Actual finance blog

The dollar slipped against other major currencies Wednesday after Greece announced measures to reduce its deficit by four percentage points this year.

What prices are doing: The dollar fell 0.6% against the euro to $1.3694, and dropped 0.8% against the pound to $1.5131. The greenback edged 0.4% lower against the yen to ¥88.47.

The dollar was first higher Tuesday but then lost steam and ended lower, as the euro rose on hopes that debt-choked Greece would make decisions about its deficit.

What’s moving the market: Greece announced plans to make steep cuts in civil servant salaries and raise taxes to save the debt-challenged country more than $6.5 billion this year, according to a report in the Wall Street Journal’s online edition.

Greek officials expect the cuts to lower Greece’s budget deficit to 8.7% of the country’s gross domestic product from its current level of 12.7%, according to the report.

Investors also digested some U free credit report and score.S. economic data ahead of Friday’s all-important February jobs release. Traders took in labor market reports from outplacement firm Challenger, Gray & Christmas and payroll data firm Automatic Data Processing, which showed job losses continue to slow.

The employment component of the Institute of Supply Management’s report on the service sector also rose to its highest level since April 2008 as the service sector expanded.

What analysts are saying: "The dollar is trading lower today as Greece’s austerity package lifts demand for European currencies," said Kathy Lien, director of currency research at Global Forex Trading, in a research note.

But the rally in the euro may be limited because there is still a lot of back and forth on whether Germany and other strong European countries will offer aid to Greece, she added. 

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Electronic Arts Inc. won't have a new March Madness NCAA basketball game for the first time since 2003, another sign of the company's recent struggles.

The game was missing from the product release list that Redwood City-based EA (NASDAQ:ERTS) announced last week but it wasn't until Saturday that it acknowledged that it was dropping March Madness.

"We do not have an NCAA Basketball game in development at this time, and we're currently reviewing the future of our NCAA Basketball business," an EA Sports rep told the GameSpot Web site. "This was a difficult decision, but we remain a committed partner to the NCAA and its member institutions."

In its most recent quarter, EA posted a third quarter loss of $82 million, or 25 cents a share, narrowed from a loss in the same period last year of $641 million, or $2 a share business cards design.

Its revenue was $1.24 billion, down from $1.65 billion in the year-ago quarter.

The company said it expects fourth-quarter adjusted earnings of between 2 cents and 6 cents a share, far below analyst projections of 13 cents a share.

It said fourth-quarter net revenue is expected to be $925 million and $1 billion. Adjusted revenue is expected to be between $800 million and $850 million, below Wall Street's projection of $851 million.

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President Barack Obama’s “Volcker Rule” to ban proprietary trading at U.S. banks may not survive in Congress, hampered by criticism that the administration waited too long and offered too few details.

The proposal’s timing is viewed by some as “transparently political and not substantive,” Senate Banking Committee Chairman Christopher Dodd said on Feb. 2. It was “airdropped” into the Senate debate on legislation to overhaul U.S. financial rules, said Senator Richard Shelby, the panel’s top Republican.

“It’s tough to take on another issue at this point,” Dodd, a Connecticut Democrat, said at a hearing in Washington yesterday that included executives from Goldman Sachs Group Inc. and JPMorgan Chase & Co. “It was never my intention, or I believe the intention of this committee, to solve every issue surrounding the financial-services sector.”

Members of the Senate panel have been working for weeks to translate into legislation the plan Obama released in June to overhaul U.S. financial rules. The focus is on the Senate after the House passed its version of the legislation in December.

Obama named the Jan. 21 proposal after its chief proponent, ex-Federal Reserve Chairman Paul Volcker, now a White House adviser. Based on an idea circulated in a January 2009 report by the Volcker-led Group of Thirty, composed of former central bankers and finance ministers, it would force banks to stop the trading they do on their own accounts and give up their stakes in hedge funds and private-equity funds.

