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Inflation Steady in Euro Area, but Number of Jobless Grows

August 31, 2011 by Leave a Comment

The European Union statistics office Eurostat said that inflation in the 17 countries using the euro was 2.5 percent year-on-year in August, the same as in July, as expected by economists.

The E.C.B. wants to keep inflation below but close to 2 percent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 percent from 1.5 percent to stem price pressures.

Eurostat also reported that unemployment was 10 percent in July, unchanged from an upwardly revised June rate, which was initially reported at 9.9 percent. But the number of unemployed in the euro zone rose by 61,000 in July against June to 15.757 million.

“The latest data and surveys fuel belief that the E.C.B.’s ultimate next move may actually be to trim interest rates,” said Howard Archer, economist at IHS Global Insight. But, he added, the central bank probably will want to see “sustained” economic weakness to “do a U-turn.”

Aline Schuiling, an economist at ABN AMRO, said the stabilization was likely due to a decline in energy price inflation balancing a rise in the core inflation rate.

“Looking forward, we expect inflation to remain well above the E.C.B.’s price stability goal this year, before falling below this level next year, as energy price inflation drops back noticeably while the rise in the core rate is restrained by the moderate level of economic growth,” she said.

The E.C.B. president Jean-Claude Trichet said on Monday that the bank was reviewing the risks to price stability, suggesting it could tone down its view on inflation pressures.

In its last staff projections, released in June, the E.C.B. forecast euro zone inflation in a range of 2.5-2.7 percent this year and 1.1-2.3 percent in 2012.

The rise in the number of unemployed is likely to slow down wage growth and therefore help keep down underlying inflation, said Jennifer McKeown, European Economist at Capital Economics.

“These data should help to convince the E.C.B. that its earlier fears of a sharp rise in inflation were unwarranted, perhaps opening the door to interest rate cuts in the not too distant future,” she said.

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Shortcuts: Children’s Activities No Guarantee of Later Success

August 31, 2011 by Leave a Comment

Music lessons, gymnastics, horseback riding, tutoring, summer-long residential camps, sports teams — the list goes on and on. Often, so do the costs.

And even if the money is not there, some parents find a way. I know people who have borrowed from family, used home equity accounts and run up their credit cards to pay for all the stuff they believe their children just cannot miss.

“The experiences we thought kids had to have before high school has moved down to junior high and now elementary,” said William Doherty, a professor of family studies and director of the marriage and family therapy program at the University of Minnesota. “Soon, we’ll be talking about leadership opportunities for toddlers.”

To come clean, my children through the years have taken ice skating, tennis, violin and yes, even tae kwon do (of which the only residue now seems to be lots of colored belts around the house). Some lessons lasted a few months, some for years.

And what is wrong with that? Maybe we know that some parents go overboard on extracurricular activities, but aren’t these important for their children’s future success?

Somehow, not offering our children every possible opportunity “feels like bad parenting,” said Wendy Mogel, a clinical psychologist and author of “The Blessing of a B Minus,” (Scribner, 2010).

But in an effort to give their children everything, some parents end up not just depleting financial resources, but also their own emotional energy.

“A lot of parents are exhausted by their own overparenting,” said Bryan Caplan, an economics professor at George Mason University. “They make so many sacrifices and are so stressed out by driving around so much that they explode at kids for changing the radio station.”

But isn’t it worth it for the ultimate good of our children? Not necessarily. Some of the most interesting insights into this question come not from psychologists, but economists.

“It’s easy to take a look at the more successful kids and assume that all the activities are why they are more successful,” Professor Caplan said. But research doesn’t bear that out.

On a recent National Public Radio program, Steven D. Levitt, a professor of economics at the University of Chicago, said he and another economist could find no evidence that that sort of parental choices could be correlated at all with academic success.

“And my guess is,” he went on, “that when it comes to the happiness of kids, that kind of cramming has got to be negatively correlated. Being rushed from one event to the other is just not the way most kids want to live their lives, at least not my kid.” Professor Levitt was also co-author of the New York Times blog Freakonomics.

All right, the economists are largely talking about academic success. But I would wager that most parents believe these experiences are not just for good grades, or are the key to the right college, but are also for the opportunities they give children.

Most parents know that an infinitesimal number of children will go on to be world class in any field. But maybe those pricey golf lessons will earn your son a place on the high school team. Or the acting classes will propel your daughter into the lead in the school play.

And what parent doesn’t dream that piano lessons will instill a lifelong love of playing, even if it is only in the living room?

The trouble is, many of us have bought into the idea that every child has a “hidden talent,” Professor Doherty said, and that we are failing our children if we don’t do everything possible to bring it to light.

