Actual finance blog

The race to repay federal bailout money could end up reducing the amount taxpayers eventually get back.

Some banks that want out of the Troubled Asset Relief Program may be allowed to buy back the government’s investments at below-market prices. That could cut into taxpayers’ potential profits by billions of dollars.

Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co. have notified federal regulators of their interest in returning their shares. Returning the money would let banks avoid restrictions on executive pay and hiring.

Approval for big banks to repay TARP funds could start in June, a Fed official said on condition of anonymity because the applications are being reviewed.

But before big banks can repay a penny and quit the bailout, they must agree to a price for the warrants the government received in return for the original loan. Those warrants gave the government the option to buy stock at a set price over 10 years.

Since the start, a key selling point for the bailout has been that, as the financial crisis eased and banks regained health, taxpayers would get to benefit from the stock gains.

Linus Wilson, a finance professor at the University of Louisiana at Lafayette, estimates that in all, the warrants in the roughly 570 banks that have received about $198 billion would be worth between $2 high quality business cards.4 billion and $10.9 billion.

If the government sells for less, "that’s definitely bad news for taxpayers," Wilson said. "We’d be better-served if the Treasury would hold out for a very good negotiated settlement or market the investments to third-party investors."

But others say the sooner the government gets out of the banking sector, the better. Banks that repay TARP funds but don’t buy back the government’s warrants could remain subject to restrictions on executive pay and hiring.

"I don’t think the banks are trying to shortchange taxpayers on the warrants," said Gerard Cassidy, a banking analyst at RBC Capital Markets. "They just want to get the government out of their boardrooms."

Others say there’s another reason the government should hang onto its stakes: If the economy takes a turn for the worse, some banks "will be back" for more money, said Daniel Alpert, director of investment bank Westwood Capital.

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The board that sets U.S. accounting standards on Monday moved to end companies’ use of a device that allowed them to park hundreds of billions of dollars in loans off their balance sheets without capital cushions and has been blamed for helping stoke banks’ losses in the housing boom.

The change will tighten the use of so-called "qualifying special purpose entities" by requiring companies to report to regulators the loans contained in them and to increase their capital reserves in proportion as a cushion against potential losses.

It was the lack of disclosure and absence of capital to support ballooning subprime mortgage loans in these special entities that aggravated the massive losses sustained by banks, regulators say.

The change could result in about $900 billion in assets being brought onto the balance sheets of the nation’s 19 largest banks, according to federal regulators. The information was provided by Citigroup Inc., JPMorgan Chase & Co. and 17 other institutions during the government’s recent "stress tests pay day loans."

In general, companies transfer assets from balance sheets to special purpose entities to insulate themselves from risk or to finance a large project. Under the change, many qualifying special purpose entities will have to be moved back to a company’s balance sheet.

Outside investors often take interests in those entities, for example, making an investment in a bank’s holdings of mortgage loans in exchange for payments from borrowers.

Under the new standard, companies must bring back any entity in which they hold an interest that gives them "control over the most significant activities," according to the Financial Accounting Standards Board. Companies must perform analyses to determine that.

In cases where companies have "continuing involvements" with entities off the balance sheet, they will have to provide new disclosures.

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The U.S. Supreme Court ruled on Monday for AT&T Inc in a dispute over how retirement benefits should be calculated for women who took maternity leaves before the federal Pregnancy Discrimination Act took effect in 1979.

By a 7-2 vote, the justices overturned a U.S. appeals court ruling that AT&T had violated federal civil rights law by not granting women credit for their entire pregnancy-related leaves taken before 1979.

The 1979 law barred companies from treating pregnancy leaves differently from other disability leaves. Since then, maternity leave has been considered disability leave and has been credited toward retirement.

The ruling was a defeat for four AT&T employees who each took at least one maternity leave between 1968 and 1976 and had sued. AT&T at the time allowed pregnant women up to 30 days of paid leave, but the women lost between 67 and 261 days of uncredited leave no fax pay day loan.

