jpmorgan chase

Economic Reports for the Week of Jan. 9

January 9, 2012 by NewsMaker Leave a Comment

CORPORATE EARNINGS Those reporting will include Alcoa (Monday); Chevron (Wednesday); and JPMorgan Chase (Friday).

IN THE UNITED STATES On Monday through Jan. 22, the North American International Auto Show will be held in Detroit. On Tuesday through Friday, the International Consumer Electronics Show will take place in Las Vegas. On Wednesday, the Commodity Futures Trading Commission will vote on a Dodd-Frank proposal to ban proprietary trading by banks.

OVERSEAS On Monday, Chancellor Angela Merkel of Germany will meet in Berlin with President Nicolas Sarkozy of France to discuss the European debt crisis. On Tuesday through Thursday, Treasury Secretary Timothy F. Geithner will meet with officials in China and Japan. On Wednesday, Mrs. Merkel will meet in Berlin with Mario Monti, the Italian prime minister, to discuss the debt crisis. On Thursday, the European Central Bank and the Bank of England will issue their decisions on interest rates.

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Filed Under: Business News Tagged With: commodity futures trading commission, geithner, jpmorgan chase

DealBook: Wall Street Braces for Weak 4th-Quarter Earnings

January 7, 2012 by NewsMaker Leave a Comment

Spencer Platt/Getty ImagesWall Street banks have been buffeted by the weak American economy and the European debt crisis.

For most Wall Street bankers, 2011 was a year they would rather forget. Investors will soon find out just how bad that year was for the country’s biggest financial institutions.

In recent days, analysts have been lowering their fourth-quarter earnings estimates for Goldman Sachs, Morgan Stanley, Citigroup and Bank of America. Analysts are also bracing for lower earnings from JPMorgan Chase, which on Friday will be the first of the Wall Street banks to report results.

“It’s likely 2011 will be the worst year for revenue growth for the banks since 1938, and so far 2012 isn’t feeling much better,” said Michael Mayo, an analyst with Crédit Agricole Securities and the author of the recently published book “Exile on Wall Street: One Analyst’s Fight to Save the Big Banks from Themselves.” “The industry simply grew too fast over the past two decades and now it’s downshifting. This process will take time, but the hit to revenue is happening now.”

Wall Street banks have been buffeted by a weak economy in the United States and by concerns that the European debt crisis will spread, sending shock waves through the financial system.

At the same time, most banks are expected to book an accounting loss in the fourth quarter from the performance of their own debt. In the previous quarter, this one-time item significantly bolstered the earnings of a number of banks.

With business sluggish, Wall Street banks have been chopping staff and expenses. A dismal 2011 will translate into smaller employee bonuses, which most banks will begin handing out in the coming weeks. Compensation experts are estimating compensation for Wall Street employees could fall as much as 30 percent from levels a year ago. While sharply lower bonuses may be politically popular, they will also eat into the revenue that New York State collects from Wall Street.

Daniel Acker/Bloomberg NewsLloyd C. Blankfein, chief executive of Goldman Sachs, which had a drop in client trading revenue.

The challenges facing Wall Street are illustrated by the performance of Goldman Sachs — for years the envy of rivals for its ability to churn out rich profits even in rough times — in recent quarters. In the third quarter, Goldman reported a loss of $428 million, in contrast to a $1.74 billion profit a year ago. Goldman’s chief executive, Lloyd C. Blankfein, told investors that Goldman was “disappointed” in the performance.

For the fourth quarter, the firm is projected to post a profit of $2.02 a share, according to a survey of analysts by Thomson Reuters. That consensus number is down from $2.81 a month ago. And it is likely to fall further in the coming days as more analysts weigh in with new estimates. Some analysts already have Goldman, which reports on Jan. 18, earning less than $1 a share in the fourth quarter.

New regulations combined with a drop in client trading revenue and the falling value of some of its core equity holdings, like the Industrial and Commercial Bank of China, a strategic investment the firm made in 2006, hurt Goldman in the third quarter. Equity markets, however, improved in the fourth quarter, so Goldman should gain from some of the same investments that ate into profits just a few months ago.

An analyst with Credit Suisse, Howard Chen, does not have high hopes for Goldman’s fourth-quarter results.