There are certainly good reasons to offer our children some of these experiences, but there are more negative ones as well, if we rely on them to make us feel like good parents, or if we think that arming them with a myriad of skills can guarantee their later success in life.

The desire to offer every conceivable opportunity is a “displaced fear about the collapse of the future,” Dr. Mogel said.

The reality is that failing to give your child ballet lessons at age 6 probably has not deprived her of a career as a prima ballerina.

And even if a child is passionate about something, that doesn’t mean you have to go all out, “if it’s to the detriment of the parent’s sanity or a connected family life,” Professor Doherty said.

Or to one’s finances.

E-mail: shortcuts@nytimes.com

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Fundamentally: Companies Are Spending on Dividends if Not Jobs

August 31, 2011 by Leave a Comment

“People keep repeating it as if it were a mantra: ‘Companies refuse to hire; companies refuse to spend,’ ” says James W. Paulsen, chief investment strategist at Wells Capital Management.

But this criticism isn’t quite right, Mr. Paulsen says.

It’s certainly true that most businesses haven’t been willing to expand payrolls significantly in the last two years, says Richard Weiss, head of asset allocation strategies at American Century Investments. “But there’s cash being used in less visible ways,” he adds.

To be sure, this type of spending — from dividend increases to corporate acquisitions — may not be enough to pull the economy out of its rough patch. But at least “it indicates that companies are more confident in the economic recovery” than some might think, says Brian G. Belski, chief investment strategist at Oppenheimer Company.

In June, manufacturing and trade sales rose more than 12 percent from June 2010, according to the most recent Census Bureau data. Stripping out petroleum products, whose value was recently inflated by high oil prices, this is still the highest level for business sales in more than five years.

And some companies aren’t just continuing to pay dividends despite the sluggish economy — they are increasing them. (Monsanto and General Mills are just two examples.) This is something that investors didn’t see in the 2008 downturn.

So far this year, there have been 241 dividend increases or initiations among Standard Poor’s 500 companies, versus only three dividend cuts, according to Howard Silverblatt, S. P.’s senior index analyst.

Collectively, those moves have increased payments to shareholders by nearly $29 billion, he says. That’s more than double the amount of dividend increases that S. P. 500 companies delivered in the first eight months of last year and is a reversal from the $41 billion in dividend cuts made from January to August 2009.

“The bottom line is that dividends are doing extremely well,” Mr. Silverblatt says.

Investors with dividend-paying stocks have also fared relatively well. While most types of equities are down this year on recession fears, dividend-paying stocks have held up far better than average. PowerShares Dividend Achievers, an exchange-traded fund that invests in stocks that have bolstered their annual payouts for at least 10 consecutive years, has lost 3.7 percent year to date, versus a 9.5 percent loss for the S. P. 500.

Strategists say companies seem comfortable returning profits to shareholders because of stronger-than-expected earnings and all the cash on their balance sheets. S. P. 500 companies are sitting on $1.13 trillion in cash and short-term investments — two-thirds more than they had heading into the recession in 2007, according to Capital IQ.

In a slow-growth economy, this cash also gives companies the flexibility to increase revenue and profit growth through mergers and acquisitions, says Richard Peterson, a director at S. P.’s valuation and risk strategies unit. He notes that domestic companies are on track to post their first year of $1 trillion or more in deal activity since 2006.

What’s more, the third quarter is on track to be the busiest period for mergers and acquisitions since the spring of 2007, Mr. Peterson says. About halfway in, some $194 billion in M. A. deals have been announced, versus $269.8 billion in the full second quarter.

“Despite what’s transpired in the markets in the past several weeks,” he says, “there are very few signs of a pause in activity.” Just last week, Google announced a planned $12.5 billion acquisition of the mobile phone maker Motorola Mobility.

Mr. Peterson says the trend is likely to continue, not only because of companies’ cash on hand, but also because investment-grade corporations can still borrow cheaply in the bond market, thanks to strong demand for high-quality bonds.

Duncan W. Richardson, chief equity investment officer at Eaton Vance , says that “this is very different than 2008,” as companies are in much better shape today.

As for job creation, Mr. Richardson says it always tends to come in the later stages of an economic expansion. But he says that “if investors wait on the sidelines for the job situation to pick up dramatically, they’ll probably be jumping in too late” to make any money.

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

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Mortgages: Exploring the 15-Year Loan for Refinancing

August 31, 2011 by Leave a Comment

Fifteen-year mortgage rates certainly look enticing these days, and the idea of owning a home, debt-free, in less time than it takes to raise a child, sounds grand. So what’s the catch?

To start with, your monthly payment will probably be higher — in some cases, hundreds of dollars more. Then there’s the question of whether you will save for other needs if your mortgage payment requires more of your income. So before you choose between a 15- and a 30-year loan, crunch the numbers on each using an online mortgage calculator.