The appeals court in San Francisco ruled those days of maternity leave should count in determining their pension benefits.

The Bush administration had backed AT&T, saying the appeals court ruling improperly credited maternity leaves before the law took effect and that Congress specifically did not make the law retroactive.

Writing for the court majority, Justice David Souter concluded, “We hold there is no necessary violation; and the benefit calculation rule in this case is part of a bona fide seniority system under … the Civil Rights Act of 1964, which insulates it from challenge.”

Justices Ruth Bader Ginsburg and Stephen Breyer dissented.

(Reporting by James Vicini, Editing by Gerald E. McCormick, Dave Zimmerman)

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Canadians took another blow to the gut last week when it was reported that one of our top HIV/AIDs researchers was defecting to the U.S., taking as many as 25 of his talented young researchers at the University of Montreal with him.

A globally renowned immunologist, Dr. Rafick-Pierre Sékaly could not have done more to soften the blow. He will retain a satellite operation at U of M – even as the bulk of his work shifts move to a new institute in Florida – and said that only Canada’s support of his efforts to date had made his breakthrough work possible. Dr. Sekaly hoped his difficult decision will be a wake-up call for Canadians, who have to decide if we want to pursue global leadership in R&D or be bystanders.

An R&D establishment more alert to the threat posed by U.S. President Barack Obama would not have been so jarred by the $96 billion (U.S.) he committed to additional funding for researchers, upgrading the facilities in which they work, and to educational reforms to encourage more students to embrace a future in scientific discovery.

Obama’s spending comes to more than 3 per cent of his country’s GDP. To put that in perspective, the U.S. defence budget, bigger than the combined defence budgets of all other countries, averages 4 per cent of GDP.

But Canada can still be a global R&D leader.

In international tests of 15-year-olds, Canadian students rank fifth in math while U.S. kids place 25th. In literacy, Canada ranks third; American students rank 15th. America’s dysfunctional immigration system – which dissuades many of the best and brightest foreign students and researchers from coming to America – will take years to fix, as will U.S. educational failings. We have an infrastructure of researchers, universities and independent research institutes such as the new Perimeter Institute in Waterloo and MaRS in Toronto that are dedicated to "pure" or basic research, and applied research that translates into world-class goods and services.

Canadians are inventive. The Ski-Doo, the first commercial oil well in North America, the first viable AIDS treatment, the Canadarm, and major-league baseball as it’s played today all trace their origins to Canada, as does the U.S. president’s favourite sport, basketball.

But we are a small nation that cannot be the best at everything.

PRIORITIES

We have to focus our R&D efforts on expertise we already have in strength. This includes:

• Auto parts – Magna International Inc. now ranks as the world’s third-largest auto-parts maker, and it got that way by inventing products the automakers hadn’t thought of.
• Aerospace – Bombardier is the world’s third-ranked civilian aircraft maker, after Boeing Co. and Airbus SAS.; Montreal’s Pratt & Whitney leads the world in small-aircraft engines; and CAE Inc. is the world’s largest maker of flight simulators.
• Telecommunications – A Canadian strength since the first Radarsat satellite was launched decades ago, with the BlackBerry – another staple of Obama’s everyday life – only a recent manifestation of that longstanding Canadian R&D strength;
• Medical R&D – Universities and teaching hospitals across the country are already pioneers in cardiology, pediatrics, oncology and gerontology; and viticulture, building on more than two decades’ of R&D breakthroughs in Southern Ontario and B.C.’s Okanagan Valley.

Any nation of our diminutive size would be thrilled to have so many areas in which to "punch above its weight."

INFRASTRUCTURE

Stephen Harper’s government has been vilified for cutting $148 million (Canadian) in January from the three agencies that fund basic research at Canadian universities easy payday loans. But Harper gets no credit for the $2.75 billion he’s committed to the less glamorous but essential task of upgrading university labs and providing researchers with state-of-the-art equipment.

University administrators have had their begging bowls out for such "unsexy" funding for years. It’s no fun for researchers working in leaky buildings to finish the day draping plastic sheets over their equipment, or finding that the supply of distilled water has suddenly gone dry.