Citigroup Trader Quits

Some traders have already taken note. Matthew Carpenter, head of a Citigroup Inc. unit that trades U.S. stocks using the bank’s money, quit to join hedge fund Moore Capital Management LP, people briefed on the matter said yesterday. Leaving with him is his deputy, Matthew Newton, amid concern the government may order banks to exit such businesses, the people said.

Dodd and Shelby told reporters yesterday they hadn’t ruled out incorporating the plan into the bill. Dodd, who on Feb. 2 said he “strongly” supported the proposal, said he’d consider language empowering regulators to carry out the recommendations without having lawmakers write the rules, and Shelby said he wanted to see whether regulators already have the power.

The announcement came two days after a Republican victory in the Massachusetts Senate race that cost Democrats their supermajority in the Senate — timing that stoked speculation it was motivated by politics.

Volcker said Feb. 2 that the timing was “sheer coincidence.” Obama decided to back the proposal weeks before the Massachusetts election, he said. Volcker wasn’t available for comment yesterday, according to his assistant, Anke Dening.

Client Business

The White House defines proprietary trades as those not done for the benefit of customers, a senior administration official said when the Volcker plan was announced. Regulators would have the power to ask banks whether certain trades are related to client business, the official said. If they’re not, the regulators could order firms to exit the positions.

“We’re working closely with the Congress to rein in risky practices on Wall Street,” Treasury Department spokesman Andrew Williams said in an e-mailed statement. “The House passed a strong bill in December and now we’re working with the Senate to get the job done.”

Senator Michael Crapo, an Idaho Republican, pressed Deputy Treasury Secretary Neal Wolin at the Feb. 2 hearing to release details of the plan “so that we can understand specifically what we are talking about or what the proposal is with regard to proprietary trading.”

Wolin responded by telling Crapo the administration is working with regulators to prepare a draft legislative proposal that it will send to Congress “soon.”

Drawing a Line

Drawing a line between bank and customer trading won’t be easy, said Hal Scott, a professor at Harvard Law School who specializes in international financial systems.

A narrow definition probably won’t reduce risk, Scott said, while a broad one could “seriously impair the basic function of modern banks as market-makers” in government and non-government securities and as packagers of consumer debt into bonds.

Goldman Sachs’s E. Gerald Corrigan, who like Volcker is a past president of the Federal Reserve Bank of New York, said at yesterday’s hearing that banks should be allowed to own and sponsor hedge funds and private equity funds because any risks can be managed. Corrigan is chairman of the firm’s regulated bank subsidiary.

Barry Zubrow, JPMorgan’s chief risk officer, told the committee the activities the administration is proposing to restrict didn’t cause the financial crisis.

“Indeed, in many cases, those activities diversified financial institutions’ revenue streams and served as a source of stability,” Zubrow said in his prepared testimony. “Further, regulators currently have the authority to ensure that risks are adequately managed in the areas the administration proposes to restrict.”

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Watching interest rates may be about as exciting as a snail race this year.

As the economy eases out of its doldrums, some upward rate movement by the Federal Reserve can be expected. But it will likely be a very modest move some months down the road during a relatively flat year for rates, say most experts.

The fixed-income investor is therefore left to handicap a rather unexciting field of choices. Locking in long-term rates doesn’t make sense with prospects for higher future rates, while short-term rates are extremely low.

Investors are, however, increasingly deciding to put money in a safe investment backed by the full faith and trust of the U.S. government: Treasury Inflation-Protected Securities, known as TIPS, that provide protection against inflation.
The principal of TIPS increases with inflation and decreases with deflation as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted or original principal, whichever is greater. TIPS are issued in terms of five, 10 and 30 years with a minimum purchase of $100. They pay interest twice a year at a fixed rate and can be held until maturity or sold before maturity.

"One of the trends we’re definitely seeing is investors shifting some of their portfolios into the TIPS market," said Michael Pond, interest rate strategist at Barclays Capital in New York. "TIPS yields are low, but they add some safety to a portfolio by adding an inflation hedge at a very cheap price."

Investors should look at TIPS as a structural shift in their portfolio for diversification, Pond believes. While no one will make a lot of money in TIPS the next three months, that’s not their role right now, he said.