On a $300,000 loan, for example, you would pay about $1,475 a month for principal and interest over 30 years, versus $2,145 over 15 years. That assumes a 4.25 percent rate on the longer loan and 3.5 percent on the shorter one.

You would save about $145,000 in interest payments over the life of a 15-year mortgage and build up equity in the home faster, according to Tony Clintock, a regional sales leader for MetLife Home Loans, which is based in Irving, Tex. In the first year, principal would be reduced by $15,000, versus about $5,000 on a 30-year loan.

The other advantage of having a 15-year loan is the interest rate: it’s currently hovering around 3.4 percent, according to Freddie Mac, which is more than three-quarters of a percentage point lower than most 30-year loans. They can “shave 5, 7 or 10 years off their loan,” Mr. Clintock said. And if they’re reducing their interest rate from, say, 6 percent, their monthly payment may not change much.

But, “a lot of people cannot afford a 15-year mortgage,” said Robert Rauf, a mortgage loan originator with Real Estate Mortgage Network in Manasquan, N.J. In other words, their income simply cannot support the higher monthly bill.

Those worried about job security or a business failure may also opt for a 30-year mortgage, and the lower monthly payments that go along with spreading out the loan length. “It’s the cheapest way to borrow money,” said Ray Mignone, a financial planner in Little Neck, N.Y.

But “if people are pretty confident on their income stream and they can afford the 15-year mortgage,” he said, “it is a good way to go.”

More consumers are moving into 15-year mortgages when they refinance, according to data from CoreLogic. In 2007, one in nine, or around 11 percent, opted for a 15-year mortgage; in the first quarter it was 53 percent.

Lenders say the 15- and 30-year loans use the same criteria for qualifying. Mr. Clintock of MetLife notes that some banks offer loans in 20- or 25-year terms, but with rates not much lower, if at all, than those on the 30-year mortgage.

When deciding between a 15- and 30-year mortgage for refinancing, borrowers should also take a broad look at other expenses, said Karen C. Altfest, the executive vice president of Altfest Personal Wealth Management in Manhattan. “Some people have such a high mortgage they can’t save for retirement” or their children’s college education, she said. Others may compromise with a 20- or 25-year mortgage, and use the difference to help fund college or retirement accounts.

Ms. Altfest also urges borrowers to think through the tax breaks that home loans provide. The interest on a 30-year mortgage can be important to tax planning, especially in the early years when almost the entire payment is interest.

Then again, you may wonder whether Congress could eliminate mortgage interest and fees as a tax deduction, an idea that has been floated. If it were to happen, the 30-year mortgage would be less appealing, Ms. Altfest said.

“Consider the psychological, consider the financial,” she said. “Consider your family goals.”

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Fancy Batteries in Electric Cars Pose Recycling Challenges

August 31, 2011 by Leave a Comment

Yet even as automakers vaunt the ways these cars can benefit the environment, they are divided over how best to handle the refuse: recycle or repurpose.

That is worrying some companies involved in “urban mining” — a voguish term that refers to extracting valuable metals from all kinds of discarded electronics, from power tools to mobile phones. They have already begun spending money to build an infrastructure to handle the flood of partly depleted battery packs that are expected to enter the waste stream; Frost Sullivan, a consulting firm, puts the number at about 500,000 a year by the early 2020s.

“There is no green car without green recycling,” said Ghislain Van Damme, a manager at Umicore, a company based here in Hoboken that is one of the world’s largest recyclers of precious and specialty metals from electronic waste.

Companies that fail to plan for recycling face “brand damage” at the very least, he said, as well as potential fines and legal action if the batteries end up being illegally incinerated or dumped in landfills. In many cases, automakers will be responsible for final disposal of the batteries — even if they did not actually manufacture them — because of stricter laws governing recycling, especially in Europe.

Any sense of urgency in developing recycling capacity has been dampened, however, by the cost factor. The newest, most-powerful lithium-based batteries are also less valuable to recycle than earlier ones.

Lithium is plentiful compared with the nickel and cobalt found in hybrid and all-electric car batteries developed earlier, even if the main sources of the metal, in countries like Chile and Bolivia, are far from auto production centers.

“You can count on a constant and growing thirst for metals including lithium,” said P.Aswin Kumar, an analyst with Frost Sullivan. “But lithium still costs about five times more to recycle than to mine, so environmental laws will drive recycling for now.”

Shoebox-size, lead-acid batteries have powered ignition and lighting in gasoline- or diesel-powered cars for decades. They already are widely recycled, mainly because lead is such a health hazard.

