Archives for November 2011

Central Banks Take Joint Action to Ease Debt Crisis

November 30, 2011 by NewsMaker Leave a Comment

The central banks announced that they would slash by roughly half the cost of an existing program under which banks in foreign countries can borrow dollars from their own central banks, which in turn get those dollars from the Fed. The banks also said that loans will be available until February 2013, extending a previous endpoint of August 2012.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement. The participants in addition to the Fed are the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.

The move makes clear that regulators increasingly are concerned about the strain that the European debt crisis is placing on financial companies, which are facing increasing difficulty in borrowing through normal channels the money that they need to fund their operations and obligations.

The European Central Bank borrowed $552 million through the existing facility during the week ending Nov. 23 to meet the liquidity needs of European banks. Data for the past week is not yet available.

On Wall Street, stocks raced ahead at the 9:30 a.m. start of trading in New York, an hour and a half after the announcement by the central banks. The Standard Poor’s 500-stock index, a measure of the broad market, rose 3.2 percent; European markets were up more than 3 percent in late trading.

Under the new terms of the program, the existing interest rate premium of 0.1 percentage points on those loans will be reduced by half, to 0.05 percentage points, effective Dec. 5.

The other central banks said they had also agreed to make similar loans of their own currencies as necessary, but they noted that the only extraordinary demand at present was for dollars.

Stocks surged after the action was announced, with European markets up more than 4 percent in afternoon trading, while United States stock futures were up sharply.

“U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses,” the Fed said in its statement.

Article source: http://feeds.nytimes.com/click.phdo?i=aaebecba830bac80cf2e6d7c0ffd409d

Filed Under: Business News Tagged With: bank of england, regulators, stock index

You’re the Boss Blog: Turning Thanksgiving Day Into Black Thursday

November 30, 2011 by NewsMaker Leave a Comment

Thinking Entrepreneur

An owner’s dispatches from the front lines.

I have spent my entire life in retail, as did my father and both of my grandfathers. I have always thought of it as an honorable profession.

But it has changed substantially over the last 50 years. In some ways it has gotten better, with more choices and lower price points. And in some ways, it has hit a new low. First came the lower level of service that accompanied those lower prices. Fair enough, it was a trade-off. Then came the phony pricing schemes, with the constant 50 percent sales, or the “buy one, get one (or two) free” sales. That was irritating enough. But this year, I think we crossed a line.

It wasn’t good enough for the biggest retailers to open the day after Thanksgiving at 5 or 6 a.m. This year we finally went mad. Some of the big stores started their sales at midnight — or even at 9 p.m. on Thanksgiving Day. This means that the employees had to get to the store right after their Thanksgiving dinners.

Forget the question of whether this is really necessary. It isn’t. The world won’t come to an end if people have to wait until Friday morning to go shopping. This is about decency, fairness and even safety. What do we think is going to happen when thousands of employees drive home after a full day’s work and after having lost a night’s sleep? Almost 200,000 Target employees have signed a petition asking corporate headquarters to allow them their day off.

I have admired, respected and shopped at Target for years. But I wonder what they are thinking. I can tell you what they say. They say they need to remain competitive (in this blog post, an executive vice president discusses the decision in more detail). But in what regard? In the race to the bottom?

Target has led the market in having better products, better looking stores and more engaging ads. They were not the first big retailer to open early for Black Friday, and there are certainly companies whose labor practices have attracted more scrutiny. In explaining this decision, Target’s human resources director said that the company’s “guests” would prefer to go shopping the night before rather than have to wake up in the middle of the night to shop before dawn. I’ve got an idea. How about opening at 9 a.m.? It seems to have worked just fine for about 100 years.

Target likes to call its customers “guests.” They are customers, not guests (even if they are spending the night). I get it. Guests sounds classier. But this is faux class. Real class is treating both your customers and your employees well. How about taking the lead in stopping this competition, which is turning Thanksgiving Day into black Thursday? Is shopping what we should be thankful for?

One hundred years ago, it was factory workers who were being taken advantage of, which resulted in bloody battles and the birth of many unions. Are we going backward? What’s next, working Christmas Day? Family values are not about saving money on a plasma TV. The retail employees and their families deserve to have their holidays off.

All retailers have to come to terms with what hours they are going to be open. No matter what time you open or close, someone is going to be unhappy. The owner of the business has to balance the needs and wants of the customers with the needs and wants of the employees. At the end of the day (or season in this case), it is a zero-sum game. Yes, sales were up for this year’s Thanksgiving weekend, but it’s likely those sales would have been made in the coming weeks even without the early openings.

The fact is, most retailers did not choose to open on Thanksgiving night. Why not? Wouldn’t it have helped them be more competitive? Perhaps it would have (I’ve noted that no matter what time we close, someone is occasionally going to pound on the door). But most companies would never consider it.

Would you?

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=7ad182459f8bca98614e31aed1cd5144

Filed Under: Small Business Tagged With: boss, executive vice, thanksgiving

Judge’s Ruling Complicates Enforcement for S.E.C.

November 30, 2011 by NewsMaker Leave a Comment

Judge Jed S. Rakoff of the Federal District Court in Manhattan added another dimension to that quandary on Monday when he told the Securities and Exchange Commission that he could not determine whether a proposed $285 million penalty against Citigroup was adequate if he did not know what had really happened.

