September 18, 2018

DealBook: Bank of America Profit Misses Expectations

The bank's shares rose nearly 35 percent in the last year but fell almost 5 percent on Wednesday.Richard Drew/Associated PressThe bank’s shares rose nearly 35 percent in the last year but fell almost 5 percent on Wednesday.

8:06 p.m. | Updated

Bank of America reported first-quarter earnings on Wednesday that fell well short of Wall Street’s expectations but that were substantially higher than in the period a year earlier.

The bank made 20 cents a share in the first quarter, compared with 3 cents in the year-earlier period. Analysts expected a profit of 23 cents a share. Bank of America, the nation’s second-largest lender by assets, had revenue of $23.5 billion in the first quarter.

Related Links



Since the financial crisis, Bank of America’s performance has been hurt by large mortgage-related losses, but in recent months investors have been betting that the bank would regain its footing. Its shares have risen nearly 35 percent in the last 12 months. Earlier this year, regulators approved the bank’s plan to buy back stock, a clear sign they felt that the lender was on firmer ground.

In a statement, Brian T. Moynihan, Bank of America’s chief executive, said, “Our strategy of connecting our customers to all we can do for them is working.”

The question now is how the latest earnings will affect the recent optimism surrounding the bank, which lends to individuals and companies and has a large Wall Street presence through its Merrill Lynch unit.

Other large banks have reported earnings that exceeded analysts’ estimates this quarter, so Bank of America’s failure to do so may unnerve some investors. The debate will be over whether the bank fell short because of deeper issues that will be hard to resolve or because of items that will have less of a negative effect as time passes. On Wednesday, the bank’s stock fell nearly 5 percent to close at $11.70.

Much uncertainty surrounds the cost of litigation over bad mortgages. Most of these troubled loans were made by Countrywide Financial, which Bank of America acquired in 2008. Bank of America has settled several big mortgage lawsuits, including one on Wednesday for $500 million, which was led by the Iowa Public Employees’ Retirement System. In the first quarter, Bank of America had litigation expenses of $881 million.

Some analysts wonder why the bank is still setting aside large amounts of money to cover mortgage lawsuits after reaching several settlements. “Maybe they haven’t been accruing enough for the outstanding litigation,” said Todd L. Hagerman, an analyst with Sterne Agee Leech.

In particular, analysts are focusing on a pending settlement with Bank of New York Mellon. The cost of this litigation, they say, could soar if the settlement does not gain court approval. A research note this year from Mike Mayo, an analyst with CLSA, suggested that the actual cost of the Bank of New York Mellon litigation could be as high as $30 billion, compared with the bank’s estimated cost of $8.5 billion.

The bank defended its litigation reserves.

“We believe we are appropriately reserved for the exposures we face, and we have provided investors with a range of possible loss estimates that could go beyond those reserves,” said Jerome F. Dubrowski, a spokesman for Bank of America.

Responding to the skepticism about the reserves against the Bank of New York litigation, he added, “We believe extrapolating selective rulings from other venues involving other litigants and facts and drawing conclusions about our settlements and other litigation matters does not portray a fair and accurate presentation of our litigation matters.”

The first-quarter results also revealed a mixed performance in Bank of America’s current mortgage business. Initially, the bank did not participate in the mortgage refinancing boom as strongly as rivals like Wells Fargo. But in recent months it has jumped back in.

In the first quarter, Bank of America originated $23.9 billion of mortgages, well up from $15.2 billion a year earlier. But revenue from writing new mortgages actually fell to $815 million from $928 million in the period a year earlier. This shows that profit margins in the new mortgage business have fallen as Bank of America has increased its activity.

The quarter contained bright spots for shareholders. The bank said it made headway in cutting expenses, something investors are watching closely.

In addition, Bank of America set aside significantly less money for its reserve against bad loans, which helped earnings.

Its wealth management unit, which includes the Merrill Lynch brokerage house, had a strong quarter. Revenue in the unit rose to $4.4 billion a year earlier.