“We’re expecting a quiet finish to a challenging year for Goldman Sachs and the brokerage industry — while 2011 may now be in the rearview mirror, we do believe the year ended on a difficult note with highly depressed levels of institutional and corporate client risk appetite and year-end seasonal weakness,” he wrote in a report issued on Thursday. Mr. Chen is predicting the firm will earn 70 cents in the fourth quarter.

Scott Eells/Bloomberg NewsJames Gorman, chief executive of Morgan Stanley, which earned $2.15 billion in the third quarter.

Analysts are also notching down estimates for Goldman’s rival Morgan Stanley. Morgan Stanley was hit harder than Goldman by the financial crisis. While it is a major player in many areas Goldman dominates, like sales and trading, it decided after the financial crisis to make a big investment in wealth management, a lower risk business that tends to post steadier results.

So far the strategy, led by Morgan Stanley’s chief executive, James Gorman, appears to be taking hold. The company earned $2.15 billion in the third quarter, up from a loss of $91 million in the year-ago period. In the fourth quarter, however, Morgan Stanley will be taking a substantial one-time pretax earnings hit of $1.8 billion related to a recent legal settlement. This will translate into a per-share hit of 64 cents and will most likely put Morgan Stanley into the red in the quarter. Analysts are predicting the bank will lose 54 cents a share in the fourth quarter. A month ago, the consensus was for a profit of 29 cents a share, according to Thomson Reuters. (Morgan Stanley has not yet announced when it will report.)

Investors will also keep a close eye on Bank of America, which has also struggled to recover from the financial crisis. The firm’s shares are now trading above $6, a nice bump given it was trading at about $5 just a few weeks ago. Its legacy mortgage business, however, remains a burden. Bank of America, which reports on Jan. 19, is projected to post a fourth quarter per-share profit of 20 cents, up from 4 cents in the quarter a year ago.

JPMorgan Chase weathered the financial storm better than some, in part because it has a large retail bank that produces fairly steady earnings. Still, it owns a big investment bank and it is not immune to the same issues facing its rivals. JPMorgan’s profit dipped 4 percent, or $1.02 a share, in the third quarter, in part because of lingering mortgage problems. Analysts are projecting the firm will post a profit of 93 cents a share in the fourth quarter. The bank posted a per-share profit of $1.12 in the fourth quarter of 2010.

Citigroup is scheduled to report its earnings on Jan. 17. Analysts are forecasting that it will earn 76 cents a share in the fourth quarter, up from 40 cents in the year-ago period.

In a recent research note, Jeff Harte, an analyst at the brokerage house Sandler O’Neill, said Citigroup earnings would be dragged down by a number of one-time items, like severance payments to employees and credit hedging losses. Still, not all the news is bad.

“While we are also reducing our capital markets-related revenue estimates, the bottom-line impact should be offset substantially by lower-than-previously-expected credit costs,” he wrote. Mr. Harte is predicting Citigroup will earn 43 cents a share.

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Filed Under: Business News Tagged With: american economy, jpmorgan chase, shock waves

JPMorgan Is Promoting Its Charity on NBC Show

December 10, 2011 by NewsMaker Leave a Comment

On Saturday, it might be all of the above.

In a gambit to promote its charitable work — and maybe polish its image, which has suffered since the financial collapse in 2008 — JPMorgan Chase is financing and sponsoring the “American Giving Awards,” which will be televised by NBC on Saturday night. The two-hour show, with Bob Costas as host, will profile recipients of Chase donations, will be book-ended by Chase commercials and will regularly remind viewers that the whole event is “presented by Chase.”

The producers and the network suggested Friday that the awards show was a feel-good holiday season special. Kimberly B. Davis, the president of the JPMorgan Chase Foundation, said it was about celebrating “ordinary people doing extraordinary things in communities.”

But to others, the show has another bottom line. It’s a “‘greed-washing’ campaign to score P.R. points,” countered Lisa Graves, whose publication “PR Watch” investigates company public relations campaigns. The $2 million in donations that will be featured on Saturday “are a drop in the bucket compared to its ultra-lush benefits for bankers who profited richly from the swaps that undermined our nation’s financial security,” she said.

The “American Giving Awards” are part of a broader business world trend. Not content to have the news media cover its good works, many companies are creating their own media, often cloaked as entertainment.

