Finance news. My opinion.

December 31, 2010

Gold stocks help push TSX lower

Filed under: legal, loans — Tags: , , , — Professor @ 8:20 am

The Toronto stock market closed lower Thursday as energy and gold stocks fell alongside prices for bullion and oil.

The S&P/TSX composite index slipped 14.76 points to 13,434.41 as the market found support from mining stocks after strong Chinese economic data helped push copper prices deeper into record territory.

The TSX Venture Exchange was 18.12 points higher at 2,261.69 in thin, year-end trading.

December 29, 2010

BP’s spill costs look manageable 8 months later

Filed under: legal, loans — Tags: , , , — Professor @ 5:40 pm

As the Gulf oil spill gushed out of control, BP’s financial liabilities seemed big enough to sink the company. No more.

Cleanup, government fines, lawsuits, legal fees and damage claims will likely exceed the $40 billion that BP has publicly estimated, according to an Associated Press analysis. But they’ll be far below the highest estimates made over the summer by legal experts and prominent Wall Street banks, such as Goldman Sachs, which said costs could near $200 billion.

BP will survive the worst oil spill in U.S. history for several key reasons: it has little debt; its global businesses are forecast to generate $26 billion next year in cash flow from operations; the environmental impact of the spill isn’t as bad as feared; and the government seems unlikely to ban BP from Gulf drilling. To bolster its finances, BP has cut its dividend, issued debt and sold more than $21 billion in assets.

“It could have been a lot worse,” says Tyler Priest, a University of Houston petroleum historian who serves on President Obama’s oil spill investigation committee. “BP is going to come back from this.”

Many influential investors appear to agree. According to Thomson Reuters, 23 firms with $1 billion or more invested in the stock market, including BlackRock Investment Management, Managed Account Advisors and Rydex Security Global Investors, more than doubled their holdings of BP stock from July through September.

At $44.11, BP’s stock price has risen 63 percent from its low of $27.02 on June 25. It’s still down 27 percent from its close of $60.48 on April 20, the day of the spill. The well was capped on July 15.

The AP analysis shows the company is likely to face $38 billion to $60 billion in spill-related costs. A settlement with the federal government could reduce that amount, while a successful class-action lawsuit could add billions more.

The analysis includes:

_The $10.7 billion that BP already has paid to plug its well, clean up the spilled oil and pay damage claims and other costs.

_A $20 billion fund that BP set up in August for individuals and private businesses that were affected by the spill. The fund, known as the Gulf Coast Claims Facility, pays for environmental damage, personal injury, cleanup and lost earnings. The fund so far has paid $2.7 billion to address nearly 168,000 claims. Nearly half a million individuals and businesses have filed claims, and those that settle with the fund give up their right to sue the company. If any of the $20 billion is left over, it goes back to BP.

_Fines: The Justice Department is suing BP for violating the Clean Water Act. Fines are based on how much oil was spilled. The government’s estimate of 4.9 million barrels means BP faces between $5.4 billion and $21.1 billion in fines. The upper limit applies if investigators conclude BP acted with gross negligence. The government has a history of settling with companies for as little as 50 cents on the dollar in order to avoid lengthy disputes, says Eric Schaeffer, former head of the Environmental Protection Agency’s enforcement division.

_ Legal fees: BP has hired lawyers, engineers and geologists to defend the company. These experts could cost as much as $2 billion, according to Mitratech Inc., a consulting firm that handles legal and trial logistics for Fortune 500 companies.

_ Lawsuits: The toughest costs to estimate are future settlements and judgments from the hundreds of lawsuits filed against BP, including any class actions. Shrimpers, oystermen, charter-boat operators, restaurant workers and real-estate developers are suing BP for lost business no faxing payday loans. Oil rig workers and cleanup crews are making personal injury claims. And Gulf states and local governments are expected to sue for lost tax revenue and environmental damages. Alabama is seeking an initial $148 million from BP. Analysts at Citigroup say settlements, judgments and punitive damages from these suits will total as much as $6 billion.

Legal experts caution that the unpredictability of juries makes it difficult to estimate the cost of losing a class-action lawsuit. A successful class-action could easily double the Citigroup estimate for total legal liabilities, says Alexandra Lahav, a University of Connecticut professor who studies such lawsuits.

