Actual finance blog

The Federal Reserve raised the rate it charges banks that borrow from the central bank when they run short of funds.

The Fed said late Thursday it is raising its discount rate by a quarter percentage point, or 25 basis points, to 0.75%. The central bank said in a statement it made the move in response to improving financial market conditions.

The move is largely symbolic, because banks do little borrowing at the discount window.

The unanimous decision to boost the discount rate also has no effect on the more widely watched federal funds rate, which measures the rate banks charge each other for overnight loans. That rate is expected to remain between 0% and 0.25% for the foreseeable future, given the slack in the labor market and the still fragile state of the economy.

But raising the discount rate allows Federal Reserve chairman Ben Bernanke to take another small step toward normal monetary policy, after the past two-plus years were consumed in a financial firefight.

"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy," the Fed said in a statement.

The Fed also shortened the term of some discount window loans and raised the minimum bid in the term auction facilities it uses to supply overnight funds to banks. Those facilities were among the many innovations Bernanke introduced since the onset of the credit crunch in mid-2007 to supply U.S. banks with funding.

As the recession deepened, the Fed moved to support the housing market by buying more than $1 trillion of mortgage-related securities. When buying those securities, the Fed credited the selling banks with reserves at the Fed. This huge sum of so-called excess reserves has led to worries that any upturn in the economy will be met with an inflationary lending spike from banks.

Bernanke has emphasized that the Fed will use multiple new tools to prevent the excess reserves from fueling inflation, including the payment of interest on reserves at the Fed and the sale of Fed assets.

But as eager as policymakers are to show that policy is on a track toward normalization — that is, a nonzero fed funds rate and a smaller Fed balance sheet — the process is clearly going to take time.

The Fed suggested as much Thursday, in explaining why it may be a while before the spread between the federal funds rate and the discount rate may return to its pre-crisis level of 1 percentage point. Following Thursday’s increase, the spread is now half a percentage point.

The central bank said Thursday’s increase should "encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds" and added that it will "assess over time whether further increases in the spread are appropriate." 

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Senior living community The Place at Gallatin has a new name and a new owner.

Seattle-based Emeritus Senior Living announced today that it has purchased The Place at Gallatin, which will now operate under the name Emeritus at Gallatin.

Publicly traded Emeritus currently operates 316 residential and assisted living communities in 36 states serving about 32,700 residents.

In a news release, Emeritus President Granger Cobb said the company plans to bring “additional improvements” to its newest facility.

Mary Ellen Mayfield, executive director for Emeritus at Gallatin, said the purchase allows the community to maintain its independence while benefiting from the support of a national senior living company.

“It will be great for this community to be a part of the Emeritus family, such a forward-thinking company that is committed to the highest standards of quality care for seniors,” Mayfield said.

Emeritus is on of the country’s largest operators of freestanding assisted living communities providing Alzheimer’s and related dementia care services to seniors.

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Glen W. Bell Jr., founder of the Taco Bell restaurant chain, died Saturday at his home in Rancho Santa Fe, Calif. He was 86.

Bell was born Sept. 3, 1923 in Lynwood, Calif.

He founded the Taco Bell chain in 1962 in Downey, Calif., and sold the first franchise in 1964. He sold his entire 868-franchise company in 1978 to PepsiCo., which spun the company off in 1997 as a part of Louisville-based Tricon Global Restaurants Inc. Tricon became Yum Brands Inc. (NYSE: YUM) in 2002.

Yum Brands also owns Pizza Hut, Long John Silver’s A&W Restaurants, and KFC.

Today, Irvine, Calif.-based Taco Bell has more than 5,600 U.S. restaurants that serve about 36.8 million customers each week.

"The entire Taco Bell family of franchisees and employees are deeply saddened by the loss of the founder of Taco Bell. Glen Bell was a visionary and innovator in the restaurant industry, as well as a dedicated family man," Greg Creed, president and chief concept officer of Taco Bell, said in a news release. "His innovative business acumen started out of humble beginnings and created one of the nation's largest restaurant chains in Taco Bell. Mr. Bell introduced an entire nation to the taco and Mexican cuisine."

Click here to read the full release.

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Angry employees at an idle air conditioning manufacturer in Mississauga occupied the company’s plant for more than three hours Monday after they charged management "blindsided" them with an abrupt shutdown and no paycheques for extra work.

