October 20, 2017

Dow Ends Above 14,000 for Year’s Highest Close

The Dow Jones industrial average rose to its highest close of the year Tuesday, putting it within 1 percent of its record. Stocks gained after two big consumer brands posted impressive quarterly results.

The Dow closed up 47.46 points, or 0.34 percent, to 14,018.70 Tuesday. That is 146 points from its record close of 14,164.53 set in October 2007. The Standard Poor’s 500-stock index gained 2.42 points, or 0.16 percent, to 1,519.43, also close to its record.

In a day of quiet trading, stocks were driven higher by the beauty products maker Avon and the luxury clothing and accessories company Michael Kors, whose results impressed investors. Consumer spending accounts for 70 percent of economic activity in the United States.

Financial and home-building stocks, led by the Bank of America and the Masco Corporation, which reported some of the day’s biggest gains, also lifted the averages.

The Dow has logged its best January in almost two decades after lawmakers reached a last-minute deal to avoid sweeping tax increases and spending cuts. Investors are also becoming more optimistic that the housing market is recovering and that hiring is picking up.

The Dow has advanced 7 percent this year and the S. P. 500 is up 6.6 percent.

The 30-member Dow has closed above 14,000 twice this month. Before February, the index closed above that level just nine times in its history. The first time was in July 2007; the rest were in October of that year.

Shares of Avon rose $3.51, or 20 percent, to $20.79 after the company posted a fourth-quarter loss that was not as bad as analysts expected. The company also hopes to save $400 million by slashing costs. Michael Kors rose $5, or 9 percent, to $62 after reporting earnings that beat analysts’ predictions.

Bank of America was the biggest gainer on the Dow, adding 38 cents, or 3.25 percent, to $12.24. Stocks gaining in the index outnumbered those falling by a ratio of more than four to one.

About 70 percent of companies in the S. P. 500 have reported earnings for the fourth quarter. Analysts are projecting that earnings will rise 6.4 percent for the period, an improvement from the 2.4 percent growth reported in the third quarter, according to S. P. Capital IQ.

Investors may have become too optimistic about the outlook for stocks, said Uri Landesman, president of the hedge fund Platinum Partners.

“The market is priced for perfection,” Mr. Landesman said. “The odds of a disappointment are very, very high.”

Mr. Landesman predicts that the S. P. 500 will climb past its record and rise as high as 1,600 by April before then slumping as low as 1,300 as company earnings start to disappoint investors. The record close for the S. P. 500 is 1,565, reached in October 2007.

Investors were expected to be watching closely Tuesday night when President Obama delivered his annual State of the Union address. Mr. Obama was expected to focus on the economy, including job creation.

A decline in bond prices since the beginning of the year has also slowed. The Treasury’s 10-year note fell 4/32 to 96 28/32 on Tuesday and the yield rose to 1.98 percent from 1.96 percent late Monday. The yield was 1.71 percent at the beginning of the year.

In other trading Tuesday, the Nasdaq composite index was down 5.51 points, or 0.17 percent, to 3,186.49.

Among other stocks making big moves:

Coca-Cola, the beverage company, fell $1.05, or 2.7 percent, to $37.56 after reporting fourth-quarter revenue that fell short of analysts’ forecasts.

Masco, a home improvement and building product company, rose $2.22, or nearly 13 percent, to $20.01 after reporting earnings that beat analysts’ expectations, helped by strong demand in North America.

Dun Bradstreet, a provider of credit and business data, fell $6.60, or 7.7 percent, to $78.68 after the company reported a fourth-quarter profit that was below market expectations.

Article source: http://www.nytimes.com/2013/02/13/business/daily-stock-market-activity.html?partner=rss&emc=rss

Venezuela Devalues Currency Amid Shortages and Inflation

The devaluation, which lowered the currency’s value against the dollar by nearly 50 percent, was aimed at solidifying government finances and easing a tight market for dollars that has choked back imports and led to shortages of basic goods.

The move had been widely anticipated, but it had been unclear whether officials would make what could be a politically risky decision with President Hugo Chávez still out of the country after undergoing cancer surgery in Cuba on Dec. 11.

If Mr. Chávez were to die or were too ill to continue as president, a special election would have to be called, and many analysts thought that the government might try to postpone a devaluation until after that occurred.

“It is a sign of pragmatism that they carry out a devaluation even though we’re all aware there is some likelihood of a presidential election being held soon,” said Francisco Rodríguez, an economist with Bank of America Merrill Lynch. “This shows that they’re willing to correct basic economic distortions.”

The currency, the bolívar, will be set at 6.3 to the dollar. It had been set at 4.3.

Venezuela’s finance minister, Jorge Giordani, said that Mr. Chávez, who has not been seen or heard in public for more than eight weeks, had approved the measures.

“Here is the president’s signature if you want to recognize it or if you still have doubts,” Mr. Giordani said, holding up a document during a televised news conference.

The devaluation will help the government balance its books by giving it nearly 50 percent more bolívars for the dollars it earns selling oil on the world market. Venezuela’s economy is highly dependent on oil, with petroleum sales making up about 95 percent of total exports. The country is the fourth-largest foreign oil supplier to the United States.