BP may be able to spread the spill’s costs around. Minority partners Anadarko Petroleum Corp. and MOEX 2007 LLC own 35 percent of the operation, and rig owner Transocean Ltd. also may be asked to pay. “Companies have the incentive to settle with BP to put the matter behind them,” FBR analyst Robert MacKenzie says. He expects BP to get as much as $2 billion from Transocean and as much as $4 billion from Anadarko.

Since the spill, BP has moved aggressively to shore up its finances.

The company suspended its quarterly dividend of 84 cents a share, which cost it $10.5 billion last year. It also raised $21 billion in asset sales that include: $7 billion for its stake in Pan American Energy; $7 billion for oil fields in the U.S., Canada and Egypt; $1.9 billion for its Colombian exploration business; and $1.8 billion for assets in Vietnam and Venezuela. BP also raised $3.5 billion in an Oct. 1. bond sale.

From April through June, when BP’s stock was tanking, Fred Fromm, who manages a natural resources fund for Franklin Templeton Investments, scooped up 170,000 shares. Their value climbed by more than $2 million in the third quarter.

A few weeks after the Deepwater Horizon rig exploded and sank, scientists worried the oil slick would reach the Gulf’s Loop Current, which sweeps around Florida and up the East Coast. Beaches would be damaged along the way. But BP got lucky. Gulf winds kept shifting, which kept the oil concentrated in the waters south of Louisiana, said David Hollander, a University of South Florida chemical oceanographer. And hurricanes mostly avoided the region.

Scientists disagree about how much oil remains in the Gulf, but already the streaky sheens of oil on the surface are mostly gone. The more oil that remains, the greater the potential for environmental lawsuits.

Whatever remains, “it won’t impact their long-term ability to do business,” says Citigroup oil analyst Mark Fletcher.

Exxon dealt with lawsuits for decades after its Valdez supertanker ran aground and spilled 11 million gallons of crude into Alaska’s Prince William Sound in 1989. The spill cost Exxon $4.5 billion _ nearly half of which went to clean up the oil. The rest was spent on payments to residents and businesses, punitive damages and settlements with the government.

Exxon never lost its perch among industry leaders, and BP won’t either, says Citigroup’s Fletcher. BP remains among the top oil drillers in a world that runs on petroleum, and that may be the best way to judge the company’s lasting power.

“Did (Valdez) stop anyone from buying Exxon gasoline? No. Exxon’s results are better than anyone’s on a multiyear basis,” Fletcher said.


December 28, 2010

Fischer Leaves Israel’s Benchmark Rate at 2% as House Price Growth Slows - Bloomberg

Filed under: debt, finance — Tags: , , , — Professor @ 2:36 am

The Bank of Israel held the benchmark interest rate unchanged for a third consecutive month as the shekel appreciated and growth in housing prices slowed.

Governor Stanley Fischer kept the rate at 2 percent, the Jerusalem-based central bank said today in an e-mailed statement. Thirteen of the 17 economists surveyed by Bloomberg had forecast the decision, while four expected a quarter-point increase.

Near-zero interest rates in the U.S. and Europe have spurred record inflows into Israel and other countries where rates are higher, driving gains in currencies and undermining exports. The shekel has strengthened about 6 percent against the dollar since August 2009, when Fischer began raising the rate, even as the central bank bought foreign currency to cap gains.

“Fischer held the rate due to the interest rate gap and concern that this could hurt exports,” Ayelet Nir, chief economist at Tel Aviv-based Israel Brokerage & Investments Ltd., said by phone. “Other factors include lower inflation expectations and a slowing down in the rise of housing prices.”

The bank said in its statement that the gap between higher interest rates in countries such as Israel and other developed nations “present a serious challenge for policy makers.”

The shekel strengthened by 0.3 percent to 3.5803 per dollar as of 6:21 p.m. in Tel Aviv, little changed from before the announcement.

Fischer has lifted the benchmark rate by 1.5 percentage points since last August. The Bank of Israel has been buying foreign currency since March 2008, more than doubling reserves to $68.3 billion by the end of November.

Shekel Strengthens

The central bank said its decision to leave rates unchanged was also due to a slowing in the growth in housing prices pay day loans.