His opinion has undermined the S.E.C.’s longstanding policy of allowing companies to neither admit nor deny the commission’s charges in return for a multimillion-dollar fine and a promise not to do it again.

The commission has “been benefitting for a long time from this huge hammer that allows them to get settlements without having to prove their case,” said Adam C. Pritchard, a University of Michigan law professor. Judge Rakoff’s decision “eliminates that possibility for them.”

Securities law experts say there are ways that the S.E.C. might be able to strengthen its enforcement efforts and make Wall Street fearful of penalties that sting. Jill Gross, a law professor and director of the Investor Rights Clinic at Pace University, said that as a result of the judge’s decision, companies were now likely to have to admit some kind of fault in their settlements.

“It doesn’t need to be a full admission of all culpability,” Ms. Gross said, “but they are going to need some type of admission that something went awry.”

Goldman Sachs did so last year when it settled S.E.C. charges similar to the case against Citigroup that Judge Rakoff rejected. Both firms were charged with selling a mortgage bond investment without telling investors that the people assembling the portfolio were betting that it would drop in value.

In its S.E.C. settlement, Goldman acknowledged that its marketing materials “contained incomplete information,” and that it committed “a mistake” in leaving the full disclosures out of its marketing documents.

“We agree to settlements because they achieve for us largely everything that we could hope to get should we take the case to trial,” Robert Khuzami, the S.E.C.’s enforcement director, said in an interview this month. “I think the message is pretty clear. And the investors get their money much faster, because, as you know, lawsuits can take years.”

Mr. Khuzami said that the “neither admit nor deny” policy was used by the S.E.C. against companies other than Wall Street firms. In addition, he said, other governmental agencies often use the same formulation, and the courts had upheld its application.

The S.E.C. fashioned its “neither admit nor deny” policy in the 1970s, when Wall Street was far different. Most Wall Street firms were relatively small partnerships, meaning that any penalties essentially came out of the pockets of the people who ran them.

Now, however, most Wall Street brokerage houses and investment banks have been joined with publicly traded commercial banks, forming companies so large that penalties of hundreds of millions of dollars are merely “the cost of doing business,” in Judge Rakoff’s words.

The S.E.C. has said that stiffer penalties will provide a greater deterrent. This week, the agency asked Congress to raise the amounts that it can fine companies for securities law violations.

The agency says that it does not have the resources to take many cases to court. The commission said recently that it filed a record 735 enforcement cases in the year ended Sept. 30, producing $2.8 billion in penalties.

Some members of Congress do not buy that argument. “Government resources always will be limited,” said Senator Charles E. Grassley, an Iowa Republican. “That shouldn’t be an excuse.”

S.E.C. officials remain fearful of changing their longstanding policy, however. High-ranking officials at the agency monitored online public commentary after Judge Rakoff’s decision, one agency official said.

“We understand there is a greater public clamoring for accountability for those responsible for the credit crisis,” said the official, who spoke on the condition of anonymity because the Citigroup case was still before the court. “But there are costs with doing away with the policy, and we think they would be pretty significant.”

Article source: http://feeds.nytimes.com/click.phdo?i=48ed5038fb3be8e978b9b939529213e6

Filed Under: Business News Tagged With: longstanding policy, marketing materials, multimillion dollar

DealBook: Details Emerge on MF Global’s Last-Ditch Effort to Fill Shortfall

November 30, 2011 by NewsMaker Leave a Comment

David Goldman for The New York TimesJon S. Corzine on the trading floor of MF Global last year.

After MF Global discovered a nearly $1 billion shortfall in customer money in the early hours of Oct. 31, the brokerage firm lined up a last-ditch — but ultimately unsuccessful — effort to fill the hole, according to people briefed on the matter.

At the time, the revelation of missing money was about to scuttle a last-minute deal to sell part of MF Global to another brokerage firm. MF Global executives scrambled to assemble money from a variety of sources, including its own accounts at banks and clearinghouses, said these people, who requested anonymity because investigations into the matter were incomplete.

The firm was ready to proceed with the wire transfers, but was forced to abort at the last second. Hours later, MF Global filed for bankruptcy protection. And within days, Jon S. Corzine, the former New Jersey governor, had resigned as the firm’s chief executive.

Details surrounding the failed transfers are spotty, though investigators have since criticized the poor condition of MF Global’s books, which may have presented an incorrect picture of how much money the firm had at the time.

It is possible that MF Global lacked the necessary money to complete the transfers. In other cases, the firm’s banks, including JPMorgan Chase, may have needed additional time to verify its account balances.

Part of the reason that MF Global’s records were in disarray was a flurry of asset sales that the firm made in its last week in a frenzied effort to raise money.

What caused the initial shortfall remains the subject of wide-ranging investigations by regulators and the Justice Department. Even the precise amount that is missing has caused some dispute, with estimates ranging from about $600 million to more than $1.2 billion.

What is clear to investigators is that MF Global improperly used customer funds for its own needs during its final chaotic days, according to people with knowledge of the inquiries. That move essentially breached a fundamental Wall Street rule: customer money must remain separate from company cash.

Neither MF Global nor Mr. Corzine has been accused of any wrongdoing.