The batteries for hybrid and all-electric cars are far more powerful and much larger, with some weighing up to around 250 kilograms, or 550 pounds. They also can be the car’s most expensive component, mostly because of the complexity in making them, rather than the value of the materials.

Complicating the question of disposal, a large amount of energy remains stored even in partially discharged batteries. These could deliver harmful shocks and pose a serious fire hazard if mishandled.

For now, automakers are going their individual ways.

Toyota Motor, whose experience goes back to 1998, shortly after the introduction of the RAV4 all-electric vehicle, has established partnerships in Europe and the United States to recycle batteries, including from the hybrid Prius. This year, it began shipping some batteries from Prius models sold in the United States to Japan to take advantage of a more-efficient recycling process at home.

Honda Motor recycled nearly 500 batteries during 2009 from the electric hybrid models it began selling in Japan more than a decade ago. But it still is exploring ways to structure that part of its business as it rolls out models like the Insight and the CR-Z.

General Motors and Nissan Motor, whose Chevrolet Volt and Nissan Leaf are newer to the market, are taking a different tack. They have agreements with power companies to develop ways of reusing old batteries, perhaps for storing wind or solar energy during peak generating times for later use.

Bayerische Motoren Werke, known for its premium BMW line, still is carrying out research on whether to recycle or reuse the batteries from its Mini E, an all-electric car it began leasing on a limited basis in 2009.

Meanwhile, some governments have begun to get involved to ensure their car industries are not undermined by sourcing or safety issues.

In the United States, the Department of Energy has granted $9.5 million to Toxco to build a specialized recycling plant in Ohio for electric vehicle batteries. It is expected to begin operations next year, handling batteries from a variety of makes and models.

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Bits Blog: H.P. Plans to Make a Few More TouchPads

August 31, 2011 by Leave a Comment

Hewlett-Packard TouchPadNoah Berger/Bloomberg News Hewlett-Packard’s TouchPad tablet did not sell well until it was discounted.

6:48 p.m. | Updated Adding pricing information.

Hewlett-Packard says its tablet liquidation sale was such a hit that it is making some more tablets to liquidate.

The tablet, the TouchPad, is getting a brief reprieve from its death sentence. H.P. said on Tuesday that it swas planning to produce one last run of its would-be iPad competitor.

Consumers shunned the TouchPad when it was introduced two months ago, and H.P. quickly said it would stop production as part of a broader overhaul. But the remaining tablets went quickly after their price was discounted 80 percent. So many people wanted them, in fact, that H.P. could not fill all the orders.

“Since we announced the price drop, the number of inquiries about the product and the speed at which it disappeared from inventory has been stunning,” H.P. said in a blog post. “I think it’s safe to say we were pleasantly surprised by the response.”

The company continued: “We have decided to produce one last run of TouchPads to meet unfulfilled demand. We don’t know exactly when these units will be available or how many we’ll get, and we can’t promise we’ll have enough for everyone. We do know that it will be at least a few weeks before you can purchase.”

H.P. described the batch of new TouchPads as a “limited supply” and said it would limit purchases to one per customer. They will be available by the end of October at $100 for the version with 16 gigabytes of storage, and $150 for 32 gigabytes, the same prices charged during the first liquidation sale.

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DealBook: AT&T Plans to Bring Back Jobs Sent Abroad

August 31, 2011 by Leave a Comment

Randall Stephenson, ATT's chief, at a House hearing in May. He hopes to allay some concerns.Andrew Harrer/Bloomberg NewsRandall Stephenson, ATT’s chief, at a House hearing in May. He hopes to allay some concerns about the T-Mobile deal.

ATT, its $39 billion deal to buy T-Mobile USA under pressure from multiple fronts, is now seeking to promote one benefit of the blockbuster deal: jobs.

The company plans to announce on Wednesday that it will bring back 5,000 call-center jobs that were outsourced abroad. ATT also plans to commit to maintaining its and T-Mobile’s more than 25,000 call-center jobs in the United States.

ATT’s move — which the company describes as one of the biggest job repatriations since the financial crisis — is meant in part to assuage critical lawmakers’ fears of possible job cuts. In a letter to the two federal regulators reviewing the deal, Senator Al Franken, Democrat of Minnesota, wrote that “it is fair to assume that layoffs constitute a substantial portion” of the deal’s promised cost savings.

Other politicians, including Representatives Ed Markey of Massachusetts and John Conyers of Michigan, have also expressed unease over the proposed merger’s effect on jobs.

“Does this shore up an issue that people have?” Randall Stephenson, ATT’s chief executive, said in an interview on Tuesday. “Sure, I hope it does.”