Government spending soared last year during the campaign to re-elect Mr. Chávez, leading to a large deficit, even though, at more than $100 a barrel, the price of oil is very high.

Pressure to devalue had been building for months, as the black market exchange rate rose to more than four times the official rate. The imbalance was evident in the prices of many goods. A Big Mac at McDonald’s costs 70 bolívars, or $16.27, at the official pre-devaluation rate.

But the devaluation will also make imported goods more expensive, which will probably make inflation worse. Inflation for the 12 months ended on Jan. 31 was 22.2 percent, one of the highest rates in Latin America.

Surging inflation could cause political problems for the government. But the exchange rate had reduced the dollars available to importers, leading to shortages of goods like sugar, chicken and toilet paper. Many analysts believe that voters blame the government more for shortages than for inflation.

Article source: http://www.nytimes.com/2013/02/09/world/americas/venezuela-devalues-currency-amid-shortages-and-inflation.html?partner=rss&emc=rss

HSBC Will Pay $249 Million to Settle Foreclosure Review Case

HSBC agreed to pay $96 million to eligible borrowers who lost their homes to foreclosure in 2009 and 2010, and provide $153 million in other assistance, including loan modifications and forgiveness.

The bank said it was pleased to have reached the agreement and expected to record a pretax charge of $96 million in the fourth quarter of 2012 for the cash portion of the settlement. The bank said it expected to cover the loan assistance through existing reserves.

The settlement, with the Office of the Comptroller of the Currency and the Federal Reserve Board, is the 13th the agencies have reached this month.

The agreements stem from the reviews of individual loan files that regulators ordered in 2011 and 2012, after widespread mistakes were discovered in the way mortgage servicers had processed home seizures.

The reviews, initially expected to determine which borrowers were harmed and to compensate them based on their individual experiences, proved slow and expensive.

Ten banks, including Bank of America, Wells Fargo, Citigroup and JPMorgan Chase, agreed to pay a total of $8.5 billion — some in cash, and the rest in loan assistance — to end the reviews last week.

On Wednesday, Goldman Sachs and Morgan Stanley agreed to a similar $557 million deal.

About 112,000 borrowers whose homes were in foreclosure with HSBC Bank and other HSBC subsidiaries will receive some cash, regulators said.

Article source: http://www.nytimes.com/2013/01/19/business/hsbc-will-pay-249-million-to-settle-foreclosure-review-case.html?partner=rss&emc=rss

Stocks & Bonds: Investors Stay Calm, if Cautious, as Stalemate Simmers

Politicians remain locked in a rancorous debate over impending tax increases and spending cuts, and it remains unclear if a deal will be reached by the end of the year. But investors are already betting that lawmakers will do enough to avoid heading over the so-called fiscal cliff.

Fears that the divide separating Republicans and Democrats might be too great to bridge helped send markets down in the week after the election. More recently, share prices have climbed steadily, rising for most of the last three weeks to reach their highest point since late October.

The Standard Poor’s 500-stock index ended Wednesday flat, up 0.04 percent, to 1,428.48, after briefly spiking after the Federal Reserve’s announcement that it was expanding its bond-buying programs to stimulate the economy. The afternoon drop was attributed to the Fed’s projection that the economy would grow slightly less than expected next year. The benchmark index is now up almost 14 percent for the year.

“Clearly there is no nervousness in the market at all,” said David Woo, the head of global interest rate research at Bank of America Merrill Lynch. “There is a lot of complacency.”

The current rally has been fueled by the broad consensus among investors that Congress and the White House have narrowed their differences enough to make an agreement inevitable. But these same traders and strategists also are waiting for the first sign that negotiations in Washington are going to derail. In a survey conducted by the Potomac Group, nearly two-thirds of investors said that if an agreement was not reached by Dec. 31, the Dow Jones industrial average was likely to fall at least 10 percent.

Greg Valliere, a researcher at the Potomac Group, is among a loud minority on Wall Street that believes the current confidence is misplaced, given the recent track record of politicians on finding solutions to tough fiscal problems.

“Many people in the markets feel that its unthinkable that Washington would do something this irresponsible,” said Mr. Valliere. “After following Washington for 30 years, I would argue it is not unthinkable.”

The debate over taxes and spending is not the only thing that has helped stock prices higher. A growing stream of economic data has pointed to a strengthening recovery in the housing market and an improvement in the employment picture. The Fed also has continued its efforts to support the economy by keeping borrowing costs down and pushing investors into riskier assets.

Still, Wall Street has been fixated on every twist and turn in the negotiations in Washington. A Barclays survey of 400 of its clients found that a significant majority believed that “mismanagement” of fiscal policy posed the most significant near-term threat to markets.

The state of the debate in Washington seems to vary by the hour and the politician at the microphone. Speaker John A. Boehner said Wednesday morning that he and President Obama remained “far apart” on a possible deal.

