Actual finance blog

Wells Fargo & Co has fired a senior vice president after investigating reports she held lavish parties at a foreclosed beachfront Malibu house owned by the bank.

The fourth-largest U.S. bank said in a statement on Monday that it had terminated one employee, senior vice president Cheronda Guyton, who it found had violated its policies.

“We deeply regret the activities that have taken place as they do not reflect the conduct we expect of our team members,” the bank said in the statement.

Wells Fargo, which received $25 billion in government bailout money last October, was criticized earlier this year for planning events at upscale Las Vegas hotels for top mortgage employees. It said in February that it did not plan any more of these “recognition events” this year. It said at the time that such events were part of its culture, and that it believes in rewarding hard-working team members.

Guyton, who had been responsible for Wells Fargo’s foreclosed commercial properties, used the 3,800-square-foot beachfront house on Malibu Colony Drive on weekends for parties, one of which had guests arriving on a yacht, the Los Angeles Times reported, citing neighbors.

The previous owners of the house — which sits in the same California community as that of movie star Tom Hanks — had purchased it for $12 million, but lost a fortune to convicted swindler Bernie Madoff’s massive Ponzi scheme, the Times reported, citing a real estate agent.

Malibu Mayor Andy Stern told Reuters that he appreciated the fact that Wells Fargo took the issue seriously.

“They seem to have done a rapid and thorough investigation. I respect that they did that,” Stern said.

Any kind of corporate misbehavior affects the institution and the industry, said Sandra Chrystal, who teaches business ethics and communications at University of Southern California. Chrystal said a company committee likely made the decision to let Guyton go.

“If anything the corporate culture is now more sensitive to issues like this because of the financial problems and impression that anyone in the financial industry is wealthy or having a good time at the expense of the common public,” Chrystal said.

A resident in the enclave told Reuters on Sunday that Guyton had parties but that they weren’t excessive.

“It’s shocking what she did. I really question her judgment. How many other bank executives would make a decision like that?” said the resident, who asked not to be identified.

Wells Fargo, which acquired troubled bank Wachovia Corp at year end, said last week that it had taken possession of the Southern California property in May and withheld it from the market for an agreed-upon period of time. It said its policy prohibited personal use of properties held by the bank.

Wells Fargo said earlier this month that it would repay its bailout funds without raising additional capital, but did not give a timeframe. Other large banks including JPMorgan Chase & Co, Goldman Sachs Group and Morgan Stanley repaid money from the government’s Troubled Asset Relief Plan in June.

Shares in the bank closed on Monday up 1.8 percent at $27.92.

(Additional reporting by Lisa Baertlein and Gabriel Madway; Editing by Toni Reinhold, Gary Hill)

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Jorge Ramos runs a camp at Seneca College, teaching kids about money.

About 200 children went to Camp Millionaire this summer at a cost of $240 each. Most are 9 to 11 years old, but there’s an advanced course for graduates aged 12 to 14.

Pushed by parents to go, some were not happy campers.

One boy sat on the sidelines, refusing to pick any stocks for an interactive trading contest.

"He came in fifth by being out of the market. After that, he was excited and really got into it," says Ramos, who bought the Canadian rights to the camp from a California entrepreneur.

He’s learned to make financial literacy fun for youngsters. So, what’s his advice for parents trying to do the same thing?

First, he says, involve kids in your household’s finances. You don’t have to disclose your income or your net worth, but you can talk to them about how much things cost – even the family home.

Second, use an allowance as a budgeting tool. Make kids responsible for their spending on clothes, entertainment and other discretionary purchases.

"Instead of saying, `Here’s $10 a week, do what you want,’ structure a budget allocated to items they want to buy in the next few months.

"When you say to kids, ‘Here’s $40 a week, don’t blow it,’ they look for sales. They’re more cautious when it’s their money. You’re empowering them."

Third, encourage kids to start a business. Selling lemonade, raking leaves or shovelling snow can teach them about how markets work.

They have to ask questions such as: What do I charge for my product or service? Who are my clients?

Testimonials at his website, FinancialIQ.ca, are endearing.

