental way,” said Stephen Diamond, associate professor at Santa Clara University School of Law and an expert on business law. “The first thing is, they have to find the right kind of CEO,” he added. “And I think what that CEO needs to do is come in and say, ‘How many board members were here during the last two scandals? If you were, please resign now.”

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Richard Shore: New BP Oil Spill Compensation Fund Rules: Why The Catch-22?

August 3, 2010

If individuals and businesses injured by the Gulf oil spill don’t have a crystal ball, they may not get full compensation for their damages, under rules recently announced by Ken Feinberg, the administrator of the $20 billion BP oil spill compensation fund. Under the rules, those impacted by the spill may make an initial claim for their emergency needs but then are limited to a single final claim for the rest of their damages. Claimants may not make periodic claims for damages as events unfold. On the contrary, to receive payment on the second, final claim, claimants will have to release BP from any and all further liability. These requirements are inconsistent with the compensation scheme set forth in the Oil Pollution Act, which specifically contemplates interim partial payments. As a practical matter, they create a Catch-22 situation in which many victims’ dire economic straits will force them to file their final claim before they know, or can document, the full extent of their damages. They are contrary to Feinberg’s statement at a recent town hall meeting in Biloxi, Mississippi, that he will “find every possible way that’s legal and justified to pay eligible claims.” He should reconsider these rules and adopt a more flexible claims process. The Oil Pollution Act says specifically that “[t]he responsible party” — here, BP — “shall establish a procedure for the payment or settlement of claims for interim, short-term damages.” The Act goes on to say that payments for interim, short term damages “shall not preclude recovery by the claimant for damages not reflected in the paid or settled partial claim,” and “shall not foreclose a claimant’s right to recovery of all damages to which the claimant otherwise is entitled under this Act or under any other law.” Nothing in the Act limits a claimant to a single claim for interim, short-term damages. On the contrary, the requirement to establish procedures for the payment of partial claims, and the fact that payment of partial claims does not preclude claims for other damages, makes clear that claimants may make a series of partial claims as events unfold. Congress plainly intended that those impacted by a spill be fully compensated for their damages. And Congress did not want claimants to have to wait until their damages are fully known to receive compensation. Limiting claimants to a single claim (plus some initial emergency funding) would undercut these fundamental goals. The requirement to release BP for all its liability is also contrary to the Act. As noted, the Act provides that partial payments do not preclude recovery of other damages. If a claimant must release BP in order to receive a payment that does not reflect the full amount of the claimant’s damages, the partial payment effectively precludes other recoveries. Recent press reports indicate that the amount of oil spilled in the Gulf may be far more than the original estimates. Other reports suggest that the oil is not washing ashore in the quantities expected. Whatever the case, there is a great deal of uncertainty about the scope of the oil spill and the magnitude and duration of its effects. Until the oil stops flowing for good, cleanup operations are well under way, and all the resulting damages are fully known, it would be unfair and unwise to cut off victims’ rights to seek full compensation from the responsible party. What’s the rush? A version of this post originally appeared on Mr. Shore’s blog, oilspillinsurance.blogspot.com

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Brett King: Cloud Computing and SME Banking – A perfect match

June 24, 2010

I met Friday with Mike Hirst , CEO of Bendigo and Adelaide Bank , one of the top banks in Australia today. As we discussed the need for community banks to get better at servicing SME business needs moving forward, we had a really interesting brainstorming session on where to go next. Mike is an easy going guy and I think he’s created a really positive, open culture at Bendigo that will pay dividends as they take market share away from the majors in Australia. I guess it’s an obvious statement, but for small to medium size businesses, banks provide a logical partnership as an enabler for a range of bank services. Mike explained that Bendigo and Adelaide Bank has, in recent times, been providing a range of services to small businesses beyond the traditional merchant, trade finance and credit services including extended services such as cash flow and accounting analysis, SME advisory, website/minisite development , telecommunications deals as a reseller, and similar services. Recently ANZ launched The Small Business Hub , as a way of extending more services to their SME clients. American Express has gone one step further with their Open Forum platform as an attempt to engage the broader business community in actively sourcing solutions. Bendigo Bank has tried to facilitate community involvement through their PlanBig portal. As Mike Hirst and I discussed Bendigo’s wish to provide a better platform for SMEs to grow their business, it occurred to me that almost all the services we were discussing were candidates for the cloud. Here are a few that came to mind: Accounting, Cash Flow Modeling and Credit Services: Plugged into an SME’s basic accounting package (think MYOB, etc) the ability to provide some intelligent tracking of cash flow, help businesses to think about aged receivables and rightsizing a credit or overdraft facility is a very valuable tool. A plethora of these are being introduced into Internet Banking facilities this morning, but extending a basic accounting facility with cash flow analysis tools that is an extension of your banking relationship is not a stretch. Ben May, MD of OnlineFactor, recently showed me a new tool they had been playing with called Imagineering Profit which allows users to plug in their basic financial statements and get some great analysis on break-even, cash flow, and various what-if scenarios. If this could be married with basic account information, accounts and invoicing data, etc – this could give SMEs a nice tool embedded within banking to start to look at a basic overdraft facility, factoring, inventory financing and a whole range of complementary services. Easier Merchant and P2P Enablement By 31st October, 2018 the UK Payments Council has mandated that central cheque clearing will be phased out. The decline of cheque use in the UK has been widely documented. In 2000 cheques represented 25% of all non-cash transactions, but by 2008 they accounted for less than 10%, this year they will be less than 5%. This is also where the mobile device and P2P platforms come into play. While debit cards have had big success in recent times, as credit and debit cards are integrated into your mobile phone for contactless payment capability, it is obvious that the use of cheques and cash will further decline. With the introduction of Square and Verifone PayWare it is becoming increasingly simple to provide merchant type services to accept payments. But Person-2-Person is the big innovation for SMEs and businesses. In 2009, financial institutions including Bank of America (BAC), ING Direct and PNC Financial (PNC) rolled out so-called P2P technology that lets customers use the Web or a mobile phone to transfer money from their account to any other account. Within the next 3 years our phone will become the payment device of choice for paying SMEs who work in the service arena. This makes cloud services even more viable as SMEs will increasingly rely on virtual platforms to effect and receive payments. The ability to augment basic banking services to capture the need for virtual P2P and payments capability is a no-brainer. SME Community Building There are hundreds of thousands of groups currently active on LinkedIn, many dedicated to SME forums and the like. Ecademy is an social networking site based in the UK, but active globally with more than 17 million members. A survey by O2 in the UK showed that more than 600 SME businesses were joining Twitter everyday, and that 17% are already actively using Twitter to support their business. SME community building is a great way to empower businesses and is a logical extension of the already powerful network that banks have with their customer base. Banks don’t use their community of clients to encourage interactions, but as a trusted intermediary it makes absolute sense for bankers to utilize their community to encourage internal business between their SME clients. The cloud and online communities such as LinkedIn, Ecademy and others seem like the perfect partner to kick this off. SME banking services and the cloud make a great partnership Conclusions The cloud is increasingly critical for SMEs not only for facilitating business, but also for enabling closer connections with partners, integrating shared services, improving payments and cash flow and marketing their services. Banks have a huge opportunity to be not just a trusted partner for banking services, but extending their platform to help SMEs build their business. There’s one key problem with banks extending platform for SMEs. To illustrate, the current e-Invoicing and Accounts Payable Integration services banking provide today, a process designed ostensibly to reduce paperwork for an SME and improve cash-flow, is saddled with an antiquated, compliance heavy sign-up/application processes that mean the initial onboarding for such services is erroneous and time consuming. The benefits aren’t there for SMEs if the application process takes more effort than the benefits.

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Unwed Daughters in Greece Catch &lsquoTime Bomb&rsquo in Pension Overhaul

June 18, 2010

By Maria Petrakis June 18 (Bloomberg) — Sophia Constantinidou works as a teacher in a private school in Athens. She also has a more lucrative job: remaining unmarried. The 52-year-old gets 400 euros ($496) a month from the Greek government, part of her late mother’s state pension. Under the current system, Constantinidou qualifies to receive the payment for life as the only surviving child of a deceased civil servant, provided she doesn’t tie the knot. “It’s not that I didn’t want to get married,” Constantinidou, whose mother died 20 years ago, said in an interview. “But after I turned 40, I realized I wouldn’t be getting married and that thankfully I had this.” As the European Union, International Monetary Fund and bond investors scrutinize debt-ridden Greece, they need look no further than the pension system for a prime example of how the country is living beyond its means. Greek pensioners on average live on 96 percent of the salary they had when they worked, more than twice the proportion of earnings as Germans, according to the Organization for Economic Cooperation and Development . Greece “is a classic case of entitlements granted by short-sighted governments that didn’t bother to secure financing sources,” said Miranda Xafa , a former director at the IMF and now a senior investment strategist at Geneva-based IJPartners. “The political benefit of pension entitlements granted is immediate, but the cost will be incurred later.” Arduous Jobs The OECD as long as three years ago described Greece’s state pension system as a “fiscal time bomb.” Led by Prime Minister George Papandreou , lawmakers will begin passing legislation this month to overhaul the system, which the EU and IMF say contributed to the country’s debt crisis. Under terms of last month’s 110 billion-euro ($123 billion) bailout agreement, Greece will increase the retirement age to 65 from as early as 58, curtail early retirement and calculate payments over a longer period of employment. The aim is to bring uniformity to a system riddled with exemptions granted over decades by governments yielding to pressure from trade unions and other groups. The bill will be the first enacted by Papandreou’s government since the May 6 package that pledged 30 billion euros of wage and pension cuts and tax increases over the next three years. There’s one pensioner in Greece for every 1.7 workers, compared with one for every four in 1950, according to a government study published on May 12. There are 637 occupations the Greek state deems to be arduous in nature and qualify to stop work earlier. They include hairdressers, car washers, steam-bath attendants and radio technicians. ‘Paramount Reform’ Constantinidou isn’t included because she’s paid by the hour and doesn’t have enough of a private pension to live on when she’s older. She’s reliant upon the stipend she inherited from her mother, who worked at a state hospital. Should the country keep its generous benefits, Greek pension spending will rise to 24 percent of gross domestic product in 2060, double the proportion of 2007, the European Commission estimated last year. Pensions are “going to be the paramount reform in terms of medium-term budgetary perspectives,” EU Monetary and Monetary Commissioner Olli Rehn said on June 11. With unions promising a “storm” of protests, the government is trying to push through the bill before the September deadline set by the EU and IMF and ahead of Greek municipal elections, tentatively scheduled for October. Extending Work Dina Karahali, 47, is waiting to see the final form of the bill to know whether she will be penalized by the new system or manage to escape with the early pension she expected when she began working as a childcare worker 25 years ago. With a 16-year-old son, Karahali said she could take early retirement now on less than a full payment. What she fears is the new law will make her work an extra 13 years. “It’s difficult,” she said by telephone in Athens. “Do I get a pension now and not receive any money until I am 50? Or, will I have to work till I am 60?” About 5,000 state workers, mostly women, have submitted applications for early retirement this year, said Despina Spanou, an official at the civil servants’ labor union, ADEDY . That’s almost double the number filed at the same time last year, she said. Concerns about Greece’s long-term pension finances have long played a part in the wider spread in Greek bonds over those of Germany or Italy, the OECD said in its July 2009 report. That was before the 58-year-old Papandreou revealed the country’s budget shortfall was more than twice the previous government’s estimate, stoking concern about Greece’s ability to avert default and prompting the bailout package. Bonds Collapse Greek 10-year government bond yields were about 1.4 percentage points, or 140 basis points, higher than benchmark German bunds at the beginning of October as Papandreou came to power. The so-called yield spread widened to as much as 965 points on May 7 and yesterday was at 665 points. Generous Greek pensions played prominently in Germany, where public opinion has been largely opposed to the bailout. Germany lifted the retirement age to 67 from 65 in 2007, affecting about half of the nation’s 82 million residents. While Greece has a statutory retirement age of 65, and 60 for women, exemptions and special rules can allow a full pension at 58. Former European Central Bank Chief Economist Otmar Issing said in February that German taxpayers can hardly be expected to support Greek pensions. Bild Zeitung , Germany’s biggest-selling tabloid, ran a front-page headline in April asking: “Why do we have to pay Greece’s luxury pensions?” Best Years Greeks get a pension calculated on the last five years of their working life, which tend to be the highest-paid. German, Italian and Portuguese pensions are based on wages worked over a lifetime. Spain bases them on the best 15 years of work. In the Greek civil service, the so-called replacement rate can be as much as 149 percent, according to a report by the European Commission in October. The rate is a measure of how effectively a pension system provides income during retirement. The EU-IMF agreement states that Greece should move to a system basing earnings on the entire lifetime and introduce a price-based indexation system, used by most OECD countries. Such a system, according to the Paris-based OECD , would allow Greece’s biggest retirement fund to scale back spending by some 20 percent by 2050 to 2055, equal to about 1 percent of GDP. Governments since the end of the military junta in 1974 have struggled to force through reforms the EU has long demanded to the pension system or opening up product and labor markets to make Greece more competitive. ‘Dramatic Worsening’ “The reasons for the dramatic worsening of the pension systems finances are demographic developments, the exhaustion of the abilities of the pay-as-you-go system and decisions of the political system of our country for the past 35 years,” Labor Minister Andreas Loverdos told the International Labor Organization in a June 14 speech. Civil servants didn’t pay anything towards their pensions until 1992. Female civil servants with children under 18 can get early retirement. Unmarried daughters of state workers say the payment became a factor in staying single. Unions argue that going after employers who don’t pay mandatory contributions to pension funds is preferable to cutting benefits and raising the retirement age. Non-payment of contributions to state pension funds, prevalent among the self-employed, is estimated by the OECD at between 20 percent and 30 percent of revenue collected. Constantinidou is one such worker. She never managed to secure a permanent post and doesn’t get state benefits in her job supplementing the studies of high-school students at a central Athens college. “I work in the private sector and would need to work till I’m 65 to get a pension but it’s not going to happen,” she said. “No-one is going to hire a 60- or 65-year-old woman. Thankfully I have this.” To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net .