While Bank of America’s earnings per share increased a lot when measured using generally accepted accounting principles, it declined on another measure that investors often look at. This nonstandard metric excludes arcane accounting charges. Without those charges in the first quarter of 2012, the bank made 31 cents a share.

This year’s first quarter contained little effect from such charges, so the 20 cents a share the bank reported on Wednesday should be compared with the 31 cents a share from the period a year earlier. In effect, under this approach, Bank of America’s earnings fell more than a third.

Article source: http://dealbook.nytimes.com/2013/04/17/bank-of-america-earnings-rise-but-fall-short-of-forecasts/?partner=rss&emc=rss

Bucks Blog: If You Need More Time to File Your Tax Return

Tax Day is next Monday. If you haven’t filed your taxes yet, should you be considering filing for an extension?

It’s easy to file for an automatic six-month extension on your federal tax return. Just fill out Form 4868 and file it by April 15. (You can also file it electronically). You don’t have to give a reason for seeking the extra time. You’ll then have until Oct. 15 to complete your tax return.

Last year, the Internal Revenue Service received roughly 10.7 million extension forms. (There are roughly 140 million tax filers each year.) Filing for an extension lets you avoid a late-filing penalty, usually 5 percent a month based on your unpaid balance.

But even if you file for an extension, that doesn’t mean you have an extension on paying any taxes you may owe. You must, in effect, make your best estimate of what you owe on the extension form, and pay it. If you don’t, you risk paying penalties and interest on what you owe.

Generally, you should file your taxes on time if you can, but there are valid reasons for seeking an extension, said Ed Mendlowitz, an accountant and partner with Withum Smith Brown in South Brunswick, N.J., who blogged about this topic recently.

For instance, perhaps you didn’t receive certain important forms, like a Schedule K-1, showing your share of profits or losses from a partnership. Or you have a complicated tax situation and want your tax preparer to have more time to complete your return in an unhurried manner. Or perhaps you are self-employed and want to establish and finance a Simplified Employee Pension Individual Retirement Arrangement — a retirement plan for business owners and their employees — but you don’t have the cash on hand. If you file for an extension, you can wait to set up the plan and put the money in by the extended filing deadline.

Mr. Mendlowitz said it was not true that filing for an extension would increase your chances of being audited. Indeed, he said, if you wait until October to file, you may slightly reduce your chances of being audited, because the I.R.S. is generally selecting returns for audit in late summer and early fall.

It’s important to note, he said, that requirements for an extension on your state tax return may be different. Some states, for instance, won’t grant extensions to file if you owe money and don’t pay at least a proportion of it by April 15, so you should check the rules for the state where you are filing.

Have you filed for an income tax extension? How did it work for you?

Article source: http://bucks.blogs.nytimes.com/2013/04/10/if-you-need-more-time-to-file-your-tax-return/?partner=rss&emc=rss

Barnes & Noble Weighs Its Nook Losses

Barnes Noble, the nation’s largest book chain, warned that when it reports fiscal 2013 third-quarter results on Thursday, losses in its Nook Media division — which includes sales of e-books and devices — will be greater than the year before and that the unit’s revenue for all of fiscal 2013 would be far below projections it gave of $3 billion.

The problem was not so much the extent of the losses, but what the losses might signal: that the digital approach that Barnes Noble has been heavily investing in as its future for the last several years has essentially run its course.

A person familiar with Barnes Nobles’s strategy acknowledged that this quarter, which includes holiday sales, has caused executives to realize the company must move away from its program to engineer and build its own devices and focus more on licensing its content to other device makers.

“They are not completely getting out of the hardware business, but they are going to lean a lot more on the comprehensive digital catalog of content,” said this person, who asked not to be identified discussing corporate strategy.

On Thursday, the person said, the company will emphasize its commitment to intensify partnerships with other tablet producers like Microsoft and Samsung to make deals for content that it controls.

If Barnes Noble does indeed pull back from building tablets, it would be a 180-degree shift for a company that as late as last year was promoting the Nook as its future. “Had we not launched devices and spent the money we invested in the Nook, investors and analysts would have said, ’Barnes Noble is crazy, and they’re going to go away,’ ” William Lynch, the company’s chief executive, said in an interview last January.