Michael, 9, is making money picking up sticks, apples and nuts in his mom’s garden. He also grows pumpkins and sells some of them.

Michelle, 11, is earning "passive income" from interest on her bank account instant credit report. (That’s a popular term for money received on a regular basis with little effort required to maintain it.)

Matthew, 13, learned so much after the first day that "financial intelligence was coming out of both ears."

Kids are assigned homework to do with their parents.

"They have to ask, ‘What was the best investment decision you ever made and the worst? What does it cost to raise me?’ "

At Camp Millionaire, children learn to use money jars for spending, saving, giving and education.

The use of jars, popularized by host Gail Vaz-Oxlade in a TV show, Til Debt Do Us Part, allows them to budget in a tangible way and dedicate money to different goals.

Ramos says he’s starting to cover his costs. He made a pitch to The Dragons Den, a CBC-TV show that helps entrepreneurs get funding but came away empty-handed.

Doug Meharg, on the other hand, became a millionaire at 28 through owning real estate. He bought his partner’s share of an apartment building in Markham with 50 suites, all rented.

In a self-published book, Become a Richer You, he gives tips for raising savvy kids – such as banishing bad attitudes and recognizing that mistakes are part of success.

Failures help you learn what not to do next time, he says, and might even point you in the direction of what you need to do.

Junior Achievement of Canada does such work with kids during the school year free (jacan.org).

There’s obviously a demand for exciting, interactive ways to improve personal money management.

Let’s hope the new financial literacy task force plants seeds for such programs to sprout in communities across the country.

eroseman@thestar.ca

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General Motors told white-collar workers Friday that it is restoring temporary pay cuts made May 1.

The 3 percent to 10 percent pay cuts to salaried workers’ pay came at a time when GM was desperate to save cash to keep the company operating prior to its bankruptcy filing June 1.

The pay cuts depended upon an employee’s level.

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Warren Buffett is often a go-to guy when companies want to raise money.

Yet while his Berkshire Hathaway Inc is Kraft Foods Inc’s largest shareholder, he may not be needed as an ace in the hole, as the food company attempts to buy British candy maker Cadbury Plc.

“Buffett could put some Berkshire resources behind a Kraft bid but I find it hard to believe it is necessary,” said Vahan Janjigian, whose book “Even Buffett Isn’t Perfect” was published last year. “Credit markets have thawed enough for Kraft to get financing in traditional ways if it needs it.”

Cadbury, which makes Dairy Milk chocolate, Halls cough drops and Trident gum, on Monday spurned Kraft’s unsolicited $16.7 billion cash-and-stock offer. Kraft products include cheese, Kool-Aid, Oreo cookies and Oscar Mayer meats.

Through his assistant Carrie Kizer, Buffett did not return requests for comment.

Buffett, the world’s second-richest person and probably its most revered investor, is familiar with candy.

Last year, his company funded $6.5 billion toward Mars Inc’s purchase of Wm. Wrigley & Co. It also owns See’s Candies, whose confections Buffett munches at the annual shareholder meetings of Omaha, Nebraska-based Berkshire.

Berkshire owned 138.3 million shares, or 9.4 percent, of Northfield, Illinois-based Kraft as of June 30 free credit reports.

Those shares were worth about $3.6 billion on Thursday. They also throw off $160 million of annual dividends.

“Kraft and Cadbury have what Buffett likes: strong brands that have been around a long time, and which have durable earnings power,” said Justin Fuller, an analyst at Midway Capital Research & Management in Chicago and author of the Buffettologist.com blog.

Yet buying Cadbury may not be cheap. Some analysts believe Hershey Co could make a long-shot offer, forcing Kraft Chief Executive Irene Rosenfeld to drive up her company’s bid.

“We would not rule out Kraft raising extra cash through a private investor,” analysts at JPMorgan Cazenove Ltd wrote this week, noting Berkshire’s role in the Mars-Wrigley transaction.

Kraft said it would not plan to issue more equity, even if it needed to raise billions of dollars to buy Cadbury.