Big banks, in particular, “do a lot of socially driven programs, but they don’t consistently tell people about them,” said Steve Cone, a marketing executive for AARP who formerly worked at Citigroup and Fidelity.

And given the financial downturn, “there’s more pressure now to say, ‘We’re not all evil, here’s the good things we do,’ ” said Allen P. Adamson, a managing director at the brand firm Landor Associates.

For instance, one of Chase’s main competitors, Bank of America, has been running commercials this fall that profile small businesses that have benefited from its financial products.

For companies, the promotion of citizenship efforts “is the topic de jour these days,” Mr. Adamson said.

The five charities to be feted on Saturday have already benefited from Chase’s largess without a television extravaganza. Over all, the bank says it gives away $150 million a year; more narrowly, through a program called Chase Community Giving, it has been giving money and visibility to small charities across the country for the last two years.

Intersport, a marketing agency for Chase, and Dick Clark Productions conceived of a holiday season awards show built around the community giving program, said Carter Franke, the head of JPMorgan Chase corporate marketing. Ms. Franke was interviewed Friday from Los Angeles, where the show was being completed.

Five charities that received money from Chase in the past were selected to compete in public for a new $1 million grant, with voting happening via Facebook. The winner will be revealed on the telecast Saturday; the other four will receive smaller grants.

The goal, Ms. Franke said, was not to burnish the Chase brand per se, but to raise awareness of the community giving program. “It is an opportunity for these charities to become better known and for them to show what they can do with these grants from Chase,” she said.

The show concept was taken to NBC, which otherwise would be running repeats on Saturday, typically the slowest night of the week for network television. Asked if it was an advertisement, an NBC spokeswoman said: “No. It’s a show about charitable giving.”

The network declined to comment on whether or how money was exchanged. But Chase did say that it bought eight 30-second commercials that will run during the show.

Sometimes networks sell blocks of time to outside advertisers outright, but the companies involved indicated that was not the case for the “American Giving Awards.”

Internally at NBC, the show has been compared to the annual “CNN Heroes” awards show on that cable news channel.

Like other awards shows, it will rely on celebrities to rope viewers in; it will feature performances by Will.i.am and Rodney Atkins and appearances by Colin Farrell and Miley Cyrus, among others.

A bank giving away money on prime-time TV might be a turn-off to some viewers, but to date only a few seem to have spoken up about it. One of those few wrote on Chase’s Facebook wall on Wednesday, “It’s humorous how easily you can convince people you are doing something good.”

Asked whether Ms. Franke was concerned about that kind of adverse viewer reaction on a bigger scale, she said, “Hopefully, viewers are going to see that there are some wonderful charities out there doing strong things with the help and support of Chase.”

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Filed Under: Economy News Tagged With: aarp, downturn, jpmorgan chase

DealBook: Regulator Approves ‘MF Global Rule’

December 5, 2011 by NewsMaker Leave a Comment

Yuri Gripas/ReutersGary Gensler, the Commodity Futures Trading Commission chairman, testified last week before the Senate agriculture committee.

Federal regulators approved tougher constraints on Wall Street risk-taking on Monday, adopting the “MF Global rule,” named after the collapsed brokerage firm that is believed to have improperly used hundreds of millions of dollars of customer money.

The new rule will limit how the brokerage industry can invest customer money, largely barring firms from using client funds to buy foreign sovereign debt. It also prevents a complex transaction that allowed MF Global, in essence, to borrow money from its own customers.

The Commodity Futures Trading Commission, which voted unanimously to approve the rule, originally planned to finalize it months ago.

But the agency delayed action as a result of strong opposition from Jon S. Corzine, who at the time was chief executive of MF Global. Mr. Corzine resigned on Nov. 4, four days after MF Global filed for bankruptcy protection.

“I believe that this rule is critical for the safeguarding of customer money,” Gary Gensler, the agency chairman, said at a public meeting in Washington.

The revelation that client money was missing at MF Global has incited panic in the once-quiet futures industry. MF Global’s customers, including farmers, hedge funds and other investors, are still owed millions of dollars.

Now, some customers say they are losing faith in a system that promised to protect their money. While brokerage firms can invest client money, such funds must never be comingled with company funds.

MF Global violated that principle in its final chaotic days, tapping its segregated client accounts to meet its own financial obligations, people briefed on the matter have said. About $200 million in customer money that disappeared from MF Global surfaced at one point at JPMorgan Chase in Britain, the people said.