Since 2009, when Barnes Noble first decided to invest in building the device, its financial commitment to the division has been substantial. (The company does not disclose exact figures.) At the beginning of 2012, that bet seemed to be paying off and the digital future seemed hopeful.

In May, Microsoft decided to give a cash infusion to the product by pledging more than $600 million to Nook Media. In December, the British textbook publisher Pearson bought a 5 percent stake in the unit for nearly $90 million.

Going into the 2012 Christmas season, the Nook HD, Barnes Noble’s entrant into the 7-inch and 9-inch tablet market, was winning rave reviews from technology critics who praised its high-quality screen. Editors at CNET called it “a fantastic tablet value” and David Pogue in The New York Times told readers choosing between the Nook HD and Kindle Fire that the Nook “is the one to get.”

But while tablet sales exploded over the Christmas season, Barnes Noble was not a beneficiary. Buyers preferred Apple devices by a long mile but then went on to buy Samsung, Amazon and Google products before those of Barnes Noble, according to market analysis by Forrester Research.

“In many ways it is a great product,” Sarah Rotman Epps, a senior analyst at Forrester, said of the Nook tablet. “It was a failure of brand, not product.

“The Barnes Noble brand is just very small,” she added. “It has done a great job at engaging its existing customers but failed to expand their footprint beyond that.”

Others pointed out that even if the Nook itself was a nice device, its offerings were not as rich as that of its rivals. Shaw Wu, a senior analyst at Sterne Agee, a midsize investment bank in San Francisco, said, “It is a very tough space. It is highly competitive, and extras like the depth of apps are very important. But it requires funding and a lot of attention, and Barnes Noble is competing against companies like Apple and Google, which literally have unlimited resources.”

Horace Dediu, an independent analyst based in Finland who focuses on the mobile industry, said that the difference in quality among the products was so small as to be increasingly irrelevant.

“We’ve moved beyond a game of specs,” he said. “Now it is about your business model, about distribution and economics of scale.”

He said that while the cellphone business used to have numerous competitors, it now has only two companies that are really profitable: Apple and Samsung. He said he expected a similar consolidation in the tablet market, with companies like Barnes Noble “maybe falling off the map.”

There is no immediate danger to the book retailer, which has some 677 stores nationwide. The company has said it plans to close about 15 unprofitable stores a year and replace them at a much slower rate. It also still holds roughly one quarter of the digital sales of books and more of magazines.

Still, the threat is large enough that Barnes Noble executives are working hard to determine a strategy that focuses on core strengths like content distribution. Its content is its “crown jewel,” said the person familiar with the company’s strategy, “and where the profitable income stream lies.”

Article source: http://www.nytimes.com/2013/02/25/business/media/barnes-noble-weighs-its-nook-losses.html?partner=rss&emc=rss

Staying Alive: What I Took Home in 2012

Staying Alive

The struggles of a business trying to survive.

A year ago I wrote a series of posts that dissected my company’s finances and culminated with a detailed accounting of how much money I made in 2011 — $246,626, generated from revenue of $2,155,193. The event that prompted the analysis, writing an application for college financial aid, just happened again this weekend. So I’m going to give you an update on how 2012 went and whether I was able to match what was by far my most rewarding year.

For those who have not read my posts regularly, let me start with a little context. Manufacturing custom furniture is not known as an lucrative profession, and it isn’t. To give you some idea of what I’m talking about, let’s take a look at how my company performed from 2003 to 2012 (I don’t have great records from before then). Sales for that period totaled $16,352,367. The profits? The total for that period is negative.

The vast majority of those losses happened in the years leading up to the crash in 2008 when The Partner and I were doing a very bad job of trying to grow the company. From 2003 to 2008, our losses totaled $1,086,648. The Partner ate much of that when he left the business. The remaining partners — my father, my brother, and me — are owed a large amount of money by the company: $526,754.