And asked on Monday if Kraft expects Buffett’s help, Chief Financial Officer Timothy McLevish parried the question, saying: “We have strong banking relationships and good access to debt capital markets and feel quite confident that we will not have difficulty with financing.”

THE “BUFFETT BLESSING” 

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Morgan Stanley Chief Executive John Mack is stepping down and will be replaced by retail brokerage head James Gorman, signaling the storied bank is embracing stable businesses after losing big on risky ones.

Mack, 64, a former trader who rose to CEO after a coup toppled Philip Purcell, will remain chairman of Morgan Stanley, which posted a second-quarter loss of $1.26 billion even as other banks had stronger results.

Under Mack, Morgan Stanley was willing to bet more of the bank’s own money, a strategy that yielded big rewards in years like 2006, but also helped push the investment bank to the brink of collapse in 2008.

The shift to Gorman, 51, who runs Morgan Stanley’s brokerage and has been overseeing its expansion through a joint venture with Citigroup’s Smith Barney unit, could be a sign of a wider shift in the industry, analysts said.

“All these large financial institutions are going to replace their head honchos with someone with a background in a business with a more consistent, predictable revenue stream — commercial banking, retail brokerage, or asset management,” said Bill Fitzpatrick, equity research analyst for financials at Optique Capital Management in Milwaukee.

Gorman will take over the CEO job — and join the board of the iconic bank which has struggled to keep up with archrival Goldman Sachs — effective January 1, 2010.

FIGHTING FOR SURVIVAL

The Australian born Gorman has long been seen as a front runner for the top job at Morgan Stanley, the bank founded 74 years ago by former executives from JPMorgan & Co.

“Gorman has really earned his stripes,” said Anton Schutz, president of Mendon Capital Advisors in Rochester, New York, which owns Morgan Stanley shares. “He did a great job at Merrill, he’s doing a good job at Morgan Stanley, and the timing for a change seems to be good, because we’ve made it through the worst of the crisis.”

Mack had told the bank’s board that he planned to step down from the CEO post when he turned 65 in November, the bank said in a statement on Thursday.

Morgan Stanley’s shares have come roaring back this year after it fought for survival in the wake of the Lehman Brothers collapse, helped by the U.S. government and an investment from Japanese bank Mitsubishi UFJ that Mack took the lead in negotiating.

Still, the bank’s shares, which are up nearly 80 percent so far this year, have fallen short of a 107 percent surge in Goldman Sachs Group Inc’s stock.

Morgan Stanley earlier this year paid $2.75 billion to acquire a controlling stake in Citi’s Smith Barney retail brokerage, a move that could provide a more stable source of revenue to offset some of the investment bank’s more volatile businesses.

Prior to joining Morgan Stanley in 2006, Gorman worked at Merrill Lynch & Co. From 2001 to 2005, he led Merrill’s global private client business.

STANDING OVATION 

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Bank of America Corp and the U.S. Securities and Exchange Commission on Wednesday made a third attempt to persuade a skeptical judge to approve their settlement over Merrill Lynch & Co bonuses. But experts said they may not have done enough.

The largest U.S. bank separately rejected allegations brought Tuesday by New York Attorney General Andrew Cuomo that it is hiding behind attorney-client privilege as a defense for its decisions over Merrill. Cuomo has threatened to sue top executives if the bank by September 14 is not more forthcoming.

Bank of America agreed last month to pay $33 million to settle SEC charges it misled investors about $3.6 billion of bonuses paid to Merrill employees, which lost $27.6 billion last year.

Yet U.S. District Judge Jed Rakoff in Manhattan has twice refused to sign off on the settlement, demanding more details about who knew what about the bonuses.

He has expressed incredulity at the SEC’s allowing the bank to avoid disclosures by asserting that top officials relied on lawyers to make decisions about the disclosures. The bank did not admit wrongdoing in agreeing to settle.

Wednesday’s filings, which do not assign responsibility to individual executives, may not change the judge’s mind.

“We’re getting from the SEC a bureaucratic stonewall, and from the bank an opaque silence about what went on,” said John Coffee, a Columbia University law professor who reviewed the briefs. “The SEC hopes the court will rubber-stamp the settlement, but it has to face that all events are tipping in the direction that no one other the SEC and the bank want this settlement to go forward. The public wants more disclosure free credit score online.”