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BP May Cut Dividend as CEO Hayward Says Company `Considering All Options’

June 11, 2010

By Brian Swint June 11 (Bloomberg) — BP Plc , facing growing public anger in the U.S. over the oil spill in the Gulf of Mexico, is considering cutting or deferring its second-quarter dividend payment, Chief Executive Officer Tony Hayward said. BP, which paid $10 billion to shareholders last year, will come under renewed political scrutiny next week when Hayward appears before Congress. The London-based company’s options include paying the dividend in a form of equity and placing the payment into an escrow account until the spill cleanup is complete, analysts said. “They’re going to see what the political pressure looks like before they make the decision on the dividend,” Jason Gammel , an analyst at Macquarie Securities USA Inc., said in a Bloomberg Television interview. “The most likely thing is that they would suspend the dividend for one to three quarters.” A group of lawmakers this week called on BP to stop dividends until the bills for the cleanup and liabilities are paid. The dispute spotlights demands on the company to satisfy the competing claims of investors and the local victims of the spill. The second-quarter dividend is scheduled to be announced on July 27. “We are considering all options on the dividend,” Hayward said in an interview with the Wall Street Journal published today. BP confirmed the comments. “But no decision has been made,” he said. White House adviser David Axelrod dismissed complaints from BP about the U.S. government’s pressure, saying Hayward should “spend less time on hyperbole, and a lot more time on trying to solve the problem,” according to the Journal. The comments from Hayward and Axelrod came as a team of scientists said the well has been leaking twice as much oil as previously estimated. ‘Broad Range’ “Given the broad range of criticism from Obama and others in the United States, BP has been under pressure to take action,” said Huw Williams , an oil and gas analyst at Arden Partners Plc in Singapore. “It appears the company is now preparing the ground to shift funds away from dividends towards putting more money into the clean-up operation.” BP shares have fallen 41 percent the incident started in April, wiping about 50 billion pounds ($74 billion) off the company’s market value. That’s driven the dividend up to 9.1 percent, more than any of 18 peers tracked by Bloomberg. BP Chairman Carl-Henric Svanberg is being summoned to Washington for a meeting with President Barack Obama next week. Coast Guard Admiral Thad Allen , the government’s national incident commander, requested the June 16 meeting in a letter to Svanberg at the company’s London headquarters yesterday. Oil has been spewing from the well since the BP-leased Deepwater Horizon rig exploded April 20, killing 11 workers. The well is gushing 20,000 to 40,000 barrels of oil a day, according to an estimate released yesterday by the scientists, tasked by the U.S. government with calculating the flow. On May 27, the group pegged the rate at 12,000 to 19,000 barrels a day. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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AIG’s Asian Unit Deemed Too Big to Sell Means Public Offering Is an Option

June 1, 2010

By Hugh Son June 1 (Bloomberg) — American International Group Inc. ’s main Asia unit, with 320,000 agents and 23 million customers, may be too large for a rival to purchase, leaving a public offering the most likely route for divesting the business. Prudential Plc’s agreement to buy AIA Group Ltd. faltered after investors of the London-based firm balked at the $35.5 billion price and AIG rejected a reduced offer. AIG, which was rescued by the U.S. in 2008, could return to its earlier plan of holding a stock offering, the Treasury Department said May 26. “Without a doubt, the size of AIA magnifies the execution risk of closing a deal,” said Angelo Graci , managing director at Chapdelaine Credit Partners. “At this point it’s difficult to see another single buyer come in with a competitive price.” AIG Chief Executive Officer Robert Benmosche , 66, had touted the March 1 Prudential deal as evidence the firm was making progress toward repaying its $182.3 billion rescue. The original agreement to sell AIA, which operates in markets spanning China to Australia and has more than $60 billion in assets, would have exceeded the total proceeds of more than 20 other sales AIG disclosed since its September 2008 bailout. Prudential CEO Tidjane Thiam , 47, sought to lower the price for AIA to $30.4 billion to appease shareholders who refused to fund a deal at the original price. New York-based AIG rejected that price in part because of concern that even at the reduced bid, Prudential shareholders might still reject the takeover at a June 7 meeting, said two people with knowledge of the matter. Robin Tozer , a spokesman for Prudential, declined to comment. Taking AIA public complicates the repayment of U.S. taxpayers because an offering may be several months away and would probably be done in stages, said David Havens , managing director at Nomura Securities International Inc. in New York. Federal Reserve “The net effect is that the Federal Reserve will probably retain exposure to AIG for a longer period of time than we would have thought a few months ago,” Havens said. The IPO is AIG’s best remaining option because of the small chance another bidder will emerge, he said. AIG slipped 49 cents, or 1.4 percent, to $34.89 at 12:19 p.m. in New York Stock Exchange composite trading . Prudential surged 6.3 percent in London. AIG said in a statement today that it will “not consider revisions” to the March terms. The Fed agreed last year, as part of AIG’s fourth bailout, to allow the company to pay down a $60 billion credit line with an equity interest in AIA and another non-U.S. life division, American Life Insurance Co. The plan reduced pressure on AIG to sell units in early 2009 when potential bidders were hobbled by losses and an inability to raise funds. MetLife Inc. , which is larger than Prudential by market value, agreed about three months ago to pay $15.5 billion for Alico. AIA operates in faster-growing economies including China while Alico gets most of its revenue in Japan. ‘Unique Asset’ Thiam had said Prudential would double profit in Asia within three years after an AIA takeover, and the unit’s value may increase 80 percent from the acquisition price in that time. AIA generated about $1.44 billion in operating profit in 2009, compared with $1.59 billion in 2008, Prudential said in a filing in March. “Given the turbulence in the markets, it’s hard to see others stepping up right now, even though AIA is a unique asset,” Havens said. “There is only a small handful of buyers of $35 billion companies, particularly if a significant amount of the payment needs to be made in cash.” AIG had planned to use $25 billion in cash from the AIA sale to pay down a Fed credit line that expires in 2013. That sum includes $16 billion that AIG committed to the Fed as part of the March 2009 deal to lower its borrowing. Bailed Out AIG announced it would divest AIA in October 2008. The unit attracted interest from Manulife Financial Corp. , Prudential and Temasek Holdings Pte, with all seeking to buy a stake, according to people familiar with the matter speaking in May 2009. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done before the March announcement by Graci of Chapdelaine. AIG will be entitled to a breakup fee of 153 million British pounds ($224 million) if Prudential is unable to complete the AIA purchase for reasons including the inability to get shareholder approvals, AIG said in a March filing. Attempts to reach a spokesperson for Singapore-based Temasek weren’t immediately successful. Manulife, based in Toronto, declined to comment, said spokesman David Paterson . Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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House Passes U.S. Jobs Legislation With Higher Tax on Buyout Firm Managers

May 28, 2010

By Ryan J. Donmoyer May 28 (Bloomberg) — The U.S. House approved legislation to extend unemployment insurance, restore some tax breaks and raise taxes on managers of buyout funds and other investment partnerships. Lawmakers voted 215-204, largely along party lines, for the legislation costing about $112 billion. The Senate plans to consider the plan during the week of June 7 after lawmakers’ Memorial Day recess. “It’s a good bill for jobs, it’s a good bill for closing tax loopholes, it’s a good bill for dissuading people from taking jobs overseas,” Majority Leader Steny Hoyer , a Maryland Democrat, said on the House floor before the vote. The plan would continue funding for extended unemployment benefits through Nov. 30 and renew a variety of tax cuts for businesses and individuals. The House also voted 245-171 to give doctors a 19-month reprieve from scheduled cuts in their reimbursements from the Medicare program. Before the Senate acts next month, some jobless benefits will begin to expire May 31, at a time when the national unemployment rate remains near 10 percent. A record 45.9 percent of the jobless have been out of work for 27 weeks or more. When the payments lapsed earlier this year during a dispute over their extension, lawmakers made new benefits retroactive. The legislation drops funds for extended health insurance subsidies for jobless workers while retaining dozens of tax breaks for businesses. Buyout Firms The Congressional Budget Office said the bill would add $54.2 billion to a deficit projected to reach $1.5 trillion this year. To help cover its cost, the measure would raise tax rates on some income for managing partners at buyout firms, venture capital funds and real estate partnerships by about $17.7 billion over 10 years. It also would raise taxes by an estimated $14.5 billion on global operations of U.S.-based companies such as International Business Machines Corp. Michigan Representative David Camp , a Republican, said those taxes shouldn’t be imposed permanently to pay for extension of temporary policies. “This bill has nothing to do with jobs,” Camp said. “Virtually every business group is opposed to this package,” he added, citing the U.S. Chamber of Commerce and the National Federation of Independent Businesses. Democratic leaders secured the votes needed to pass the bill by scaling back a larger measure to appease fiscally conservative party members concerned about voting for deficit spending just months before November’s congressional elections. Health Insurance Lawmakers dropped an extension of health insurance subsidies for jobless workers as well as higher matching funds for state-run health programs such as Medicaid. Lawmakers delayed until Jan. 1, 2011, a proposed tax increase on profit shares paid to managers of buyout funds and other financial partnerships. Earlier, the increase was to be applied to income earned this year. Texas Representative Henry Cuellar , a member of the fiscally conservative Blue Dog Coalition said the changes helped switch his vote from “no” to “yes.” “The bigness issue and the deficit issue for me has been addressed to a much more acceptable level,” Cuellar said. The legislation would provide subsidies for local infrastructure projects by extending the Build America Bonds program. It also would require retirement plan administrators to disclose more information about fees charged to 401(k) retirement accounts and give companies with underfunded pension funds more time to make those accounts solvent. Carried Interest Approval of the legislation would end a long battle over Democrats’ efforts to increase taxes on so-called carried interest paid to executives at private equity, venture capital and real estate firms. The House has voted three times in three years to raise the levy, only to see the measure stall in the Senate. Lawmakers said it has broader support this year amid pressure to avoid adding to the deficit. Carried interest is the share of profit that fund managers are paid as part of their compensation. That share often qualifies for capital gains tax rates of 15 percent; the bill would eventually subject three-quarters of the income to ordinary tax rates of more than 40 percent. The legislation would spend $23 billion to give doctors a 2.2 percent increase in Medicare reimbursement rates this year and a 1 percent rise next year. Physicians were facing a 21 percent cut in their payment rates this year and a 6 percent reduction next year. Other provisions would make it harder for lawyers and other professionals to avoid Social Security and Medicare taxes by organizing what are known as S corporations. Oil companies would be another loser under the bill, which would increase to 34 cents from 8 cents a per-barrel tax to raise $12 billion. Senate Finance Committee Chairman Max Baucus said earlier this week that Democrats in his chamber will have the votes to approve the legislation, offering assurances to House members concerned about voting for a bill that may not become law. “We’re ready,” said Baucus, a Montana Democrat. “It will pass the Senate.” To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net ; Brian Faler in Washington at bfaler@bloomberg.net

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Credit Card Reform Makes It Easier To Pay Down Your Balance: Center For Responsible Lending

May 6, 2010

The credit card reform that took effect this year can save big money for cardholders who pay more than their minimum account balance — as much as $2 for every $1 paid above the minimum, according to the Center for Responsible Lending . That’s all there is to it: Pay more than the minimum balance and potentially, you could save big because your payment will be applied to the debt with the highest interest rate instead of to the debt with the lowest interest rate. The new payment allocation order, along with an end to arbitrary rate hikes and an opt-in requirement for overdraft charges, was one of the central components of the Credit CARD Act, which Obama signed into law in 2009 and which took effect this year. “The way payments are allocated now you can benefit — but only if you pay more than minimum balance,” said CRL researcher Joshua Frank. “If you pay the minimum payment, you don’t get any benefit from the payment allocation now.” Paying more than the monthly minimum has been a good idea since forever, of course. But now it’s an even better idea. Frank said CRL analyzed several hypothetical credit-card debt scenarios for its analysis. A common scenario has a credit card holder with one balance for purchases and another for cash advances, which carry a higher interest rate. Because payment will now be applied to the more expensive debt, paying $100 above the monthly minimum saves this borrower $224 over the life of the loan. CRL warns that consumers will have to be vigilant about these things, as credit card companies will find ways to fudge the law . HuffPost readers: Weird experience with a credit or debit card? Tell us about it — email arthur@huffingtonpost.com Here are the Center for Responsible Lending’s four tips for cardholders: 1. Pay above the minimum amount due! Paying more than the minimum can save you as much as $2 for every extra $1 you pay. For example, before the CARD Act, paying $100 extra could save you $164 in interest charges, but now that same payment amount can save you $224. 2. Continue to watch out for hair-trigger penalty rates. Issuers can still raise your interest rates on new balances for the slightest reason. It is particularly important to pay above the minimum if you get hit with a penalty rate. Doubling your payment could cut your interest charges over the following four years by more than half. 3. Don’t opt in to over-the-limit coverage. Over-the-limit coverage is a bad deal because it means that if you go above your limit, the credit card company will extend you additional credit at an exorbitant cost automatically — as much as 4,215% APR (annual percentage rate) – instead of rejecting your card. A better option would be to call your issuer to see if you can have your limit raised, or apply for additional credit elsewhere. 4. Avoid arbitration clauses in credit card contracts. Protect your rights. There are now more card options without arbitration clauses and you should ask your credit card company for one. Forced arbitration requires the borrower to resolve any dispute with an arbitrator, not in court. Research shows decisions in arbitration favor card issuers, rarely the wronged borrower.

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Verifi Appoints Chief Revenue Officer and Chief Product Officer to Drive Next Phase of Company Growth

April 28, 2010

Tony Wootton and Jeff Sawitke to Focus on Delivering a World-Class, End-to-End Payment Management Solution That Protects Merchants During Card-Not-Present Transactions

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Snohomish Busts Synthetic Rate Gone Awry in AIG Swap Undermining Customers

April 21, 2010

By Peter Robison April 21 (Bloomberg) — Water and electric customers in the Seattle area, most of whom pay U.S. taxes, will pay an additional $14 million to get out of an agreement with American International Group Inc. , the insurance company rescued from insolvency in 2008 by American taxpayers. The fee from the Snohomish County Public Utility District , serving Boeing Co. and 320,000 other electricity buyers, will settle a nine-month-old dispute with AIG, according to a copy of the accord obtained under state public records law. The municipal power company and AIG sued each other over a contract created in 1994 to help Snohomish reduce its borrowing costs by $2.9 million — an early version of a financial derivative known as an interest-rate swap. Snohomish is among at least 1,900 public institutions from Puget Sound to the Aegean Sea that sought to lessen interest expenses using similar agreements with potentially hazardous results. Harvard University in Cambridge, Massachusetts, paid more than $900 million to get out of swaps that backfired when interest rates unexpectedly plummeted, increasing its costs. Borrowers have paid as much as $5 billion to Wall Street to exit swaps since 2008, according to Peter Shapiro , the managing director of Swap Financial Group LLC, an adviser in South Orange, New Jersey. “There’s a lot of so-called sophisticated stuff ginned up by the finance industry,” said William Kittredge , a former utility director in Oregon who is now director of the nonprofit Center for the Study of Capital Markets and Democracy in Arlington, Virginia. “When you’re talking about public money, it’s not the way to go.” Exchanging Payments In an interest-rate swap, parties exchange interest payments on a set amount of debt, often with the goal of locking in a fixed rate on a related set of variable-rate bonds. During the 2008 credit crisis, interest owed by local governments on floating-rate bonds exceeded payments they received under swap agreements. Such “synthetic fixed-rate” deals pushed Jefferson County, Alabama, close to bankruptcy two years ago. It had refinanced $3 billion of debt with variable-rate bonds and purchased swaps to guard against borrowing costs rising. Its expenses soared when insurers guaranteeing the bonds lost their top credit grades, and the rate the county received fell. ‘Reckless Traders’ The Snohomish utility , which faced increased swap-related payments of about $5 million a year, resisted paying to exit its contract for almost two years. In its suit against AIG, Snohomish alleged that a “now-infamous unit of reckless traders” had “drawn a bead” on the utility. In the end, Snohomish opted to pay the termination fee and sell 15-year bonds to replace all its floating-rate debt, said Jim Herrling, senior manager of risk management and supply for the utility. Those bonds sold yesterday at 3.18 percent. Snohomish projects it will save $14,179,907.63 in budgeted interest costs over the life of the new debt, Herrling said. All but $133,782 of that will go to AIG in the termination payment. That fee is enough to buy a new energy-efficient refrigerator for 11,864 homes, based on estimates from the U.S. government’s Energy Star program. It amounts to about $43.75 for each Snohomish electric customer. “The ratepayers I don’t think are going to be paying any more in the long run,” Herrling said. “They’re just making this payment up front and we’re reducing our future debt service payments between now and 2025.” “We’re pleased that we have settled this matter,” said Mark Herr , a spokesman for New York-based AIG , which is 80 percent owned by the U.S. government after a 2008 bailout. Neither party made any admission of liability in the settlement. Battled Enron The Snohomish utility, located in Everett, Washington, 30 miles north of Seattle, unearthed audiotapes of Enron Corp. traders discussing manipulating California power prices in 2004. Enron, the bankrupt energy-trading company, had sued Snohomish over canceled power contracts. The utility paid $18 million, 10 cents on the dollar, to settle the suit in 2007. In 1994, Snohomish needed money to build transmission lines, replace electrical poles and add street lighting. Jerry Bobo, a banker at the time for New York-based Smith Barney Inc., recommended borrowing $58.3 million for 30 years at floating rates, using a swap agreement to lock in a fixed rate lower than Snohomish could obtain by issuing conventional bonds. The savings might total $2.9 million, according to a Smith Barney presentation obtained by Bloomberg through state public records law. In 1998, Smith Barney became a unit of Citigroup Inc. , the bank rescued by taxpayers in 2008. Reset Weekly Rates on the debt, known as variable-rate demand bonds, would reset weekly. AIG agreed to accept a fixed 6.2 percent payment from Snohomish and pay the floating rate. A traditional fixed-rate bond at the time might cost the utility 6.95 percent, according to the bank’s presentation. Through today, that spread saved the utility more than $4 million, according to Anne Spangler, the general counsel for Snohomish. The power company gave up something more valuable: the right to refinance the bonds without penalty if interest rates changed, said Andrew Kalotay , a former Salomon Brothers bond analyst who is now a consultant in New York. That created significant risk for the borrower over the contract’s 30-year term, he said. Kalotay compared it to a homeowner accepting a mortgage that would require extra charges in advance for refinancing. Private borrowers typically use swaps only to cover short-term rate movements of six months or less, he said. Smith Barney’s presentation to the Snohomish utility portrayed the longer term of the accord as a way to save money. ‘No Significant Risks’ “The economics of a swap are such that the financial benefits of the transaction increase as the swap term increases,” one slide said. Another mentioned that credit raters would view the structure as fixed-rate debt. “The result: True Synthetic Fixed Rate Debt,” the slide said. “No significant risks.” “They could have done the same thing much more cheaply by using plain-vanilla, fixed-coupon bonds,” Kalotay said. “The swaps are a way for the banks to make a lot of money. Every 10 swaps municipalities enter into, nine of them turn out to be completely inappropriate.” The floating-rate debt stood to make Smith Barney more in fees. Bobo acted as salesman and adviser as the utility debated the transaction. Then, his bank served as both underwriter and “remarketing agent,” responsible for setting weekly interest rates once the floating-rate debt was sold. Additional Fee That last duty earned a fee: 0.1 percent a year, or $1.7 million over the life of the bonds, according to documents presented to Snohomish officials. Those terms helped the bank earn more than double what it would have underwriting a traditional fixed-rate bond, the documents show. Bobo, who has an office in Seattle, didn’t return telephone calls seeking comment. Citigroup spokesman Alex Samuelson declined to comment. Floating rates on the utility’s bonds fell to as little as 1 percent to 2 percent from 2002 to 2004, while the utility was paying AIG 6.2 percent. Until mid-2008, Snohomish paid AIG a net $25.7 million, court filings show. Demand for the bonds dried up during the 2008 credit crisis . The lack of liquidity was so severe it was likely to trigger a provision of the contract that, AIG said, would limit its own payments to the utility to an amount based on international bank rates. The power company would have to pay the higher floating rates, resulting in $5 million of additional annual costs. Buying Back Utility bond counsel William Doyle told Snohomish commissioners at a board meeting in September 2008 that they should buy back the bonds and put them into a trust. That would force AIG, then in the midst of a government bailout that totaled $182.3 billion, to pay the floating rate. AIG’s lawyers questioned whether the arrangement was permissible under the bond agreements during a conference call. Doyle, of the firm of Orrick, Herrington & Sutcliffe LLP in San Francisco, “cut off the question,” according to AIG’s court filings. He declined to comment. The trust purchased the bonds in October 2008. In July, AIG sued the utility in New York state court, saying the refinancing breached the swap agreement because the 58-page document required “written consent” from AIG for any purchase of the bonds. Snohomish then filed its suit against AIG in federal court, and the cases were consolidated in Seattle. The settlement disposes of it. Citigroup was the senior underwriter of this week’s debt sale. The utility also added a co-manager, Barclays Plc, said Herrling, Snohomish’s financing manager. “When you have two desks working your deal, you’re making sure you’ve got some checks and balances there,” he said. The case is Public Utility District No. 1 of Snohomish County, Washington, v. AIG Financial Products Corp., U.S. District Court for the Western District of Washington (Seattle). To contact the reporter on this story: Peter Robison in Seattle at robison@bloomberg.net .