Since 2009, I have managed to stop the bleeding, and the company has made profits totaling $401,935. That still leaves an accumulated loss of $684,713. But I have managed, during some very rocky years, to pay my bills. First and foremost, all of the employees who have worked for me got paid, on time and in full. All of the taxes were paid, on time and in full. All of the vendors, and my landlord, were paid in full (not necessarily on time). While the company owes my partners and me a pretty good pile of cheddar, it owes nobody else.

Between 2003 and 2010, my annual salary averaged $78,484, and I loaned, on average, $29,363 of that back to the company (after I had paid taxes on it). That left me an average of $49,121 a year, and I have the lifestyle to match. Aside from a house in a decent neighborhood, my wife and I live modestly.

My 2011 windfall came right on time. My oldest son was supposed to start college in the fall of 2012, and my wife, in preparation for the empty-nest experience, had started a two-year graduate school program. She would need the Master’s in order to get a job teaching. So, 2012 promised some large tuition bills — hence my relief at the outstanding financial results of 2011.

I had no money saved for college. There had been a small amount set aside, but I took that in 2009 and spent it on a new Web site. The big bump in 2011 income allowed me to set aside enough cash to cover both of the tuition bills, which was a good thing, because, as it turned out, that income also disqualified us from receiving any financial aid. I would need more than $80,000 for education.

A boss is supposed to be a competent financial manager, considering the ebbs and flows of money within the company and making financial decisions for the stakeholders with perfect objectivity. My own experience has been that the needs of my family and my own fears for the future have a powerful influence on decisions I make about the company’s money. As a small-business owner, there is little boundary between my company’s financial health and my own. I have, on multiple occasions, signed personal guarantees for company expenditures. In order to get company credit cards, in order to establish a line of credit (since closed), and in order to lease my space, I have been required to pledge my assets. If the situation gets out of control, everything I own is at risk.

Last year started well. I decided that rather than wait to see how much money I would have at the end of 2012, I would pay myself a reasonable salary, which would ensure that I would have enough money for the following year’s tuition. But sales started to slump after two months, and I ended up stopping my salary in April. I did continue to pay interest on the loans I had made to the company, but my pay shrank from $15,000 a month to $3,225 a month. This took me from a position of adding to my savings every month to draining them. In May, the wheel of fortune turned again. Both of my cars (a 1999 Odyssey and a 1993 Camry wagon) died in one weekend: blown head gasket and bad transmission. Meanwhile, sales continued to slump, to the point where I wondered whether I would have to lay off workers.

By the end of June, sales were dropping by 50 percent every month, and our order backlog was shrinking fast. I had run through two thirds of the working capital I had on hand at the beginning of the year, and we were down to a week’s worth of cash. I hadn’t seen a paycheck in two months. As it turned out, the problem was a mistake I made in my AdWords campaign. (I wrote a series about how I figured this out last fall). Part of the solution, aside from rejiggering the campaign, was to hire an expensive sales consultant to maximize the effectiveness of our salespeople.

My personal situation had evolved as well. My son decided to take a gap year instead of starting school. He is a talented programmer, and he was able to find a full-time job in San Francisco and support himself. So now I had another year to worry about his tuition. (He’ll be starting his studies at M.I.T. in September.) My wife suffered an injury to her rotator cuff, which was very slow to heal. So she ended up postponing her second year of graduate school. That freed up enough money to replace the two cars.

Over the summer, the company’s sales came back from the dead, revived by both the training that the salesmen had received and the repaired AdWords campaign. Over the course of the fall and into the last quarter, our working capital crept back to where it had been at the beginning of the year. But I did not restore my salary. I wanted to make sure that we could show at least a small profit and to start 2013 with a decent amount of working capital.

In the end, the company was able to show a profit of $27,530 on revenue of $2,077,770. My share of that, as owner of 40 percent of the company stock, is $11,812. My salary for the year was $66,090. And the company paid interest on the debt it owes to me totaling $35,484. That all adds up to $113,386. Not terrible, I suppose, and certainly nothing to complain about. Many, many people get by with a lot less. But a rather large drop from the previous year. I was just glad that it wasn’t worse.