Among the chief attractions of mergers is cutting costs, and ATT has forecast roughly $3 billion a year in savings. The telecommunications giant has said that it plans to create jobs by building out the combined company’s next-generation wireless network, an effort that is expected to cost more than $8 billion, though it is also expected to shutter hundreds of retail stores and other back-office positions.

But Mr. Stephenson said that as ATT was reviewing its and T-Mobile’s businesses, creating jobs in the United States became a way to create good will. The company had about 265,410 employees as of Jan. 31. T-Mobile, now a unit of Deutsche Telekom, employs about 42,000 in the United States.

“As I sit here and watch the news over the last month, I can’t help but ask, ‘What else can we do?’ ” he said. “This sends a good message to the U.S. and to the labor markets.”

ATT currently operates about 55 call centers throughout the country, while T-Mobile runs about 24. Mr. Stephenson said that his company had yet to determine where the new call-center jobs would be located. The existing call centers are in many locations around the country, including T-Mobile’s headquarters in Washington and ATT’s home in Texas, as well as in Pennsylvania and Maine.

Mr. Stephenson added that he had become comfortable that ATT would still meet its projected cost savings despite the move.

Jobs are not the only concern on skeptics’ minds about ATT’s planned mega-deal. Since it was announced in March, the proposed acquisition has taken fire from competitors like Sprint, consumer groups and federal and state lawmakers worried about combining two of the nation’s biggest cellphone service providers.

ATT has its supporters, including telecommunications workers’ unions, technology companies like Microsoft and Facebook and 27 governors. The company has also made a big lobbying effort to drum up additional backing.

Both sides have raced to put pressure on the federal regulators scrutinizing the deal, the Federal Communications Commission and the Justice Department. Several state regulators, including California’s public utilities commission, are also closely examining the merger.

Last month, the F.C.C. halted its review of the deal to examine ATT’s economic models supporting the deal, though it resumed the process last week.

The company took additional criticism after a briefly unredacted submission to the F.C.C. showed that ATT had projected spending just $3.8 billion to expand its nascent 4G wireless network nationwide, far less than the $39 billion it is spending to buy T-Mobile.

Mr. Stephenson countered that expanding its network without T-Mobile’s customer base, spectrum and cellular towers had “no business case.”

He added that he still expected the deal to receive approval by the end of the first quarter next year.

“Nothing has transpired to date that would make me think that will change,” he said.

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Ford and Zipcar Join Forces

August 31, 2011 by Leave a Comment

But the Ford Motor Company is taking the view that drivers who rent from Zipcar by the hour just might be potential customers down the road.

Ford and Zipcar are expected on Wednesday to announce an unusual partnership in which the Detroit automaker will supply its vehicles to Zipcar locations on 250 college and university campuses in the United States.

The two-year program will provide Zipcar with up to 1,000 Ford Focus sedans and Escape sport utility vehicles for students who prefer short-term vehicle rentals to the trouble and expense of owning their own car.

In addition to providing the cars, Ford will offer the first 100,000 university students who sign up for Zipcar a $10 discount on the network’s $30 annual membership fee. In addition, Ford has agreed to subsidize $1 of the hourly rental rate for the first one million hours of use on any of its vehicles. The typical Zipcar rental costs $8 to $9 an hour.

The program, which starts Thursday, is a significant step in the expansion of Zipcar, based in Cambridge, Mass., which went public with an initial stock offering early this year, and in August reported strong revenue and membership growth that exceeded Wall Street expectations.

Zipcar has been a fixture in urban areas like New York, Boston, San Francisco and Washington for several years, and has been gradually moving into smaller markets like Sacramento and Providence, R.I. Recently, it has been seeking to rapidly expand its presence on college campuses.

The alliance with Ford will raise Zipcar’s presence substantially in the student market — and get more American cars into Zipcar’s fleet. Nearly all of Zipcar’s current models are foreign nameplates like the Honda Civic, the Mini Cooper and Toyota Prius.

Currently, Zipcar has more than 600,000 members in the United States, Canada and Britain.

The impetus for the new partnership began two years ago at a transportation forum when William Clay Ford Jr., Ford’s executive chairman, met Scott Griffith, Zipcar’s chairman and chief executive.

In an interview, Mr. Ford said he had become interested in car-sharing networks as part of the long-term answer of how congested cities could solve transportation issues without simply adding more vehicles.

As an ardent environmentalist, he said he could appreciate how short-term car rentals could ease fuel consumption in cities already overcrowded with privately owned vehicles.

The auto industry has been pouring vehicles into regular rental car fleets operated by big companies like Hertz and Avis, for years.

Mr. Ford said that Zipcar offered an opportunity for the automaker to reach a new demographic of younger, college-age drivers who otherwise might not try a Ford product.