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Dan Dorfman: The Taxman Comes Up Short

April 8, 2010

Call them tax delinquents, tax cheats, or what you will. You may be one of them. No great solace, but if you are a culprit, you’re not alone. The ranks of non and tardy tax filers are rapidly on the ascendancy, judging from conversations with a number of tax attorneys and accountants. At the beginning of 2009, the Internal Revenue Service was saddled with slightly more than four million delinquent tax accounts, which, on average, represented between $2,000 and $3,000 per account. Current delinquencies, according to estimates from some tax experts, have risen to roughly 4,250,000, a number, it’s thought, that could easily expand to 450,000 to one million before year end. In less than a week, April 15, to be precise, about 135 million Americans are expected to file their 2009 tax returns, which is an average of what the number has run in recent years. Not this year; like death and taxes, a shortfall in tax filings is considered to be almost a sure thing. Tax pros say it’s not a case of people knowingly trying to cheat Uncle Sam — which is a criminal obfense — but raxher an inability to come up witd the necessary bunds to meet their tax bill beciuse of tough ecknomic times.!0A In partacular, the ri{ing tax liabilixies are said to’largely reflect high unemploymebt, huge 2008 dosses in the stock market, the need to shell cut big bucks fo~ family illnessas, a determinmtion to reduce heavy debtloads to beef up credip standings, tde necessity of ieeting mortgage/payments and thm ballooning numner of personal bankruptcy filincs (

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Malaysia’s Growth This Year Can Beat Current Forecast, Prime Minister Says

April 6, 2010

By Netty Idayu Ismail April 7 (Bloomberg) — Malaysia’s central bank has told the government the country’s 2010 economic growth can exceed the current forecast by as much as 2 percent through the “right policy intervention,” Prime Minister Najib Razak said. Gross domestic product can expand by 1 percent to 2 percent more than the central bank’s March forecast of 4.5 percent to 5.5 percent, Najib told the Foreign Correspondents Association in Singapore yesterday. Measures including developing the Islamic finance industry will aid growth, he said, adding that the government will probably sell Shariah-compliant global bonds denominated in dollars. Najib is seeking to boost economic growth to an average 6.5 percent annually and turn Malaysia into a high-income and developed economy by 2020. Since taking office last April, he has vowed to roll back policies favoring the country’s biggest ethnic group to lure investment, moving away from 39-year-old measures that the government now says may impede growth . “The government has started to acknowledge in a refreshingly frank manner all the medium-term issues that are facing the economy,” said Kit Wei Zheng , a Singapore-based economist at Citigroup Inc. Still, “at this stage it’s too early to turn decisively bullish.” The ringgit has risen more than 6 percent against the dollar this year, making it the best performer among 10 Asian currencies outside Japan. Malaysia’s FTSE Bursa Malaysia KLCI Index yesterday rose for an 11th day, its longest winning streak since August 1994. Growth Areas The government plans to unveil new areas in the coming months to help spur growth that will “indicate a shift in our thinking,” Najib said. Malaysia has already targeted industries such as green technology, oil and gas, palm oil and Islamic finance as key areas to drive the economy, he said. “To get to the next stage of growth requires us to reexamine our policies,” Najib said, adding that Malaysia is still committed to the goal of becoming a developed nation by 2020. Malaysia’s aim to double per capita income to $15,000 in 10 years is ambitious yet “attainable,” he said. Najib said last week he would revise Malaysia’s affirmative action policies to target the nation’s poorest across all ethnic groups. The new policies will be fair and transparent, focusing on the bottom 40 percent of households by income, he said in a speech on March 30. Najib said yesterday he believed members of his ruling United Malays National Organisation have accepted the need to change the policies. Islamic Bonds Malaysia, which has the world’s largest Islamic bond market, has eased foreign ownership rules and approved new products as part of efforts to become a hub for financial services that comply with Muslim tenets. The country last year increased the foreign ownership limits at local Islamic banks, investment banks and insurance companies to 70 percent from 49 percent. Southeast Asia’s third-largest economy will “most probably” sell dollar-denominated Islamic bonds to set new benchmark borrowing costs for the nation’s companies, Najib said. That would mark Malaysia’s return to the global bond market for the first time in almost eight years. The government hasn’t sold foreign-currency bonds since July 2002, when it raised $600 million from the sale of five- year Islamic bonds, or sukuk. The finance ministry has continued to rely on local funding even as the government’s budget deficit widened to a 22-year high of 7.4 percent of gross domestic product in 2009. Islamic law bans the payment of interest and stipulates agreements be based on the transfer of goods or services. More than 60 percent of Malaysia’s 28 million people are Muslim. Najib also said Malaysia aims to conclude an economic partnership agreement with India by the end of this year. To contact the reporter on this story: Netty Idayu Ismail in Singapore at nismail3@bloomberg.net

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Dubai World Said to Offer a Shortfall Guarantee in $14.2 Billion Debt Plan

March 29, 2010

By Arif Sharif March 29 (Bloomberg) — Dubai World, the state-owned holding company seeking to restructure $14.2 billion of debt, offered creditors a so-called shortfall guarantee as part of a repayment plan, a person close to the Dubai government said. If the sale of Dubai World’s assets does not generate sufficient cash to repay loans, the government will make up the shortfall up to a certain level, said the person, who declined to be identified because the discussions are private. The guarantee clause was not outlined in Dubai World’s press statement on March 25 when the restructuring plan was announced. Dubai World, one of the emirate’s three main state-owned holding companies, and its property unit Nakheel PJSC are seeking to renegotiate terms on $24.8 billion of debt after the global credit crisis battered Dubai’s property market and hurt the ability of the emirate’s companies to raise loans. The Dubai government and its state-owned companies racked up $109.3 billion of debt, according to International Monetary Fund estimates, as the emirate sought to transform into a tourism, trade and financial services hub. Dubai World asked creditors March 25 to roll over outstanding debt into two new loans of five year and eight year maturities. Lenders will be paid their principal in full, although the interest rate on the loans is still being negotiated with the banks, Dubai World Chief Restructuring Officer Aidan Birkett said that day. Interest Rate Dubai World’s creditors will be paid interest below the market rate in cash, although that will be supplemented by a so- called payment-in-kind element, the person said. The person did not specify how much the payment-in kind was. Nakheel’s creditors were asked to extend loan maturities at interest rates linked to the Emirates interbank offered rate and the London interbank offered rate. Two of Nakheel’s Islamic bonds, which together raised $1.73 billion, will be paid in full when they mature this year and in 2011. The treatment of Dubai World and Nakheel’s creditors reflects the different levels of security and the legal positions of each creditor class, the person said. Dubai World’s lenders are unsecured, while lenders to Nakheel have recourse to the company’s assets, the person said. A spokesman for Dubai World declined to comment when contacted by Bloomberg News today. To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

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Treasuries Rise as Lift in Yields After Government Auctions Spurs Buying

March 27, 2010

By Cordell Eddings March 27 (Bloomberg) — Treasuries fell, pushing 10-year note yields up the most since December, as lower-than-average demand at $118 billion in note auctions raised concern that investor interest is waning as the deficit climbs to a record. U.S. interest-rate swap spreads plunged to the lowest levels in more than two decades as investor focus shifted from the plight of financial institutions to the ability of nations to finance rising fiscal deficits. Bill Gross , manager of the world’s biggest bond fund, said the almost three-decade bond rally may be ending. Two-year notes dropped for a fourth week in the longest stretch of decreases since August before next week’s March payrolls report. “Supply and the realization that there is more to come is starting to weigh on Treasuries,” said Larry Milstein , managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Swap spreads turning negative forced investors to cover shorts and dump Treasuries going into the auction, exacerbating the weakness.” A short is a bet that a security will decrease. The 10-year note’s yield rose 15 basis points, or 0.15 percentage point, to 3.85 percent, according to BGCantor Market Data. The price of the 3.625 percent note due in February 2020 decreased 1 7/32, or $12.19 per $1,000 face amount, to 98 5/32. The increase in the yield was the biggest since an advance of 27 basis points for the week that ended Dec. 25. The yield touched 3.92 percent on March 25, the highest level since June 11. The two-year note’s yield rose 5 basis points to 1.04 percent and reached 1.12 percent this week, the highest level since Jan. 4. Auction Demand Demand waned at this week’s auctions of two-, five- and seven-year notes as signs of improvement in the economy boosted appetite for higher-yielding assets. At the $32 billion seven-year note sale on March 25, investors bid for 2.61 times the amount of debt on offer, the least in 10 months. The $42 billion auction of five-year debt a day earlier drew a yield of 2.605 percent, compared with the average forecast of 2.556 percent in a survey of eight of the Fed’s 18 primary dealers. The difference of 4.9 basis points was the largest since July, based on Bloomberg surveys. Investors bid for 3 times the $44 billion of two-year notes sold on March 23, the lowest since December’s sale. President Barack Obama has increased U.S. marketable debt to a record $7.4 trillion as he borrows to sustain the U.S, economic expansion. Gross on Borrowing Excess borrowing in nations including the U.S., U.K. and Japan will eventually lead to inflation as governments sell record amounts of debt to finance surging deficits, Gross said in an interview this week with Tom Keene on Bloomberg Radio from the headquarters of Pacific Investment Management Co. in Newport Beach, California. Pimco, which announced in December that it would offer stock funds, is advising that investors buy the debt of countries such as Germany and Canada that have low deficits and higher-yielding corporate securities. Treasuries have lost 1.3 percent this month, paring their first-quarter returns to 0.7 percent, according to Bank of America Merrill Lynch indexes. Former Federal Reserve Chairman Alan Greenspan said in a Bloomberg Television interview yesterday that the recent increase in yields represents a “canary in the mine” reflecting investor concern over the U.S. budget deficit Economic Expansion The world’s largest economy expanded at a 5.6 percent annual rate in the fourth quarter of 2009, figures from the Commerce Department showed yesterday. The increase, while smaller than the government’s previous estimate issued last month, marked the best performance in six years. Employers added 190,000 jobs this month after eliminating 36,000 positions in February, according to the median forecast of 62 economists in a Bloomberg News survey. The unemployment rate held at 9.7 percent. The Labor Department’s payrolls report is due on April 2. The 10-year swap spread , or the difference between the rate to exchange the payment streams and the Treasury yield, turned negative for the first time on March 23. The gap dropped as low as negative 10.19 basis points this week. A negative swap spread means the Treasury yield is higher than the swap rate, which typically is greater given that the floating payments are based on interest rates that contain credit risk, such as the London interbank offered rate. “Rates have been unsettled for the past few days since swap spreads started going negative,” said Aaron Kohli , an interest-rate strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc, a primary dealer. “Since then, we’ve seen lots of instability in the market, which continues to make investors nervous.” To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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Ex-Societe Generale Banker Geys Wins U.K. Suit Over $11 Million Severance

March 25, 2010

By Lindsay Fortado and James Lumley March 25 (Bloomberg) — Societe Generale SA , France’s second-largest bank, lost a U.K. court decision over whether an 8 million-euro ($10.6 million) severance package it offered a former employee was less than what he was owed. Raphael Geys , a former managing director of European fixed income sales at Societe Generale, sued and claimed at a trial that began last week in a London court that under his contract’s terms he was owed more severance than the bank offered. If a severance value can’t be negotiated, a trial will be held to determine the amount, Judge George Leggatt said in the ruling today. Geys, who was fired in November 2007, said he was entitled to more than 12.5 million euros under his contract. Societe Generale argued it no longer owes Geys any severance because suing breached his contract. “I reject the bank’s arguments that the claimant has lost any right to receive a termination payment, or any other payment, as a result of making or pursuing any claims,” Leggatt said. The bank may have saved itself about 2.5 million euros had it “appropriately” worded a November 2007 letter firing Geys, according to the judge. Leggatt said the company didn’t properly end Geys’s contract until months later, meaning Societe Generale owed him a year-end bonus. “Societe Generale believes that today’s decision is not a correct interpretation of the terms and conditions of Mr. Geys’s employment contract when he joined the bank in February 2005,” said a spokesman for the Paris-based bank, adding that Societe General is seeking leave to appeal. Entirely Vindicated The decision “entirely vindicates Mr. Geys’s decision to pursue Societe Generale for the payments properly due to him,” said Tom Custance, his lawyer at the firm Fox Williams LLP. Geys arranged in a “heavily negotiated” contract to be paid an annual bonus tied to the bank’s fixed income sales, rather than a discretionary bonus, lawyers for Societe Generale from law firm Herbert Smith LLP wrote in a court filing. The bank has said it properly determined how much Geys was owed based on a calculation of gross revenue and sales credits, according to the filing. Geys worked for the bank for three years and was earning a salary of 150,000 pounds by the time he was fired. The gross revenue of his division more than doubled to 440 million euros while Geys worked there, one of his lawyers said. BNP Paribas SA is France’s largest bank. The case is Raphael Geys v. Societe Generale, claim no. HC08C02683, High Court of Justice, Chancery Division (London). To contact the reporter for this story: Lindsay Fortado in London at lfortado@bloomberg.net ; James Lumley in London at jlumley1@bloomberg.net .