About $200 million in customer money that disappeared from MF Global surfaced at one point at JPMorgan in Britain during that last week, the people with knowledge of the inquiries have said.

That discovery could prove to be a major breakthrough in the weeks-long search for the missing funds, though hundreds of millions of dollars in customer money remains unaccounted for.

MF Global sent the $200 million to JPMorgan, some people close to the investigations believe, after it overdrew an account at the bank. JPMorgan raised questions about the money , but it never received assurances from MF Global.

It is possible that JPMorgan no longer holds the money, having served only as a middleman between MF Global and several trading partners.

Article source: http://feeds.nytimes.com/click.phdo?i=ef423e70020e13d51f7e3e78acfe06df

Filed Under: Business News Tagged With: bankruptcy protection, mf global, oct 31

SolarCity Wins Financing for Military Housing Plan

November 30, 2011 by NewsMaker Leave a Comment

The company, SolarCity, plans to announce Wednesday that Bank of America Merrill Lynch will lend it up to $350 million to put solar electric panels on roofs and other areas to power as many as 120,000 homes for military personnel over the next five years.

Under the program, which would roughly double the number of homes with solar power if fully carried out, SolarCity will install, operate and own the solar systems, said Lyndon Rive, the company’s chief executive. Customers will pay the company for the electricity they use, with any unused power feeding back to the military bases.

The San Mateo, Calif., company had originally hoped to serve up to 160,000 homes with the help of a loan guarantee from the Obama administration. In early September the energy secretary, Steven Chu, announced preliminary approval of a guarantee that would have covered $275 million of a $344 million loan from Bank of America Merrill Lynch for the program, called SolarStrong.

But the public uproar over the bankruptcy of Solyndra, a solar module maker that had received a $535 million loan guarantee from the same program, cast a pall over other companies’ applications even as the Energy Department was racing to evaluate them before the guarantee program expired on Sept. 30.

Near the end of September, the Energy Department told SolarCity it would not be able to approve the guarantee after all, having run out of time to finish the paperwork before the program’s deadline. At the time, Mr. Rive said that the scrutiny the program was under influenced the department’s decision.

However, the financial profile of the rooftop solar program was still attractive to Bank of America Merrill Lynch. The bank is lending up to $350 million for the scaled-back program without the guarantee. Its backing comes as other banks and companies including Google have been financing distributed solar programs at SolarCity and competitors like SunRun and Sungevity that make rooftop solar systems affordable to homeowners.

“It’s a huge leap forward for the distributed solar market because what we’ve done is create a financing model that can make distributed solar affordable on a huge scale without a guarantee from the federal government,” said Jonathan Plowe, a managing director at the bank.

A year ago, he said, debt financing was available only for large-scale, utility-based projects that did not face the challenges of distributed solar programs, which are by nature fragmented and have to negotiate differing local regulations and procedures.

But after Bank of America Merrill Lynch backed a distributed solar project by NRG and Prologis Inc. that did win a federal loan guarantee, it decided it had a process in place to handle the risks of proceeding without government backing, according to Mr. Plowe.

He said the bank decided the SolarCity project was a solid investment for several reasons: photovoltaic technology is proven, the diversity of installation sites reduces the risk of a failure everywhere at one time, the electricity is relatively easy to transmit, construction time is short and there are few negative environmental consequences.

Solar developers can also take advantage of a 30 percent investment tax credit.

SolarCity executives declined to say how much of a return their investors could expect or to predict how many developers of military housing would sign up to buy the solar power.

Article source: http://feeds.nytimes.com/click.phdo?i=04218d61a8ea05614ff6a89da1b9a2f5

Filed Under: Business News Tagged With: solar electric panels, solyndra, steven chu

DealBook: S.&P. Cuts Its Ratings for 15 Banks

November 30, 2011 by NewsMaker Leave a Comment

9:37 p.m. | Updated

Standard Poor’s on Tuesday downgraded some of the world’s largest financial institutions, another blow to an industry that continues to struggle three years after the darkest hours of the financial crisis.

The agency lowered by one notch its long-term credit ratings on some of the biggest and best-known banks in the United States, including Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase. The action, the result of S.P. applying new standards to 37 financial firms around the world, prompted a downgrade of 15 banks. Among the eight largest banks in the United States under review by S.P., only Boston-based State Street was spared.

“We’ve been doing a lot of deep thinking, and this goes back to taking account of lessons learned during the financial crisis,” said Craig Parmelee, head of the agency’s North American financial institutions practice.

Rating agencies, which were criticized for being too slow to sound the alarms about the 2008 financial crisis, have recently been carrying out an aggressive wave of downgrades. In September, Moody’s cut its credit ratings on three large banks: Bank of America, Citigroup and Wells Fargo. Moody’s said the downgrades were warranted because it believed the federal government was less likely to extend a helping hand to ailing banks as it did in the wake of the collapse of the investment bank Lehman Brothers in the fall of 2008.

On Tuesday, S.P. left 20 other banks unchanged and actually increased the ratings on two Chinese firms, the China Construction Bank and the Bank of China.

But for most financial institutions in the United States and Europe, it has been tough sledding this year.

In the United States, banks have been battling falling profits as economic woes and new regulations have eaten into profits. Overseas, concerns that European countries like Greece and Italy could default on their own debt payments have sent shockwaves through global markets, deepening the problems of American banks.