More than 100 workers mingled peacefully and retrieved belongings including tools at the M&I Air Systems plant in a pressure tactic to get some answers about their missing pay and the plant’s future.

Bob Chernecki, a senior official for the Canadian Auto Workers, said management had not responded to union queries since last week, when the company halted operations and told employees to go home.

Chernecki said in an interview that the occupation led to a meeting where management indicated it would inform the union about its financial status, payment to workers and any possible chance of a reopening on Wednesday.

"These workers were blindsided by this corporation just before Christmas," he said.

"It’s ridiculous. They received no warning and now face so much uncertainty."

M&I did not return calls for comment about the company’s situation.

Chernecki said he expects the U.S.-based company to slip into receivership or fall under bankruptcy court protection during the next few days.

"It doesn’t look good," he said.

M&I formed in 1981 and provides air-moving technology and systems for industrial and institutional buildings.

Chernecki said M&I did not provide regular biweekly paycheques on Dec.10, but managers promised they would submit them on the following Monday if employees worked during the same weekend to complete a major air-system project for a customer.

"They didn’t get paid on the Monday and on the Tuesday the company called them in at 9 a.m. and told them there was no work and to go home," he added.

The union, which represents about 155 workers at the plant, is seeking wages including overtime for the employees during the past three weeks plus severance and holiday pay.

Furthermore, it wants the company to file employment insurance information with the federal government immediately.

The workers, including some staff with more than 20 years service, negotiated a new three-year contract during the fall that contained small wage increases for lower-paid staff and a $400 lump sum amount for higher-paid employees. The average wage is about $18 an hour.

The CAW and other unions have pushed for stronger legislation to protect workers who are victims of plant closures, including giving them higher standing than other creditors.

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Stocks gained Monday, with the three leading indexes closing at 14-month highs, after Citigroup said it will pay back government bailout funds and Dubai received $10 billion to cover its debt, easing worries the emirate might default on billions it owes.

The weak dollar also helped, lifting commodity shares and the stocks of companies that do a lot of business overseas.

The Dow Jones industrial average (INDU) rose 30 points, or 0.3%, closing at the highest point since Oct. 1, 2008.

The S&P 500 index (SPX) gained 8 points, or 0.7%, closing at the highest point since Oct. 2, 2008. The Nasdaq composite (COMP) rose 22 points, or 1%, closing at the highest point since Sept. 19, 2008.

After propelling the market off of 12-year lows hit in March, the S&P 500 has risen 64% as of Friday’s close.

"The market has shown some extraordinary strength here, but I think we’re moving into a period of greater volatility," said Don DeWaay, CEO at DeWaay Capital Management.

"This market is running a lot more on emotion now, rather than fundamentals," he said.

The Dow closed at a 14-month high Friday after better-than-expected reports on retail sales and consumer sentiment, but broader gains were limited by tech weakness and a strong dollar.

Citigroup: Citigroup said Monday that it will return $20 billion in bailout money to the government through a combination of stock and debt offerings.

Citigroup (C, Fortune 500) said the bulk of the payment will be funded through a $17 billion common stock offering. The company also said Treasury will sell up to $5 billion of the $25 billion in Citigroup common stock it holds shortly, and sell the rest of it over the next year.

Obama: President Obama met Monday with top executives of some of the nation’s biggest banks, including JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Wells Fargo (WFC, Fortune 500).

He said his main message to bankers was that banks received extraordinary assistance during the crisis, and now that the industry is back on its feet, it needs to reciprocate. He is expected to urge bankers to provide greater lending, cut back on bonuses and support financial reform efforts.

Exxon-XTO deal: Dow component Exxon Mobil (XOM, Fortune 500) said it will buy XTO Energy (XTO, Fortune 500) in a $41 billion stock and debt deal that values XTO shares at a 25% premium to its Friday closing price cash till payday. The deal also includes the assumption of $10 billion in debt.

Exxon shares fell 4% and limited any gains on the Dow. XTO shares rallied 17%.

Dubai: Worries that Dubai might default on billions of dollars in debt rattled world markets at the end of last month. But some of those fears have eased over the last few weeks on signs that any fallout will be limited.

Fears were further soothed Monday after the city-state received $10 billion in financing from Abu Dhabi, another of the United Arab Emirates.

World markets: Overseas markets gained. In Europe, London’s FTSE 100 rose 1%, the German DAX rose 0.8% and France’s CAC 40 rose 0.7%. Asian markets rose, with the exception of Japan’s Nikkei, which was little changed.