Ken Taubes, the chief investment officer at Pioneer Investments, said that despite such rhetoric, he was betting on a last-minute agreement because many Republicans had already conceded that taxes needed to rise and many Democrats, including the president, had said that spending would fall.

A failure to reach a compromise “just seems like such a low probability event given that everyone knows what has to happen, and how bad the consequences are if it doesn’t,” Mr. Taubes said.

A number of indicators, such as the price of military contractors’ stocks, suggest that Mr. Taubes’s view is widely shared. The Department of Defense is to have its budget slashed next year if there is no resolution to the negotiations. But since the election, shares of military contractors are actually doing better than the broader market.

Article source: http://www.nytimes.com/2012/12/13/business/investors-stay-calm-if-cautious-as-stalemate-simmers.html?partner=rss&emc=rss

Economix Blog: Gauging the Storm’s Impact on Hiring

Just how big an effect will Hurricane Sandy have on employment?

That’s the question looming ahead of Friday’s announcement of the latest employment figures for November by the Bureau of Labor Statistics.

The consensus of economists surveyed by Bloomberg is that the report will show a net gain of 86,000 jobs last month, with the rate of unemployment remaining at 7.9 percent. But many widely followed economists are citing much lower figures for job creation.

Dean Maki, chief United States economist at Barclays, estimates hiring to have increased by only 50,000, a sharp drop from an average of 170,000 new positions added monthly in August, September and October. “This doesn’t dramatically change our outlook,” he said. “It’s evidence of just how powerful an effect Sandy had on the monthly figures.”

Ethan Harris, co-head of global economics at Bank of America Merrill Lynch, is slightly more optimistic, estimating 60,000 jobs were created in November. But he’s quick to point out that the underlying rate of job creation is healthier than the numbers suggest. If it were not for the storm, he estimates hiring would have jumped in November by 140,000.

“The labor market is very much in the recovery stage,” Mr. Harris said. However, he added, “It’s a long way from full health with workers having little negotiating power when it comes to raises.”

Mr. Harris said he would be watching the figures closely for hiring in the retail sector as the holiday shopping season begins. One danger is that consumers will hold back on spending in order to pay for home repairs in the storm’s aftermath, he said.

He is also waiting to see if worries about the fiscal impasse in Washington weigh on consumers. “Before the election, the fiscal cliff was a worry for the business sector,” Mr. Harris said. “Now it’s front page news.”

Economists are also looking for possible upward revisions in estimated job creation for past months, said Nigel Gault, chief United States economist for IHS Global Insight. In October, the economy created an estimated 171,000 jobs, with government statisticians revising their figures for September and August higher.

Article source: http://economix.blogs.nytimes.com/2012/12/06/gauging-the-storms-impact-on-hiring/?partner=rss&emc=rss

High & Low Finance: Bank of America and MBIA Revisit the Mortgage Debacle

The battle being fought on the most fronts is between Bank of America — the bank that made the critical mistake of acquiring Countrywide Financial, once the country’s largest mortgage lender — and MBIA, the troubled monoline insurer that now warns it may not be able to keep paying claims on structured finance securities unless the bank pays it billions for the sins of Countrywide.

The insurance claims that could well tilt MBIA into bankruptcy are likely to be made by Merrill Lynch, which Bank of America acquired during the financial crisis, not long after it bought Countrywide. Kenneth D. Lewis, the bank’s chief executive then, will go down in history as the Ado Annie of Wall Street, after the character in the musical “Oklahoma” who sang, “I always say ‘Come on, let’s go!’ just when I ought to say nix.”

There was a lot of that willingness to proceed while ignoring risks during the credit boom that preceded the crash. Nowhere was it on display more than in the transactions that led to the battles now being waged.

Put briefly, Countrywide sold a lot of mortgage loans to securitizations it created, and paid small premiums to MBIA to insure that investors would not lose money. MBIA issued that insurance after doing no work at all to verify that the loans met the stated criteria, instead relying on Countrywide’s assurances and promises it would buy back bad loans. The securities got top ratings from Moody’s and Standard Poor’s, which also chose to trust rather than verify.

MBIA in those days — the securitizations in dispute covered second-mortgage loans issued between 2004 and 2007 — was a supremely confident organization. It had grown by selling insurance on municipal bonds, insurance that it was confident would never lead to any claims, or at least not to any significant ones. Other insurers had leapt into its market, and MBIA was fighting for market share in the rapidly growing securitization market.

In 2004, the insurer made a fateful decision, to stop doing due diligence on mortgage loans before it issued insurance on securities based on those loans. Countrywide says the evidence shows that MBIA thought premiums were so low that it needed to cut costs; MBIA says that had it taken the time to check, it would have lost the business to competitors.

Countrywide, also fighting for market share, was cutting corners, too. A lot of the home loans it made and put into securitizations seem not to have met the required criteria, a fact that would have been obvious with even minimal review efforts. But nobody was checking.

After the financial crisis exploded, it became clear that MBIA was in enough trouble that it would never be able to sell any new muni bond policies unless it did something. It came up with a clever idea to split in two. The good — United States muni bond — policies would go into one unit. The unit would be well capitalized and have no responsibility for the bad — the foreign government and structured finance — policies. MBIA got its regulator, what was then the New York State Insurance Department, to approve the deal before those who owned the structured finance policies found out about that.