As the profit engines have slowed, cost-cutting has become a central focus. Over the summer, Goldman said that it would wring out $1.2 billion in costs from its operations by mid-2012, a move that eliminated more than 1,000 jobs. Bank of America, perhaps the most beleaguered of all banks, announced it could eventually lay off 30,000 employees as part of a wide-ranging plan to save $5 billion in annual costs by the end of 2013.

Even before the downgrade by S.P., which came after the stock market’s close on Tuesday, Bank of America’s shares were hitting new lows for the year. At one point the stock touched $5.03, before closing at $5.08, a loss of 3.2 percent for the day.

This was the lowest point for Bank of America since the dark days of March 2009, when bank stocks and the broader market hit bottom in the wake of the financial crisis.

Some investors are uneasy that breaking the $5 level will mean a new chapter in Bank of America’s troubles, causing some institutional managers to sell and taking the bank into the low single-digit realm usually reserved for faltering companies.

“Bank of America is a microcosm of the crisis of confidence in the industry — in the numbers, the managers and the regulators,” said Mike Mayo, a banking analyst with Crédit Agricole.

Bank of America is not alone in watching its stock price fall. Shares of Goldman Sachs have dropped more than 47 percent so far this year. Its stock closed Tuesday at $88.81.

S.P.’s decision to issue broad downgrades is hardly surprising. The action come weeks after the rating agency overhauled its method for grading financial institutions. Now, the agency plans to keep a closer watch on whether banks have put away enough capital for rainy days. It also will pay particular attention to the overall health of the economy in the institution’s home country, and whether that country’s government will step in to bail out firms in times of extreme stress.

Mr. Parmelee of S.P. likened the change to “emphasizing the neighborhood before we begin to analyze the house.”

At the time of S.P.’s announcement of its new rating method earlier this month, the agency signaled that it would lower the long-term ratings of as many as 15 percent of the banks it reviewed and would change the ratings on 40 percent. Investors, analysts said, should also pay particular attention to any short-term rating changes because that affects a bank’s cost of daily borrowing.

“We believe that the industry is at a crossroads and that there are several inflection points, and it’s too early to tell how each will play out,” Jayan Dhru, S.P.’s head of global financial ratings, said in a video explaining the new criteria. “With more stringent capital and liquidity requirements and restrictions on higher-risk activities, the profitability of banking is likely to be much lower than it was before the crisis. This may be acceptable from a creditworthiness perspective, but the impact of business models and global growth may be significant.”

Investors continue to keep a close eye on Bank of America.

While the firm is in a stronger financial position than it was in 2009, investors remain deeply concerned about its potential losses from harmful subprime mortgages packaged by Countrywide Financial, the mortgage specialist Bank of America acquired in 2008.

In addition, as the second-largest bank in the United States after JPMorgan Chase, it remains vulnerable to any downshift in the United States economy, which has been posting anemic growth. Mr. Mayo said the ratings cut was not “life-threatening,” but was another indication that the Bank of America would face higher financing costs in the future. That would eat into its thin profit margins.

Then there is Europe. Bank of America has several billion dollars in direct exposure to Europe, but investors also worry that a deepening of the crisis over sovereign debt will hurt the broader banking group and ripple through financial markets.

Chris Kotowski, an analyst with Oppenheimer, questioned the timing of the downgrade, noting that Bank of America’s loan losses and nonperforming assets were at levels well below where they were two years ago, while its capital had nearly doubled.

“They should have downgraded Bank of America back then,” he said. “This is confirmation that rating agencies are lagging indicators.”

Article source: http://feeds.nytimes.com/click.phdo?i=9539a4d1055734906d256aed04fd1c61

Filed Under: Business News Tagged With: china construction bank, darkest hours, deep thinking

DealBook: For 92nd St. Y, a Cushion Against Wall St. Worries

November 30, 2011 by NewsMaker Leave a Comment

Jennifer S. Altman for The New York TimesThe 92nd Street Y, an Upper East Side cultural institution, has some unusual insurance against the market’s vagaries.Rick Maiman/Bloomberg NewsJohn A. Paulson has guaranteed the 92nd Street Y against losses.

Clients of John A. Paulson, the billionaire hedge fund manager, have had a brutal year, absorbing losses of as much as 50 percent.

But one of Mr. Paulson’s investors — the 92nd Street Y — has nothing to worry about.

That’s because Mr. Paulson, a member of the organization’s board, has guaranteed he will cover the Y for any losses it incurs in his funds. Barring a sharp recovery, Mr. Paulson will have to write a personal check to the organization for several million dollars.

“This is a very uncommon arrangement,” said Andrew M. Grumet, a lawyer specializing in philanthropy. “But the 92nd Street Y isn’t your average nonprofit, and John Paulson isn’t your average money manager.”

One of New York’s premier cultural institutions, the 92nd Street Y also houses an exclusive preschool and nursery school, which Mr. Paulson’s daughters attended. Tuition runs as high as $27,150 a year. The Y, on the Upper East Side of Manhattan, is headed by a board that includes some of best-known names in business: Bronfman, Lauder, Tisch.

Its board is also stocked with Wall Street titans, including Mr. Paulson, who emerged from relative obscurity a half-decade ago to become one of Wall Street’s most successful speculators. He made about $4 billion in 2007 by betting against subprime mortgages. He made another $5 billion in 2010, largely from investments in gold.