Fischer said Dec. 22 that there are “preliminary signs” that the expansion in housing prices is slowing, after warning in November of the risk of a “bubble” that could destabilize the financial system. Inflation, which has been fueled by increases in housing prices for the past two years, slowed last month to 2.3 percent, the first time it has eased since July.

To contain prices, the bank has tightened requirements for mortgages, while the government has taken steps to free up more land for development. Growth in housing rental costs slowed to 3.9 percent last month, from 4.5 percent the previous month, the Central Bureau of Statistics said Dec. 15.

Economic Growth

Economic growth slowed to an annualized 3.8 percent in the third quarter, from 4.5 percent in the second quarter, as exports fell 9.6 percent. About 40 percent of Israel’s gross domestic product is export-based. The economy is expected to expand 3.5 percent next year, compared with 4 percent this year, Bank Hapoalim Ltd. said last week.

Fischer, who has sole responsibility for setting interest rates, was appointed for a second term as governor in March. He is in the process of implementing a new law that calls for the creation of a six-member Monetary Policy Committee to make rate decisions.

The benchmark TA-25 stock index has gained about 15 percent in the past 12 months, led by Avner Oil Exploration LP, a partner in gas fields off Israel’s coast.


December 26, 2010

Siblings take on mom’s gooey goodness to get TV showcase

Filed under: management, online — Tags: , , , — Professor @ 11:32 am

A small St. Louis company is taking gooey butter cake worldwide.

Siblings Marilyn Ann Scull and Dale Allen Schotte began commercial production of their mother’s recipe for the signature St. Louis dessert in 2006, a few weeks after they opened Park Avenue Coffee in Lafayette Square. In their first full year of production, they turned out about 700 cakes in a tiny space at the rear of the store at 1919 Park Avenue.

Now they have a new company name, Ann & Allen Baking Co.; a new production facility with 2,000 square feet in Dogtown; and a new line of cake mixes.

By mid-December, Ann & Allen had baked more than 22,000 cakes this year for Park Avenue Coffee, other local retail outlets, catering and online sales. They now make more than 70 flavors and have shipped cakes this year to 79 countries, including Afghanistan and New Zealand.

What’s more, they’ve sold more than 10,000 boxes of their gooey butter cake mix in its first year of production. Schotte says the mix is currently sold at 56 stores in 15 states. Straub’s and Eckert’s are their two largest customers in the metro area.

And at 9 p.m. Thursday, Park Avenue Coffee will reach a national cable TV audience when the Food Network pits it against another St. Louis specialist, Gooey Louie, on “Food Feuds.”

As with most success stories, Scull’s and Schotte’s has some twists. Schotte spent 20 years in the computer industry, primarily working for an Ohio-based company that specializes in automobile dealerships. He was moonlighting as a consultant when he was hired by the owners of what was then called Perc on the Park. In addition to utilizing his skill with computers, they turned to him for advice on everything from retail operations to décor.

“I told them, ‘If you ever want to sell, let me know,’” Schotte says.

When they did just that two years later, Schotte told them he wasn’t interested anymore. But that soon changed, after he got a call from Scull.

“My sister calls me all hysterical,” Schotte says. She had quit her job with Domino’s pizza, where she had worked for 20 years. “She said, ‘That’s it, I’m done.’”

When Schotte raised the possibility of buying Perc in the Park, Scull resisted, saying she didn’t even drink coffee.

“I said, ‘Just put away the pepperoni and substitute little beans,’” Schotte says.

They bought the shop, renaming it Park Avenue Coffee, then added a quintessential local treat, gooey butter cake, to the menu. Scull called their mother, Evelyn Thomeczek Schotte, for the recipe.

Evelyn Schotte was one of 13 children who grew up on her family’s farms in Leslie

December 24, 2010

Air Farce

Filed under: economics, news — Tags: , , , — Professor @ 8:36 pm

The Royal Canadian Air Farce

December 23, 2010

GE to go ahead with next phase of NY PCB dredging

Filed under: house, money — Tags: , , , — Professor @ 11:06 pm

General Electric Co. said Thursday it will go ahead with the next phase of PCB dredging in the Hudson River under terms laid out last week by federal environmental regulators.