One suit, in which Bank of America challenged the split, went to trial this year. It has been five months since the trial ended, but no verdict has been announced. Whatever that judge decides, an appeal is likely. Another judge, hearing a suit filed by MBIA claiming that Countrywide committed fraud in unloading bad mortgages into the insured securitizations, may soon decide whether to throw out the suit (as Countrywide wants) or declare MBIA a winner without a trial (as MBIA wants.)

Unfortunately for MBIA, the deadline for getting more cash is approaching. It expects to pay out a lot of money on one set of particularly foolish policies — with Merrill Lynch, now owned by that same Bank of America, as the recipient. It appears that MBIA will not have the cash to pay the claims, although it is not clear how soon that will happen.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2012/11/16/business/bank-of-america-and-mbia-revisit-the-mortgage-debacle.html?partner=rss&emc=rss

U.S. Growth Rate Picks Up to 2%

The pickup in spending by consumers, along with a burst of defense orders and a stronger housing market, helped the economy expand at an annual rate of 2 percent in the third quarter, a slightly better pace than had been anticipated, according to government data released Friday. In the previous quarter, economic growth had dipped to a rate of just 1.3 percent.

While growing more confident that the housing market has stabilized, households have been buoyed by lower energy prices, until recently a rising stock market and a slight improvement in employment. After years of shedding debt, there are also signs that consumers are starting to borrow again.

“Consumers are feeling wealthier so they are still out there spending,” said Joshua Dennerlein, an economist with Bank of America Merrill Lynch.

Still, the pace of economic activity is short of what’s needed to substantially reduce the unemployment rate, now at 7.8 percent and also well below the level of growth typical in this stage of a recovery after a sharp downturn.

What’s more, fears are growing that the economy could slow again in the fourth quarter. Companies are preparing for the possibility of steep tax increases and sharp spending cuts if Congress cannot agree on a deal to reduce the deficit after the election, a combination of factors frequently referred to as the fiscal cliff.

In fact, a series of disappointing earnings reports from the nation’s biggest companies this week, along with a handful of layoff announcements from corporate bellwethers, suggest businesses have already begun to retrench.

With the presidential campaign entering the final, desperate dash to Election Day, there was plenty of fodder in Friday’s report for both candidates to cite as they spar over the direction of the economy.

For President Obama, the best news was that consumer spending grew at an annual rate of 2 percent last quarter, up from 1.5 percent in the second quarter, while residential investment increased at an annual rate of 14.4 percent, compared with 8.5 percent in the second quarter.

The business snapshot was much dimmer. The report showed that business investment fell 1.3 percent, a reversal from the 3.6 percent increase recorded in the second quarter, and a sign businesses are indeed clamping down on spending ahead of the fiscal cliff.

Inventories also were a notable factor with the summer drought in the Midwest shaving overall growth 0.4 percentage point as farm inventories dropped.

In addition to the uncertainty about government policy, corporate performance has been hurt by a recession in parts of Europe and weaker demand from China. Some economists fear that all these factors will keep a lid on growth in the final quarter of 2012 and the first quarter of next year.

The Commerce Department data showed exports decreased by 1.6 percent in the latest quarter, compared with a 5.3 percent increase in the second quarter. It was the first time exports had fallen since the first quarter of 2009, when the global economy was reeling from the collapse of Lehman Brothers and the ensuing financial crisis in the United States.

At a campaign appearance in Iowa, Mitt Romney, the Republican presidential candidate, termed Friday’s report “discouraging,” adding, “slow economic growth means slow job growth and declining take-home pay.”

The new figure, released by the Commerce Department, is the government’s first estimate of growth in the third quarter. Slightly better than the 1.8 percent increase economists had been forecasting, it showed the nation rebounding to the growth it had in the first quarter of the year after a spring slump.

“The report highlights the fact that businesses have already begun to react to the looming fiscal cliff while consumers march steadily ahead,” said Mr. Dennerlein. Noting the jump in residential spending, he added that the slowly recovering housing sector is a bright spot.

Housing values and stock values certainly contribute to consumers’ sense of financial well-being. And despite the hesitancy among businesses, optimism among consumers continues to rise. A separate survey released Friday showed consumer sentiment at its highest level in more than five years, with the Thomson Reuters/University of Michigan index rising to 82.6 in October from 78.3 in September, though it was lower than a preliminary October reading of 83.1 that had been previously reported.

Article source: http://www.nytimes.com/2012/10/27/business/economy/us-economy-grew-at-2-rate-in-3rd-quarter.html?partner=rss&emc=rss

DealBook: Citigroup Earnings Plummeted in Quarter on Write-Down

A Citibank branch in New York.Brendan McDermid/ReutersA Citibank branch in New York.

5:18 p.m. | Updated

Citigroup’s wager that international lending will offset a sluggish recovery in the United States started to pay off Monday when the bank reported third-quarter earnings.