We need to fund pure research, applied research, and the universities and other facilities (the "infrastructure") in which the pursuit of breakthroughs takes place.

We can’t short-shrift pure, or "curiosity-driven," research – one of Obama’s priorities – even though by definition we don’t know where it will lead. It’s this research that lead to the world-changing "accidental" discoveries of researchers from Isaac Newton to Albert Einstein.

INNOVATION CHAIN

In applied R&D, where researchers are looking for solutions to specific problems with the idea of perfecting a new drug or a more sturdy aircraft wing as a result, we need a closer adherence to the German model of intimate business-university collaboration. The BlackBerry conspicuously excepted, we are not good at taking our inventions to market. We invented Pablum, for instance, but left it to a foreign firm (America’s Mead Johnson) to market it to the world. Insulin, another Toronto invention, was made and marketed in a desultory fashion by locally based Connaught Labs until a French drugmaker that acquired it got serious about innovative ways of treating diabetes.

Our problem here is that we overwhelmingly are a branch-plant economy. Only a handful of the very largest U.S., European and Asian companies that dominate our economy do any research in Canada, and what little they do usually is of a peripheral importance to those firms.

Our business sector, in stark contrast with government, has long stinted on R&D. A report this week from the Science, Technology and Innovation Council places Canada sixth among G7 nations in R&D as a portion of GDP. The chief culprit, as the report reminded us, is business, whose R&D collaboration with governments, universities and other companies ranks among the lowest of 26 nations studied. And, sad to say, that’s to be expected in a nation in which so many sectors of our economy – packaged food products, cosmetics, pharmaceuticals, automobile assembly, electrical components – are almost entirely owned by foreigners whose R&D efforts are concentrated in their homelands.

We have creative spirit in abundance. Our students are among the world’s brightest. We have had governments, particularly during the Chrétien era, that ramped up their R&D spending. That smaller nations like Sweden, Finland, Austria and Denmark outspend us says more about our failure of political will than being up against the global R&D juggernaut that Obama proposes to create.

America’s about-face can energize us to be smarter in the application of our limited funds, so that we can be the "go-to" nation on an ever wider number of first-class technologies.

Or we can revert to watching the world pass us by. And we know what that’s like.

As Robert Fulford wrote, "My generation of Canadians grew up believing that if we were very good or very smart, or both, we would someday graduate from Canada."

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Under the direction of the U.S. Treasury, General Motors Corp is close to a deal with the United Auto Workers that would cut its hourly labor costs by more than $1 billion a year, the Wall Street Journal said, citing people familiar with the matter.

GM expects to halve its remaining cash outlays for retiree health costs to about $10 billion, and supplement that contribution with a 39 percent equity stake in the reorganized company, the people told the paper.

The plan is still in a state of flux but GM and the union could finalize terms as early as next week, the paper said quick guaranteed personal loans.

GM has been in talks with the UAW on a new contract and new payment terms for the $20 billion it owes the union for retiree health care.

Reuters attempts to reach GM and UAW after normal business hours were unsuccessful.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Anshuman Daga)

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German Economy Minister Karl-Theodor zu Guttenberg said on Thursday there was interest in General Motors’ Opel unit from investors other than Fiat and Magna, but that the interest of one financial investor had waned.

“We have these two. As to a third one who has made himself known, here the euphoria seems to decline,” he told Reuters at the start of a high-level government meeting to discuss future financing for Opel classic car insurance.

He also said the German government did not know what the financing needs of carmaker Opel would be.

(Reporting by Sabine Siebold)

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Rio Tinto dropped as much as 5 percent, tracking its London shares lower, on growing speculation the global miner is set to launch a rights issue instead of selling $19.5 billion in stock and assets to China’s Chinalco aluminum group.

On its Web site, Britain’s Telegraph newspaper, citing a recent Citigroup report, said that “given the avalanche of rights issues in recent weeks…the market’s appetite for them and the fact that Rio’s price is over the convertible strike price, calls for a rights issue for Rio should gain momentum.”