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Wilbur Ross’s American Home Has Bookkeeping Inconsistencies, Moody’s Says

March 22, 2010

By Jody Shenn March 22 (Bloomberg) — American Home Mortgage Servicing Inc., the loan collections company assembled by billionaire Wilbur Ross , has bookkeeping flaws that may hurt bond investors, Moody’s Investors Service said. The servicer has been slow to reconcile numerous items in custodial bank statements with its accounting records, citing “inconsistencies” between two technology systems, the New York-based ratings firm said in a March 19 statement. “Although reconciliation items are not uncommon in the mortgage servicing industry, servicers will typically resolve such items within 30 days of being identified,” Moody’s analysts Navneet Agarwal and Zhiqin Huang wrote in the statement. “In the case of AHMS, there is a significant amount of aged (60 days or more) reconciliation items.” As a result, Moody’s may downgrade as much as $225 million of securities backed by American Home’s advances of delinquent homeowners’ payments to mortgage-bond investors, even though the Coppell, Texas-based company has boosted the transaction’s reserve fund by $20 million to protect bondholders as it fixes its procedures, the analysts said. Defaults may cost the Federal Reserve, which lent $107.5 million to buyers of servicer-advance bonds when the debt was issued in August through its Term Asset-Backed Securities Loan Facility. Wilbur Ross’s Role WL Ross & Co., Ross’s company, bought American Home from its bankrupt lender parent in 2008, and later added operations and servicing contracts from H&R Block Inc., Citigroup Inc. and Taylor, Bean & Whitaker Mortgage Corp. The items American Home isn’t tracking well include “loan liquidations, loan modifications, mortgage insurance claims, and the servicer’s ‘stop-advance’ process on delinquent loans,” the analysts said. The related mortgage bonds weren’t put under review because the issue isn’t “considered material in comparison to current expectation of losses” on those deals. “We haven’t incurred any losses to date directly related to the reconciliation effort nor do we expect to incur any losses in the future,” American Home said in a March 19 statement . “Our agreement to increase the reserve fund by $20 million and to maintain a material additional deposit in the fund until the situation is resolved demonstrates our strong commitment to maintain the AAA rating of the securitization.” Has Plan While extra reserves show American Home’s “strong commitment to resolving the issues,” Moody’s may downgrade the securities if the faulty items grow over the next three months, the analysts said. American Home has said it has a plan to remedy the issues over the next four to six months, according to the analysts. Craig Pino , American Home’s treasurer, declined to comment. Amid the highest mortgage delinquencies on record, servicers’ operations have caused bondholders trouble and faced criticism from various sources including Michael Barr , the U.S. Treasury Department’s assistant secretary for financial institutions. He warned in December of potential “remedial action” against the companies as they struggled to rework debt for homeowners under the government’s Home Affordable program. Moody’s placed $5.9 billion of mortgage bonds serviced by GMAC LLC under review for downgrades on March 4 because the company was mingling cash from multiple transactions, reducing its need to borrow to fund the payment advances that servicers recoup after foreclosures or when borrowers catch up. GMAC, the Detroit-based lender controlled by the U.S. government, said the next day it was separating the accounts. Missed Payments For at least three months last year, holders of mortgage bonds serviced by Ocala, Florida-based Taylor Bean didn’t receive payments after the lender filed for bankruptcy and its accounts at Colonial BancGroup Inc. were frozen amid federal probes into the failed bank. Fannie Mae and Freddie Mac, the mortgage companies under U.S. control, have said they’ve been forced to provide help from outside firms on bad loans to servicers and pushed some to sell contracts, including Troy, Michigan-based Flagstar Bancorp Inc. The Mortgage Investors Coalition, a bondholder group, has said servicers may be allowing conflicts of interests, such as holdings of home-equity loans, to influence their actions. American Home was accused in a lawsuit last March by hedge- fund firm Carrington Capital Management LLC of dumping foreclosed properties at fire-sale prices so it could pay back lenders financing its advances. The company, in turn, said that Greenwich, Connecticut- based Carrington, which had bought the servicing unit of bankrupt New Century Financial Corp., was dragging out loan defaults to keep cash flowing to its junior-ranked interests in mortgage bonds, and filed a separate suit. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

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Ryan Mack: Open Letter to Magic Johnson: Please Stop Promoting Financial Predators!

March 17, 2010

Dear Mr. Johnson: I remember when I used to play basketball in high school and my father bought me a tape called Showtime . It was about your life and I must have watched it at least 100 times. Your story inspired me to no end and I was always motivated to practice that much harder, take a few extra shots, and become a student of the game. I didn’t go on to play college basketball, but I thank God every day for those skills that I learned from the game because I use the same skills of work ethic, diligence, and determination today as an entrepreneur. Along with many who have assisted me, I owe a small part of my success simply from watching you. When I became a business man, I began to follow your career and my respect for your business acumen began to grow tremendously. Your real estate development activities that provide housing for 100s in communities across the country; your purchasing of many Starbucks franchises in areas where there were traditionally none and creating employment; I have sat in your theater in Harlem many times and have heard great things about your other theaters; and I have heard tremendous reviews from the talks that you provide teaching others how to create wealth. I have always thought that you were a strong model of fiscal responsibility and wealth creation. My admiration continued until, as someone who teaches financial literacy, I was doing research on financial predators and perusing the sites of various financial predators. I was shocked when I went to a Rent-A-Center site and heard a basketball bouncing. I recognized the sound and immediately thought, “What does basketball have to do with Rent-A-Center?” I scrolled down to see you bouncing the ball wearing the large smile that I grew up with. Then I began to see your face on television and hearing your voice on the radio telling people how great Rent-A-Center was. I knew full well that Rent-A-Center was a financial predator but I decided to go my own research to learn more about Rent-A-Center. I figured that I must be misinformed because a man like you who has taught and exemplified ownership as a principle of wealth creation, there had to be something more to Rent-A-Center that I must have missed. So I simply made a few calls to 6 Rent-A-Centers in the New York City area acting as if I was a customer to see what sort of great deals they were offering. What I found was quite disturbing. The Sofa and Love Seat: Mr. Johnson … did you know that at your Rent-A-Center that they are pushing a sofa that retails for $900 and has a weekly payment rate of $19.99? Did you also know that if you stuck to the RAC schedule you would only own it after 78 weeks meaning that you paid $659 in interest at a rate of 80%? Why would you promote this product when you could promote being responsible and saving $19.99 per week until you can purchase the same $900 sofa in just 44 weeks and save $659 in interest over 34 weeks? The Leather Sofa and Love Seat: Mr. Johnson, did you know that the leather sofa and love seat that RAC is promoting retails for about $2000 and under their payment plan you need to pay $30.99 per week for 78 weeks until you own it? This means that you would have to pay a very modest (using RAC standards) 26% interest rate and about $417 in interest. Why would you promote this product when a family can own the same $2000 sofa outright if they just saved $30.99 per week for 63 weeks? This way they would save $417 in interest and would have 15 additional weeks that they could continue to put money away for a rainy day, retirement, etc. The 26 Inch Sony Bravio Television: Mr. Johnson, did you know that the company you are promoting is selling a 26 Inch Sony Bravio television that retails for about $550, and making those who want to own it pay $17.99 per week for 104 weeks? This means that if they wanted to own it the RAC way they would be paying out $1321 in interest at a 163% interest rate! Why would you promote this when the same family could do what we did while growing up and just stuck with the black and white TV, with the hanger antennas, that we had to turn the channel using pliers for a while? While this family was making do with the cheap television they could save the $17.99 per week in a high yield savings account each week, do this until they can own the same $550 TV after only 30 weeks, and save $1,321 in interest payments over 74 weeks. The 52 Inch Sony Bravio TV: Mr. Johnson, I would think that you believe like I believe … people who can’t afford to purchase a TV shouldn’t even think about buying a big screen television! In this consumer-oriented society why are you promoting extravagant, superficial items to people who can hardly even afford to pay bills on a monthly basis? Did you know that this television, under the terms of RAC, one can own after 116 weeks of paying $59.99 per week? The TV only retails for $1900 and if they pay for the full 116 weeks they would have paid out $5,059 in interest and a total of $6,959 total for a $1900 television! Seriously Mr. Johnson, were you made aware of this consumer abuse when you accepted the checks to promote it? This same television, if someone saved $59.99 in a high-yield savings account per week, they could own this television in 31 weeks and save 85 weeks of payments and over $5000 in interest! It doesn’t stop at Rent-A-Center, Mr. Johnson, because I also have heard you on the radio promoting the refund anticipation loan as well through your endorsement of Jackson Hewitt. The refund anticipation loan plays upon the fact that many people are expecting to receive their tax return, can’t wait for the money, so they created a way to make exorbitant profit from other peoples’ misery. Let me give you a scenario: A single mother in the inner city goes to get her taxes done and her tax preparer at Jackson Hewitt estimates that she should be getting a $1000 tax return. Then the preparer asks if she has any pressing bills that require her immediate attention. She thinks about the light bill, the gas bill, and the rent. Then she thinks about the fact that her son needs a new pair of shoes as his only pair of shoes have a hole in the bottom, they just increased the bus fair and the price of her monthly pass was increased by 15%, the day care just called and stated that their prices are also going up, and her job just announced that they were going through another round of layoffs. All of these things together make it sound much more responsible to get the refund much sooner than later. However, the preparer left out a few details. The first detail that he left out was the fact that if she gets automatic deposit into her account the amount of time of which she would get the loan and her actual refund could be as little as a week a part. Also, there are a few fees that he rushed over. When one accounts for these fees along with the already high interest rate the woman may have to pay interest on the loan that could range from 100 – 500%! Lastly, if the woman decides to take the loan, the refund is an “estimate” of her actual return. If there was a wrong calculation and she only gets half of what she expected (which happens frequently), she is still on the hook for the entire amount of the loan AND the interest! Mr. Johnson, do you really think that this is fair? Do you really believe that this action is empowering to the community? Did you know that those who have the least are targeted the most? According to IRS data, of the 8.7 million who received a refund anticipation loan in 2007, 67% received an Earned Income Tax Credit (EITC) while only 17% of the entire US population received the EITC in 2007. The EITC program is designed to assist the working poor, so when you see that 2/3rds of those who received an RAL came from only 17% of the population it is clear who those who are in the refund anticipation loan business are marketing to. Mr. Johnson, I give you much praise and respect for all of your accomplishments. However, I cannot allow your recent endorsements of such predatory products to go without reproach. I do not deny the personal responsibility that exists in the people to be able to learn and implement principles of financial literacy. If someone goes to Rent-A-Center and pays exorbitant interest for a television or sofa, or if an individual pays 400% interest on a refund anticipation loan that should have never been applied for, the ultimate fault lies with the individual. However, even though your actions are not illegal, your support for these products is immoral and I implore you to take additional measures of consideration of the repercussions of your actions to those in communities across this country. I would love to join with you in the teaching of the community to attempt to reverse the damage and loss of billions of dollars that communities across the country have lost to these financial predators. I look forward to and welcome your response.

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Investment Banks Raise Pay as U.K. Efforts to Cut Compensation Fall Flat

March 2, 2010

By Gavin Finch and Andrew MacAskill March 2 (Bloomberg) — Chancellor of the Exchequer Alistair Darling urged pay restraint and moderation from U.K. banks, and still they raised compensation. Barclays Capital, the investment-banking unit of Barclays Plc, increased its pay and bonuses per employee by about 93 percent in 2009, according to company filings. Royal Bank of Scotland Group Plc , the U.K.’s biggest government-owned bank, raised total compensation per employee by about 73 percent last year. Of the U.K.’s three largest banks, HSBC Holdings Plc was the only one where pay declined slightly in its investment bank. “The banks are just paying lip-service to what they think politicians and the public want to hear while carrying on as normal,” said Chris Roebuck , a visiting professor at Cass Business School in London. “The apparent changes they’ve made to compensation are just an exercise in smoke and mirrors.” Banks are under scrutiny from governments worldwide to reduce compensation amid public anger about trillions of taxpayer dollars used to bail out lenders during the credit crisis. In December, Darling introduced a one-time 50 percent levy on discretionary bank bonuses of more than 25,000 pounds ($37,500) to encourage banks to build up their capital. The Treasury, which initially said the tax would raise 550 million pounds, now estimates it may net as much as 2 billion pounds, according to a government official who declined to be identified. Barclays, HSBC, RBS and Lloyds Banking Group Plc alone said they will pay about 685 million pounds to cover the tax. CEOs Waive Bonuses In an attempt to diffuse anger about the size of bonuses, the chief executive officers of RBS, Lloyds and Barclays waived their bonuses for 2009. HSBC CEO Michael Geoghegan will also forgo his bonus, donating as much as 4 million pounds to educational charities. “From a public relations point of view, the bonus tax has been a partial success because it’s made the government look like it’s cracking down,” said Daniel Naftalin , a partner at law firm Mishcon de Reya in London. “The bonus tax failed in the sense that it doesn’t appear to have significantly reduced the size of the bonuses.” Barclays paid its investment-bank employees about 191,000 pounds each in 2009 compared with an average payout of 99,000 pounds for the previous year, the filings show. RBS set aside about 173,000 pounds last year in total compensation per employee, up from about 100,000 in 2008. HSBC awarded each employee an average of about $166,000 in 2009. The average compensation was calculated as a percentage of investment-bank revenue, or total staff costs at the individual banks, divided by the number of employees. Revenue Increases Pay increased in 2009 as investment-bank revenues rose. Pretax profit at Barclays Capital climbed 89 percent to 2.46 billion pounds after it absorbed 1.8 billion pounds of credit losses, the bank said. “The U.K.’s curbs on bonuses have gone further and faster than any other country,” said a Treasury spokesman, who asked not to be identified in line with departmental policy. “The bonus tax is intended to make banks think twice about paying large bonuses.” RBS CEO Stephen Hester defended the payment of bonuses, saying that his investment bank employees deserved the 1.3 billion pounds of payments, which was the “minimum necessary.” “We are treading an unenviable tightrope walk,” said Hester, who waived his right to a 1.6 million-pound bonus amid public anger about such payments. “We believe that within the context of the industry in which we operate we have been restrained and responsible.” Labour Party Gains Lloyds Chairman Win Bischoff said that while his bank is “sensitive” to the public debate about bankers’ pay, the responsibility for policing remuneration belongs with shareholders, not the government or the media. Executives should be allowed to accept bonuses without feeling pressure to waive them, he said. Lloyds declined to say how much it is paying in bonuses. The ruling Labour Party ’s attack on bankers’ pay has helped narrow the Conservative Party ’s lead in the opinion polls by shoring up the party’s core support, according to Anthony Wells at pollster YouGov Plc. Prime Minister Gordon Brown is on course to lead a minority U.K. administration after this year’s election with the polls the narrowest in more than two years, a YouGov poll found over the weekend. “Banker bashing is an easy crowd pleaser,” Wells said. “It has been an easy way for Labour to shore up their core vote. The polling shows that people don’t like bankers.” Banks including Barclays, Credit Suisse Group AG and UBS AG have raised investment bankers’ base salaries as a percentage of total pay. HSBC plans to increase salaries as a proportion of compensation, the bank said yesterday. Leaders of the Group of 20 nations agreed in September to adopt compensation guidelines for banks that discourage bonus guarantees extending more than one year, encourage companies to defer bonuses for senior executives and other key employees, and permit pay to be clawed back if losses occur later. To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net ; Andrew MacAskill in London at amacaskill@bloomberg.net