Although Citigroup’s quarterly profit plummeted because of a multibillion-dollar loss related to its continued exit from Morgan Stanley Smith Barney, the bank increased its lending, particularly in Latin America, and snagged a larger share of capital markets business.

Citigroup, the nation’s third-largest bank by assets, behind JPMorgan Chase and Bank of America, reported net income of $468 million, or 15 cents a share, on revenue of $14 billion, compared with net income of $3.8 billion, or $1.23 a share, in the quarter a year earlier.

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Beneath the drop in revenue, though, the bank has a number of strong core businesses. Under the leadership of Vikram S. Pandit, Citi has devoted much of its resources and tied its hopes for future profitability to banking in developing countries, where there is comparatively more growth and less crippling economic uncertainty than in the United States.

Last month, Citigroup agreed to sell its part of Morgan Stanley Smith Barney, the joint brokerage venture, to Morgan Stanley, beginning with a 14 percent stake. Citigroup said at the time that it was writing down the value of its remaining interest in the business.

Citigroup

Citigroup is still trying to work through the glut of bad assets it holds in its Citi Holdings unit, which reported a $3.56 billion loss in the third quarter, up from a $1.23 billion loss in the same period of last year. Without the charge related to Morgan Stanley Smith Barney, the losses in that unit are reduced to $679 million.

Excluding the loss on its brokerage unit, a one-time accounting charge and credit adjustments, the bank reported a profit of $3.27 billion, or $1.06 a share, up from $2.57 billion, or 84 cents a share, in the period a year earlier. The results beat analyst expectations of earnings per share of 96 cents on revenue of $18.7 billion. The bank’s stock was up more than 5 percent, to $36.66, on the results.

Since barely limping through the 2008 financial crisis, Citi has been working to forge a new direction that will help restore the bank to profitability. As part of its strategy, Citi has worked to sharply reduce the bank’s expenses and credit losses while trying to shed its most troubled assets.

The bank’s efforts at a revival have been hampered, though, by obstacles and missteps. In March, citing concerns that Citi might not have enough cash to withstand the most extreme economic downturn, the Federal Reserve scuttled the bank’s plans to raise its dividend or increase share buybacks. The move was a tough blow for Citi, especially because most of the bank’s rivals were allowed to raise dividend payments. After the Fed decision, Citi’s shareholders rebuffed a $15 million pay package for Mr. Pandit, the chief executive, in April.

On Monday, Citi was able to trumpet growth in its core businesses like consumer lending and investment banking. “Our core businesses showed momentum during the quarter as we increased lending and generated higher operating revenues,” Mr. Pandit said in a statement.

John C. Gerspach, the bank’s chief financial officer, echoed Mr. Pandit’s assertion on a conference call on Monday, pointing out the “underlying growth story in the numbers.”

Citi is being buoyed by greater demand for loans in Latin America. Mr. Gerspach said the consumer lending unit in Latin America was having “4 percent, 5 percent growth quarter over quarter.” Revenue in the region grew 7 percent, to $2.4 billion.

Profit in its international consumer banking unit fell 3 percent, to $862 million, from $885 million in the period a year earlier. Activity in Asia was hurt, in part, by lower interest rates that tamp down revenue the bank can get from its lending in the region.

In South Korea, Citi had to navigate a shifting regulatory landscape, especially when the country’s officials capped interest rates on a variety of consumer loans.

While Citigroup did not get the same help from mortgages as rivals like JPMorgan Chase and Wells Fargo, which reported robust profits on Friday from a refinancing frenzy, the bank reported an 18 percent increase in profit in its North American banking segment, in part because of mortgage lending. Even though mortgage originations were down, revenue in the unit was up, in part as a result of widening spreads on the loans.

Across the bank, consumer banking posted revenue gains of 2 percent, to $10.2 billion, from the period a year earlier, while net income in the consumer banking unit increased 18 percent, to $2.2 billion.

Another bright spot for Citigroup on Monday was the 67 percent increase in profit from its securities and banking unit, as the bank benefited from revived capital market activity.

“We continue to gain market share in investment banking,” Mr. Gerspach said. He pointed to “improved market share in every investment product.”

Equity trading in the investment bank soared 76 percent from the same period a year earlier.

Some analysts took note on Monday. The results in the investment banking and securities business were “much better than we were expecting,” Gerard S. Cassidy, an analyst with RBC Capital Markets, said in a research report.

Other banking analysts were also heartened by Citi’s results. “Several moving parts, but mostly progress everywhere,” Glenn Schorr, an analyst with Nomura, said in a research note.

Article source: http://dealbook.nytimes.com/2012/10/15/citigroup-earnings-plummet-in-third-quarter/?partner=rss&emc=rss

You’re the Boss Blog: This Week in Small Business: About That Replacement Ref

Dashboard

A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

Economy: What Fiscal Cliff?