Rio was 4.6 percent lower at A$65.33 at 11:08 p.m. EST, outpacing losses in close rival BHP Billiton() and the wider market .AXJO

Rio Tinto has drawn up a plan B’ if the Chinalco deal, aimed at helping it pay off billions of dollars in debts and ride out the commodities down cycle, is blocked by regulators or shareholders quick faxless payday loan.

Investors have been speculating Rio might have to revise the deal since its shares in April climbed above the $45 conversion price on the first of two tranches of convertible notes that would be issued to Chinalco under the deal.

Australian politicians have also voiced concern about selling part of the company to a Chinese state-owned entity, with some even running a television advertisement against the idea.

(Reporting by James Regan; Editing by James Thornhill)

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CHICAGO — A nagging issue wound its way through the chatter at what was an otherwise celebratory event for the nation’s wind industry in Chicago.

The U.S. has become the world’s biggest generator of wind power. Of the electricity production added in the country last year, 42 percent came from wind turbines. But as more megawatts come on line, the problem of getting power from wind-swept plains to places where people actually live becomes more urgent.

"In some ways we’re reaching the glass ceiling," said Rob Gramlich, vice president of policy at the American Wind Energy Association. It was the organization’s biggest annual conference to date, drawing 1,200 exhibitors and more than 20,000 people.

The country’s grid is aging, often overloaded and, in the case of wide-open states like Wyoming and North Dakota — some of the best places to erect wind turbines — not nearly extensive enough to move electricity to major markets where customers wait.
The wind industry group says it needs 19,000 miles of new high-voltage lines — at a cost of about $100 billion — for wind-farm developers to keep building.

That barrier, Gramlich said, could imperil President Barrack Obama’s goal for the country of generating 25 percent of its electric supply through renewable energy by 2025.

"It’s hard to see how we could get beyond 5 percent of electricity from renewables without a change in transmission policy," he said.

For an industry that is expanding at such a rapid clip, that could eventually become a significant drag quick cash advance.

More than 50 new facilities were built last year to manufacture turbine components and the amount of power generated by wind grew by 50 percent.

"And this is, of course, nothing that we like nor, I think, is it economically sensible because you do not generate power where it is most efficient," Andreas Nauen, the head of wind power for Siemens AG, one of the world’s top turbine manufacturers.

On Tuesday, Siemens said it was building a wind turbine plant in Kansas where it would employ 400 workers. The 30,000-square-foot facility will begin production next year.

But building power lines is more difficult. It can take five years or more, most of it spent figuring out sticky issues of finance and location.

There are usually dozens of parties involved — the power producers and buyers, and the states, local governments and landowners who all want a say in where a power line sits.

The wind industry wants the Federal Regulatory Commission to have the final say on power lines.

Legislation now working its way through Congress would let FERC set locations for high-priority transmission projects if state and local officials can’t do it on their own.

FERC Chairman Jon Wellinghoff said, "At the end of the day, if it doesn’t get done, you need somebody to say this is how we get there."

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Spending 25 years in sales and marketing with Rawlings has changed the way Mike Thompson sees America’s favorite pastime. While watching a Yankees game on TV recently, he noticed something different about the team’s struggling slugger Mark Teixiera. It wasn’t the form of his swing that drew Thomspon’s attention, but what he was swinging — he wasn’t using his usual Rawlings bat.

It is common for struggling players to turn to superstitions to get them over a slump, such as a new brand of bat, but as a leader in sports marketing for the company, Thompson has to notice these idiosyncrasies. He knows that’s not the way most people watch baseball, but mixing business with the sport he loves hasn’t soured his enjoyment of the game.

There have been several chances to work elsewhere in the sports industry for Thompson, but the Southern California native loves working for what he calls the "mecca" of baseball companies. (About 35 percent of major league players wear Rawlings baseball mitts — the most of any company.)