Coffee teaches a class at Columbia with Judge Rakoff.

The judge could hold a hearing on the matter, the bank and the SEC could try to renegotiate the settlement, or more litigation could ensue. Indeed, Bank of America said it “stands ready to litigate” if the settlement is turned down.

“I hope the judge rejects the settlement,” said Charles Murdock, a law professor at Loyola University of Chicago. “There was a failure to adequately disclose terms of the transaction and Merrill’s financial situation.”

CUOMO THREATENS LAWSUIT

Bank of America has faced months of anger by shareholders and in Congress over the shotgun Merrill merger, which resulted in a federal bailout and restrictions on executive pay.

The merger has also called into question the leadership of Chief Executive Kenneth Lewis, who this year ceded his role as chairman and lost half of his supportive board of directors.

In threatening to sue individual executives, Cuomo accused them of failing to reveal material information about the Merrill merger. This includes the bonuses, Merrill’s $15.8 billion fourth-quarter loss and the bank’s efforts to back out of the transaction before it closed on January 1.

He said the bank’s former general counsel Timothy Mayopoulos testified to having advised executives four days before a shareholder vote as to whether the bank could invoke a “material adverse change” clause to cancel the merger — but was not allowed by the bank to say what he advised. 

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Total U.S. consumer credit fell by a record $21.6 billion in July, Federal Reserve data showed on Tuesday, the latest hint household spending would be too weak to drive the economy’s recovery from recession.

July consumer credit outstanding fell at a 10.4 percent annual rate to $2.47 trillion, steeper than analysts’ expectations for a $4.0 billion drop. Total credit in June tumbled $15.5 billion rather than the $10.3 billion drop previously estimated by the U.S. central bank.

“It is one more important sign that consumers are not going to be contributing very much to the economy for the balance of this year and probably for a good part of next year. Consumers will be in the background,” said Bernard Baumohl, chief global economist at The Economic Outlook Group in Princeton, New Jersey.

With an unemployment rate of 9.7 percent, the highest in 26 years, and incomes falling, households have drastically cut back on spending. Consumer spending accounts for about two-thirds of U.S. economic activity.

While key reports suggest the economy is probably in the early stages of recovery from a recession that started in December 2007, continuing jobs destruction has raised fears that the healing process will be slow.

Consumer credit has now declined for six consecutive months, the first time this has happened since the period from June 1991 to December 1991, the Fed said quick payday loans.

“There is no way that this recovery can be sustained unless we see a pickup in household spending. The big question out there is will we see Americans spend again to keep this recovery alive,” said Baumohl.

The recovery, which many economists believe is underway, will be largely driven by goods restocking, after inventories were slashed to record low levels, government spending and historic low interest rates.

Nonrevolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and holidays, plunged a record $15.4 billion, or at a 11.7 percent annual rate, to $1.6 trillion.

Revolving credit, made up of credit and charge cards, dropped $6.1 billion, or at 8.1 percent rate, to $905.6 billion, the data showed.

“Credit is still shrinking and that is going to have an impact on consumption. As such, this remains an important part of the recovery since without the smooth functioning of credit markets, the recovery may stall,” said Charmaine Buskas, a senior economics strategist at TD Securities in Toronto.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

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Abu Dhabi’s state-owned ATIC offered to buy Chartered Semiconductor for $1.8 billion, while major shareholders in Hynix began the sale of a $2.8 billion stake, kickstarting consolidation in a chip sector emerging from its worst ever downturn.

Signs of recovery among semiconductor makers that have been hammered by chronic oversupply and weak demand have prompted expectations that stronger players will take out weaker rivals in an effort to boost market share and better control production.

Loss-making Singapore contract chipmaker Chartered Semi, which makes the chips for Microsoft’s Xbox 360 game console, has struggled against bigger Taiwan competitors, and the deal with ATIC may help it tide over its financial woes.