A new survey finds chief financial officers less optimistic about economic growth. Brad Plumer explains why fears of a fiscal cliff are not hurting the economy, and Jared Bernstein reveals important new research on a fiscal cliff issue. Defense contractors brace for federal budget cuts. Economic advisers to President Obama and Mitt Romney squabble. Zachary A. Goldfarb says that under Ben Bernanke the Federal Reserve has become more open and forceful. The chief of the San Francisco Federal Reserve Bank anticipates that the economy will “gain momentum over the next few years.” A new book tries to help entrepreneurs reignite the economy. A bacon shortage threatens the world.

The Data: A Seven-Month High

Manufacturing growth improves in Texas and the central Atlantic region. Home prices notch their biggest gains in seven years. Consumer confidence rises to a seven-month high, and consumers step up their spending. But new home sales fall slightly and orders for durable goods plunge. And revised gross domestic product increased at an annual rate of 1.3 percent in the second quarter of 2012.

Finance: Could It Get Any Worse for B. of A.?

A new Visa study says cash flow concerns top the list of small-business worries. One of the biggest lenders to small businesses will soon be on the auction block. Even when consumers are comfortable using new payment technologies, studies show they sometimes prefer paying cash. Here’s why used car prices are rising. The replacement ref who made that controversial call last Monday is a vice president for small business at Bank of America. Did Iran attack our banks (and lose its sense of humor)?

Start-Ups: A Start-Up That Helps Start-Ups

Tim Ferriss explains Y Combinator’s contribution to the start-up scene. This is a start-up that helps start-ups. A solar panel start-up will tap a $197 million loan guarantee. Amazon may be getting into the wine business — and it’s also lending money to small businesses. A San Francisco start-up offers scooter rentals. The Wall Street Journal names the top 50 start-ups.

Selling: Replace Your Reps

Jill Konrath suggests cold-calling strategies. Matthew Bellows explains how small companies can stand out when selling to big companies: “Showing your prospects the characteristics that set your company apart is key to moving the conversation beyond a checklist comparison.” To sell well, John Jantsch says, you must tell stories. Laura Spencer has some advice for dealing with tire-kickers and other bad clients. Lars Lofgren explains why you should replace your sales representatives with ambassadors.

Marketing: Are You a Jerk?

These are the top cities in America for social-media-savvy small businesses. Jessica Levko says there are 10 signs that you’re a social media jerk, including: “You’re attached to your smartphone.” A show with Martin Sheen explains how small businesses can use social media to find new customers. These are the most important local business directories for search engine optimization. A new Facebook service facilitates the creation of “couponlike” promotions. Erica Ayotte explains how to use Instagram to promote your business. These are five types of images that will enhance your online marketing. A few entrepreneurs share their promotional swag secrets. Annette Du Bois thinks your marketing may be a turnoff. Here’s a case study on how a clothing company lifted its sales 205 percent with daily deal e-mails. This is what a Las Vegas casino can teach you about marketing. These are the five most effective business-to-business word-of-mouth marketing techniques.

Around the Country: Hipster Neighborhoods

Friday is Manufacturing Day, and the United States unveils a “Make It in America” contest. HLN introduces a new weekday series about “Making It In America.” Nissan invites “Edisons in training” to win a $50,000 grant (as well as a brand new 2013 Altima). FedEx introduces a small-business grant competition. Brooklyn booms as record rents drive construction. These are America’s hippest hipster neighborhoods. New York’s first chief digital officer discusses how she achieved 80 percent of the goals laid out in her “digital road map.” A supply chain management firm wins an award for small business from the Air Traffic Control Association. A cash mob hits a small business in San Antonio. A small-business owner in Dallas gives 240 customers a month the opportunity to “act like psychopaths.”

Your People: Happier and Healthier

Norm Brodsky says it’s cost of goods sold that determines whether you can afford another employee: “Once you know your gross margin, it’s easy to figure out the new sales you’ll need in order to break even on the addition of another employee to the payroll. You simply add up all the new costs associated with that new person — salary, benefits, extra phone usage, travel and entertainment, whatever — and divide by your gross margin.” A lawyer suggests that if you’re going to fire employees, you should let them know. Barclays’ chief executive plans to pay his employees based in part on whether they are good citizens. Executives at Research in Motion thank their developers with this awful video. New research concludes that the argument that a chief executive will leave if he or she isn’t well compensated is bogus. Freelancers are happier and healthier than full-time employees. Here are 13 office trends that will disappear in the next five years. These communication tips will make your business buzz with productivity. A Wisconsin news station uses a replacement weather guy.

Red Tape: On Taxes and Cheating

A workplace pregnancy bill is introduced in the Senate. Clint Stretch discusses taxes and cheating: “The I.R.S. estimates that in 2006 alone, the Treasury missed out on $385 billion in revenue due under the current tax law from a combination of underreporting of income, overstatement of deductions or other benefits, or nonpayment of taxes owed. To put that in perspective, increased revenue of $385 billion annually likely would be enough to make the Bush tax cuts permanent and to permanently patch the alternative minimum tax.” The Small Business Administration wants to help entrepreneurs over the age of 50. Thomas P. Hanrahan suggests 10 safeguards against consumer lawsuits, including: “The more variety there is in how you promote, the harder it is for a class-action plaintiff to prove that every consumer was taken in by the same misleading message.” Deborah Sweeney offers her small-business checklist for September.