"TIPS are attractive for the five- to 10-year horizon in which you’re concerned about conserving your buying power," added Greg McBride, financial analyst with Bankrate.com. "They’re free from default risk, and the interest rate risk is minimized by the fact there’s an inflation adjustment."

Demand was strong at the government’s recent sale of 10-year TIPS despite their low 1.430 percent yield. That auction was more than 2½ times subscribed, with large institutional investors taking more than 40 percent of the new notes.

Not everyone’s completely sold on TIPS right now.

"TIPS are wonderful, wonderful, but I’m not buying them now because their yields are so low," said Evelyn Zohlen, certified financial planner and president of Inspired Financial, Huntington Beach, Calif. "Instead, I’m buying two-year bonds as a placeholder as I wait for interest rates to come back up, and then I will use the money to buy TIPS."

TIPS can be purchased directly from the Treasury or through a broker. They’re also available in a number of mutual funds and exchange-traded funds that invest in a portfolio of different durations.

Vanguard Inflation-Protected Securities Fund, holding TIPS with an average maturity of nine years, had a 12 percent total return for the last 12 months and a three-year annualized return of 7 percent. Total return represents yield plus value of underlying securities.

That "no-load" (no sales charge) fund’s goal is to provide inexpensive entry into the inflation-protected bond market. Its initial purchase requirement is $3,000 and it has an extremely low 0.20 percent annual expense ratio.

Meanwhile, the iShares Barclays TIPS Bond Fund ETF, which is traded like a stock and therefore requires broker commissions when bought or sold, also had a 12 percent rise in net asset value the past 12 months and a 7 percent three-year annualized gain. It, too, has a low annual expense ratio of 0.20 percent.

With a fund, you needn’t keep track of maturities of individual TIPS and can automatically buy more shares with their earnings. You have annual taxable income with either funds or direct ownership, but if you own individual TIPS, you face a tax bill on appreciation from the inflation adjustment, a noncash "phantom" event.

Most advisers consider TIPS for only a portion of a personal portfolio, primarily to hedge against inflation. TIPS also make most sense in tax-sheltered accounts.

Other current choices in fixed-income investments mostly represent biding your time for the future.

"If you lock in a five-year certificate of deposit at 3.5 percent, it won’t take much of a rebound in interest rates or inflation to be losing," cautioned McBride, whose www.bankrate.com site lists free of charge the best bank savings account and money-market account rates. "You want to bide your time in short-term investments so that as interest rates rise, you can lock into a longer-term CD."

He warns against high-yield bonds because adding risk to find yield isn’t the right move now.

"We do think there will be better buying opportunities in bonds later this year, particularly for bonds longer out on the curve," advised Pond. "Interest rates are historically low, but we do expect them to head higher in 2010."

Zohlen, who recommends only AAA or AA rated bonds for her clients, is convinced that this is no time to be taking on risks. To her way of thinking, avoiding long bonds of eight or nine years in duration altogether will be a smart decision this year.

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Canada’s premier luxury retailer, Holt Renfrew, has replaced Caryn Lerner as its president following a year in which many luxury retailers struggled.

Lerner, an American with a strong fashion background, will be succeeded by Mark Derbyshire, a 40-year-old former Canadian Tire marketing executive who was most recently in charge of human resources at Holt Renfrew’s parent company.

The changes are effective immediately, said the owner of the 11-store chain.

"Mark has displayed tremendous leadership and business acumen over the six years he has been with our organization," said W. Galen Weston, chairman of Holt Renfrew. "We are confident that he will continue to evolve and grow Holt Renfrew as an international brand and a continued fashion authority in Canada."

Lerner will stay on as an independent consultant to Holt Renfrew’s parent firm, Wittington Fashion Retail Group, the company said.

Lerner’s departure, after five years as president and chief executive officer, took some retail industry observers by surprise and raised questions about the luxury department stores’ performance. Long considered a leader in fashion retailing, featuring names like Prada, Gucci, and Jil Sander, Holt Renfrew faced increased competition as designers opened their own shops on Bloor, and the Bay expanded its designer floor at its flagship store in downtown Toronto.