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Fortress Said to Be Near Restructuring of Resort Operator Intrawest’s Debt

February 27, 2010

By Cristina Alesci Feb. 27 (Bloomberg) — Fortress Investment Group LLC has agreed with lenders on the outline of a debt restructuring for Intrawest ULC, owner of Olympic downhill skiing resort Whistler Blackcomb, said a person with knowledge of the talks. Under the plan, Intrawest’s $1.2 billion of debt would be divided into a senior tranche of $800 million and a mezzanine tranche of $400 million, said the person, who declined to be identified because the discussions are private. The parties have set an April 16 deadline to complete negotiations. Fortress or its funds would have to put in an additional $150 million to buy equity in the resort company under the terms of the deal. Two Fortress-backed funds already kicked in $345 million in October 2008 to keep lenders at bay. Creditors led by Lehman Brothers Holdings Inc., Davidson Kempner Capital Management LLC and Oak Hill Advisors LP have sought control of Intrawest since it missed a final payment on a $1.4 billion loan due in December. The Vancouver-based company has struggled even after layoffs and other expense reductions. The lenders’ administrative agent originally set a Feb. 19 date to auction off Intrawest assets, which include the ski resort where Lindsey Vonn won her Alpine gold at the Winter Games. Intrawest would pay 10 percent interest on the senior debt under the agreement, while lenders are demanding as much as 17 percent for the mezzanine debt, said the person. The interest on the mezzanine part will depend on the payment terms, which have not been disclosed. Buyout Financing The original loan of about $1.4 billion, used to finance the buyout in 2006, called for an interest rate of 275 basis points above the London interbank offered rate. A basis point is one hundredth of a percent. Libor is the rate banks charge to lend to each other. Intrawest, founded in 1976, runs ski and golf resorts in Canada and the U.S. It sells vacation timeshares through its Club Intrawest unit and owns Canadian Mountain Holidays, the world’s largest heli-skiing operation, according to its Web site. Heli-skiing runs are reached via helicopters rather than ski lifts. Fortress, which is negotiating with lenders on behalf of Intrawest, agreed to buy the company in August 2006. Investors in Fortress’s Fund IV, Fund IV Co and FICO funds saw their collective $1.7 billion equity stake shrink to 4 cents on the dollar as of Oct. 31. To contact the reporter on this story: Cristina Alesci in New York at calesci2@bloomberg.net

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Metro-Goldwyn-Mayer Said to Seek Second-Round Bids for Studio by Mid-March

February 26, 2010

By Michael White and Sarah Rabil Feb. 26 (Bloomberg) — Metro-Goldwyn-Mayer Inc. is asking suitors to submit new bids for the studio by mid-March, about two weeks before its respite from interest payments expires, according to three people with knowledge of the situation. Billionaire Len Blavatnik’s Access Industries, Time Warner Inc. , Lions Gate Entertainment Corp. and Liberty Media Corp. are among the potential buyers examining MGM books, said one of the people, who requested anonymity because the talks are private. MGM, distributor of the James Bond movies, is exploring a sale after failing to make payments on $3.7 billion in debt. Suitors are trying to assess the value of MGM assets that include a 4,100-movie library, future “Bond” movies and rights to co-distribute films based on J.R.R. Tolkien’s “The Hobbit.” “It’s an old library,” said Matthew Harrigan , a Denver- based Wunderlich Securities analyst who follows entertainment companies. “Just about the only thing that has had significant value over the last five years is the Bond franchise.” No firm date for the second-round bids has been set because the suitors are still seeking information from the Los Angeles- based studio, which was taken private for $5 billion by buyers including Providence Equity Partners in 2005. Non-binding first-round bids approached $2 billion, contingent on due diligence, two of the people said. A lenders’ forbearance agreement is set to expire on March 31. They have extended the payment moratorium from the original Dec. 15 deadline to give the studio more time to consider offers. MGM spokeswoman Susie Arons declined to comment. Peter Wilkes , a Lions Gate spokesman, didn’t return a call seeking comment. Courtnee Ulrich , a spokeswoman for John Malone’s Liberty Media, didn’t respond to a request for comment. Access Industries Stewart Till , chief executive officer of Access Industries’ Icon film distribution business in London, said in an earlier interview the company has the wherewithal to be a potential bidder for major entertainment properties. Providence, in Providence, Rhode Island, has a 29 percent stake in MGM, while TPG, based in Fort Worth, Texas, has 21 percent. Sony Corp. , the Tokyo-based owner of Columbia Pictures, and Comcast Corp. , the largest U.S. cable-TV company, each own 20 percent. DLJ Merchant Banking Partners has 7 percent, and Quadrangle Group owns 3 percent. Valuing a library is a lengthy process because each film must be examined to assess revenue potential and to determine who may have a contract to share in profit or distribution rights, analyst Harrigan said. Library Details “You need a ridiculous amount of detail,” said Harrigan. “You look at every movie to see what you can get.” Time Warner, New York-based parent of the Warner Bros. studio, rose 6 cents to $28.92 at 9:41 a.m. in New York Stock Exchange composite trading . Vancouver-based Lions Gate, maker of the “Saw” movies, dropped 2 cents to $5.39. New York-based Access Industries owns a stake in Top Up TV, a U.K. pay television service, along with the Russian TV company Amedia, and in 2008 acquired control of the U.K. arm of actor/director Mel Gibson’s Icon Productions Inc., the U.K.’s Daily Telegraph reported at the time. Liberty Capital , one of Englewood, Colorado-based Liberty Media’s tracking stocks, rose 6 cents to $34.26 on the Nasdaq Stock Market yesterday. The company is evaluating options for its movie production unit, Overture Films. To contact the reporters on this story: Michael White in Los Angeles at mwhite8@bloomberg.net ; Sarah Rabil in New York at srabil@bloomberg.net

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Parmalat’s Top Investor Seeks $1.5 Billion Payout From Lawsuit Settlements

February 25, 2010

By Armorel Kenna Feb. 25 (Bloomberg) — Parmalat SpA , Italy’s biggest dairy foods maker, should turn over the $1.5 billion it has left over from lawsuit settlements to shareholders in stock buybacks or dividends, the company’s largest investor said. “Mackenzie Cundill would prefer to see cash returned to shareholders in the form of share repurchases or dividends,” rather than being spent on mergers and acquisitions, said David Tiley , who helps manage $13.5 billion at Mackenzie Cundill Investment Management Ltd. in Vancouver. The fund holds more than 7.7 percent of Parmalat and may buy more, he said. Parmalat, which pioneered long-life milk in the 1960s and makes Omega3 milk , has recovered about 2 billion euros ($2.7 billion) in legal settlements from banks and auditors, whom it accused of sustaining the fraud that led to Italy’s biggest corporate bankruptcy in 2003. In bankruptcy proceedings, Parmalat disclosed more than 14 billion euros of debt , about eight times the amount reported by its former management. Parmalat’s ordinary dividend payout is fixed at 50 percent of net income. The Collecchio, Italy-based company posted 673 million euros in net income in 2008. The dairy company could pay an extraordinary dividend, which must be approved at a shareholders meeting, Tiley said. Investors failed to increase the payment at a meeting in 2008. Mackenzie Cundill would like to see the cash turned over “expeditiously,” Tiley said, adding that Parmalat should retain as much money as it needs to run its business. Laura Gilbert , a spokeswoman for Parmalat, declined to comment for this story. Returning Cash Parmalat is scheduled to report earnings today. Net income last year may have fallen more than 50 percent to 441 million euros, according to the average of seven analyst estimates compiled by Bloomberg. Parmalat faces declining income from legal settlements and growing competition from the private-label market that may curb earnings, according to analysts including James Targett at Consumer Equity Research in London. The branded-goods experience of Antonio Vanoli , Parmalat’s chief operating officer since December 2008 and former director of Tic Tac maker Ferrero SpA , is a plus for Parmalat, Tiley said. Parmalat confirmed its interest in the baby-food market in November and said it wanted to increase its presence in emerging markets and improve its product mix. “Anything that can be done to diversify Parmalat’s revenues from the low margin, highly commoditized, threatened milk business, we are open to,” Tiley said. “Private label is a reality, so it requires a creative, competitive response from branded players.” Competition Parmalat also faces competition from food companies including Groupe Danone SA and Dean Foods Co., which have branched out to baby food and soy-based products. Parmalat could pursue acquisitions in Australia, the company’s third-biggest market in 2008 after Canada and Italy, including cooperative dairies, Tiley said. The Italian company bought fresh milk assets from Australia’s National Foods in July, for about 70 million Australian dollars ($63 million). Expansion in other geographical areas including the U.S. and Spain wouldn’t give Parmalat any “scale” advantage, while the company could benefit as a private-label producer for an existing baby food maker, Tiley said. “The company is clearly overcapitalized today and shareholders, management, branded competitors and private equity all know it,” Tiley said. To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net

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Underwater Homeowners May Get Help as U.S. Considers Mortgage-Plan Fixes

January 27, 2010

By Dawn Kopecki and Theo Francis Jan. 27 (Bloomberg) — The Obama administration’s $300 billion Hope for Homeowners program may be retooled to help the growing number of Americans who owe more than their properties are worth as current anti-foreclosure efforts fail to account for these “underwater” borrowers. The changes would be at least the third lease on life for the program, which began in October 2008 during the Bush administration and has so far helped just 96 of the 400,000 homeowners originally targeted . The U.S. Federal Housing Administration is considering ways to make the program more effective, Commissioner David Stevens said in an interview. While he wasn’t specific about any changes, he said Hope for Homeowners could be expanded to more directly help borrowers with negative equity . “The Hope for Homeowners program is unique in that it involves equity writedowns, principal balance reductions to help the underwater borrower,” Stevens said. “We’re going to look at that program very closely to make sure it can be as effective as possible, because that’s another segment of the population that needs to be addressed.” With home prices down as much as 30 percent from their peak in April 2006, more borrowers are walking away from their homes even if they can afford the payments, administration officials and analysts have said. The Treasury Department is looking for a solution for the more than 10 million underwater homeowners that analysts estimate may willingly let their mortgages slip into default, which would push home prices even lower and hamper the economic recovery. Walking Away “When negative equity gets very, very high, when people are very underwater, that starts to have a much larger impact on people leaving their homes,” Michael Barr , the assistant Treasury Department secretary for financial institutions, said in a Jan. 15 conference call with reporters. “And the question then is which of those people is it fair and appropriate to help.” Hope for Homeowners was intended to help borrowers with loans of less than $550,440, according to the original terms of the program listed on FHA’s Web site. The decline in home prices has left 15 million borrowers owing more than their homes were worth in the third quarter, according to Loan Value Group , an advisory firm in Rumson, New Jersey. It says 10 million of those loans are at risk of so-called strategic default, citing data on mortgages that have loan-to-value ratios higher than 115 percent and where the borrower can afford the payment. “Strategic default is a rational decision,” Frank Pallotta , a managing partner of Loan Value Group, said in an interview. “Are you going to pay a $500,000 mortgage when the house is worth $250,000?” “Walking away is money in your own pocket,” he said. “If you’re not getting money from the government, it’s your own self- stimulus for borrowers.” HAMP a ‘Failure’ President Barack Obama’s primary anti-foreclosure plan, the Home Affordable Modification Program, or HAMP, has helped fewer than 10,000 underwater borrowers cut their outstanding principal. HAMP is separate from FHA’s Hope for Homeowners program, HAMP has been a “failure” so far at converting temporary repayment plans into permanent loan reductions, said Bose George , an equity analyst at Keefe Bruyette & Woods in New York. Of the 787,231 trial modification plans, 66,465 have been approved for permanent repayment through December, according to Treasury data. HAMP is designed to lower monthly mortgage payments by reducing interest, lengthening repayment terms and deferring principal repayments for up to five years. Less than 10 percent of the trial modifications through December actually cut outstanding principle as opposed to deferring interest charges on it, according to Treasury officials. “It looks like that’s not enough for many of these borrowers, especially the ones with significant negative equity,” George said in an interview. More Ahead In helping people with negative equity, Barr said “you have to be very careful not to design a program that would change people’s fundamental behavior across the country in a destabilizing way or would be widely perceived as unfair to people who are continuing to pay.” There will have to be more efforts to reduce mortgage principals, as 42 percent of borrowers may be underwater by the end of the year, said Karen Weaver , the global head of securitization research at Deutsche Bank Securities Inc. in New York. “At the end of the day we’ll see more of it, because the government’s attempt — through modifications and the schemes and paradigms that have been in place — I think anyone has to conclude has been a failure,” Weaver said in a Bloomberg Television interview. “I don’t think we’ve seen the last of government policy trying to address this.” To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net ; Theo Francis in Washington at tfrancis14@bloomberg.net .

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Robert Teitelman: The Volcker Plan: First thoughts