So, what is the moral of this story? I think it’s that, especially for the owner of a small business, nothing is certain. What do you think?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

Article source: http://boss.blogs.nytimes.com/2013/02/20/what-i-took-home-in-2012/?partner=rss&emc=rss

Fair Game: Credit Default Swaps as a Scare Tactic in Greece

Leading the charge is BNP Paribas, the big French bank, which has been hired by the Greek government to help persuade investors to accept a deal that would cut the value of their investments in half.

On paper, this restructuring would be voluntary. Bond holders would exchange their old Greek bonds, at a 50 percent loss, for new ones that would mature in 30 years. Painful, yes. But in theory, such a move would help Greece get a handle on its debt, and that would be good for everyone.

Behind the scenes, however, BNP officials seem to be twisting some arms. A big point of contention is — surprise! — derivatives.

Investors who own Greek debt and have bought insurance on it, in the form of credit default swaps, wonder why they should accept the offer that’s on the table. If Greece stops paying after the restructuring, those swaps are supposed to cover their losses, much the way homeowners’ insurance would cover a fire.

The International Swaps and Derivatives Association agrees. The group, which represents the industry and is largely controlled by big banks, says anyone who doesn’t like the offer can walk away. “If a payment is missed, trigger the C.D.S. and be made whole,” the group said on its Web site.

BNP and its client, Greece, want to corral as many investors as they can. The more bond holders they persuade, the more that Greece would benefit — and the more the bank would collect in fees.

So it is perhaps unsurprising that some recent meetings have taken on a forceful tone, according to three portfolio managers who attended three different sessions with BNP Paribas. The investors spoke on condition of anonymity because they feared retaliation by the bank.

Contrary to what the I.S.D.A. says, the BNP Paribas bankers have been telling bond holders that their credit insurance may not pay off down the road, because after the restructuring is completed, the terms of the old debt might be changed, these money managers said.

Normally, investors would shrug off such an argument.

But the warnings from BNP Paribas carried weight, the money managers said, because of one of the officials who was making them. She is Belle Yang, a BNP specialist who also happens to serve on a powerful I.S.D.A. committee. The panel, the “determinations committee” for Europe, decides what constitutes a “credit event” in Greece or elsewhere on the Continent.

This is the committee that will likely rule that the Greek deal would not constitute a default. That is because the restructuring would be “voluntary.” Some investors who were counting on their credit insurance would be out of luck.

In the meetings, the investors said, Ms. Yang identified herself as a member of the committee. That itself was unusual, because the names of I.S.D.A. committee members are normally kept confidential. The association doesn’t disclose them, and lists only panel members’ employers — 15 large global banks and financial services firms. Those institutions include Bank of America, BNP Paribas, Goldman Sachs, BlackRock and Pimco.

One of the money managers who attended the meetings said Ms. Yang’s presence seemed to raise a conflict. Ms. Yang works for BNP, which stands to profit from the restructuring. She is also on the I.S.D.A. panel, which will determine if credit default swaps pay off.

One of the money managers said he pointed out Ms. Yang’s dual role at a meeting.

“You’re on the determinations committee, your firm is earning a big fee and trying to scare me into tendering my bonds,” he said he told her. He said Ms. Yang replied: “No, I’m just trying to help tell you what could go wrong.”

A BNP Paribas spokeswoman declined to comment.

According to one of the money managers, Ms. Yang told the investors that one potential hitch would be if Greece were to change the terms of its old bonds. Ninety percent of those bonds are governed by Greek law, so the government could, in theory, redenominate an issue, say, from $1 billion par value to $100 million. This would require holders to deliver far more bonds to receive the amount of insurance they thought they were owed.

Responding to an e-mail request, Ms. Yang declined to comment, citing “our policy not to comment on matters to do with the I.S.D.A. Determinations Committee.”

It is interesting that an I.S.D.A. committee member would argue that credit default swaps may not pay out. The organization is already facing criticism over its expected ruling that the Greek restructuring is voluntary.