"This sounds like a fairly sudden change of direction," said Wendy Evans, president of the retail consulting firm Evans & Company.

Noted Maureen Atkinson, a partner in the retail-consulting firm J.C. Williams Group: "I don’t think their results have been spectacular. I think that’s been an issue and a challenge. I don’t think it’s her. I think it is what it is. The economy. I think there’s a whole bunch of reasons why they’re not really doing well payday loans guaranteed no fax."

However, the Weston family appeared to be "firmly behind her," Atkinson said of Lerner.

Luxury retailers across Canada were hit hard at the start of the recession but had seen their performance improve toward year-end, Evans noted. "The high end has certainly taken a beating over the last year or so. But in the last couple of months luxury retailing has seen some pretty good signs of life."

Holt Renfrew’s results are not publicly available.

"2009 was a tough year for everybody. But it was a pretty good year for Holt Renfrew," spokesperson John Crean said in an interview later. "Going into 2010, the board (of directors of Holt Renfrew) is very optimistic about the prospect for Holts going forward."

Describing Derbyshire as "a relationship guy," Crean said his first priority would be meeting with customers, suppliers and employees. "You’ll see him in short order reach out to them on what their perspective is on what Holts is doing well and what it can do better."

Derbyshire’s most recent title, chief talent officer for Wittington Fashion, involved recruiting senior talent across all of the holding group’s properties, Crean said.

The private company, owned by the wealthy Weston family, also owns two other luxury retailers, Selfridges in London and Brown Thomas in Dublin.

Derbyshire was previously head of human resources at Holt Renfrew, which operates nine stores in Canada. He grew up in a retail family. Both his father and grandfather owned Canadian Tire dealerships.

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The Federal Reserve is telling Centrue Financial Corp. to fix its lending practices, write off bad loans and keep enough capital. The company, parent of Centrue Bank, was also forbidden from paying dividends to stockholders or interest on some subordinated debt without Fed permission.

The enforcement action, in the form of a written agreement with the bank, was announced Friday.

Centrue Bank lost $22 million in the first nine months of this year, and 8 percent of its loans were seriously behind in payments. That’s more than double the percent of problem loans at similar banks.

Centrue, with $1.3 billion in assets, is based in Clayton. It has four branches in the metro area, but most of its operations are in northern and central Illinois.

The agreement requires the bank to quickly write off loans that bank examiners had declared a loss unless the bank manages to collect on them sam day payday loan. The bank is banned from extending new loans to borrowers whose old loans were charged off as uncollectable. It must also give the Fed a plan for collecting on overdue loans or doubtful loans of more than $2.5 million.

Centrue was also told to improve its lending practices, and come up with compensation policies that don’t encourage excessive risk-taking.

In a news release, the bank said it has "aggressively taken steps" to address the examiners’ findings.

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Carolina Diaz-Silva says she believes that learning a foreign language at an early age can give children a cognitive advantage in the future. Diaz-Silva is founder and director of International Schoolhouse, a Spanish-immersion preschool in Olivette. She started the school in August with 10 children and will be adding eight more in January.

Diaz-Silva, who speaks in English, Spanish, Italian and German, hails from Peru and moved to St. Louis 16 years ago. She spent her time teaching Spanish at MICDS in Ladue and also at Washington University.

In 2006, she received a master’s degree in Spanish Literature from Washington University and received an MBA from the university in May. She serves as an adjunct lecturer in the romance languages department of Washington University, teaching Spanish.

Diaz-Silva says she is trying to weather the economic challenges that come with her new venture and the competition from other preschools in the area.

Are the children enrolled in the program from different backgrounds?

We have a lot of diversity in our student body as well as our teachers. Out of 18 students, we have four Hispanic children, one Indian and one African-American.

What kind of economic challenges are you facing with the school?

I would say that I had a lot of interest in the school, because it is not a day care, it is only a preschool that has part-time hours.