The Environmental Protection Agency had said the Fairfield, Conn.-based company must remove more PCB-tainted sediment from the Hudson River and will have to take better samples of the river bottom when it resumes dredging.

“We engaged in intensive and constructive discussions with EPA, and the Agency’s decision reflects our discussions and many of our proposals,” Ann Klee, GE’s vice president of Corporate Environmental Programs said in a statement.

The EPA announced new standards for the work after a review of the first round of dredging in 2009. The goal is to remove as much tainted sludge as possible from a 40-mile stretch of the river north of Albany, one of the nation’s largest Superfund sites.

Environmental groups said the new standards will ultimately mean a cleaner river, but criticized the EPA for allowing GE to leave and cap PCBs in up to 11 percent of the total project area, not counting rocky or other hard-to-reach areas. When those trouble spots are included, the new standards mean up to 21 percent of the area could be capped no fax cash advance.

GE said it will take an after-tax charge of $500 million in the fourth quarter of 2010 to help pay for the work. It said analysts following the company were told recently that will be offset by “positive items,” including a favorable tax ruling.

The company said the goal is to resume dredging in late spring, and it is refining plans for the work based on discussions with the EPA and the recommendations of the panel of independent experts.

GE plants discharged approximately 1.3 million pounds of polychlorinated biphenyls during a 30-period ending in 1977, contaminating nearly 200 miles of the Hudson River. These potentially cancer-causing chemicals can build up in fish over time, posing a serious risk to those who eat them.

GE has already spent $561 million on the project. Outside estimates released before the Phase 2 standards were announced suggested the project’s total cost could reach $750 million.


Asia Buyout Firms Pay More, Sell Faster as Competition for Deals Increases - Bloomberg

Filed under: finance, legal — Tags: , , , — Professor @ 5:32 am

Asia private-equity firms are paying more for assets, selling investments faster and buying more liquid public-equity stakes, as competition for deals rises and investors resist locking up their money for long periods.

Sales within three years of private-equity investments made in 2007 surged almost 10-fold compared with those made in 2000, according to the Asian Venture Capital Journal. Exits after five years from deals done in 2005 slumped 80 percent compared with those made in 2000.

Buyout managers pool money from investors to take over companies, financing the purchases mostly with debt, with the intention of improving performance and selling later at a profit. In Asia, home to the world’s fastest-growing economies, private-equity managers have been able to flip companies that don’t need the kind of extensive restructuring that is more common in the U.S. and Europe.

“In fast-growing countries like India and China, entrepreneurs are already too busy dealing with exponential growth, unlike their counterparts in the U.S., which are relying more on market expansion and cost-cutting to boost profit,” said Alice Chow, a Hong Kong-based managing director at Squadron Capital Management Ltd., which invests in Asia private-equity funds.

“Most of them have a quick-in, quick-out approach and would not think beyond three years,” said Vincent Chan, chief executive officer of Spring Capital Asia Ltd., a Hong Kong-based private-equity firm.

The average premium for private-equity deals announced in 2010 in the Asia-Pacific region rose to 30 percent from 13 percent in 2009, according to data compiled by Bloomberg. In 2008, the premium was a record 35 percent.

Pipe Deals

To take advantage of Asia’s stock market rally, private- equity fund managers in the region have turned to buying minority stakes in listed companies, which typically requires less due-diligence and provides an easier exit. The Asia-Pacific MSCI Index jumped almost 50 percent since 2009, compared with a 31 percent gain by the U.S. Dow Jones Industrial Average.

The amount of private investment in public equity, known as PIPE deals, increased by half to $12.5 billion in 2009 from a year earlier, according to the Asian Venture Capital Journal. There have been $7 billion of PIPE deals this year.

“We generally don’t like PIPE because if it’s a public equity, we could do that ourselves and we could do it cheaper,” said Sebastiaan van den Berg, principal of HarbourVest Partners (Asia) Ltd. in Hong Kong, which invests in private-equity funds. He was referring to the management fee, usually 2 percent, paid to buyout managers on assets.

The industry’s short-term focus may have to change, as competition increases, including from U.S. buyout firms that are setting up offices in the region to get better access to companies to buy.