“We are looking at the future of transportation more holistically,” he said. “We shouldn’t be threatened by these different business models. We should embrace them.”

Zipcar owns more than 8,000 cars and offers its members more than 30 different models. But Mr. Griffith said the deal with Ford was a powerful endorsement of its market and its services.

“Having Bill Ford and the Ford Motor Company validating Zipcar as a business model and as an emerging transportation brand is a big step for us,” Mr. Griffith said.

Zipcar has bought 650 Ford cars and S.U.V.’s to start, and will start making them available for rental within two weeks.

The membership and rental subsidies offered by Ford could entice frugal college students to give the brand a try.

“The cheaper it is, the more I would be willing to use it,” said Tyler Harangozo of Windsor, Ontario, an incoming freshman at Wayne State University in Detroit.

Mr. Harangozo was among a crowd of Wayne State students looking over the Ford Focus during orientation activities on Tuesday.

He said he expected to commute to school by bus, but appreciated the option of renting a Zipcar for a few hours if needed.

“I can’t rely on public transit to get all around Detroit,” he said. “I’ll probably need a car once in a while.”

Zipcar memberships are available to anyone who has had a driver’s license for two years and a good driving record.

That makes it especially appealing for people under the age of 21, who often cannot qualify to rent a car from a traditional daily rental agency. At Zipcar, even a teenager can become a member.

Rental fees include insurance coverage, and Mr. Griffith said background checks had generally weeded out poor drivers from its membership rolls. “If you have a D.U.I. or high-speed driving violations, you won’t be able to drive one of our cars,” he said.

Ford sees the program as an inexpensive means to introduce younger drivers to its products, particularly the compact Ford Focus. The cars are equipped with Ford’s Sync infotainment and communications systems, and they are among the most fuel-efficient models in the company’s fleet.

“It’s a great way to reach these first-time drivers,” Mr. Ford said. “And the data shows that the No. 1 reason people leave Zipcar is to buy a vehicle, and that they are heavily influenced by what they have driven as a member.”

In the past, Mr. Ford said, his company did not have the right models to attract college-age drivers.

“The Focus is the right product at the right time to reach college kids,” he said. “We don’t know where car-sharing is headed, but Ford wants to be a part of it.”

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Where Pay for Chief Executives Tops the Company Tax Burden

August 31, 2011 by Leave a Comment

The companies — which include household names like eBay, Boeing, General Electric and Verizon — averaged $1.9 billion each in profits, according to the study by the Institute for Policy Studies, a liberal-leaning research group. But a variety of shelters, loopholes and tax reduction strategies allowed the companies to average more than $400 million each in tax benefits — which can be taken as a refund or used as write-off against earnings in future years.

The chief executives of those companies were paid an average of more than $16 million a year, the study found, a figure substantially higher than the $10.8 million average for all companies in the Standard Poor’s 500-stock index.

The financial data in the report was taken from the companies’ regulatory filings, which can differ from what is actually filed on a corporate tax return. Even in a year when a company claims an overall tax benefit, it may pay some cash taxes while accumulating credits that can be redeemed in future years. For instance, General Electric reported a federal tax benefit of more than $3 billion in 2010, but company officials said they still expected to pay a small amount of cash taxes.

The authors of the study, which examined the regulatory filings of the 100 companies with the best-paid chief executives, said that their findings suggested that current United States policy was rewarding tax avoidance rather than innovation.

“We have no evidence that C.E.O.’s are fashioning, with their executive leadership, more effective and efficient enterprises,” the study concluded. “On the other hand, ample evidence suggests that C.E.O.’s and their corporations are expending considerably more energy on avoiding taxes than perhaps ever before — at a time when the federal government desperately needs more revenue to maintain basic services for the American people.”

The study comes at a time when business leaders have been lobbying for a cut in corporate taxes and Congress and the Obama administration are considering an overhaul of the tax code to reduce the federal budget deficit.

Many business leaders say that the top corporate statutory rate of 35 percent, which is higher than any country except Japan, is hobbling the economy and making it difficult for domestic companies to compete with overseas rivals. A coalition led by high-technology companies and pharmaceutical manufacturers have been pushing for a “repatriation holiday,” which would let them bring as much as $1 trillion in foreign profits back to the United States at substantially reduced rates.

But the Obama administration has said it will consider lowering the corporate rate only if Congress agrees to eliminate enough loopholes and tax subsidies to pay for any drop in revenue. Many policy experts estimate that the United States could lower its corporate rate to the high 20s if it eliminated the maze of tax breaks that favor specific industries and investors.

The report found, however, that many of the nation’s largest and highly profitable companies paid far less than the statutory rate.