“Consolidation in the foundry business has not progressed as much as it has in the memory or logic sectors,” Mizuho Investors Securities analyst Yuichi Ishida said. “I wouldn’t be surprised if consolidation should progress further among foundries as development costs on cutting-edge chips grow.”

Bigger foundries, which supply chips for fabless chip designers and chipmakers that own their own plants but are increasingly outsourcing production, could spend more to upgrade technology and win more orders for a new-generation of personal computers, cell phones and flat-screen TVs.

Japan’s Toshiba Corp was in talks with Chartered Semi and Globalfoundries about outsourcing production of some of its next-generation system chips to help cut costs, two company sources said on Monday.

Advanced Technology Investment Co (ATIC), fully owned by the Abu Dhabi government, is growing its investments in the semiconductor industry, currently consisting of a facility in Dresden, Germany and a state-of-the-art facility under construction in New York.

ATIC CEO Ibrahim Ajami told Reuters in an interview that the firm was eyeing more acquisitions with the aim of becoming a global leader in semiconductor technology.

Earlier this year, ATIC spent $2.1 billion on a 55.6 percent stake in Globalfoundries, a joint venture with Advanced Micro Devices Inc.

Chartered Semi is 62 percent-owned by Singapore investment agency Temasek Holdings TEM.UL, which is backing the ATIC deal.

For a related Graphic, click here

SAMSUNG SPECULATION

Abu Dhabi’s bid followed speculation that top memory chipmaker Samsung Electronics of South Korea plans to buy U.S. memory chip designer Rambus, sending Rambus shares sharply higher on Friday.

State-supported Taiwan Memory Co is leading efforts to consolidate the island’s struggling smaller DRAM memory chip makers and has chosen Japan’s Elpida Memory as a technology partner to jointly develop new chips.

ATIC did not rule out a possible merger of Chartered Semi and Globalfoundries, which could create a major rival to TSMC and UMC, the two Taiwanese firms that control about two-thirds of the $20 billion chip foundry market. 

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My recent column about Roth IRA conversions unleashed a flood of (so far) more than 100 reader e-mails illustrating widespread confusion and misconceptions.

I’ll try clearing them up with this primer:

Traditional and Roth IRAs are types of individual retirement accounts. Contributions to traditional IRAs may be tax deductible, but withdrawals are taxed. Roth IRA contributions are never deductible, but withdrawals can be tax-free. Converting a traditional IRA to a Roth offers the potential of future tax-free growth in exchange for being taxed on the conversion.

The conversion itself is merely a paperwork transaction. Your IRA custodian (basically, the institution where you have your account) can guide you through it. You may choose to convert all or part of the traditional IRA.
You don’t need "earned income," which is mostly income from work, to convert. You need earned income to make a direct contribution to any type of IRA, but conversions are not the same as direct contributions.

For 2009, you can convert unless your modified adjusted gross income is more than $100,000 or you are married and file separate tax returns. Beginning in 2010, anybody with a traditional IRA can convert.

To answer numerous questions, anybody means anybody, including you.

If your traditional IRA contains non-deductible contributions, they are not taxed on conversion. (If you convert a $100,000 IRA with $20,000 in non-deductible contributions, only $80,000 is taxable upon conversion.) But you cannot "cherry pick" and convert just the non-taxable amounts. Instead, you must pay your "pro-rata" share of taxes. If you convert only part of this IRA, for example, you would pay tax on 80 percent of the converted amount, the same ratio as in a full conversion.

Converted amounts can always be withdrawn from a Roth IRA without having to pay ordinary income tax (you already paid it when you converted) cash advance america. But converted amounts withdrawn before five years are subject to a 10 percent penalty if you are under 59

While the Toronto International Film Festival is renowned for showcasing the world’s finest movies, Jeffry Roick’s glittery parties are known to occasionally eclipse the main event.

Roick, 43, is the event planner of choice for Hollywood North. But a tough recession means that this year’s festival, which starts next Thursday, , seems destined to be less glamorous this time – even with the presence of luminaries such as George Clooney and Oprah Winfrey.

At this time last year Roick had 13 confirmed bookings. This year he has two.