Management: The Return of Myspace

This article discusses the benefits of being done versus being perfect. Mr. Sexy tries to bring back Myspace. The Queen of the Fuzzy Slippers warns us that problem solving is a productivity issue. Nadia Goodman shares three easy exercises to increase your creativity. Here are five incredibly useful tips from TED Talks. Cassie Mogilner says you will feel less rushed if you give time away. Here’s how to find the peak time to do everything. Going for a coffee is among the top 20 time-wasting activities. “The Daily Show” weighs in on the replacement refs.

Technology: Verizon’s iPhone Secret

Google introduces a new service for entrepreneurs and reports that its Play Store hit 25 billion app downloads (thankfully, it’s not run by the National Football League). Here’s how smartphones are changing health care. A puppet shares 10 useful mobile apps for businesses. A woman gives a dubious explanation for why she is waiting in a line to buy an iPhone. Jim Ditmore suggests six things he’d like to see in a future smartphone. Verizon’s iPhone 5 has a secret feature. Here are the 12 best practices for mobile device management for your company. Consumers will soon be able to get their hands on a much-talked-about light field camera. October is National Cyber Security Awareness Month. In the near future, developers say car apps will be big and Facebook may be the social network of the past. An 11-year-old girl wins $20,000 from ATT for a road safety app. Toyota reveals a new robot to help around the house.

Tweets of the Week

@smallbiztrends: I am getting my car serviced and guy says “you’ve only driven 5K miles in 10 months.” I reply “I run a Web business!”

@gitomer: They don’t want your brochure. They want answers to their situations and concerns.

The Week’s Bests

Jeet Banerjee says that when finding a business idea there’s nothing wrong with imitating: “Some of the greatest business ideas have been imitations of others in different ways. If a certain solution has a large market share and not enough competition, you can definitely create a successful business. … If you find a business with a solid business model, feel free to implement their model into other industries. Many ideas are so strong that they have the ability to work in different niches with just a bit of fine tuning.”

Brett Martin explains how to avoid being cheated by a contractor: “Know who’s on the job site. You might sign a contract and make payments with a person who isn’t doing all of the work. Ask upfront if your crew will subcontract parts of the job to somebody else. If so, do the same research into that person’s business as you did for the general contractor. It’s awkward to have a perfect stranger show up on your doorstep ready to swing a hammer, but beyond that, the balance between contractors and subs can lead to some of the biggest headaches on a big project — delays, incorrect installations, damage to finished work and all sides blaming the others for errors while no one takes accountability.”

This Week’s Question: What would you do to revive Myspace?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://boss.blogs.nytimes.com/2012/10/01/this-week-in-small-business-about-that-replacement-ref/?partner=rss&emc=rss

DealBook: Bank of America to Pay $2.43 Billion to Settle Suit Over Merrill Deal

11:23 a.m. | Updated
Seeking to unload one of its heaviest burdens from the financial crisis, Bank of America announced on Friday that it would pay $2.43 billion to settle litigation that had accused the bank of deceiving investors in the acquisition of Merrill Lynch.

The legal woes from that deal and the bank’s acquisition of the mortgage lender Countrywide Financial earlier in the financial crisis have dogged Bank of America as it tries to turn itself around.

For a federal securities class action, the size of the Merrill settlement is surpassed only by the those of Enron, WorldCom, Tyco and Cendant settlements, according to Joseph Grundfest, a professor specializing in securities litigation at Stanford University Law School.

Bank of America said that the settlement would hurt its results for the quarter, with it and other legal expenses costing it $1.6 billion. It also agreed to adopt a “say on pay” shareholder vote, an independent compensation committee of the board and policies for committees focused on acquisitions, among other corporate governance changes.

Bank of America announced a deal to buy Merrill Lynch for $50 billion in September 2008 as Lehman Brothers was preparing to file for bankruptcy. At the time, the two firms crowed about creating a financial giant unrivaled “in its breadth of financial services and global reach.” Bank of America executives emphasized Merrill’s “great global franchise” and its extensive network of financial advisers. The company said the deal would bolster earnings by 2010.

But by the time the deal closed in January 2009, Merrill Lynch’s health had deteriorated precipitously. The class action accused Bank of America of providing false and misleading statements that disguised huge losses at the Wall Street firm before shareholder votes to approve the merger.

Bank of America denied the allegations, but said it agreed to settle in order to put the cost litigation behind it. Under the proposed settlement, Bank of America has also agreed to beef up its corporate governance policies.

Brian T. Moynihan, chief of Bank of America.Jeff Kowalsky/Bloomberg NewsBrian T. Moynihan, chief executive of Bank of America.

“Resolving this litigation removes uncertainty and risk and is in the best interests of our shareholders,” Brian T. Moynihan, the bank’s chief executive, said in a statement. “As we work to put these long-standing issues behind us, our primary focus is on the future and serving our customers and clients.”