Verizon, which earned $11.9 billion in pretax United States profits, received a federal tax refund of $705 million. The company’s chief executive, Ivan Seidenberg, meanwhile, received $18.1 million in compensation. The online retailer eBay reported pretax profits of $848 million and received a $113 million federal refund. John Donahoe, eBay’s chief executive, collected a compensation package worth $12.4 million, the study said.

Verizon officials disputed the report. Robert Varretoni, a company spokesman , said that the $18 million in compensation for Mr. Seidenberg was a target, which will only be paid in full if the company stock rises when his bonus is fully vested in three years. Mr. Varretoni also said it was misleading of the report to cite Verizon’s tax benefit without noting that the company also incurred billions of dollars in deferred taxes which “will be paid over time.”

“The fact is, Verizon fully complies with all tax laws and pays its fair share of taxes,” Mr. Varretoni said.

Chaz Bickers, a Boeing spokesman, said that the company’s taxes have declined in recent years because it has made huge investments in United States manufacturing.

Mr. Bickers said that the company also paid hundreds of millions in cash taxes and incurred an additional $1 billion in deferred taxes that it will pay at some date in the future.

“We pay our taxes and we have added 5,000 more U.S. manufacturing jobs that were incentivized by tax benefits,” he said.While the accounting strategies used to lower taxes varied from company to company, the report found that 18 of the 25 corporations had offshore subsidiaries, which can be used to shelter income.

To discourage companies from gaming the tax system, the report called for tighter rules on offshore tax havens and new restrictions on write-offs for executive compensation.

“Instead of sharing responsibility for addressing our nation’s fiscal challenges,” said Chuck Collins, a senior scholar at the institute who co-wrote the study, “corporations are rewarding C.E.O.’s for aggressive tax avoidance.”

Article source: http://feeds.nytimes.com/click.phdo?i=08d4cdd4d0f4702891dea301f3338c37

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DealBook: Charities See Smaller Wall Street Donations

August 31, 2011 by Leave a Comment

John Hope Bryant started Operation Hope after spending six years as a banker in Los Angeles.Hiroko Masuike/The New York TimesJohn Hope Bryant started Operation Hope after spending six years as a banker in Los Angeles.

Operation Hope built a nonprofit powerhouse over the last decade, spinning a stockpile of donations from Wall Street firms into 27 financial education centers across the country.

But the charitable organization’s donor base has retrenched in the wake of the financial crisis. Citigroup’s foundation last year cut its giving 60 percent, to $115,000. The ING Foundation delayed paying its $300,000 commitment to Operation Hope. And the CIT Group, a lender that was once one of the organization’s biggest benefactors, stopped giving altogether.

“Companies don’t realize I’ve got payroll and lease payments just like they do,” said John Hope Bryant, who started Operation Hope after spending six years as a banker in Los Angeles.

While Wall Street has slowly returned from the depths of the financial crisis, nonprofit groups that have come to depend on the industry’s donations are still struggling. With the global market turmoil and the threat of a double-dip recession, many big banks are clutching their cash or rethinking their giving strategy to maximize their dollars.

The pool of potential donors has not fully recovered, either. Lehman Brothers, which gave $39 million to charity in 2007, filed for bankruptcy a year later. Bank of America, which agreed to buy Merrill Lynch in 2008, gave $208 million to charity last year, according to a recent survey by The Chronicle of Philanthropy. In 2007, the two companies collectively donated $244 million.

Although some stalwarts like Goldman Sachs are giving more, they are also shaking up their philanthropic programs. With banks transferring cash to programs that carry the company name, several charitable partnerships have ended.

The changing nature of Wall Street giving has touched many corners of the nonprofit world. While companies represent a small percentage of overall philanthropy, financial firms accounted for the largest amount of corporate cash donations in 2010, roughly $2.11 billion, according to the Committee Encouraging Corporate Philanthropy, a group backed by various industries that aim to promote their giving.

The pullback is most problematic for charities with a financial bent, like those that counsel low-income borrowers or train aspiring entrepreneurs. Wall Street has historically been the main source of money for such organizations.

Donations to the Sifma Foundation, which underwrites financial literacy programs for students, dropped in 2009 to $4 million from $4.7 million. With less money at its disposal, the foundation cut its grant-making 36 percent, to $420,000. The foundation is the charitable arm of the Securities Industry and Financial Markets Association, a Wall Street trade group.

Although Operation Hope received record donations in 2009, its financing dropped 20 percent earlier this year. In turn, the group had to dig into reserves to float projects that lost financing, lay off 14 people and shut its Boston counseling center in June.

In an era of cost-cutting and layoffs, Wall Street philanthropy is a delicate balancing act. Give too little, and banks are called greedy. Give too much, and it endangers the bottom line.