But in today’s economy, preschool has become an option for a mother who stays home with her child. A lot of families are choosing not to make that expense. And that has an impact on the enrollment.

But I am happy that we are small and are able to gradually grow.

Has the performance of the school, so far, met your expectations?

I was naive no fax payday loan. I thought the school would fill up from the first day, because it is such a great idea.

It is also important to realize that I have to build trust with the parents. And that is exactly what we are doing right now.

We had an open house for children coming in January and we had the current parents be at the open house and talk to the prospective families. That made all the difference in the world. Because it wasn’t the director or the teacher selling what a great program we have, but the parents telling them how delighted they were with the program and how fantastic the teachers are.

Who are your competitors?

Preschool is very local. We did a lot of market research before starting the school and found out that families drive less than three miles for a preschool and a lot of families just walk.

There aren’t any Spanish-immersion preschools in our area, but there are a couple in St. Charles and Ballwin. My direct competition are other preschools in the area.

How do you publicize the school?

Most of our publicity comes from word-of-mouth. But we also do some advertising, like in St. Louis Kids Magazine, Ladue News, direct mailing, postcards.

We need to do more effective marketing. But I don’t believe marketing is going to get me more students. It is going to be my current families talking to their friends. Basically, I have 10 advocates, and I will have 18 in January.

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Business managers interviewed by Federal Reserve researchers conducting their eight-times-a-year review of the New England economy “cite mixed results amid signs of improvement, although activity generally remains below year-earlier levels,” the analysts wrote in the report, which was released Wednesday.

“Some respondents are beginning to hire and/or reverse pay cuts or freezes, or planning to in 2010,” the researchers wrote in the summary often referred to as the “beige book.”

“Prices are generally said to be stable,” they wrote. “Contacts in a number of sectors express uncertainty about whether recent improvements will last, but most — outside of commercial real estate — expect recovery to take hold in 2010.”

By sector:

• A number of retailers told the researchers “consumers are much more cautious than in previous years.” And executives in the category worried about the impact of unemployment on consumer spending.

Several retail concacts told the researchers they are maintaining lower inventory levels than a year ago.

Capital spending in the sector is “guarded,” the Fed team wrote, though there is some spending planned on renovations and IT.

“Seasonal hiring is mixed,” the report states. “Wages remain mostly steady, although one respondent reports wage cuts were successfully taken in order to prevent a cut in headcount. Selling prices are reportedly stable.”

• In manufacturing, the report states, “biopharmaceuticals companies indicate that their revenues continue to increase. Some equipment makers report that sales have picked up from their depressed levels in the first half of the year, while others say their business remains in a slump.”

The researchers wrote: “Respondents across a variety of industries note that sales to retailers, restaurants, and personal services establishments remain depressed.”

Materials costs and selling prices remained largely unchanged.

“Some firms that cut wages and salaries earlier in 2009 have recently restored pay to pre-cut levels or plan to do so in 2010,” the researchers wrote. “Most contacts say that they have held their domestic headcounts relatively steady in recent months, but biopharmaceutical firms continue to expand employment.”

They add: “Some seeking to fill specialized technical positions indicate they are disappointed with the quality of the applicant pool.”

“For the most part, capital spending remains subdued,” the report states. “Many note that they have adequate cash to fund both needed and discretionary investments.”

For the sector, it concludes: “Most manufacturers and related services providers are anticipating modest to moderate revenue increases over the coming six to 12 months.”

• Software and Information Technology Services could see some new hiring in 2010.

“Those firms that implemented wage freezes this year anticipate lifting them in 2010, with raises expected to be in the 3-percent to 5-percent range,” the report states.

It states: “Expectations range from gradual upticks over the course of 2010 to high levels of growth from the start of the year.

• “New England staffing contacts report upticks in activity through the end of the third quarter and

into the fourth,” the report states. “While year-over-year revenues are still down — from 10 percent to 60 percent — revenues are improving on a sequential basis, with increases reported in billing hours and number of assignments.”

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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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