The missing money, thought to be as much as $1.2 billion, has prompted several federal investigations in recent weeks. The futures commission is leading the hunt for the money, while the Federal Bureau of Investigation is examining potential wrongdoing.

Some regulators are also examining a flood of new rules for brokerage firms, part of an effort to prevent a repeat of the MF Global debacle.

The Securities and Exchange Commission is weighing new accounting disclosures for the industry.

MF Global’s collapse has also led to renewed calls for federal regulators to keep a closer watch of brokerage firms, reclaiming oversight authority now delegated to for-profit exchanges like the CME Group.

Bart Chilton, a Democratic member of the Commodity Futures Trading Commission, is pushing for Congress to create an insurance account for futures industry customers similar to the Federal Deposit Insurance Corporation’s fund.

The rule adopted by the futures commission on Monday is aimed at the industry’s use of customer money. While firms can invest customer funds in United States Treasury securities, money markets and other plain-vanilla funds, the agency reined in some riskier bets.

Until now, brokerage firms could invest client money in a number of securities, including sovereign debt. Under the administration of President George W. Bush, regulators gradually lengthened the list of permitted investments.

But under the new rule, if firms want to invest customer funds in foreign government bonds, they must petition the agency for a special exemption. The new rule also bars firms from using client money so that one arm of the company can lend to another, a complex transaction known as an in-house repurchase agreement.

“I believe there is an inherent conflict of interest between parts of a firm doing these transactions,” Mr. Gensler said. Mr. Gensler’s agency initially proposed the crackdown in October 2010, and neared a vote on the plan this summer.

But at the time, the agency met a powerful roadblock in Mr. Corzine, former Democratic governor of New Jersey.

The rules were unnecessary, Mr. Corzine said, because federal laws already prevented brokerage firms from mixing client money with company funds. In a letter, MF Global insisted to regulators that they were trying to “fix something that is not broken.”

Mr. Corzine’s efforts culminated on July 20, as MF Global executives were on four different calls with the agency’s staff. Mr. Corzine personally participated in two of those calls. Ultimately, the aggressive lobbying campaign helped delay the proposal.

But in the wake of MF Global’s collapse, the agency’s commissioners moved quickly to adopt the new constraints. The agency voted 5-0 on Monday for the rule, drawing support from two Republican commissioners who have opposed many new rules for Wall Street, signifying the seriousness of the MF Global situation.

“As recent events have highlighted, the protection and preservation of customer funds is fundamental to our markets,” Scott O’Malia, a Republican member of the commission, said in a statement. “By limiting investments of customer funds to a subset of instruments that currently have minimal risk, this final rule is a step towards enhancing customer protection.”

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Filed Under: Business News Tagged With: client accounts, commodity futures trading, jpmorgan chase

Fed Plans New Stress Tests for Biggest Banks

November 23, 2011 by NewsMaker Leave a Comment

Now in their second year, the reviews have quickly become an important tool to help regulators assess the condition of the banks and restore confidence in the financial system. They also have divided the industry between the strongest banks, like JPMorgan Chase and Goldman Sachs, which were permitted to start increasing their dividends and repurchase billions of dollars’ worth of shares this spring, and weaker institutions, like Bank of America, whose requests were denied.

The latest round of tests will give those banks another chance to convince regulators that they have regained their footing and can weather a range of unexpected financial shocks. Banks will have to complete the exams and make any requests to return capital to shareholders by Jan. 9. The Fed is expected to announce its decisions on those plans by early March.

This time, a few new twists are planned.

Unlike the previous exams, which focused on financial conditions in the United States, the new tests will require several of the big Wall Street banks to assess the potential effect of a sudden downturn on European bank loans and sovereign debt. And in an attempt to provide investors with more information, the Fed will publish its revenue and loss estimates for each of the large banks it reviews.

The Fed will also expand the scope of the exams to 31 large banks, up from the 19 biggest.

Despite the fragile economy, federal regulators have been relatively sanguine about the recovery of the nation’s banks, emphasizing that they have far more capital and cash on hand than they did in the months before the financial crisis in 2008.