The I.S.D.A. wields enormous power in the derivatives market. Since 2009, it has required that all contracts struck with its members adhere to rulings by its committees on credit events. Before then, counterparties could take disputes to arbitration or court.

The money managers with whom I spoke said BNP Paribas seemed to be motivated either by its desire to generate fees from the exchange or, perhaps, by worries about its own exposure to Greece. They wondered, for instance, if BNP Paribas has written a lot of insurance on Greek debt. If so, getting people to unwind such swaps now would be less costly for BNP than having the insurance pay off.

If investors think debt terms can be changed by fiat, they will flee the market. Ditto if they find that their insurance can be made worthless. Indeed, some of the volatility in European debt recently may be attributed to investor fears about these issues. The discussions with BNP Paribas confirm the view of some investors that credit default swaps are not insurance at all, but rather instruments that big banks use to benefit themselves. The secrecy of who serves on I.S.D.A. committees feeds this fear, as does the fact that these panels are both judge and jury.

“Market forces like to think of market pricing as having symmetry,” said David Kotok, founder of Cumberland Advisors, a money management firm in Sarasota, Fla. “But a system which requires decisions by parties who have vested interests on one side is asymmetric. A surprise rule change or an interpretation which was understood by some and misunderstood by others also defeats symmetry. In the case of credit default swaps, both elements apply.”

Article source: http://feeds.nytimes.com/click.phdo?i=75bc68e3099d67a8469296b6c0746376

Higher Fares Bolster Delta’s Earnings by 51%

The company reported that its earnings rose 51 percent, despite higher fuel costs, in large part because of higher fares. Richard H. Anderson, the chief executive, said Delta was determined to price fares high enough to cover fuel costs, which rose by $1 billion in the third quarter compared with a year ago.

All the big airlines except Southwest raised fares by up to $5 each way on Monday, for the second time in a week. With Southwest sitting out the increase, it may not stick. But the effort shows how aggressively airlines are jumping at any opportunity to raise fares.

Delta executives said they expected high fuel prices and an uncertain economy to continue into next year.

In the past, airlines struggled to make money in a weak economy or when fuel prices rose. Now, they appear committed to raising prices or cutting back on flying to stay profitable.

Delta cut flights by 1 percent in the most recent quarter, and it plans to cut as much as 5 percent through the rest of the year and as much as 3 percent next year. Traffic fell slightly, although Delta said business travel, which generates more profit, remained strong.

The result was net income of $549 million, or 65 cents a share, up from $363 million, or 43 cents a share, compared with a year earlier. Revenue rose 10 percent, to $9.8 billion. If not for losses from fuel hedging and other items, Delta would have earned 91 cents a share. That was 3 cents less than expected by analysts surveyed by FactSet.

Delta said it expected to be profitable in the fourth quarter as well. Its shares fell 46 cents on Tuesday, or 5.2 percent, to $8.44. They are down 33 percent for the year.

Article source: http://feeds.nytimes.com/click.phdo?i=ee43998b8b223f956ea8b3e87bbef241

Bucks: Tuesday Reading: Health Plans to Cover Cost of Contraceptives

August 01

Airbnb Moves to Protect Owners of Rentals

After accounts of theft and vandalism by renters, the online service said it would now cover as much as $50,000 in losses or damage.

Article source: http://feeds.nytimes.com/click.phdo?i=f29649e46cdee7c24da9798e5d6fcf65

Bucks: Making Online Deposits on an Honor System

Go figure — it turns out that most people can be trusted not to lie about the amount of money they deposit in their bank account.

The Pennsylvania State Employees Credit Union 10 years ago started a deposit service called Upost@home. The service lets members enter their deposits in the credit union’s online banking system for immediate credit. Then, customers mail the checks to the credit union in a postage-paid envelope.

And get this: Deposited funds are immediately available for use, to pay bills for instance, and the money earns interest from the day of the online entry.

That’s right. The service works on an honor system. The bank gives customers credit for deposits before it actually receives them. (If the check doesn’t show up within 10 days, the bank reverses the credit.)