January 22, 2010

Chaos. Confusion. Bewilderment. Twenty-four hours after the president’s big announcement there’s still an awful lot of head scratching going on about the Volcker Plan. Perhaps it will now begin to clear. But the rhetoric, the talk, the reporting haven’t cleared up the biggest questions, the most obvious of which is that it’s very difficult to see how this plan a) would have avoided the financial crisis in the first place or b) deals with the largest, hairiest, most chronic problems out there, the tangle of too-big-to-fail and moral hazard. Obama’s statement Thursday only added to the confusion by slinging around terms, like TBTF and proprietary trading, whose technical definitions are murky at best. It was, in short, pretty obviously a political speech, the silliest part of which was his ringing declaration that this plan would insure that “never again” would banks be too big to fail. First, saying “never again” is a dangerous fantasy. Second, even a cursory examination of the plan suggests it’s far less about size and systemic impact and far more about conflict, speculation and politics. Obama continually emphasized deposits, a very Glass-Steagallian concept, as if it was 1933 all over again, and yet as far as I know no deposits were lost because bankers went gambling, and indeed, because of deposit insurance, no consumer lost deposits because of the crisis. Similarly, prop trading, hedge funds and private equity may scare people, but those activities, narrowly defined (as they will be by the banks and their lawyers and lobbyists), had nothing to do with the subprime and structured finance meltdown either; in some cases, prop trading helped out these firms. If you define, on the other hand, prop trading with investing bank capital (that is, deposits) in profit-making efforts, then everything from credit cards to corporate lending to structured finance might fit under that capacious awning. Banks invest other people’s money for their own profits. That’s what they do. Where then is the line drawn? It’s easy to say that trading for your own book would apply, but what if you sell your loans into the market, then trade on that market? What if you trade to remain in the deal or information flow or to provide liquidity? Where does securitization fit into all this? Obama also mentioned plans to install some form of cap on assets at risk, although the papers today described an enforcement mechanism that was hardly draconian: a ban on acquisitions as a bank approached that cap, although organic growth would be allowed to continue. This raises a host of questions. What’s the cap? How is it determined? Why the emphasis on acquisitions — as opposed to automatic hikes in capital and leverage, or divestitures? (Many banks grew by acquisition, like Bank of America Corp. [NYSE:BAC], Citigroup Inc. [NYSE:C] and J.P. Morgan Chase & Co. [NYSE:JPM], but high-octane risk-takers like Goldman, Sachs & Co. [NYSE:GS] and, of course, Bear Stearns Cos. and Lehman Brothers Holdings Inc. did not for the most part. In the case of Lehman, the most stable part of the company came from an acquisition, Neuberger Berman.) For all of that, the real problem with the cap is how dangerously crude it is. Risk is dynamic and, as we know, results from interconnection as much as sheer size. A cap on assets at risk will not get us to the real issue, which is where assets are dangerously pooling. And, in fact, because it would tend to become the metric of choice for risk, it may well distract regulators from looking deeper, particularly as time passes. What kind of system does Obama envision here? The big banks will remain big, even if they give up some hedge funds, private equity and narrowly defined prop trading. Institutions cross-dressing as banks, like Goldman or Morgan Stanley (NYSE:MS), may choose to surrender holding company status and go it alone again (or they may not once they’ve read the fine print). But it’s very difficult to see how they will suddenly and significantly shrink in size and, more importantly, shed their well-deserved statuses, because of their dense interconnectivity, as systemic risks. The clearest part of this plan is to eliminate a few conflicts, most of which exist, as Lloyd Blankfein testified last week, among sophisticated investors who should presumably know what they’re doing (although we should be skeptical that anyone truly knows what they’re doing when it comes to the markets). The clear hope, particularly from the Volcker camp, is that this plan will strip out much of the speculation from regulated “banks.” That is the heart of this problem, but speculation is a concept mired in ambiguity. Your speculation is my investment. My investment was an investment until it went bad and became a speculation. Your hedge is my bet. My hedge is my bet. Where is that line drawn, not only on vehicles we fully understand, but also on complex synthetic instruments that, at times, can arguably flash both traits at the same time? Might the world be a better place if we could shrink the level of speculation that has — more debate unburdened by empirical facts — no real economic value? Undoubtedly. But to do so might well mean eliminating entire classes of instruments (which Volcker seems happily willing to do) and loading the system down with so many new rules, regulations and definitions that compliance might be even more of an impossible task than it is today. The old cliché here is that the two groups that profit most from these situations are lawyers and accountants. That’s undoubtedly true. But it also gives tremendous power (and the countervailing aversion to using it) to regulators. Ignored throughout this crisis is the dynamic, perhaps deeper than regulatory capture, between rule making (even of a deregulatory nature) and regulatory failure. The attempt to capture a complex and ever-changing reality through the net of rules is a loser’s game and an invitation to look the other way. Is this really the Volcker Plan? Well, he was standing there, though both the rhetoric and substance of the plan feel like it was massaged by many White House hands, from Timothy Geithner and Larry Summers to David Axelrod and his political crew. In the run-up to this announcement, Volcker, who the political reporters continue to insist had no stature in the administration despite reporting suggesting that Obama turned to him late last year, emphasized that the key fault line in banking was between those institutions that were vital parts of the payment system, presumably because of their exposure to the retail economy, and those that weren’t, wholesale operations like Goldman Sachs and Morgan Stanley. That at least made sense. Volcker seemed concerned with TBTF, moral hazard and excessive pay, but he offered no mechanisms to defuse them. And he seemed confident that some new split between true banks and risk-taking enterprises was in the works. Based on details we have so far, and they’re not only remarkably sketchy but about to be put through the congressional meat grinder, the kind of stable, safe, profitable financial system he envisioned is not a lot closer to reality. And that’s not even wrestling with the question of this new system’s effect on Main Street. – Robert Teitelman Robert Teitelman is editor in chief of The Deal.

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Pat Choate: It’s Time to Control America’s Big Bankers

January 16, 2010

Let’s begin by agreeing that the boards and management of America’s largest banks are venal, shameless, irresponsible and indifferent to the well-being of the rest of the American people. Can we also agree that their reckless acts almost destroyed the world economy and harmed tens of millions of Americans, many irreparable? Though we may agree on these fundamentals, my question is whether imposing a massive federal tax on the bank’s earnings and the bankers’ bonuses is the correct response. I think not. Think about this for a moment: Where would these new monies go? This is what troubles me. It would be in the hands of the Congress and Administration. While in political theory, that may be appropriate, in political practice, these policymakers lack a sterling record for wise expenditures, and the likelihood of them using the monies responsibly, such as reducing the federal budget deficit, is tiny, if that large. Instead, I am intrigued by the idea put forth by the Federal Deposit Insurance Corporation (FDIC) that its reserve funds be increased significantly via new levies on the banks that got the bailout monies – and by bailout monies I mean either directly through TARP or through sweetheart loans from the Federal Reserve System. These reserves are a bank-funded insurance program whose purpose is to pay for mistakes made by the bankers and safeguard depositors’ holdings. If a driver had a record of wrecks comparable to that of these large banks, they would be uninsurable. At a minimum, therefore, these banks should contribute enough to the FDIC reserve to pay for the next financial bailout, which is now inevitable because their lobbyists have successfully derailed reform legislation. When this crisis began, the FDIC had a reserve of more than $48 billion, which quickly disappeared. Based on this most recent experience, a future insurance reserve roughly equal to TARP, such $700 billion, might provide enough coverage to protect Americans taxpayers from another banker raid on the Treasury. As to the bonuses of the individual bankers, the Federal Government should limit annual cash payments over some fixed amount, such as $500,000, and force the payment of any bonus with stock in the company. Also, the sale of the stock should be prohibited for some long period such as 5 years or more. I don’t think we should not care if bank stockholders are willing to dilute their own stock position so these executives have a greater share of the corporate ownership. Nor should we care if that stock makes the bankers a zillion dollars in future years. What we the public should seek is a compensation system whose incentives encourage the pursuit of long-term returns rather than short-term and speculative gains, irrespective of the longer-term consequences. Amazingly, America’s top bankers seem to be politically deaf to this bonus issue. JPMorgan Chase announced on January 15, 2010 that it had earned $11.7 billion in 2009 and would be paying out $26.9 billion in compensation, much of which would be in large bonuses. Similar whale-sized payouts are expected from the other giant banks that almost destroyed the world economy. Politically, the bankers’ extraordinary greed is useful because it will generate the public outrage needed to force Congress and the Obama Administration into action. Put another way, no sane politician will defend these payouts nor vote against legislation to control the bankers’ excesses. Another benefit is that many bankers may find these two proposals so unattractive that they will resign and seek other jobs. Nothing could be better for America than to change the leadership of our major banks with people who are less greedy and much more focused on the long-term. And if the departing bankers are as skilled as they claim, they may even find work that makes a real contribution to the U.S. economy. In sum, the bankers’ greed, obscene bonuses and obvious indifference to the public is creating a new political crisis that will give the Obama Administration a second chance at financial reform. Let’s hope the President makes better use of this crisis than he did the first one.

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Ingenico Appoints Deborah Dixson as Senior Vice President of Security Solutions for North America

January 5, 2010

ATLANTA, GA–(Marketwire – January 5, 2010) – Ingenico, the leading provider of payment solutions, announces today the appointment of Deborah Dixson as Senior Vice President of Security Solutions for the North American Region. She will report to Christopher Justice, President, North America. In this new position, Dixson is responsible for driving Ingenico’s security solutions and PCI-data security compliance architecture for retail and banking clients. “Security has always been and remains Ingenico’s core consideration. It underpins everything we do from our payment terminal design process to our managed service offerings,” Justice said. “Deborah brings rich experience to Ingenico’s security solutions strategy and an unparalleled depth of knowledge to support our customers’ PCI data security compliance efforts.”

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Goldman Sachs Helps YRC Worldwide Avert Bankruptcy After a Plea by Hoffa

January 1, 2010

By Pierre Paulden and John Detrixhe Jan. 1 (Bloomberg) — Goldman Sachs Group Inc. helped YRC Worldwide Inc. complete a debt swap to avert bankruptcy after the Teamsters union said the bank was trying to profit from a failure of the largest U.S. trucker by sales. A group consisting of Goldman Sachs, Deutsche Bank AG, Aristeia Capital LLC, Silverback Asset Management and a Smith Management LLC unit, “got us over the goal line by going into the market, buying bonds and tendering them,” YRC Chief Executive Officer Bill Zollars said yesterday. YRC extended the deadline for the bond exchange six times in December as it sought to overcome resistance from bondholders owning derivatives that would pay out if the company defaulted. YRC, which has posted $1.7 billion in losses in the past five quarters, needed to complete the exchange by Dec. 31 to avoid a bank payment that would have left the trucker in an “unsustainable” position, the Overland Park, Kansas-based company said in a regulatory filing two weeks ago. International Brotherhood of Teamsters President James Hoffa said in letters last month to regulators and lawmakers that Goldman Sachs and Deutsche Bank were among banks that “have a history of making markets in these types of derivative financial products.” Goldman Sachs spokesman Michael DuVally said Dec. 17 that the bank was “actively exploring ways to help” YRC. Bondholders with 70 percent of YRC’s $150 million of 8.5 percent notes due in April offered to tender, meeting the required threshold, the company said yesterday in a statement. That’s an increase over the 59 percent that participated by Dec. 29. Holders of 88 percent of all of the company’s outstanding bonds , with a face value of $470 million, participated in the exchange, the company said. Profit From Failure YRC’s $150 million of 8.5 percent notes rose 4.8 cents to 65.1 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. “The most difficult bondholders to deal with were investors with credit-default swaps that paid off if the company went bankrupt,” Zollars, 62, said in a telephone interview. “It doesn’t seem right that individual investors would make money against companies surviving, particularly in this economy.” No so-called less-than-truckload company — one that hauls goods for more than one customer in the same trailer — has survived bankruptcy in the last 30 years, according to the Teamsters, the union that says it represents about 30,000 YRC employees. “We never want to test that theory,” Zollars said. “We’re completely focused on not having to go into bankruptcy and one of the biggest ways to do that is to take nearly $500 million of debt off the balance sheet.” Teamsters Campaign The Teamsters urged hedge funds and banks it believed owned the debt to vote for the exchange or sell their securities. In the last two days, efforts to build support paid off, Zollars said. “We worked closely with YRC’s advisers and other bondholders over the holidays to rally support for the exchange,” Nicholas Pappas , the co-head of flow credit trading in the Americas at Deutsche Bank, said in a statement. “We are thrilled with the outcome and support their long-term success.” Goldman Sachs’s DuVally said yesterday “we’re pleased to have played a constructive role in the process.” Labor ‘Breakthrough’ The “risk of public rebuke,” along with “even more legislative threats” to the market for credit-default swaps resulting from the bankruptcy of a large employer of organized labor, helped the exchange pass, CreditSights Inc. analyst Sam Goodyear in New York wrote in a report yesterday. Hoffa said the YRC debt exchange marked “our first time doing a campaign like this where we really had to get into high finance.” “It’s a new breakthrough for labor unions working on Wall Street to make something happen,” Hoffa said yesterday. “It’s very positive for a major company.” Officials at Silverback and Smith declined to comment. Aristeia didn’t return calls. UBS AG told the union it tendered its bonds, according to a Teamsters statement. Cyrus Hadidi , a partner at JMB Capital Partners in Los Angeles, also named by the Teamsters as holding a position, said his company is “fully supportive” of YRC’s restructuring efforts and has tendered all its bonds. Interest Payment Due YRC had to complete the exchange to avoid a $19 million interest payment. The company can now defer this payment and will have increased access to its bank lines, YRC said. It will defer additional lender interest and fees of $20 million to $25 million per quarter during 2010 depending on usage of its credit agreement and an asset-backed securitization facility. The trucking company has a $950 million revolving credit line with a group of banks led by JPMorgan Chase & Co., as well as a $111.5 million term loan, according to data compiled by Bloomberg. YRC has $1.6 billion of loans and bonds, Bloomberg data show. The company took on debt when Yellow Corp. acquired Roadway Corp. in 2003 for $1.07 billion and then bought USF Corp. in 2005 for $1.37 billion. Credit-default swaps are financial instruments based on bonds and loans that are used to hedge against losses or to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net ; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Anatomy Of A Failed Foreclosure Program

December 7, 2009

Just how badly is President Obama’s $75 billion foreclosure program working out? Consider these newly-released numbers: Out of every 100 homeowners who came to JPMorgan Chase for help under the program, just 15 have or will likely receive a permanent payment reduction. What happened to the other 85? For every 100 trial plans initiated from April through September 2009 under the Home Affordable Modification Program: 29 borrowers did not make all required payments under their trial plan; 20 borrowers did not submit all documents required for underwriting; 31 borrowers submitted all required documents but the documents did not meet HAMP underwriting standards, due to such things as missing signatures or nonstandard formats; 4 borrowers were or are likely to be rejected for undisclosed reasons; 1 borrower will not or is not likely to get their payment lowered. The data comes from the prepared remarks bank officials plan to make Tuesday before the House Financial Services Committee. The testimony was posted Monday on the committee’s website . It adds up to a brutal illustration of just how the HAMP program, which is supposed to reduce troubled homeowners’ monthly payments to 31 percent of their income, is failing. In October testimony before the Elizabeth Warren-led Congressional Oversight Panel, Herbert M. Allison Jr., the Treasury Department’s assistant secretary for financial stability, reluctantly admitted that Treasury had internally forecast that “up to 75 percent” of trial modifications would achieve permanent status. The watchdog panel had expressed early doubts about the program’s ultimate success, noting that as of Sept. 1, only 1,711 homeowners had received a permanent modification, less than two percent of those eligible at the time. The administration set a three-year goal of offering 3 to 4 million homeowners lower mortgage payments through a modification. But, looking at JPMorgan Chase, with 85 percent of those who actually apply for the modifications being denied, that’s just not going to happen. Meanwhile, foreclosures continue to mount . The number of delinquent borrowers continues to set record highs . Wall Street, however, expects to receive bonuses not seen since the height of the credit bubble. JPMorgan Chase offers reasons for the program’s failings. They all point to the Obama administration. For one, the administration is directly responsible for a good chunk of the homeowners being improperly rejected for the program, according to Chase. How? The government created a formula to guide mortgage servicers in their modification efforts. After plugging the variables into this formula, the result is supposed to tell servicers whether the troubled loan’s owner would make more money through modification. If so, the servicer is required to modify. But according to Chase, the government’s formula is flawed, as it overstates the chances for re-default. Because of this, Chase argues, up to 25 percent of homeowners are wrongly missing out on the program. The formula’s shortcomings have been extensively reported on, most notably by the nonprofit investigative journalism organization ProPublica . The problem is not isolated to Chase. “The rates for converting trial modifications into permanent that we are hearing from servicers and Treasury are simply not where they need to be,” said Richard H. Neiman, New York’s top bank regulator and a member of the Congressional Oversight Panel. “We have anecdotal evidence that consumers continue to face major issues with servicers such as JPMorgan Chase and Bank of America losing their documentation or not clearly explaining the modification process to begin with.” He continued: “The concerns that the program is facing go well beyond disappointing servicer performances at this point, though. While Treasury is implementing recommendations that we have been calling for, such as streamlining the documentation process and creating an online portal for tracking and submitting documents, the reality is that many of these measures will not be fully in place until March 1, after the deadline for many of these trial modifications. Add that to an increasing unemployment rate and a rise in prime mortgage foreclosures and we can clearly see that the program as it is cannot keep up with the pace of today’s economic reality.” Neiman is calling for a new program. “The housing crisis began with borrowers who received inappropriate and unsustainable subprime loans. But as the recession lingers, prime borrowers with loans that are otherwise affordable are increasingly at risk of foreclosure due to job loss or other temporary hardship,” he said. “I therefore continue to urge Treasury to develop a foreclosure prevention program to assist responsible homeowners while they get back on their feet using bridge loans to help through the difficult period, and engaging the states to help.” The Congressional Oversight Panel will release its latest report on the administration’s program on Wednesday. It’s expected to find serious shortcomings in the $75 billion effort, sources say. And at the panel’s hearing on Thursday, Neiman said he intends to question Treasury Secretary Timothy Geithner “regarding the reasons behind these unexpectedly low conversion rates and the possibility of using TARP funds to support emergency mortgage assistance programs, such as the bridge loans, at the state level.”