"Companies are really toning things down because of the economy," says Roick. "Even if they do have the money it’s just not fashionable right now to spend a lot on what they think may be an over-the-top event."

Pamela Smith, publisher of TSEvents, considered the bible of the events business in Toronto, says this year has been particularly bad for the industry.

"It really is a sad state. A lot of businesses are just devastated," says Smith. "This is affecting everyone from the hotel to the caterer to the cab driver."

Organizers say the festival, considered the second-most important movie industry event after Cannes, has an estimated $135 million economic impact on Toronto. More than 470,000 people are expected to attend 335 film screenings throughout the city.

Michael Harker, founder and senior partner of Toronto-based Enigma Research, says the festival may vie with other events such as the Canadian National Exhibition for the bragging rights as the annual event with the largest economic footprint in the city.

"They fit the perfect criteria of having a huge attendance, having a lot of people from out of town and their patrons do a large amount of spending when they’re in the city," Harker says.

It is also one of the single most important annual events for the hospitality industry. This is typically when the most glamorous parties are held in the city during the year. With the stars out in force, sponsors and patrons are willing to pay big bucks to up the glamour quotient.

But Smith says the hospitality industry is still recovering from a big tumble last Christmas after Wall St. imploded, with the reverberations on Bay St. here in Toronto.

"They suffered cancellations at Christmas, and that business hasn’t come back," Smith says.

Case in point: Last year Roick’s company McNabb Roick & Associates threw the festival’s most high-profile soiree. The One X One fundraiser for 800 guests used Maple Leaf Gardens as a dinner venue for the first time. Hosted by The Bourne Identity star Matt Damon, the event raised funds for children’s charities.

While a concert is still planned for the charity this year, the dinner portion is dramatically slimmed down to about 200 people with a cocktail party held in a private residence, Roick says.

"People are still having events, but the feeling is much more subdued and likely held in smaller venues and restaurants," he says auto loans for bad credit.

Roick will not disclose who will be at his parties, but in the past he’s hosted guests such as Gwyneth Paltrow, Clint Eastwood and Brad Pitt.

Despite the challenging economy, Jennifer Bell, vice-president of communications for TIFF, says organizers are confident the festival is "well-positioned to weather the economic storm."

Unlike other non-profit annual events such as Tennis Canada’s Rogers Cup, TIFF does not disclose sponsorship details.

"We do not discuss specific figures or details associated with sponsorship arrangements," Bell says. "However, it would be irresponsible for us as an organization to suggest that we are immune to the pressures facing the arts sector globally."

Roick says sponsors are crucial to the festival, especially since they underwrite many of the costs of throwing a big party.

"When you’re not getting dozens of cases of fine wine donated for your party in return for sponsorship, that makes a huge difference to the size and scope of your event," Roick says.

Still, the festival remains seductive for some sponsors. Toronto-based Porter Airlines signed on for the first time this year.

"The film festival really creates a buzz," says Robert Deluce, CEO of the commuter airline known for its emphasis on style. "I guess you could say we’re bucking the trend by spending more on marketing this year than last year."

Unlike some other businesses, Porter is in expansion mode, taking on six new airplanes by the end of the year while upgrading its terminal.

The airline is also the official carrier of other arts and cultural organizations, such as the Toronto Symphony Orchestra and Luminato.

"We feel that cultural events like the film festival are where our passengers are," Deluce says.

Deluce says he’s not sure if he’s going to throw a party, but he’ll likely attend a few. Models dressed in Porter Airlines flight outfits will also be on show at different events.

"We’re going to try and participate in every way," he says.

That may be good news for planners such as Roick, whose events could cost more than $1,000 per plate. While there is no Maple Leaf Gardens event planned for this year, the big-ticket item will be a black-tie fête planned by Roick and held at the art-moderne-style Carlu, of which he is also the managing partner.

Roick promises that it will be the party that everyone will remember this year. And who knows, he says, perhaps a little optimistically, with the festival less than a week away, things could still turn around.

"It’s all about whether the stars’ schedules can come together. Then it’s `hurry-up and book that club,’" he says. "It could still happen."

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