The credit union wasn’t totally crazy. It limited the amount that could be deposited to the service to $1,500 initially (users can have their level increased over time), and it limited the number of members who could use the service.

But, still. Wouldn’t people be tempted to inflate the amount of their deposits, to try to earn a little extra interest?

Apparently not, according to Netbanker.com, which alerted Bucks to the credit union’s innovative system. With about 4.5 million items deposited over a decade, totaling $1.4 billion (the average check was $310) , the bank has suffered just $74,000 in losses. That’s a loss rate just or 1.6 cents per item, rivaling rates for branch deposits, Netbanker says.

Would a for-profit bank dare offer such a service?

Article source: http://feeds.nytimes.com/click.phdo?i=0046d3ef1620870eb18aa07f73f0553c

As Gulf Tourism Rebounds, BP Seeks to Lower Payments

The numbers tell a similar story, with many tourism-related businesses having their best summer in years.

BP felt obliged to note this officially. Last Friday, in a court filing that included a detailed list of indicators of “the strength of the gulf economy,” BP argued that “there is no basis to assume that claimants, with very limited exceptions, will incur a future loss related to the spill.”

The response here: Hold on, it’s not that good.

Since the spill last year, messages from the coast have been somewhat mixed, with some businesses arguing that it is continuing to hurt the coast and that more assistance is needed, and others, often led by tourism officials, emphasizing the positive to entice visitors and consumers.

This is not necessarily contradictory, as the effects of the spill were infuriatingly uneven, and a business does not have to be empty to be hurting. But the summer of 2011, a strong one by a variety of measures, has made this balance harder to strike.

BP has long taken issue with the formula created by Kenneth R. Feinberg, who oversees the Gulf Coast Claims Facility, which is dispensing BP’s $20 billion compensation fund. Under the formula, settlements would generally be double the demonstrable losses from 2010, with money previously paid by the fund subtracted.

BP has been arguing that this “future factor” is too generous. That argument is revisited in its 29-page filing, pointing out the strong revenue figures for lodging in coastal tourism areas in the fall and spring, most surpassing figures from comparable times in 2009 and early 2010.

BP makes the same argument in regard to the strong performance of much of the seafood industry, though the filing devotes less attention to it — possibly because unresolved questions about the long-term ecological effects of the spill, as well as a lingering nationwide skepticism about gulf seafood, have made its recovery more debatable.

Tourism, on the other hand, seems rather straightforward.

Taxable lodging revenues from rentals in Gulf Shores and its neighboring resort town, Orange Beach, fell by more than half last summer.

After months of aggressive marketing, largely paid for with the tens of millions of dollars that BP sent to states for that very purpose, tourism officials are now boasting of record, or near-record, numbers: going in to the Fourth of July weekend, tourism officials here reported vacation rental occupancy rates that hovered near 100 percent, all above — and some far above — rates at comparable times in 2009.

These figures would seem to bear out BP’s assertion that the recovery has firmly set in, to the chagrin of some coastal residents.

“Our state and local leaders have been so quick to declare that the beaches, seafood and Gulf Coast are doing fine that we may have screwed up the chances of the remaining outstanding BP oil spill claims to be paid,” Rick Outzen, publisher of the Independent News, an alternative weekly in Pensacola, Fla., wrote on his blog. Business owners here acknowledge that it has been for the most part a good summer. But they are quick to add that the effects of the spill are more complicated than they may appear.

The tourism business is a lot like farming; it is seasonal and involves managing a financial cycle between fat and lean seasons.

Up to 90 percent of the income for many Gulf Shores businesses is made during June, July and August; by winter that money is largely gone and businesses usually take out lines of credit to prepare for summer.

This was the case going into the summer of 2010, which was itself projected to be something of a recovery year after 2009, a down season of recession and high gas prices.

But in 2010, there was no summer. Hotels sat empty or filled rooms only by offering steep discounts. Smaller businesses like beach chair rentals went under; charter boat operators barely hung on. The whole spend-save-borrow cycle was thrown off.