Blackstone, Carlyle

Blackstone Group LP, based in New York, last year was the first global private-equity firm to open a domestic buyout fund in China, followed by Washington-based Carlyle Group and TPG Capital of Fort Worth, Texas cashadvance. A fund registered in China needs less regulatory approval for some investments and use of foreign exchange, and can more easily scout out deals, Antony Leung, Blackstone’s chairman for greater China, said in September.

The number of private-equity firms in Asia rose 13 percent to 2,604 as of June from the beginning of 2009, according to the Asian Venture Capital Journal. The $39 billion raised in the period was 26 percent less than the sum gathered in 2008.

More Hard Work

“It’s going to come down to those firms that really know how to select great assets and do more with those assets that will be able to drive differential returns,” Steven Barnes, a Boston-based managing director of private-equity firm Bain Capital LLC, told a Hong Kong conference in November. “It’s going to take two times the number of operating executives to get done what needs to get done in Asia than it does on a relative basis in the U.S. and Europe.”

That could be a disadvantage for Asia buyout firms, Squadron’s Chow said.

“The industry in Asia is relatively small and at its infancy, so the level of talent isn’t as high when compared to U.S. and Europe,” she said. “There is naturally less focus on operational value-add.”

Returns are falling as some private-equity shops face pressure to invest, even in less attractive targets, after raising money from investors, said Charles Huh, a managing director of the private-equity division of Standard Chartered Plc’s Standard Chartered Bank.

“Five years ago, there were a number of managers that had fantastic returns, triggering more private-equity firms to come to the market,” Huh said. “Operational experience is important to be able identify the right opportunity in Asia.”

Lunar Capital

That could be good news for Derek Sulger, who started China-focused Lunar Capital Management in 2007. Two years ago, Sulger couldn’t persuade two global private-equity funds to co- invest $25 million with him in a Chinese tropical-juice maker. The deal, which he started working on at the end of 2007, was too small and the company needed too much work, they told him.

Now, after readying Beihai BPG Foods for sale, Sulger is set to reap 2.5 times the money he and other small funds put into the Guangxi, China-based company, according to filings with the Hong Kong Stock Exchange.

“It’s so much work, but that’s how you get the exits done,” said Sulger, 38, who was a co-founder more than a decade ago of Linktone Ltd., a Shanghai wireless-entertainment service provider. “The private-equity community is very overweight with bankers and financiers and has very few people with true operational experience.”


December 21, 2010

Jobless benefits are extended - but hold the applause

Filed under: business, term — Tags: , , , — Professor @ 2:44 pm

Millions of jobless Americans are no doubt cheering the tax cut deal that President Obama signed into law Friday.

The legislation provides for 13 more months to apply for extended jobless benefits, but not everyone who’s unemployed will be eligible for these extended benefits.

In fact, residents in at least five states won’t have access to the same level of unemployment benefits as their peers nationwide.

That’s because the unemployment rate in those states is improving, so, according to federal law, the jobless there can’t receive checks for as long as those in harder-hit states.

Take Vermont. Only a few months ago, unemployed Vermont residents could collect up to 86 weeks of jobless benefits.

Now, they are eligible for only up to 60 weeks.

The reason is that Vermont’s unemployment rate has dropped below 6%. Good news for those lucky enough to find work, but small consolation to the jobless still looking for a position.

Here’s how the system works: The jobless collect up to 26 weeks of state benefits before shifting to the extended federal program. Federal benefits consist of up to 53 weeks of emergency compensation, which is divided into four tiers, and up to another 20 weeks of extended benefits. The maximum is 99 weeks.

But not everyone can collect benefits for that long. Extended benefits, as well as the last two tiers of emergency compensation, are tied to state unemployment rates. So as their state job picture brightens, the jobless stop qualifying for long-term benefits.

To be eligible for the fourth tier of emergency benefits, which last up to six weeks, the average state’s unemployment rate must be above 8.5% for three months. Similarly, states lose their eligibility for the third tier of benefits, which last up to 13 weeks, if their rate falls below 6%. Extended benefits have a more complicated formula tied to different gauges of unemployment.

There’s a logic to the system: "If the unemployment rate in a state is 6% versus 10%, one can argue you’ll have a better time finding a job," said Richard Hobbie, executive director for the National Association of State Workforce Agencies.