After emerging from bankruptcy in 2009, CIT had to scale back its charitable donations. While the financial company still maintains a corporate giving department that doles out money to nonprofit groups like Big Brothers Big Sisters, it has ended relationships with several others, including Operation Hope.

“Although we believe it’s important to support the volunteer work our employees perform and the philanthropic activities they support, it was a prudent decision on behalf of our shareholders to scale back our corporate philanthropy,” Curt Ritter, a CIT spokesman, said in an e-mailed statement.

Some banks abandoned or curtailed gift-matching programs, where companies agree to duplicate their employees’ donations. Citigroup and UBS Wealth Management suspended their matching programs in 2009. UBS reopened the program the next year; Citi’s program remains closed.

Other financial firms are cutting fewer big checks to nonprofit groups, a trend that is playing out across the corporate landscape. Morgan Stanley’s donations dropped to $46.7 million in 2010 from $54.3 million in 2007, according to The Chronicle of Philanthropy. Bank of America, which pulled back slightly on its charitable efforts during the dark days of the crisis, expects their financing to remain flat this year.

“People are so focused with, ‘I want to get paid,’ and they’re sitting on their cash,” said Mr. Bryant of Operation Hope, who also serves on President Obama’s Advisory Council on Financial Capability, which recommends public policies to support financial education and literacy.

Charities are also competing for money from a donor base that is contracting because of mergers and bankruptcies.

Sponsors for Educational Opportunity, a career preparatory program for minority students, was flush with cash in 2006, receiving donations from Bank of America, Merrill Lynch and Lehman Brothers. After amassing $10 million, the group bought glittering office space across from the New York Stock Exchange.

Then the tap tightened. Since the Bank of America-Merrill merger, the nonprofit now receives only one, smaller, check from Bank of America. The group’s financing from Lehman disappeared altogether after Lehman’s bankruptcy.

Support from Lehman also evaporated for Spelman College, a women’s liberal arts school in Atlanta. The college never received $7 million of a $10 million grant intended to prepare more graduates for the financial industry, a gift that was announced in October 2007.

Rather than bankroll expensive projects, some financial firms are offering their employees’ billable time, reflecting a broader corporate trend. Nonprofits are receiving a flood of so-called in-kind contributions, including volunteers to counsel first-time home buyers.

Over the last three years, Morgan Stanley employees have donated nearly 15,000 hours of pro bono advice to three dozen nonprofit groups, including Episcopal Social Services, which works with foster children and the homeless population in New York. Operation Hope uses 15,000 employees from banks and other corporations to teach financial literacy programs in inner-city schools and offer credit counseling to adults.

While many firms are pulling back, some of Wall Street’s healthiest companies are actually spending more on charity. JPMorgan Chase’s cash gifts rose to $185 million last year from $104 million in 2009, according to the Chronicle of Philanthropy survey. Goldman Sachs gave $315 million to nonprofit groups in 2010, more than four times what it gave the year before.

But even as the strongest banks increase their efforts, some have steered away from supporting multiple miscellaneous causes to focusing on branded initiatives, like the Goldman Sachs 10,000 Small Businesses program or the Morgan Stanley Global Alliance for Children’s Health. By creating internal philanthropic projects that prominently feature the company’s name, banks can focus their donations and carefully monitor results.

Some financial executives acknowledge that, as with much on Wall Street, the issue of giving often comes down to the bottom line. Firms that counsel banks on their giving programs say that potential employees and clients increasingly ask about a bank’s giving programs when applying for jobs or considering where to invest their money. So increasing charitable giving can actually bolster a company’s profits.

“It’s enlightened self-interest, and there’s nothing wrong with that,” said Rob Densen, the founder of Tiller, a consulting firm that advises major corporations on their charitable giving programs.

Mr. Bryant, sensing an increasingly skeptical donor base, recently reworked his boardroom pitch to highlight the economic benefits of charity.

He now emphasizes how Operation Hope, which runs free classes on money management and aims to raise credit scores through one-on-one counseling sessions, will add to a bank’s consumer clients. At an hourlong meeting this year with Jamie Dimon, chief executive of JPMorgan Chase, at the bank’s Park Avenue headquarters, Mr. Bryant dug into the sad state of the economy and Operation Hope’s financial literacy efforts.

The pitch is starting to pay off. Mr. Bryant, who earns roughly $300,000 a year as Operation Hope’s chief executive, says he is close to closing deals with seven financial institutions, which would allow him to hire more people.

“We’re going to be just fine,” he said. But “not everyone is as resilient as we are.”

Article source: http://feeds.nytimes.com/click.phdo?i=d85647f7b88f6cb065de4d7c69f352d6

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