“What happened last winter was a lot of lenders stopped the line of credit because they didn’t know the impact of what the spill was going to be,” said Sheila Hodges, owner of a real estate firm in Gulf Shores. “We barely survived the winter. Some didn’t survive the winter.”

Article source: http://feeds.nytimes.com/click.phdo?i=b888943fa70ea1ee14be665b6051dd16

To Cushion Against Losses, Fed Considers Raising Capital Requirements for Banks

The governor, Daniel K. Tarullo, said “systemically important financial institutions,” a category specified in the sweeping overhaul of financial regulation enacted last year, would be required to carry substantially higher levels of capital on their books. The levels would act as a cushion against losses, perhaps as much as twice the level specified in new international banking standards.

“The failure of a systemically important financial institution, especially in a period of stress, significantly increases the chances that other firms will fail,” Mr. Tarullo said. But because those firms have “no incentive to reduce the chances of such systemic losses,” higher capital requirements are necessary “to make those large, interconnected firms less prone to failure.”

Wall Street is bracing for guidelines as to how federal regulators will decide which companies fall under the “systemically important” designation. Mr. Tarullo’s remarks, before a group at the Peterson Institute for International Economics here, offered some of the first public details on how regulators are thinking about the rules. The law requires that banks, nonbank financial firms like hedge funds, insurance companies or other institutions that greatly affect the financial system, to be subject to an additional capital requirements to prevent a repeat of the 2008 financial crisis. The crisis was made worse by the interdependence of many of the largest financial outfits.

Mark A. Calabria, director of financial regulation studies for the Cato Institute, said that among the most interesting details provided by Mr. Tarullo on Friday was that the Fed was considering that the new capital requirements should be imposed on a sliding or tiered scale.

The new Dodd-Frank law requires that the new standards be applied to bank holding companies with more than $50 billion in assets. But Mr. Tarullo said that he thought there should not be a huge difference in the requirements for a bank with, say, $51 billion in assets and another with $48 billion.

“It seems like he was saying they do not want to draw a line in the sand,” Mr. Calabria said, “although the statute seems to require that.”

The possibility of greater capital requirements has caused some financial companies that are dominant in their niche to begin to argue publicly that they are not so “significant” after all.

BlackRock, the money manager that manages $3.5 trillion in assets, recently told the Fed that “for a number of reasons we do not believe that asset management firms should be designated” as systemically important.

Mr. Tarullo said that the Fed had considered several methods for determining if a company was systemically significant. But, he said, the one approach that “has had the most influence on our staff’s analysis” was what he called the “expected impact” approach, which was intended to equalize the impact on the financial system of the failure of a systemically important firm and a large firm without that designation.

If, for example, the blow to the financial system from the failure of a systemically important firm would be five times the impact of the failure of a nonsystemic firm, the larger company should have to hold enough additional capital to make its expected probability of failure one-fifth that of the smaller firm.

The more important firm, Mr. Tarullo said, should therefore hold capital equal to 20 percent to 100 percent more than the recently heightened banking requirements known as Basel III, which requires banks to maintain capital equal to 7 percent of assets. By that formula, systemically important financial companies might be required to hold capital of 8.4 percent to 14 percent of assets — a huge increase over the 2 percent that was the standard before the financial crisis.

Banks have argued that heavy new capital requirements will leave them less able to lend money to businesses, drying up credit and hurting the economy. But Mr. Tarullo argued that “lending could be assumed by smaller banks that do not pose similar systemic risk and thus have lower capital requirements.”

“There may not be perfect substitution, particularly not in the short term,” he said — a reason that regulators will allow for a long transition period to apply the new capital requirements.

Nevertheless, he said, “some checks on the scale of systemically important financial institutions are warranted to avoid a repeat of the financial crisis.”

Related to that, he said the capital requirements should be strict enough that companies are not encouraged to seek designation as systemically important because they think that they will then be “too big to fail.” The new regulations should discourage very big firms from getting much larger, “unless the benefits to society are clearly significant.”

Article source: http://feeds.nytimes.com/click.phdo?i=29f70fafed2c8d1d4018c564fee6a3d6