The job requires Thompson to travel often to meet with athletes and their agents. More recently he’s spent time scouting emerging markets, such as Japan, to understand how the company can capitalize on baseball’s international growth.

Despite the frequent trips that take him away from his family, the job has its perks — many of which, he said, come in the form of sports memorabilia that line the walls of Thompson’s office and home.

How’s the economy affecting your business?

It’s a struggle. In 2008, we saw this coming about October when everything just started sliding. Fortunately for us, we really battled through all that, so we achieved our goals in 2008. This year has been even more challenging. Our business is off a little bit right now. But, obviously, the key is how you respond and recover and get up off the mat. … People are a little resistant to pay $400 for the high-end, premium ball glove or $350 for your top bat. So you look at segments of the business and say lets bring it down, develop a $199 bat or glove. We look at it from a product point of view.

I’ve heard plenty about baseball teams spending less on players’ contracts this year because of the poor economy. How have you handled paying players less on endorsement deals?

We’ve held a similar position. What’s been cool about it is agents and players have been understanding. With a few expected exceptions, there’s been a willingness to get on board. We’ve gone back and said, "The product is what you want, you’re going to have to take a bit of a cut this year cash advance today." They’ve been pretty understanding.

What’s more common with players you work with now — players who use new equipment regularly or those who stick with an old piece because of superstition?

I think it varies. At the professional level, from a ball glove point of view, depending on your position, at the professional level, once they get comfortable with the tool of their trade it’s hard to knock them off it. The guys who will switch are pitchers. They’re basically playing catch. So he typically doesn’t have a difficult time with it. But, say, a player like Albert Pujols, who’s been using a Rawlings product his entire career, he would have a very difficult time making that transition (to a new glove).

And a glove is different from a bat. A guy goes into a slump, if he’s 0-for-10, he sets that bat down and goes to the next one. There are lots of guys that use our bats and we’ll see, from time to time, they’ll switch to the competition. Typically, they’re in a slump. Or you can see a guy is swinging our bat now. The reason? He got a hit with it and continues to use it.

The bat thing goes back and forth. The glove thing, (players are) pretty regimented about that.

How do you deal with finicky athletes selecting equipment on superstition? Isn’t your job about controlling that?

It is, but this is where our branding guys come into play. Everything from blogs to YouTube videos. A lot of this stuff is moved digitally. Kids watch that.

For example, we might throw up an example of a home run exhibition that we staged with our partners that put on these high-level high school showcases using our bats. And you’ll see guys hitting third- deck bombs. We’ll take those clips, we YouTube them and put them on the Web for people to see.

What’s your favorite piece of sports memorabilia?

Well, I’m sort of a memorabilia geek. What’s in my basement would make this (stuff in the office) look pretty silly. But I’ve never asked for an autograph. A lot has come to me just from being in the business. In (the office, my favorite is) probably the Cardinal jersey from the 1940s. …It’s an actual gamer from about 1947.

In my basement, I’ve got a Babe Ruth signed check. I’ve got the program … from Yankee Stadium when they unveiled Mickey Mantle’s monument. I’ve got a lot of Joe DiMaggio stuff.

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Wal-Mart Stores Inc on Thursday reported a stronger-than-expected 5 percent rise in sales at U.S. stores open at least a year in April, helped by demand for Easter merchandise.

Analysts, on average, were expecting the company’s same-store sales to rise 2.9 percent, according to Thomson Reuters Estimates.

The world’s biggest retailer said Easter seasonal products posted a same-store sales gain in the high single-digits compared with a year ago. For the month ended May 1, Wal-Mart said net sales rose 2.4 percent to $29.853 billion.

Earlier this year, Wal-Mart said it would no longer provide monthly sales forecasts free credit report and score. Instead, the world’s biggest retailer said it would give forecasts for 13-week periods that roughly track its quarterly financial reporting periods.

The retailer said on Thursday that it will provide its next 13-week forecast when it reports quarterly results on May 14.

(Reporting by Nicole Maestri, editing by Gerald E. McCormick)

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