On Tuesday, the Federal Deposit Insurance Corporation provided fresh evidence that the banking industry was working slowly through its problems when it released its report on third-quarter results. Profits for the nation’s 7,436 lenders rose nearly 50 percent, to $35.3 billion, compared with the period a year ago, while the number of banks at risk of failure shrank for the second consecutive quarter. In the third quarter, regulators closed 25 banks and added only a few new ones to the at-risk list. The list of so-called problem banks stands at 844, down from 865 at the end of June.

With fewer attractive places to lend or invest, banks have been stockpiling billions of dollars of excess profits. In fact, retained earnings in the third quarter reached their highest level since the height of the boom in 2006. That may give banks a freer hand to return capital to shareholders than they had in 2010, when regulators took a relatively tough stance.

Under the guidelines released Tuesday, the Federal Reserve will again evaluate the ability of the 19 largest banks to withstand losses under a set of adverse economic conditions over the next two years. Among the hypothetical situations are ones in which unemployment rises at the average rate of the last several recessions, domestic and global economic output contracts significantly, and stock and bond prices plunge starting in the fourth quarter of 2011. Six of the 19 banks with large trading operations will be required to estimate potential losses from their exposure to European debt.

Fed officials, in turn, will assess the banks’ internal capital management and any plans to increase stock dividends or buy back additional shares. The banks must show that they are strong enough to meet the new capital requirements from international accords and cope with worse-than-expected legal settlements tied to the mortgage and foreclosure mess.

The official stress tests will evaluate the condition of the 19 biggest banks, which have assets of at least $100 billion. Those include Wall Street giants like Citigroup and Morgan Stanley as well as large regional banks like PNC Financial and U.S. Bancorp. Banks owned by MetLife, the insurer, and Ally Financial, the consumer lender once known as GMAC, are also subject to the reviews.

But this year, the Fed has also ordered the next dozen largest lenders with assets of at least $50 billion to undergo what is essentially a do-it-yourself version of the exam. These institutions — including Discover Financial, Northern Trust, and Zions Bancshares as well as the United States subsidiaries of several foreign banks, like BBVA, HSBC, and the Royal Bank of Scotland — had not previously participated in formal stress tests.

They must make similar loss assumptions that will be validated by Fed officials. But the bar for the level of detail and analysis supplied by each of those banks is generally expected to be lower, given the size and scope of their activities. These stress tests, with those required for the 19 biggest banks, will help the Fed satisfy a new requirement for annual reviews of large financial companies under the Dodd-Frank financial overhaul bill.

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Filed Under: Economy News Tagged With: bank of america, jpmorgan chase, sovereign debt

DealBook: Wall St. Pay Is Expected to Fall 20% to 30%

November 8, 2011 by NewsMaker Leave a Comment

Mark Lennihan/Associated Press

Wall Street bonuses are set to fall by an average of 20 to 30 percent this year from a year ago, according to a closely watched compensation survey — the weakest bonus season since the financial crisis and a reflection of the leaner times confronting the industry.

Those who work in trading and investment banking — usually Wall Street’s most profitable businesses, although struggling this year — will experience the sharpest drops in pay, said Alan Johnson, managing director of Johnson Associates, the firm that conducted the survey.

Employees in less volatile businesses, like asset management and commercial banking, will make about what they did in 2010.

And bonuses for top executives like Lloyd C. Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan Chase are likely to fall sharply as well, Mr. Johnson said.

The bonus forecast will come as no surprise to many on Wall Street. Trading profits have slumped and new Dodd-Frank regulations have raised the cost of doing business. Even Goldman Sachs, a firm known for its earning power, last month reported its first quarterly loss since the financial crisis.

Goldman, Bank of America and other Wall Street firms have been cutting thousands of jobs.

“It is disappointing,” Mr. Johnson said in an interview. “I think we were all hoping we were out of this morass.”

This is the time of the year when Wall Street firms start to make decisions on which bankers and traders will be rewarded for 2011.

For many of them, the year-end bonus typically represents the bulk of their compensation. The firms pay as much as 60 percent of their annual revenue in compensation, so much is at stake in how they divvy up their bonus pools.

Wall Street is “effective at knowing what it can get away with” and for months has been managing down expectations of employees about pay, said Michael J. Driscoll, a former senior trader at Bear Stearns. This year the message has been that “star performers” will be paid and the rest of Wall Street will feel the pain, he said.