In recent months, those out of work in New Hampshire and Vermont have lost both Tier 3 and extended benefits because the state unemployment rates have fallen to 5.4% and 5.7%, respectively.

Meanwhile, residents of Alaska, Delaware and Massachusetts can no longer receive Tier 4 benefits since their rates are all below 8.5%.

Those in the midst of a tier can continue to collect benefits until they exhaust that tier, but they cannot advance to the next level. This does not sit well with those who cannot find a job.

"It can feel rather arbitrary to certain people," said Andrew Stettner, deputy director of the law project.

Just how long federal jobless benefits should continue was the subject of much debate when Congress was considering the 13-month extension contained in the tax-cut deal. The federal government has already paid out $109 billion in unemployment insurance during this recession.

Those that had opposed continuing benefits say another extension would be too expensive and would dissuade people from finding jobs.

Advocates argue that the safety net has always existed during periods of high national unemployment. The Obama administration echoes their position, saying that people will naturally fall off the rolls as state unemployment rates improve.

"As your unemployment rate goes below various thresholds, the extension itself phases down and the weeks shorten," said Austan Goolsbee, chairman of the president’s Council of Economic Advisers. It "should be determined at the state level, not at the national level." 


Renting clothes gets sort of chic

Filed under: legal, management — Tags: , , , — Professor @ 5:39 am

Men probably have been renting tuxedos since Black Tie events were first conceived but women only recently started catching on.

Similar to saving bucks on that pricey tux, renting party dresses and formal gowns can save partygoers hundreds of dollars on clothing that has very limited wearability.

One relatively new service,, offers members thousands of dresses for a four- or eight-day stint. Geared toward special occasions or limited use wear for those on a budget, the rental prices are about 80% off retail.

For example, a Proenza Schouler accordion dress costs $1,665 to buy but rents for just $200. New styles are added regularly and retired looks are then sold for up to 65% off. (The company sells its older and overstocked items on a clearance section of its site.)

"The first dress I rented was last May for my friend’s wedding. I think it was Nicole Miller, I loved it," said Susan Rose of New York City. "If I was going to buy something it would cost over $500, which is more than I should be spending." Instead, Rose says she has rented five different dresses over the course of the year, most for just $50.

Dresses are organized on the site by style, designer, or occasions like "winter wedding," "girls-night-out" or "this-is-getting-serious-date dresses."

Users pick the dress of their choice and then schedule a delivery date. Garments are delivered same day in New York City, and overnighted everywhere else in the U.S. To cut down on outfit anxiety, the company sends the dress in two sizes and takes care of the dry cleaning afterward. Renting a dress requires signing up for a free membership, and then paying for the rental, $5 insurance, shipping and any applicable taxes best payday advance.

The site, which has 600,000 members, launched near the peak of the recession, but according to co-founder Jenny Fleiss, that timing helped it get off the ground. "People were really thinking about cost per wear," she said.

Now Rent The Runway is enjoying its busiest season to date. "Everyone has holiday parties and New Year’s Eve coming up — when are you going to wear a gold sparkly one-shoulder dress again?" Fleiss asked.

Fleiss says the biggest hurdle is getting fashionistas over the idea of renting a dress to begin with, but after that most customers, like Rose, become frequent users.

Still, national services like this are few and far between, even on the heels of a recession that put a serious stranglehold on luxury indulgences.

Better-known Bag Borrow or Steal provides a similar service for the rental of designer handbags and accessories. Since launching in 2004, the site now has over 2 million members in the U.S. who sample luxury bags, jewelry, sunglasses and watches from high-end designers like Chanel, Louis Vuitton, Gucci and Prada.

Although the company has no immediate plans to include clothing in their offerings, Bag Borrow or Steal’s President and CEO Russ Blain says it is not out of the question. "It is something that would be interesting to us," he said.

According to Blain, the rental market is poised for growth as the economy improves. "We’re starting to see an uptick in the rental business now," he said. "Our future is pretty bright." 


December 18, 2010

Roseman: Auto-renewals can cost you money

Filed under: debt, news — Tags: , , , — Professor @ 3:28 am

If you have a computer, there

Newer Posts »

Powered by WordPress