During the early years of the financial crisis, Bank of America appeared to be in better shape than its rivals because it had more ample coffers to acquire struggling lenders. Bank of America swooped in to buy two troubled firms. In 2008, Bank of America bought Countrywide Financial, the subprime mortgage lender. Later that year, Bank of America agreed to purchase Merrill.

But both deals have haunted the bank.

Since it acquired teetering Countrywide in 2008 just as the housing market was cratering, the deal has cost Bank of America more than $40 billion in losses on real-estate, legal costs and settlements, according to several people close to the bank. Within the bank, the purchase of the mortgage lender, has unleashed turmoil and regret. Mr. Moynihan, Bank of America’s chief executive, has publicly expressed regret, specifically about the timing of Countrywide’s purchase.

More than the timing, though, Bank of America has had to grapple with loans made by Countrywide. Founded 43 years ago, Countrywide promoted the virtues of owning a home for every American and made mortgages which have turned out to be some of the most troubled. The purchase of the lender effectively saddled Bank of America with hundreds of thousands of homeowners struggling to keep up with their mortgage payments.

Across the United States, Bank of America has had to spend billions of dollars to defend lawsuits related to Countrywide’s mortgage business. In the second quarter of 2011, for example, the bank reported an $8.8 billion loss, mainly related to a settlement with mortgage investors.

Earlier this year, Bank of America and four other banks agreed to a $26 billion settlement related to their foreclosure practices. That deal evolved from an investigation into the mortgage-servicing practices by all the 50 state attorneys general begun 2010 amid mounting fury over revelations that banks evicted homeowners from their homes with false or incomplete documentation.

Alone, the acquisition of Countrywide would have been enough to hobble growth at Bank of America, but coupled with the problematic purchase of Merrill Lynch, it has nearly crippled the institution. Mr. Moynihan has had to shutter bank branches, sell over billions in assets and slash tens of thousands of employees.

The marriage with Merrill began amid the financial turmoil of 2008. John Thain, the chief executive of Merrill, privately sought out Ken Lewis, the head of Bank of America, during a break in a crisis meeting at the Federal Reserve Bank of New York in lower Manhattan. Mr. Thain had realized that his firm was in critical condition and might not survive past the weekend. It was a shotgun wedding, and the two executives announced Sunday night that their firms were merging.

Bebeto Matthews/Associated PressKen Lewis, former chief executive of Bank of America

The union was rocky from the start. While the deal gave Merrill a much-needed lifeline, the brokerage firm was still hemorrhaging money. Internal calculations showed Merrill, which was saddled with billions of dollars in souring mortgage assets, had a staggering pretax loss of more than $10 billion for October and November, and December was looking even worse.

At the same time, Bank of America and Merrill were pushing forward to close the deal by January 2009. On Dec. 5, at separate meetings in Charlotte, N.C., and New York, shareholders of each company voted to approve the deal. Just days before the shareholder meetings, bank executive expected Merrill to have a fourth-quarter loss of at least $16 billion, according to the shareholder lawsuit. But there was no public disclosure of that internal forecast.

In court documents, lawyers for Mr. Lewis have said that the executive was aware of the mounting losses heading into the shareholder meetings, but following discussions with lawyers he concluded that an interim disclosure was not necessary because the key regulatory filing in support of the merger didn’t contain projections on Merrill’s fourth-quarter results.

“The losses, though large, were not out of line with losses Merrill had experienced in prior quarters; and investors were well aware that banks were sustaining significant losses as the economy deteriorated,” according to a court filing filed by his lawyers in June 2013.

As the losses inside Merrill continued to build, some executives inside Bank of America considered abandoning the deal altogether. But regulators urged executives at Bank of America to continue, arguing that any reneged deal would surely cause further turmoil in the already roiling financial system. Instead, Bank of America received a fresh injection of capital to buffer against the Merrill losses.

On Jan. 16, weeks after the deal had closed, the bailout was announced along with Merrill’s fourth-quarter net loss of $15.31 billion. Shareholders, unaware of the severity of the losses in late 2008, were furious.

Neither Mr. Thain nor Mr. Lewis survived long after debacle. A week after the bailout was announced, Mr. Lewis flew to New York from Charlotte to see Mr. Thain, telling him the board blamed him for the losses. Mr. Thain has previously said he viewed this meeting as a firing.

In April 2009, Bank of America shareholders stripped Mr. Lewis of the title of chairman. By this time, lawsuits related to the merger were mounting and the Securities and Exchange Commission was investigating. Mr. Lewis announced his retirement from the bank a month later.

The bank later paid $150 million to settle an S.E.C. lawsuit that alleged the bank did not tell its shareholders about big bonus payments Merrill had approved before the merger clolsed.

Friday’s settlement won’t be the only black mark on the bank’s financials this quarter. The bank also said that profit would be hurt by a $1.9 billion adjustment related to the value of its debt. It also faces an $800 million charge related to a income tax expense.

In all, Bank of America said earnings would be cut by 28 cents a share. The company is set to report earnings on Oct. 17.

Article source: http://dealbook.nytimes.com/2012/09/28/bank-of-america-to-pay-2-43-billion-to-settle-class-action-over-merrill-deal/?partner=rss&emc=rss