“Wall Street is in the process of re-evaluating what each seat is worth and having been in one of those seats it’s tough,” said Mr. Driscoll, now a professor at Adelphi University’s business school. “Right or not, compensation is how you measure yourself and your value. You may still be making a lot, but it is a lot less than what you were making and that is what matters.”

While overall compensation may be down, it is still out of sight compared with what most Americans make. Wall Street workers make a base salary of $100,000 to $1 million for top executives, but most of their pay comes at the end of the year in a big one-time bonus.

Employees are typically informed of their bonus in January or February, with checks going out shortly after.

In the first nine months of the year, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup set aside almost $93 billion to pay employees, up from $91.25 billion in the year ago period, according to Johnson Associates.

The final number, however, is not set until the fourth quarter, when firms have a clear idea of their total revenue for the year.

Johnson Associates surveys as many 20 firms every year.

Big paydays came under fire during the financial crisis as lawmakers and others called for restrictions on pay. Wall Street responded by lowering pay in some instances and firms are issuing more incentive based compensation, a move aimed at reducing reckless risk-taking. Firms also raised base salaries of employees after receiving criticism that big bonuses also encouraged employees to take unnecessary risks. Now, the market turmoil from Europe’s debt crisis and the weak economy in the United States appear to be reining in Wall Street pay.

This year, the biggest loser will be fixed-income employees, Mr. Johnson said. That business is historically a big money maker, but profits in trading bonds, currencies and commodities have been hard to come by because of the uncertainty on global markets and economic weakness in the United States.

Goldman Sachs, one of the biggest in fixed income, made $12.07 billion in its fixed income, currency and commodities division during the first nine months of the year, down 37 percent from levels a year ago.

For employees on equity trading desks, compensation will fall sharply as well, about 20 to 30 percent. The same goes for investment banking, where pay will be down 10 to 20 percent.

Not everyone is going home with less, however, according to the Johnson survey.

Brokers who manage very wealthy clients will have compensation gains of as much as 5 percent. Some employees in commercial and retail banking may see either a small 5 percent drop in pay, or potentially a 5 percent bump, in part because client deposits are growing. Other areas, like private equity and prime brokerage, will see their compensation stay flat or fall just slightly, the survey predicts.

Mr. Johnson said Wall Street should expect continued attention focused on compensation, particularly since efforts like Occupy Wall Street show no signs of weakening.

The protesters, he said, “will say we have camped out in the snow and they haven’t reduced compensation a nickel.”

Wall Street executives, he said, “haven’t gotten the memo at all.”

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Filed Under: Business News Tagged With: jpmorgan chase, profitable businesses, year end bonus

Stocks & Bonds: Stocks Slide as Greek Talks Drag On

September 20, 2011 by NewsMaker Leave a Comment

Financial markets were focused in part on a conference call between Greek officials and the so-called troika of foreign creditors — the International Monetary Fund, the European Commission and the European Central Bank — as well as further meetings among senior officials in Athens struggling to close a budget gap.

But the Greek finance ministry tried to deflate expectations of a speedy result. The conversation lasted around two hours on Monday evening before it was adjourned until Tuesday morning.

In Europe, market indexes fell about 3 percent, the euro declined and the price of safe assets like German bonds rose as investors continued to fret about the possibility of a Greek default. In the United States, stock indexes traded most of the day about 2 percent lower and bond prices rose.

Late Monday, Standard Poor’s announced it was cutting the credit rating of Italy’s sovereign debt, to A from A+, with a negative outlook. S. P. cut its forecast for Italy’s economic growth, a slowdown that would make the country’s fiscal targets difficult to hit, the agency said.

On Wall Street earlier Monday, stocks firmed slightly at the close, with the Standard Poor’s 500-stock index down nearly 1 percent, or 11.92 points, to 1,204.09. The Dow Jones industrial average was down 0.9 percent to 11,401.01, and the Nasdaq briefly reached into positive territory late in the day before closing 0.4 percent lower at 2,612.83.

Financial stocks were hard hit. Bank of America was down more than 3 percent at $6.99. Wells Fargo declined 2.5 percent to $24.33, and Citigroup fell 4.4 percent to $27.71. JPMorgan Chase was 2.8 percent lower at $32.49.

The 10-year Treasury bond rose 29/32 to 101 17/32, sending its yield down to 1.96 percent from 2.06 percent on Friday.