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Wealthy Families Pay Too Much for Art, Yacht, Ransom Coverage, Aon Says

December 3, 2009

By Carolyn Bandel and Warren Giles Dec. 2 (Bloomberg) — Wealthy families pay too much to insure yachts, paintings and the risk of being taken hostage because they aren’t using their purchasing power to negotiate better deals, according to Aon Corp. and Marsh & McLennan Cos . Families with more than 50 million Swiss francs ($49.5 million) can cut their premiums by as much as 30 percent by pooling policies covering everything from medical care to classic-car collections, said Romain Vanolli, head of Aon in the French-speaking region of Switzerland. “Instead of buying little bits of insurance all over the place, they can just buy in one lot and make sure they negotiate better rates,” Vanolli said in an interview at his Geneva office. “It leads to savings.” Brokers are offering the service as insurers boost sales to rich people whose assets are rising after the global financial crisis. Aon opened an office in Geneva last July to serve an estimated 540 family offices that oversee more than 100 million francs each for wealthy clients. Zurich Financial Services AG , Switzerland’s biggest insurer, created a unit this year to target clients through private banks. Chicago-based Aon charges 3,000 francs to 5,000 francs to audit a family office’s insurance, including policies covering tangible assets such as property, aircraft, cars and fine art, Vanolli said. Aon also assesses lifestyle coverage such as accident and travel insurance and may cover special risks such as kidnapping. Not ‘Plain Vanilla’ Consolidating a rich person’s policies can cut their insurance costs, said Adrian Saunders, head of U.K. private client services at New York-based Marsh. The world’s second- largest insurance broker targets European clients with an average wealth of 4 million pounds ($6.55 million) through its London office. “The high-net space is attractive because it has some almost traditional values about underwriting and pricing business and providing cover and solutions that aren’t a plain vanilla, off-the-shelf solution,” Saunders said. Marsh declined to provide details on the size of its business. Oliver Scott, sales director at Willis Group Holdings Ltd.’s private clients unit, said grouping policies helps cut costs by simplifying the payment structure. “I suppose the real benefit is to a broker knowing what the annual charge or what the annual commission rate would be and instead of charging commission on all the policies potentially creating a fee,” he said in a telephone interview from London. Willis, the world’s third-biggest insurance broker, serves wealthy Europeans from its London office. Still Developing Insurers haven’t started offering a bundled product for rich people because the companies are “less geared towards the composite demand of the client” and instead sell off-the-shelf products, said Frank Nuy, head of private insurance at the Liechtenstein unit of Swiss insurer Baloise Holding AG. This area “is still developing,” he said. Zurich Financial created its unit for private bank clients earlier this year, and it had sales of $53 million in the nine months through September. Swiss Life Holding has offered life insurance to people with assets of more than 1 million francs for the past five years. The country’s largest life insurer said in August that global premiums for rich people increased 80 percent to 1.4 billion francs in the first half of this year. “It is the growth business for Swiss Life,” said spokeswoman Irene Fischbach . The product is “a wealth planning tool,” which can help with inheritance issues and is sold through private banks and asset managers, she said. To contact the reporters on this story: Warren Giles in Geneva at wgiles@bloomberg.net Carolyn Bandel in Zurich at cbandel@bloomberg.net

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Robert Reich: The Housing Crisis And Wall Street Shame (Or Lack Thereof)

November 29, 2009

One out of four homeowners is now under water, owing more on their homes than the homes are worth. Why? The biggest single factor behind the housing crisis is rising unemployment. According to the latest ABC-Washington Post poll, one out of every three Americans has either lost their job or lives in a household with someone who has lost a job. Today it takes two and sometimes three incomes to buy the groceries and pay the mortgage or the rent. So if one of those incomes is gone, a homeowner can’t make the payment. The scourge of unemployment is splitting America into three groups: (1) the third just mentioned, whose households are in danger of losing their homes and whose kids are surviving on food stamps (that’s up to one in four children in America today); (2) the vast majority of Americans who are managing but worried about keeping their jobs and homes; and (3) a small number who are taking home even more winnings than they did in the boom year 2007. Prominent among category (3) are Wall Street bankers, many of whom are now concluding their most profitable year ever. Goldman Sachs is so flush it’s preparing to give out bonuses in a few weeks totaling $17 billion. That will mean eight-figure compensation packages for lots of Goldman executives and traders. JPMorgan Chase is rumored to have a bonus pool of around $5 billion. The three other major Wall Street banks are ratcheting up their compensation packages so their “talent” won’t be poached by Goldman or JPMorgan. Wall Street is booming again in large part because the rest of America — categories (1) and (2), above — bailed it out to the tune of $700 billion last year. The Street has repaid some of that but, according to the bailout program’s inspector general, much of it is gone forever. For example, the taxpayer money that bailed out giant insurer AIG went directly through AIG to its “counterparties” like Goldman Sachs — to whom Tim Geithner, according to the inspector general, gave away the store. As Goldman Sachs prepares to dole out some $17 billion to its executives and traders, it’s worth noting that Goldman received $13 billion a year ago from the rest of us via AIG and Geithner, no strings attached. Which brings us back to homeowners who are falling further behind. The $75 billion federal program designed to bribe banks to modify mortgages has been a bust. No one knows the exact number of mortgages that have been modified (that will be reported next month) but housing experts I’ve talked with say it’s a tiny fraction of the number of homeowners in trouble. Seems that the big banks can’t be bothered. “Some of the firms ought to be embarrassed,” Michael Barr, the assistant Treasury secretary for financial institutions told the New York Times. Barr says the government will try to use shame as a corrective, publicly naming institutions that have moved too slowly. Shame? If we’ve learned anything over the last year, it’s that Wall Street has none. Eight months ago Wall Street lobbyist beat back a proposal to give bankruptcy judges the right to amend mortgages in order to pressure lenders to reduce principle owed, just like Wall Street lobbyists are now beating back tough regulations to prevent the Street from causing another meltdown. Goldman Sachs, attempting to preempt a firestorm of public outrage when it dispenses its $17 billion of bonuses, is setting up a crudely conceived $500 million PR program to help Main Street. Shame won’t work. Only political muscle and courage will. Congress and the Obama administration should give homeowners the right to go to a bankruptcy judge and have their mortgages modified. And while they’re at it, resurrect the Glass-Steagall Act that used to separate investment from commercial banking, so Wall Street can’t continue to use other people’s money to gamble. Finally, before Goldman hands out $17 billion in bonuses, claw back the $13 billion Goldman took from AIG and the rest of us and add it to the pool of money going for mortgage relief. Cross-posted from Robert Reich’s Blog.

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Ukraine Economy Contracted 15.9% Last Quarter, as Disputes Delay Bailout

November 16, 2009

By Daryna Krasnolutska Nov. 16 (Bloomberg) — Ukraine’s economy contracted 15.9 percent last quarter, extending the former Soviet state’s decline, as political wrangling stalled the payment of bailout funds needed to keep the country afloat. The annual contraction compares with a 17.8 percent economic slump in the second quarter, the Kiev-based state statistics committee said today in a statement on its Web site, citing preliminary figures. Ukraine lurched into recession after the global crisis undermined demand for steel, the country’s main export, and left about 20 banks in need of state aid. The former communist nation is now relying on a $16.4 billion International Monetary Fund loan to avoid bankruptcy and to keep up Russian gas payments ahead of winter. The IMF is withholding a $3.4 billion tranche after parliament passed a social spending bill in defiance of the fund’s calls for budget cuts. The hryvnia lost 0.5 percent against the euro to trade at 12.1580 at 10:48 a.m. in Kiev. Against the dollar, the currency was little changed and trading at 8.1187. While a resumption of global trade flows is showing signs of supporting Ukraine’s exporters, recovery prospects are uncertain as credit remains tight, hampering business investment needed for growth. Banks’ asset quality took a hit after last year’s 37 percent hryvnia depreciation against the dollar and the IMF estimates non-performing loans jumped to 30 percent of total lending at the end of June. More than half the banks’ loans are in foreign currency, according to Fitch Ratings. ‘Financial Instability’ “Political dynamics mean policy may not be restored to a sustainable path before there is a further bout of financial instability,” Fitch analyst David Heslam said in a Nov. 12 statement. “A further sharp depreciation in the hryvnia would intensify pressure on Ukraine’s crisis-hit banking system.” The country risks a continued economic decline coupled with faster inflation should policy makers resort to printing money to address their budget needs, Fitch warned on Nov. 12. The rating service “sees an elevated risk that Ukraine could resort more heavily to monetary financing via the National Bank of Ukraine providing liquidity to banks, effectively printing money,” Heslam said. “This would in turn risk undermining fragile confidence in the currency and the banking system, and/or a rapid loss of foreign exchange reserves.” Annual inflation stood at 14.1 percent in October, compared with 15 percent the previous month, the statistics office said on Nov. 9. Presidential Elections The country’s chances of an economic recovery may stall as policy makers, mindful of Jan. 17 presidential elections, fail to agree on budget reform needed to keep bailout funds flowing. Prime Minister Yulia Timoshenko will appeal President Viktor Yushchenko’s Oct. 30 approval of an opposition lawmaker bill that will swell the budget deficit beyond IMF mandated limits. “At the root of the problem is Ukraine’s inconsistent macroeconomic policy framework, as the authorities are aiming to defend the exchange rate while avoiding necessary fiscal tightening in the absence of adequate sources of non-monetary financing,” Fitch’s Heslam said. The failure of the main political groupings to agree on budget cuts and IMF-prompted economic reforms has been generated to a large part by the pending elections, provoking the leading candidates to prioritize popular support over needed fiscal and monetary changes. Orange Revolution Yushchenko will run again in the January poll and will face challenges from his erstwhile ally Timoshenko and the leader of the biggest opposition party Viktor Yanukovych , whose rigged run for the office four years ago triggered the Orange Revolution that brought Yushchenko to power. Even so, there are some signs that parts of the economy are recovering as global trade flows rebound. Industrial production , which makes up more than 25 percent of GDP, increased at an average rate of almost 2 percent monthly in the third quarter, compared with a decline of 0.13 percent in the second quarter, according to statistics office data. The “improved situation is very fragile,” central bank adviser Valeriy Lytvytskyi said on Oct. 28. Natsionalnyi Bank Ukrainy has lowered the discount rate twice since June and cut its overnight rate to 15.5 percent on loans using Treasury bills as collateral. The key discount rate now stands at 10.25 percent. Lytvytskyi said he will advise policy makers to reduce the rates by 0.25 to 0.5 percentage point to support the economy. Economic Outlook The government expects the economy to contract 12 percent this year, while the IMF sees a 14 percent decline. “Although the rate of decline of GDP is slowing, non- performing loans continue to grow,” Moody’s Investors Service said on Oct. 14. “Susceptibility to event risk that would lead to a multi-notch downgrade is assessed as high.” Moody’s rates Ukraine B2, while Fitch ranks the sovereign’s debt B-. Standard & Poor’s rates Ukraine CCC+. The three services’ ratings range between five and seven notches below investment grade. To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

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House Targets Insurers on Two Fronts With Antitrust Fight, Public Option

October 21, 2009

By Kristin Jensen and James Rowley Oct. 21 (Bloomberg) — The House prepared to attack health insurers on two fronts, with Democrats saying they have support for the strongest form of a U.S. government-run insurance program and a panel voting to strip the industry’s antitrust exemption. The House Judiciary Committee voted 20-9 in favor of legislation that would ban insurers from engaging in price fixing, bid-rigging and market allocation. The measure may be added to broader health-care overhaul legislation. At the same time, Democratic leaders said they can win passage for a government plan that would compete with private insurers while paying less to providers. Under one House plan, the so-called public option would peg rates to 5 percent above those paid by Medicare, the government program for the elderly. “We have the votes to pass a robust public option,” said Connecticut Representative John Larson , chairman of the House Democratic Caucus. A Congressional Budget Office estimate that the House legislation would cut the deficit over 20 years “has placed us in a good spot with the caucus,” he told reporters. The alternative under consideration in the House is to set up a public option that would negotiate rates, as private insurers do. A group of fiscally conservative Democrats known as Blue Dogs has backed that idea, saying it would provide fairer competition for insurers such as Indianapolis-based WellPoint Inc. “We have a couple of good options,” House Speaker Nancy Pelosi said in a Bloomberg Television interview today. “I don’t think we have a bad option in the mix.” Biggest Changes Lawmakers are considering the biggest changes to the medical system since the creation of Medicare in 1965. The legislation, President Barack Obama’s top domestic priority, would attempt to curb rising health-care costs while extending coverage to tens of millions of uninsured Americans. Pelosi and Senate Majority Leader Harry Reid are blending versions passed by three House committees and two Senate panels. In all the measures, Americans would be required to buy insurance, helped by purchasing exchanges and government aid. Insurers would face new rules, with preventive care, electronic records and cost-effectiveness research playing a larger role. While the House is close to a compromise bill, Senate Democrats are split over other issues in the legislation. Chief among them are the public option, whether to require employers to cover workers, and how to pay for legislation that will cost more than $800 billion over 10 years. Insurers’ Take Insurers oppose the creation of any type of public option and warned that action on the antitrust exemption might create “increased regulatory and legal uncertainty.” America’s Health Insurance Plans , a Washington trade group, said lawmakers are attempting to fix a problem “that doesn’t exist” with the antitrust measure. Last week, Justice Department antitrust chief Christine Varney told the Senate Judiciary Committee that ending the exemption would create more competition. Insurance companies “are highly concentrated in many geographic regions,” meaning there “is very little incentive to compete on price,” Varney said. Congress exempted insurers from antitrust laws in 1945 after the Supreme Court ruled the industry would be subject to federal regulation. States are the chief regulators of the industry. Reid, Senate Judiciary Committee Chairman Patrick Leahy of Vermont and Senator Charles Schumer of New York held a news conference today to urge passage of the Democratic plan. “The health insurance industry’s antitrust exemption is an accident of American history” dating to a time when state- based companies asserted they weren’t engaged in interstate commerce, Schumer said. “It’s a different universe today.” Doctors Fix Also today, Senate Democrats failed to come through for two of their most critical constituencies, doctors and seniors, when they lost a bid to stave off a cut in Medicare payments to doctors. Democratic leaders fell 13 votes short of the 60 they needed to bring proposed legislation on the issue to the floor. Reid told reporters today he’ll revisit the issue after the Senate passes the broader health-care legislation. Senate leaders had put the payment measure on the fast track, only to run into opposition from Republicans and some Democrats because it would cost $247 billion over 10 years. Doctors say they are already underpaid by Medicare, and many refuse to see those patients as a result. The prospect of payment cuts will make it harder for people to find a doctor, according to AARP, which represents 40 million seniors. “We are going to make sure that Medicare patients have the ability to go to the doctor” and will “take this up when we finish health care,” Reid told reporters. “Right now we only have a one-year fix” in the legislation and the Senate will later consider a multiyear adjustment, he said. To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net ; James Rowley in Washington at jarowley@bloomberg.net

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EBay Profit Falls 29% as Growth Plan Squeezes Online Auctioneer’s Margins