Dollar: The dollar slipped versus the euro and the yen, turning lower after the recent rally.

A weak dollar has added to the more than nine-month-old stock rally over the past nine months, giving a boost to dollar-traded commodities, as well as commodity shares and the stocks of companies that do business overseas. But so far in December, the dollar has been mixed or stronger, putting some pressure on stocks.

Commodities: The weak dollar gave a lift to dollar-traded commodities. COMEX gold for February delivery rose $3.90 to settle at $1,123.80 an ounce. Gold closed at an all-time high of $1,218.30 an ounce earlier this month.

U.S. light crude oil for January delivery fell 36 cents to settle at $69.51 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices were little changed, with the yield on the 10-year note standing at 3.55%, unchanged from late Friday. Treasury prices and yields move in opposite directions.

Market breadth was positive. On the New York Stock Exchange, winners topped losers roughly three to one on volume of 1.08 billion shares. On the Nasdaq, advancers beat decliners two to one on volume of 1.86 billion shares. 

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Greek Prime Minister George Papandreou pledged “radical” action to bring the country’s budget deficit within European Union limits by 2013 as the two- month old government struggles to convince investors it can get to grips with public finances.

“In the next three months we will take those decisions which weren’t taken for decades,” he said in a speech in Athens today, attended by union and employer-group representatives, and politicians. Papandreou, who came to power in October, said many choices will be “painful,” though he pledged to protect poorer and middle-income Greeks.

Papandreou is trying to shore up confidence in Greece after its bonds tumbled last week amid concern about its commitment to cutting the European Union’s largest budget deficit, set to reach almost 13 percent of economic output this year. Fitch Rating cut Greece one step to BBB+ and the yield on the Greek 10-year government bond has risen more than a percentage point to 5.465 percent since Oct. 8.

“It does not appear that he has provided much insight into how he will reduce Greece’s heavy debt burden,” Brown Brothers analysts led by New York-based Marc Chandler wrote in a research note. “The most important take-away point is that key decisions will be made over the next three months and the pain will be distributed.”

European Central Bank Vice President Lucas Papademos on Dec. 12 said Greece’s fiscal situation is “extremely serious.”

Papandreou, who said he will forge a “new national” agreement, today pledged to cut the deficit, to under 7 percent from 2011 and begin reducing the debt, set to exceed 100 percent of gross domestic product this year, from 2012 Payday advance. That will be achieved through taming the deficit and selling more state asset beginning next year.

The premier said revenue to reduce debt would come from exploiting the state’s real estate holdings, a real estate investment fund, as well as securitization of income from the state’s tax on major property holdings.

Under pressure from the EU to move quickly, Papandreou said he would step up talks on an overhaul of the tax system, one of his election pledges. The new system will be in place in the first quarter of 2010, he said.

The audience applauded when Papandreou announced executives of banks under state control wouldn’t get any bonuses and those paid at private banks would carry a 90 percent tax rate.

The government will set up a new economic police department to stamp out contraband, tax evasion and corruption, a key plank in the Socialists’s agenda to boost revenue.

“Today our biggest deficit is that of credibility,” Papandreou said. “In the last years Greece lost all traces of credibility, which is why international institutions, partners want to see actions.”

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India’s policy makers can’t ignore the link between higher food costs and inflation, central bank Deputy Governor Subir Gokarn said, signaling the monetary authority may quicken measures to curb the increase in prices.

Gokarn is the second official in as many days to flag concerns over accelerating inflation after Prime Minister Manmohan Singh’s economic adviser on Dec. 3 said rising food prices may “require monetary policy action.” The wholesale food-price index climbed to an 11-month high in November, a government report showed this week.

“Persistently rising food prices may spill over into inflation expectation” and “do have an expectation impact,” Gokarn told reporters in New Delhi today. “We can’t ignore that linkage.”

India’s gross domestic product expanded 7.9 percent in the three months to Sept. 30 from a year earlier, the fastest pace in six quarters, as a $130 billion cash injection through monetary stimulus shielded the $1.2 trillion economy from a global recession. China grew at a faster pace of 8.9 percent last quarter, while U.S. GDP rose 2.8 percent, Europe contracted 4.1 percent and South Korea increased 0.9 percent.