The Federal Reserve’s policy-making committee meets on Tuesday and Wednesday, and investors say they believe the Fed may announce new measures to promote economic growth.

Anthony Valeri, a fixed-income investment strategist for LPL Financial, said he believed that investors had already priced in the expected action, making Monday’s movements in bonds “exclusively risk aversion” caused by the lack of progress in Europe.

Some analysts now fear that given the legal complications in some euro zone countries, and the apparent reluctance of Greece to push ahead on the kind of commitments on spending, wages and privatizations being sought by its partners, Greece might soon default, starting a domino effect on other countries like Portugal, Italy or Spain.

Those fears were compounded after the party of Chancellor Angela Merkel of Germany lost ground in a regional election in Berlin on Sunday, amid voter anger over her handling of the debt crisis.

“The background noise of the Greek debt crisis resembles a continuous alarm tone,” Rainer Guntermann and Peggy Jäger, analysts at Commerzbank, said in a research note. “With few tangible results coming from the finance ministers’ meeting over the weekend and still little official indication that the Greek debt swap may go through, speculation remains high and bonds remain in demand.”

The economic outlook was also downbeat after the secretary-general of the Organization of the Petroleum Exporting Countries, Abdalla Salem el-Badri, said Monday that global demand for oil was rising less than expected, Bloomberg News reported. Oil prices in New York fell more than 2.4 percent to $85.81.

“We have risk aversion, profit taking and a stronger dollar on the back of the ongoing concerns both in Europe and domestically,” said Peter Cardillo, chief market economist for Rockwell Global Capital.

Niki Kitsantonis contributed reporting.

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Filed Under: Economy News Tagged With: budget gap, jpmorgan chase, stock index

Alabama County’s Debt Deal Averts Bankruptcy

September 17, 2011 by NewsMaker Leave a Comment

The terms of the agreement call for Jefferson County, which includes the city of Birmingham, to shed about $1 billion of the debt, the majority of which is held by JPMorgan Chase. The agreement also offers the county several tools to lower the interest rate on roughly $2 billion of new, 40-year debt that will be issued to replace the current warrants.

“It’s been an agonizing process; it’s been going on for three and a half years,” said one Jefferson County commissioner, Joe Knight, explaining why he voted for the agreement. “Today we’re going to take a step. It’s time for a resolution of this lingering debacle.”

Even with the Jefferson County Commission’s 4-to-1 vote in favor of the agreement, a number of significant steps must still be taken by the state Legislature and other parties before the restructuring can close by the deadline of June 30, 2012. The county’s other creditors — including Bank of America, Bank of New York Mellon, Regions Bank, Assured Guaranty and Financial Guaranty Insurance — have agreed to use the new agreement as a framework for completing a definitive settlement with the county.

Jefferson County’s outsize debt grew out of a flawed attempt to refinance bonds that it sold in the 1990s to raise money for court-ordered improvements to its sewer system. The refinancing was supposed to save money, but it set off a wave of influence-peddling and other illegal activity that led officials to sign up for complex derivatives contracts fraught with hidden risks. The contracts broke down when the markets froze in 2008, leaving the county with more debt than it could pay. Several officials have since been convicted on corruption charges.

The county defaulted on the debt in 2008 and has since been in acrimonious and mostly unproductive talks with creditors about what to do next. The creditors have called on the county to raise sewer rates, but many residents have said they should not have to pay more because contracts were signed amid so much lawbreaking.

The new agreement calls for yearly rate increases, but smaller ones than creditors proposed in the past. It also calls for outside consultants to vet the sewer system’s expenditures and costs, for a low-income assistance fund to be created at creditor expense, and for the county to catch up on its audited financial statements, which have been late ever since 2008.

Mr. Knight and others on the five-member commission said they decided to approve the deal because it would involve the state’s help for the first time. Gov. Robert Bentley is to call a special session of the state Legislature this fall, where lawmakers will be asked to work on several forms of assistance.

First, the legislators are to create an independent public corporation to take the troubled sewer system off Jefferson County’s hands. Because Jefferson County is now in default on the existing sewer debt, it cannot issue new debt, which is an essential part of the planned restructuring. The new corporation would be able to issue the debt separately from the county, with a clean balance sheet.