But his fortunes have turned this year. Mr. Paulson’s largest funds — his assets under management had swelled to nearly $40 billion — are down 30 to 50 percent, largely as a result of a wager that the economy would recover more quickly than it has.

As a result of such losses, he could owe the 92nd Street Y as much as $4 million, according to two people with knowledge of the agreement who requested anonymity because they were not authorized to discuss it. Yet given Mr. Paulson’s wealth — Forbes magazine estimates his fortune at $15.4 billion — a $4 million check would be pocket change for the 55-year-old native of Queens.

Mr. Paulson is the 92nd Street Y’s largest outside manager, running about $10 million of the school’s $37.9 million in investments, the two people said.

“We’re certainly not ashamed of any of this,” said Sol Adler, the executive director of the 92nd Street Y. “This institution has particularly generous board members, including John and a number of others.”

Mr. Paulson’s agreement to backstop his fund’s losses at the 92nd Street Y is alluded to in the organization’s financial statements, where it is disclosed in a footnote titled “related-party transactions.” The disclosure says that four board members or their immediate families manage money for the 92nd Street Y’s investment portfolio, and that they promised to cover any losses. They also agreed to reimburse the organization for certain fees on the investments.

Other hedge fund managers who have the arrangement with the 92nd Street Y are board member Curtis Schenker, the chief executive of Scoggin Capital Management, and Ricky Sandler, the head of Eminence Capital, whose wife serves as a director. The fourth manager was not disclosed. Mr. Paulson and the other hedge fund managers declined to comment.

“Paulson Company manages funds for approximately 50 foundations and endowments,” said Armel Leslie, a spokesman for Mr. Paulson. “Due to client confidentiality, we do not disclose either the names of our clients, or the terms of their investments with us.”

The 92nd Street Y’s board approached Mr. Paulson and the other managers with the idea several years ago, according to a person with knowledge of the matter. The concept was to gain the benefits of the directors’ investment expertise while protecting itself against losses. Also, by securing such extraordinary terms, the board felt it would eliminate any concern that the board would favor its own trustees over a disinterested money manager.

Philanthropy and corporate governance specialists said that while agreements to personally guarantee against losses were highly unusual, they did not violate any nonprofit laws — as long as the organization made the proper disclosures and forbade trustees from voting on matters in which they had a personal stake.

Several experts said they admired the deal the 92nd Street Y had with the fund managers because of how it upended the traditional risk-reward equation that came with investing, especially in the more volatile hedge fund sector.

“It’s the proverbial win-win,” said a New York-based philanthropy adviser who requested anonymity because she works with a number of the city’s charitable organizations and did not want to risk alienating them. “The Y gets the benefit of potentially lavish hedge fund returns, while limiting their downside risk to zero.”

But others point to an issue that has long been debated in philanthropy circles: Should members of a nonprofit’s board be managing its money, regardless of any special deals they cut for the organization?

The problem is that a nonprofit that does business with its board members subjects itself to accusations of favoritism, say critics of the practice. Another concern is whether the organization has done the same due diligence on its directors’ money management firms as it would for funds unconnected to the board.

“With all the money managers in New York City, I’m not sure it’s necessary to select people who are also trustees of the school,” said Richard Chait, a research professor at the Harvard Graduate School of Education.

New York’s elite private schools have something of a high-class problem, as their boards are filled with top Wall Street executives. They write big checks for capital campaigns and consistently donate generous sums to the annual fund. But they also offer access to hedge funds and private equity funds, many of which are closed to new investors — or at least nonconnected ones.

As colleges and universities have shifted investments over the last decade away from plain-vanilla stocks and bonds and into more high-risk, high-reward investments like hedge funds and private equity, private schools have followed suit. And a driving force has been the presence of some of the prominent investors on the schools’ boards.

At Horace Mann there’s Eric Mindich, the former Goldman Sachs wunderkind who founded Eton Park Capital Management, a multibillion-dollar hedge fund. The Ethical Culture Fieldston School has Laura Blankfein, the wife of the Goldman Sachs chief executive, Lloyd C. Blankfein. The Dalton School’s board includes Douglas Braunstein, the chief financial officer of JPMorgan Chase.

Yet despite these schools’ deep Wall Street ties, several of them, including Dalton and Horace Mann, have a policy of not investing money with their trustees to avoid a conflict of interest or any appearance of favoritism.

Many of the 92nd Street Y’s board members send, or have sent, their children to its nursery school, where the competition for openings is intense. Their largess also accounts for a sizable portion of the institution’s financing. During 2009 and 2010, board donations accounted for nearly half of the 92 St Y’s total contributions, according to its financial statements.

A decade ago, the 92nd Street Y suffered through an embarrassing episode when it emerged that Sanford I. Weill, then the chief executive of Citigroup, tried to help the twins of Jack Grubman, the bank’s star stock analyst, gain admission to the preschool. Citigroup donated $1 million to the organization around the time that Mr. Weill made his request. Both Citigroup and Mr. Weill denied any wrongdoing.

Mr. Paulson’s two daughters attended the 92nd Street Y nursery school. At least one of them now goes to Spence, an all-girls private school on the Upper East Side. Mr. Paulson joined Spence’s board last year and manages money for the school.