“With strong GDP growth and rising inflation, we think the pressure is rising on the Reserve Bank of India to partially pull back the monetary stimulus,” said Rahul Bajoria, an economist at Barclays Capital in Singapore no faxing 1 hour payday loans. Accelerating inflation will likely “trigger action in the form of hikes in the cash-reserve ratio.”

Bonds Drop

Benchmark 10-year Indian government bonds posted their worst week since June as Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council said higher food prices may push up wages and manufacturing costs. The Reserve Bank may start raising interest rates as early as January, increasing borrowing costs by 3 percentage points in 2010, Goldman Sachs Group Inc. said in a research report dated Dec. 3.

The index of wholesale primary articles, comprising mainly of food items such as pulses, fruits, vegetables and cereals, rose 12.53 percent in the week to Nov. 21, the highest since November 2008, a government report showed Dec. 3. The central bank forecasts wholesale-price inflation at 6.5 percent by March 31 from 1.34 percent in October and 0.5 percent in September.

India needs to ensure that the economic recovery isn’t hurt while keeping inflationary pressures under control, Gokarn said today.

“There’s nothing off the table but all options have to be considered with the information that is available to us,” Gokarn said when asked if the central bank may consider raising the cash-reserve ratio.

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The author of a statewide ballot initiative that would permit full-strength beer and wine sales in Colorado grocery and convenience stores said he plans to modify the measure to increase the percentage of shelf space that must be devoted to craft beer and boutique wine.

Blake Harrison said Tuesday at a hearing for Initiative 29 that he had thought his proposal, which was largely copied from a failed 2008 legislative effort, required 25 percent of alcohol shelf space go to smaller breweries and wineries.

When a Denver Business Journal reporter pointed out its wording actually called for only a minimum of 20 percent shelf space for the products, he said that he plans to grow that area as the measure moves along in the process.

That alteration of the language appears to be the only part of Harrison's proposal that is changing after weeks of discussions with affected parties such as grocers and convenience store owners, however.

Grocers are working on a separate bill or ballot initiative to let them sell all alcohol and a convenience store association is unlikely to back Harrison's plan, but Harrison said he feels his idea can win popular support in the 2010 election.

"I recognize that this bill can be improved … We're just trying to break the stalemate," the Denver deputy district attorney and Democratic legislative candidate said after the Capitol hearing. "The real answer to this may be something that neither side likes."

The measure, submitted to the Legislative Council on Nov. 17, goes next to a title-setting board in the Secretary of State's office. While Harrison can submit his initiative quickly to that board — which must approve its wording before he can collect signatures to put it on the ballot — he said he may wait for a few months to see what the Legislature does first.

Legislative committees have killed bills the past two years that would have ended the post-Prohibition ban on grocery and convenience stores selling any wine or selling beer stronger than 3.2 percent alcohol by volume. While grocers and convenience stores have backed those bills, liquor stores and craft-beer makers lobbied for their defeat, claiming their businesses would be hurt.

Harrison hopes the Legislature will come up with a solution and even included in his proposal a clause saying that any legislative action

allowing grocery stores to sell full-strength beer or wine will supersede his measure.

Grier Bailey, government affairs manager for the Colorado Wyoming Petroleum Marketers and Convenience Store Association, said he expects several legislative proposals will seek incremental changes in the law this year.

Association officials met with Harrison in recent weeks to see if they could back his plan but generally are not supportive of it, Bailey said. They believe a provision in the initiative limiting full-strength beer and wine sales to just 5 percent of a store's shelf space is too restrictive and would help large grocers far more than smaller local proprietors, he said.

"I think the language is, from a small-business perspective, not well thought-out," Bailey said.

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A map showing minute-by-minute online sales activity across the country was posted on Saturday by eBay Inc.

The map shows where sales were made using the San Jose company's (NASDAQ:EBAY) online marketplace throughout the big shopping day.

As could be expected, the big population centers on the East and West Coasts glow red throughout almost the entire day, while some other regions twinkle on and off in shares of yellow and orange.

EBay launched a "12 days of Deals" shopping promotion on Black Friday in which it is showcasing special deals each day. It also launched an app for Apple Inc.'s (NASDAQ:AAPL) iPhone and iPod touch, saying it believe it will sell about $500 million in merchandise via mobile devices by the end of the year.

On Friday, eBay's payment processing subsidiary PayPal Inc. said it saw a 30 percent jump in online transactions on Thanksgiving Day, compared to a last year.

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The staff of Business First wishes all a very happy Thanksgiving.

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