The legislators will also be asked to draft a “moral obligation covenant” for the corporation, meaning state money could be appropriated, upon approval, if the corporation fell behind on its debt payments. Although this covenant would not be as secure as a state guarantee, it would add a layer of credibility to help reduce the new corporation’s borrowing costs.

In addition, state lawmakers are expected to look for ways to help Jefferson County close a $40 million budget gap that became apparent over the summer.

Until this year, state officials refused to help the county straighten out its finances, saying it had made its own problems and should solve them on its own. That led to a hardening of public opinion in the county, with more and more people calling for the commission to declare bankruptcy.

County Commissioner Sandra Little Brown said that since the state had finally offered some help, “it would really be a slap in the face to the governor and the Legislature” to turn it down. She pointed out that the framework agreement still gives the county a chance to file for Chapter 9 bankruptcy court protection if the state’s efforts prove fruitless.

The one commissioner to vote against the agreement, George F. Bowman, said he did so mainly because it included rate increases.

In the meeting on Friday, he read part of a letter the commissioners had received from a county resident who urged them “not to accept the extraordinarily damaging terms,” particularly annual rate increases that could go on for as long as 40 years.

Article source: http://feeds.nytimes.com/click.phdo?i=364c552d8ffbf4743bacb5b4d789609a

Filed Under: Business News Tagged With: corruption charges, joe knight, jpmorgan chase

DealBook: Some Banks Hang On to Bailout Billions

September 15, 2011 by NewsMaker Leave a Comment

John Bazemore/Associated PressRegions Financial owes $3.5 billion in TARP money, the most of any bank.

While it has been nearly three years since Washington bailed out the banks, the financial industry is still clinging to $19 billion in taxpayer money.

Nearly 500 banks, ranging from beleaguered regional powerhouses to obscure community banks, owe roughly 8 percent of the $245 billion doled out at the peak of the financial crisis, according to Treasury Department data released this week. Regions Financial, a large lender based in Alabama, owes $3.5 billion, the most of any bank.

Even as bailout money has slowly returned to the government’s coffers throughout the year, many banks still refuse to part with their lifelines. Some institutions, well-positioned to reimburse taxpayers through fresh stock offerings, are choosing instead to wait for brighter days when their stock prices are not so depressed.

Other stragglers desperately need the money. Nearly one-third of the remaining debtors have missed their recent dividend payments to the government, according to an analysis by Linus Wilson, professor of finance at the University of Louisiana at Lafayette.

“The percent of deadbeats,” Mr. Wilson said, “will almost surely rise in the short term.”

Next month will be the three-year anniversary of the highly contentious Troubled Asset Relief Program. At the time, as the economy teetered on the brink, the government injected much-needed capital into the banking industry, charging the banks 5 percent annual interest. There is no deadline for repayment, although a steeper 9 percent dividend payment kicks in after five years.

Wall Street giants like Goldman Sachs and JPMorgan Chase, eager to shed the stigma of TARP and its caps on executive bonuses, quickly repaid the bailout money. Over the last two years, other big banks followed suit.

The Obama administration now expects to turn a roughly $20 billion profit on the bank bailouts, programs once seen as a major drain on the government’s bottom line. Still, the overall TARP payouts — which included lifelines to the American International Group, the automotive industry and embattled homeowners — will likely cost taxpayers up to $37 billion.

The $19 billion owed by banks is down 14 percent from May. The decline is partially a result of dozens of banks repaying their debts using a separate pool of government funds. Under a new program intended to encourage small-business lending, smaller banks can exchange their rescue money for cheaper capital, provided they meet certain lending targets.

“Unfortunately, this means that taxpayers will see less money from their risky investments,” Mr. Wilson said.

Only 10 banks have fully repaid their bailout funds over the last few months, Treasury Department data shows. And now, roughly 160 of the 500 debtors are behind on their dividend payments to the government, according to Mr. Wilson.

More than 70 banks have failed to keep up with at least six dividend payments, his research shows, allowing the Treasury Department to appoint directors to the boards of the firms. Some banks are in even deeper. Saigon National Bank in Westminster, Calif., has missed 11 payments, Mr. Wilson said.

Another 12 institutions have a good reason for not paying up: They have filed for bankruptcy.

Article source: http://feeds.nytimes.com/click.phdo?i=f6644cb878ce34a482ecd1a764b694b5

Filed Under: Business News Tagged With: jpmorgan chase, regions financial, stock offerings