It is unclear whether he has a similar agreement in place with Spence as his one with the 92nd Street Y. A representative for Spence declined to comment.

Article source: http://feeds.nytimes.com/click.phdo?i=db25dcb4e4c1408a97c416abc40a4fc8

Filed Under: Business News Tagged With: john paulson, maiman, vagaries

DealBook: In Bankruptcy, a Bid to Cut Costs at American Airlines

November 30, 2011 by NewsMaker Leave a Comment

Ángel Franco/The New York TimesAmerican’s counter at La Guardia Airport on Tuesday. The airline says it will run a full schedule while it is in bankruptcy.

After resisting for a decade, the parent company of American Airlines announced Tuesday that it would now follow a strategy that the rest of the industry chose long ago: filing for bankruptcy protection so it can shed debt, cut labor costs and find a way back to profitability.

American’s parent, the AMR Corporation, was the last major domestic airline that had never sought Chapter 11 protection. Its main rivals, including Delta Air Lines and United Airlines, used the bankruptcy courts to reorganize their businesses in recent years and emerged as stronger, more profitable rivals.

American, meanwhile, has lost more than $11 billion since 2001, while falling off its perch as the nation’s largest airline as mergers between first Delta and Northwest, and then United and Continental, created bigger competitors. The airline’s troubles were compounded by high labor costs, including pensions that are the richest in the industry, and surging fuel prices.

The decision to file for bankruptcy, which was endorsed by a unanimous vote of the company’s board on Monday evening, was a defeat for Gerard J. Arpey, who has run the airline since 2003 and had staunchly resisted such a move.

“It’s no secret that we have tried exceptionally hard over the last decade to avoid this outcome,” he wrote in an emotional message to employees.

Rather than guide the airline through bankruptcy, Mr. Arpey, 53, decided to retire as chairman and chief executive and take a job in private equity investing. He was succeeded by AMR’s president, Thomas W. Horton, 50, another longtime hand at the airline, who was ATT’s chief financial officer for four years before returning to AMR in 2006.

Despite Mr. Arpey’s long tenure as AMR’s chief executive, he does not appear to be bailing out with a golden parachute. Under the terms of his contract, he will not receive any severance, according to the research firm Equilar. And with AMR closing at 26 cents a share on Tuesday, his stock holdings are essentially worthless.

As other airlines have done in similar cases, American said it would continue to operate its regular schedule throughout the bankruptcy process. It said flights, ticket sales, overseas alliances and frequent flier programs would not be affected. Employees will continue to be paid and receive health benefits.

Wall Street analysts said AMR, which has about $4.1 billion in cash and short-term investments, was seeking court protection before its financial position completely deteriorated.

“This is not a defensive move, but an offensive bankruptcy where they go after their labor groups to reduce costs,” said Bob McAdoo, an airline analyst at Avondale Partners. “They have a great franchise and a lot of cash. They are not being forced into bankruptcy here. They have a problem with their cost structure that they want to tackle.”

The decision might eventually lead to a smaller airline, with fewer employees, fewer planes and fewer destinations. Seth Kaplan, an aviation specialist with Airline Weekly, said hubs like Dallas and Miami, where American has a strong competitive position, would probably be spared, while Los Angeles and Chicago, where it is not a market leader, might be more vulnerable to cuts.

American has long argued that its labor costs were $800 million a year higher than its rivals’ because its pilots fly fewer hours and have less flexible work rules. Its cost per available seat mile, a common industry metric that includes labor and operating costs, is about 10 percent higher than Delta’s.

But labor is only part of the picture. American owns and operates a regional carrier, American Eagle, that flies 50-seat jets that are among the least efficient to operate. It is also the only major airline to perform most of its major maintenance internally. And more than a third of its 600 planes are McDonnell Douglas MD-80s, an aging design that burns more fuel than newer models.

“If oil was still at $50 a barrel, we wouldn’t be having this conversation,” said Mike Boyd, an airline consultant. “Their bet was to hold on to their older MD-80s until Boeing came up with a new airplane. As we know, that didn’t happen.”

The decision to file for bankruptcy was not entirely unexpected. Speculation about a bankruptcy sent the company’s shares down 79 percent this year even before the filing. However, its timing did take many analysts by surprise because they thought the company had enough cash to finance its operations for at least the next 12 months.

Mr. Horton said in an interview that AMR’s board did not want to wait. “This was the time to move from a position of relative strength,” he said. As of Sept. 30, AMR had $24.7 billion in assets and $29.6 billion in debt, according to a filing with the Federal Bankruptcy Court in Manhattan. Creditors include the holders of AMR bonds as well as companies like General Electric that leased aircraft to the airline.

The airline managed to avoid filing for bankruptcy in 2003 after it obtained major concessions from its labor groups, including lower pay for its pilots. But talks for a new contract had been dragging on since 2008 with no resolution. The latest round stalled in recent weeks when the pilots’ union refused to send a proposal to its members for a vote.

“It appears the board of directors ran out of patience after the last discouraging signals from the pilot unions,” said Philip Baggaley, a managing director at Standard Poor’s Ratings Services.

Airlines have used federal bankruptcy rules in the past to force new contracts on their employees, and American may now take a tougher position with its own unions.