October 21, 2009

By Joseph Galante Oct. 21 (Bloomberg) — EBay Inc. , the most visited U.S. e-commerce site, forecast fourth-quarter profit that missed some analysts’ estimates after shifting into faster-growing but less- lucrative businesses. The shares fell 5.4 percent. Excluding some costs, earnings will be 38 cents to 40 cents a share, the San Jose, California-based company said today in a statement. The midpoint of that range missed the 40 cents predicted by analysts in a Bloomberg survey . EBay has sought to revive growth amid sluggish consumer spending and mounting competition from sites such as Amazon.com Inc. Chief Executive Officer John Donahoe , who took over last year, improved the site’s search engine, making it easier for buyers to find what they want. He also changed EBay’s fee structure in an effort to attract more sellers and acquired the payment service Bill Me Later. “People are just looking at the earnings guidance for the fourth quarter, which is a little below the Street’s expectations,” said Aaron Kessler , an analyst at Kaufman Bros. in San Francisco. He recommends buying the shares and doesn’t own any. “They’re heading in the right direction. It’s not going to be an easy road.” EBay fell $1.36 to $23.67 in late trading after the results were released. The shares, up 79 percent this year, closed at $25.03 on the Nasdaq Stock Market. Third Quarter Third-quarter net income declined to $349.7 million, or 27 cents a share, from $492.2 million, or 38 cents, a year earlier. Sales rose to $2.24 billion. Analysts had estimated $2.14 billion. Excluding some items, earnings were 38 cents a share, compared with the 37 cents predicted by analysts. Sales this quarter will be $2.2 billion to $2.3 billion, EBay said. Analysts had projected $2.26 billion. Donahoe said last month that his three-year turnaround plan is on track. EBay will grow in line with the broader e-commerce market next year and exceed it in 2011, he said. Forrester Research Inc. predicts that online sales in the U.S. will expand 13 percent next year and 10 percent in 2011. The turnaround has included changing listing fees, fighting fraud and streamlining parts of the business. This month, EBay said it would eliminate about 60 workers . It also announced plans in May to close a 700-person customer-service office in Vancouver. Donahoe is trying to attract more fixed-price transactions to EBay’s site , a break from the company’s origins as an auction service. While EBay attracts more visitors than any other U.S. e-commerce site, it has lost customers to Amazon.com , the world’s largest online retailer. In addition to its e-commerce sites, EBay runs the PayPal online-payment service and the Skype Internet-calling business. EBay is selling Skype to a group of investors led by private- equity firm Silver Lake for about $2 billion. EBay had originally planned to spin off Skype as an initial public offering, saying the business had little synergy with the parent company. To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

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Citi Closing Mastercards Without Warning

October 21, 2009

AP – NEW YORK – Shannon Burdette tried to pay with her Shell Mastercard after filling up her gas tank this weekend but found the card rejected. Confused, she called the customer service line on the back of the card, issued by Citibank, and was told the account was closed because of something that appeared on her credit report. But when the Sykesville, Md., resident got a copy of her credit report online, the only negative thing she saw was “closed at credit grantor’s request” on the Shell MasterCard account. “They said there was a routine review,” said Burdette, who maintained that she and her husband, Brian, used the card regularly and always paid the bill on time. Burdette isn’t alone. People across the country have been reporting similar experiences in postings on various consumer Web sites. Citi confirmed the basics. The bank said in a statement it “decided to close a limited number of oil partner co-branded MasterCard accounts.” That includes not only Shell, but Citgo, ExxonMobil and Phillips 66-Conoco cards. The close date was Wednesday, and letters were sent out Monday to customers informing them of the change, a Citi spokesman said. The bank would not say how many cards were shut down or how much available credit they represented. But unlike the bank’s move to shut down its Home Depot cards, Citi did not discontinue the sale of these cards altogether. It is still accepting applications, promising rewards like 3 percent cash back on fuel purchases and 1 percent cash back on other spending. No law, including the Credit CARD Act that has started to take effect, prevents banks from closing down credit accounts without warning. Credit card issuers all maintain the right, typically listed in the fine print on credit card agreements. Citi would not say why the cards in question were shut down, issuing a statement that said only it continuously evaluates its products. “It is kind of an extraordinary action, but these are extraordinary times,” said Ben Woolsey, director of marketing and consumer research for CreditCards.com. He noted that Citi is not the healthiest bank. In fact, Citi posted $8 billion in consumer credit losses for its third quarter last week, including both mortgages and credit cards. Like many banks with big consumer lending portfolios, Citi is expecting defaults on credit cards to rise in coming months. Credit card delinquencies typically track the unemployment rate, which is at 9.8 percent and is expected to top 10 percent soon. Analysts noted following the earnings report that Citi has sharply reduced its outstanding credit to consumers. A card being closed may, but does not always, damage a person’s credit score. Such scores, which lenders use to determine if you’re a good credit risk, take into account a series of factors, including how long you’ve had credit accounts, your payment history and the balance versus available credit. It could be that last factor that hurts consumers most, said John Ulzheimer, president of educational services for Credit.com. If a consumer had a high credit limit on the closed account, and that credit is no longer available, it could alter the “utilization ratio” for the person’s remaining credit. If another type of credit carries a high balance, the loss of the credit line could push down their score. Ulzheimer said banks have been routinely making such moves in the past year and a half, mostly on a case-by-case basis. “Every once in a while you’ll get a huge pop in one particular card product,” he said. Card holders who think their cards were unfairly shut down can try to contact the bank and ask for reinstatement, but Ulzheimer didn’t hold out much hope for success. “In this environment,” he said, “it’s not as successful as it was in the heyday of credit cards, where you could in fact call and plead your case.”

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Doctors Fail to Report $12 Million in Industry Fees at Meeting

October 7, 2009

By Meg Tirrell Oct. 7 (Bloomberg) — Doctors failed to disclose almost a third of payments, or at least $12 million, from companies when participating in a 2008 medical meeting, according to a study on physicians’ self-reports of potential conflicts of interest. Of 344 payments made by five medical-device makers to physicians making presentations at last year’s meeting of the American Academy of Orthopaedic Surgeons , 245, or 71 percent, were disclosed, the report published in the New England Journal of Medicine found. About 29 percent of the compensation wasn’t disclosed. Payments included royalties on products doctors helped develop, fees for consulting services and costs of lodging, meals and transportation, the report said. Disclosure is essential because such relationships may cause a pro-industry bias, said Mininder Kocher , an associate professor of orthopedic surgery at Harvard Medical School in Boston and a lead author of the study. The research published today showed self-reporting doesn’t necessarily yield complete transparency, he said. “Some of it is that some of the requirements are confusing and somewhat open to interpretation,” Kocher said in a telephone interview yesterday. “There is some confusion about what types of relationships are supposed to be reported.” The researchers used data on 2007 payments to physicians from five makers of hip and knee surgical implants — Biomet Inc. , Johnson & Johnson’s Depuy , Smith & Nephew Plc , Stryker Corp. and Zimmer Holdings Inc. — available on the companies’ Web sites. The firms were required to publicly report all payments to physicians that year as part of a settlement with the U.S. Department of Justice over whether the companies paid physicians to use their devices. Disclosure Payment Comparison The researchers compared that data with the disclosures by physicians presenting or serving on boards or committees at the 2008 meeting of the American Academy of Orthopaedic Surgeons . The group told doctors to disclose whether “he or she has received something of value from a commercial company or institution, which relates directly or indirectly to the subject of their presentation,” the report said. Twenty-one percent of directly related payments and half of indirectly related payments weren’t disclosed, the study found. The 43 directly related payments not disclosed amounted to $4.3 million, while the 16 indirectly related ones totaled $7.8 million. Individual sums ranged in size from $6 to $7 million, with an average size of $151,000, Kocher said. The report did not give the total amount for all 99 undisclosed payments as well as all industry payments to doctors at the medical meeting. Reason for Nondisclosure The leading reason given for nondisclosure was that the doctor said payment didn’t relate to the presentation topic, the study found by sending a survey to the 91 physicians who didn’t disclose payments in the final program of the meeting. Thirty- six of the 91 physicians responded to the survey. The American Academy of Orthopaedic Surgeons has changed its disclosure policies since the 2008 meeting, held at the beginning of the year, said the association’s president, Joseph D. Zuckerman. Participants in the meeting must now submit disclosures online, and aren’t allowed to attend without fully completing the document, which asks for more detail than last year’s, he said. “The changes we made weren’t in response to the study; we made those changes to make things better,” said Zuckerman, who is also a professor and chair of the department of orthopedic surgery at the New York University Hospital for Joint Diseases. “There should be transparency about this.” Beneficial Relationships While disclosure is important, relationships between physicians and industry can be beneficial for patients, Kocher said. “Advances we’ve made in medicine and devices have come from positive relationships between physician innovators and industry,” he said. “Also, at a time when federal funding of medical research is falling, industry funding has been very important.” The potential that such relationships may skew results to favor companies also exists, which increases the value of disclosure, Kocher said. “It is essential in the orthopedic industry that companies engage with surgeons who can help them evaluate products, educate their peers in the safe and effective use of these products and populate clinical studies,” said Bill Kolter , corporate vice president of public affairs at Warsaw, Indiana- based Biomet. “Just because surgeons are being funded to do work by industry does not mean that they are necessarily creating conflicted data.” Sunshine Act Legislation requiring companies to disclose payments to physicians was proposed in the U.S. Senate in January, called the Physician Payments Sunshine Act of 2009 . Introduced by Senator Chuck Grassley , an Iowa Republican, and Senator Herb Kohl, a Wisconsin Democrat, the bill aims to provide transparency in the relationship between physicians and medical manufacturers. “There’s a large movement for more disclosure, more sunshine, more getting all of those payments out in the open, which we certainly support,” said Andrew Van Haute, associate general counsel for the Advanced Medical Technology Association, or AdvaMed, a Washington trade group. “Those payments are by and large fair-market value payments for services that are the lifeblood of a lot of these device companies,” such as consulting, product development and training other physicians on how to use the products, he said. The American Academy of Orthopaedic Surgeons supports the Sunshine Act, Zuckerman said. “Not only is it making it more transparent but it adds some consistency across the board,” he said. “The main thrust of disclosure has been self-disclosure from physicians, and that may not be so accurate,” Kocher said. “Perhaps simplifying disclosure rules or having mandatory disclosure from the companies might be a better way forward.” To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net .

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FDIC Wants Banks to Prepay Fees Through ’12 to Boost Its Depleted Reserves

September 29, 2009

By Alison Vekshin Sept. 29 (Bloomberg) — The Federal Deposit Insurance Corp. is asking lenders to prepay three years of premiums, raising $45 billion, to replenish reserves drained by the fastest pace of bank failures in 17 years. The insurance fund will have a negative balance as of tomorrow after 120 banks were shut in the past two years, and will be positive by 2012, the staff said. Banks failures may cost $100 billion through 2013 with half the cost already incurred, the FDIC said. The agency today rejected options for a second special fee or borrowing from the Treasury Department. “What we are proposing to do is to tap the ample liquidity of the banking industry to improve our own liquidity position without borrowing from the Treasury,” FDIC Chairman Sheila Bair said at a Washington board meeting. The agency is required by law to rebuild the insurance fund when the reserve measured against insured deposits falls below a certain level. The fund, drained by 95 bank failures this year, had $10.4 billion as of June 30 and will return to a positive balance in 2012. The proposal adopted unanimously by the board requires banks to pay premiums for the fourth quarter and next three years on Dec. 30. The board backed prepayments over alternatives such as borrowing taxpayer dollars from the Treasury Department, charging the banking industry a special fee in addition to levies they already pay and borrowing directly from the banks. Dec. 30 Payment Under the proposal, the FDIC wouldn’t impose another special assessment this year. The agency would raise assessments by 3 basis points in 2011. The FDIC will seek public comment until Oct. 28. The banking industry lobbied against a special fee that would be added to the regular annual premium, telling the FDIC and Congress such a levy would hurt their ability to raise capital. The industry welcomed the FDIC’s proposed approach. “It’s certainly a better solution than taking a large chunk of money out of banks’ income and capital,” James Chessen , chief economist at the American Bankers Association , said after the meeting. The prepayment approach gives “the FDIC the cash that they need, it will be paid for by the industry and it will not have the severe impact that other options would have had on banking,” Chessen said. Banks paid a special assessment in the second quarter that raised $5.6 billion for the insurance fund. The agency also has authority to impose fees in the third and fourth quarters. Banks backed prepayment because the premiums are classified as an asset when the payment is made, becoming an expense during the quarter in which the obligation is due. The agency has authority to borrow against a Treasury line of credit that Congress in May increased to $100 billion. This option would have put the FDIC in the position of borrowing from taxpayers in the wake of public anger over the bank bailout. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Bank of America Will Pay for Merrill Guarantees as SEC to Sue Over Bonuses

September 22, 2009

By Margaret Popper and David Mildenberg Sept. 22 (Bloomberg) — Bank of America Corp., the biggest U.S. bank, said it will pay the government $425 million to cancel an unused guarantee of Merrill Lynch & Co.’s assets and cut reliance on federal support after two bailouts. The payment would end a dispute over what the bank owes the U.S. for a promise to help absorb losses on $118 billion of holdings, mostly at Merrill Lynch. The federal guarantee helped seal Bank of America’s takeover of the New York-based brokerage after fourth-quarter losses spiraled past $15 billion. While the accord was announced in January, an agreement was never signed and the bank resisted paying. Chief Executive Officer Kenneth D. Lewis has said he wants to shrink the U.S. role in company affairs. Paying the fee is part of a plan to reduce “reliance on government support and return to normal market funding,” the company said yesterday in a statement. The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. will get the money. “The bank is a wounded duck and everybody wants a piece of them,” said Robert Serino , a partner at Buckley Sandler LLP in Washington and a former director of the Comptroller of the Currency’s enforcement and compliance division. “In the past, Ken Lewis was a pretty strong character but now he’s been beaten down like everybody else.” Even as the payment was announced, the Securities and Exchange Commission pledged to “vigorously pursue” a case against the bank for not disclosing $3.6 billion in bonuses to Merrill before the acquisition was completed. U.S. Judge Jed Rakoff last week rejected a $33 million settlement, accusing both the bank and SEC of trying to avoid a public trial. Congressional Pressure Bank of America also faces pressure from Representative Edolphus Towns , a New York Democrat and chairman of the House Oversight Committee, who scolded the bank yesterday for missing a deadline to turn over documents sought by his panel. Chief Marketing Officer Anne Finucane plans to meet with Towns to discuss how to provide information “without violating attorney- client privilege,” bank spokesman Scott Silvestri said. Lewis “is holding up very well,” spokesman Robert Stickler said. “He doesn’t dwell on things that he can’t control and he remains convinced that the deal will be a good one for shareholders over time.” The Merrill asset guarantees prompted regulators to press for compensation from the Charlotte, North Carolina-based bank. The government said Bank of America benefited from the accord’s implied U.S. backing for three to four months as investors were speculating the company might fail or be nationalized. ‘Encouraging Sign’ The agreement reflects “an encouraging sign of increased stability in the financial system,” Treasury spokesman Andrew Williams said. The bank said in July it expected a settlement of the dispute within 30 days. “This is another terrible deal for taxpayers negotiated by the U.S. Treasury,” said Linus Wilson , a University of Louisiana professor who has studied government bailout programs. The bank is paying less than 10 percent of a potential $4.3 billion cost, including warrants associated with $4 billion in preferred shares cited in the term sheet and never issued. “The insurance company does not refund most of your premium just because you did not wreck your car in the last six months,” Wilson said. Bank of America hasn’t received permission to repay the extra $20 billion of U.S. rescue funds that came with the Merrill deal, Chief Financial Officer Joe Price said last week. The bank received a total of $45 billion from the Troubled Asset Relief Program and expects to repay the money in installments, pending approval by regulators, Price said. New Board Member The bank added its sixth new board member this year, tapping DuPont Co. Chairman Charles “Chad” Holliday Jr . Bank of America will have 15 members on its board, down from 18, with all positions now filled. Holliday “will get the board to gel in the proper way,” said Ram Charan , an author, management consultant and former Harvard Business School professor who said he has known the DuPont executive for 25 years. “The board will do what is necessary to get the most out of a franchise that is the envy of the rest of the banking industry.” During Holliday’s 11 years as DuPont CEO, the shares of the third-biggest U.S. chemical maker declined 55 percent. Bank of America shares have dropped by more than a third since Lewis took over as CEO in April 2001. Holliday didn’t respond to a request for a comment through DuPont spokeswoman Lori Captain. To contact the reporters on this story: Margaret Popper in New York at mpopper1@bloomberg.net ; David Mildenberg in Charlotte at dmildenberg@bloomberg.net .

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