“We had been hopeful that bankruptcy could be averted, but we were aware of the possibility,” said Gregg Overman, a spokesman for the Allied Pilots Association, which represents American pilots.

James C. Little, the president of the Transport Workers Union of America, which represents 25,000 employees, including ground workers, struck a more defiant tone. The union reached a series of tentative agreements in recent weeks with the airline and American Eagle.

“This is likely to be a long and ugly process, and our union will fight like hell to make sure that front-line workers don’t pay an unfair price for management’s failings,” he said.

The mergers of Delta and Northwest, and United and Continental, helped those airlines cut capacity, increase fares and return to profitability last year. American, meanwhile, has had just two profitable years in the last decade, while losses from 2001 to 2010 were $11.4 billion. It recorded a $982 million loss through the first nine months of this year and is expected to post another loss in 2012.

In the long run, the airline is counting on a significant overhaul of its fleet to cut long-term costs. In July, it announced a $38 billion order for 460 new single-aisle planes from Airbus and Boeing. American’s fleet has an average vintage of 15 years, making it one of the oldest and least fuel-efficient among the six major United States carriers.

The company said it still intended to buy these planes, for which it has already secured $13 billion in financing from the plane makers themselves.

The impact of the bankruptcy is likely to be more immediate for some jet leasing companies. In a letter addressed to lessors, American’s treasurer, Beverly K. Goulet, said the airline could not afford to maintain all of its leased aircraft at their current rates and said it had no choice other than to begin canceling contracts on an unspecified number of planes. American leases roughly 29 percent of its fleet, according to data compiled by Ascend, an aviation consultancy based in London.

Although other airlines have improved their finances by taking a trip through bankruptcy court, some analysts were still skeptical about American’s long-term prospects.

“The industry is chronically oversupplied and AMR has no dominance or significant competitive edge in any particular market — we are not convinced that a reinvented, scaled-down iteration will change that,” said Vicki Bryan, an analyst at Gimme Credit.

Article source: http://feeds.nytimes.com/click.phdo?i=36a3aff91655e51e5d0c196efa1d47b0

Filed Under: Business News Tagged With: amr corporation, chief exec, fuel prices

Asia Stocks Fall as Europe Debt Crisis Festers

November 30, 2011 by NewsMaker Leave a Comment

BANGKOK (AP) — World stocks fell Wednesday after a meeting of Europe’s finance ministers failed to stem fears that the euro currency union is hurtling toward a breakup. Banking stocks slumped after some of the world’s top financial institutions were slapped with a credit rating downgrade.

European shares headed south in early trading. Britain’s FTSE 100 fell 0.8 percent to 5,296.40. Germany’s DAX shed 0.7 percent to 5,760.28 and France’s CAC-40 lost 0.6 percent to 3,007.73. Wall Street was also headed for a lower opening. Dow Jones industrial futures fell 0.6 percent to 11,501 and SP 500 futures were 0.6 percent lower at 1,189.40.

Sluggish trading began earlier in the day in Asia, where Japan’s Nikkei 225 index dropped 0.5 percent to close at 8,434.61. South Korea’s Kospi dropped 0.5 percent to 1,847.51. Hong Kong’s Hang Seng dipped 1.5 percent to 17,989.35. Australia’s SP/ASX 200 swung back and forth until settling 0.4 percent higher at 4,119.80.

Mainland Chinese shares plummeted, with the benchmark Shanghai Composite Index falling 3.3 percent to 2,333.41. The Shenzhen Composite Index dropped 4 percent to 994.02.

Sentiment was dented after a meeting in Brussels of finance ministers from the 17 countries that use the euro ended without an announcement on plans to contain the debt crisis that is threatening to shatter the currency union.

The ministers sent debt-riddled Greece euro8 billion ($10.7 billion) to stem an immediate cash crisis, but they kicked more difficult issues — such as whether countries should cede some control over their finances to a central European authority — to the leaders of the European Union who meet next week.

In the latest sign of trouble, Italy was forced to pay a high interest rate on an auction of three-year debt Tuesday. The 7.89 percent rate was nearly three percentage points higher than last month, an enormous increase.

If Italy were to default on its debt of euro1.9 trillion ($2.5 trillion), the fallout could spell ruin for the euro common currency and send shock waves through the global economy. Such a prospect has left little appetite for risky assets.

Analysts at Credit Agricole CIB said in a report that “until concrete and detailed plans for a solution to the crisis are announced, the downward trend” in stocks will continue.

Ratings downgrades for many of the world’s largest banks also drove investors to the sidelines, analysts said. Standard Poor’s on Tuesday lowered its credit ratings for 37 financial companies, including Bank of America Corp., Citigroup Inc. and HSBC Holdings PLC.

Hong Kong-listed Industrial Commercial Bank of China, the world’s largest bank by market value, fell 2.3 percent. Japan’s Mizuho Financial Group lost 1 percent and Hong Kong shares of British bank HSBC Holdings fell 2.6 percent.

Insurance companies also fell. Hong Kong-listed China Life Insurance Co., the country’s biggest life insurer, lost 3.5 percent. Ping An Insurance fell 5.3 percent. Japan’s Tokio Marine Holdings shed 0.9 percent.

Among mainland Chinese shares, securities, nonferrous metals, media, cement and auto companies weakened. More than 20 companies plunged 10 percent.

“It was panic selling,” said Liu Kan, an analyst at Guoyuan Securities, based in Shanghai.

Investors were worried over an increase in sales of non-tradable shares in December as lockup periods expire and the possible launch soon of international shares in Shanghai. Officials of the Shanghai Stock Exchange denied rumors of an imminent launch of an international board in Shanghai, where only Chinese companies’ shares are now traded.

Shanghai-listed Founder Securities Co. lost 8.1 percent while China Merchants Securities Co. lost 4.5 percent, its lowest close in two years.

On Wall Street on Tuesday, a jump in U.S. consumer confidence sent stocks modestly higher. The Dow Jones industrial average rose 0.3 percent to close at 11,555.63. The Standard Poor’s 500 index rose 0.2 percent to 1,195.19. The Nasdaq composite, which consists mostly of technology stocks, fell 0.5 percent to 2,515.51.

The Conference Board, a private research firm, said its Consumer Confidence Index climbed 15 points in November to 56.0 — an improvement, but still well below the level of 90 that indicates an economy on solid footing.

Benchmark crude for January delivery was down 66 cents to $99.15 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.58 to settle at $99.79 on Tuesday.

In currency trading, the euro slipped to $1.3269 from $1.3331 late Tuesday in New York. The dollar was nearly unchanged at 77.92 yen from 77.93 yen.

___

AP researcher Fu Ting contributed from Shanghai.

Article source: http://www.nytimes.com/aponline/2011/11/29/business/AP-World-Markets.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: finance ministers, shanghai composite index, top financial institutions

British Inquiry Is Told Hacking Is Worthy Tool

November 30, 2011 by NewsMaker Leave a Comment

After Paul McMullan, a former deputy features editor at Rupert Murdoch’s now-defunct News of the World tabloid, had finished his jaw-droppingly brazen remarks at a judicial inquiry on Tuesday, it was hard to think of any dubious news-gathering technique he had not confessed to, short of pistol-whipping sources for information.

Nor were the practices he described limited to a select few, Mr. McMullan said in an afternoon of testimony at the Leveson Inquiry, which is investigating media ethics in Britain the wake of the summer’s phone hacking scandal. On the contrary, he said, The News of the World’s underlings were encouraged by their circulation-obsessed bosses to use any means necessary to get material.

“We did all these things for our editors, for Rebekah Brooks and for Andy Coulson,” Mr. McMullan said, referring to two former News of the World editors who, he said, “should have had the strength of conviction to say, ‘Yes, sometimes you have to stray into black or gray illegal areas.’ ”

He added: “They should have been the heroes of journalism, but they aren’t. They are the scum of journalism for trying to drop me and my colleagues in it.”

Mr. Coulson, who resigned from his job as chief spokesman for Prime Minister David Cameron in January, and Mrs. Brooks, who resigned in July from her job as chief executive of News International, the British newspaper arm of the Murdoch empire, have both been arrested on suspicion of phone hacking, or illegally intercepting voice mail messages. Mrs. Brooks, whom Mr. McMullan called “the archcriminal,” is also suspected of making illegal payments to the police.

Both have repeatedly denied the allegations, and neither has yet been charged.

Nothing that Mr. McMullan said was particularly surprising; anyone following the phone hacking scandal that engulfed News International and its parent, the News Corporation, over the summer is now more than familiar with outrageous tales of tabloid malfeasance. What was startling was that Mr. McMullan, who left his job in 2001, eagerly confessed to so much and on such a scale — no one else has done it quite this way — and that he maintained that none of it was wrong.

Most people from the tabloid world have reacted to the revelations in the manner of Renault when discussing gambling in “Casablanca,” saying they are “shocked, shocked.” But Mr. McMullan veered so far in the other direction that at times he sounded like a satirist’s rendition of an amoral tabloid hack.

Underhanded reporting techniques are not shocking at all, he said, particularly in light of how often he and his colleagues risked their lives in search of the truth.

As examples of the dangers of his job, he described having cocaine-laced marijuana forced on him by knife-wielding drug dealers in a sting operation; being attacked by a crowd of murderous asylum seekers; and, in his “Brad the teenage rent boy” guise, sprinting through a convent dressed only in underpants to escape the pedophile priest he had successfully entrapped.

“Phone hacking is a perfectly acceptable tool, given the sacrifices we make, if all we’re trying to do is get to the truth,” Mr. McMullan said, asking whether “we really want to live in a world where the only people who can do the hacking are MI5 and MI6.”

No, he said, we do not.

“For a brief period of about 20 years, we have actually lived in a free society where we can hack back,” he said.

Journalists in Britain have traditionally justified shady practices by arguing that they are in “the public interest.” Asked by an inquiry lawyer how he would define that, Mr. McMullan said that the public interest is what the public is interested in.

“I think the public is clever enough to decide the ethics of what it wants in its own newspapers,” he said. Referring to articles about Charlotte Church, a singer who told the inquiry this week of her distress at her family’s treatment by the tabloids, he said, “If they don’t like what you have written about Charlotte Church’s father having a three-in-a-bed with cocaine, then they won’t read it.”

Article source: http://www.nytimes.com/2011/11/30/world/europe/british-hacking-scandal-widens-to-government-secrets.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: leveson, mrs brooks, worthy tool

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