Actual finance blog

Municipal bond investors are piling into Treasuries as state and local government finances worsen and the yield advantage for tax-exempt securities evaporates.

Local government bonds due in three years with AAA ratings yielded 66 percent of similar maturity Treasuries last month, about the lowest level since Bloomberg began compiling the data in 2001. If the ratio moves closer to 60 percent, investors in the 38.3 percent federal tax bracket would lose all the benefits of sheltering income that comes from municipal debt.

Muni bonds are losing favor as state and local governments raise taxes to fund the record $18.5 billion in budget gaps estimated in a National Governor’s Association survey. Increased buying by tax-exempt investors would sustain a rally in short- term Treasuries, already benefiting from demand for a refuge from sovereign credit concerns and rising purchases by banks.

“Treasuries are safer and more liquid investments, especially given the quality issues with many municipalities of late,” said Jeffrey Schoenfeld, partner and chief investment officer in New York at Brown Brothers Harriman & Co., which manages $33 billion in assets. “In this low-rate environment Treasuries can be huge pickup and very good value on an after- tax basis in the shorter-end.”

The Build America Bond program, an Obama Administration plan that subsidizes 35 percent of interest expense for state and local issuers when they sell taxable debt, is also making municipal securities less attractive relative to Treasuries.

Build America Bonds

Almost $80 billion in Build America Bonds have been sold since the program began in April 2009, and taxable bond sales totaled $97 billion, or about 28 percent of long-term, fixed- rate municipal issuance during the last 11 months, data compiled by Bloomberg show. During the six years through 2008, taxable sales made up an average 5 percent of issuance.

More tax-exempt bonds may be replaced with Build America debt, because the federal budget for the fiscal year starting in October calls for an expansion of the program to allow refunding. It also calls for making the stimulus initiative permanent with a lower interest subsidy of 28 percent for new issues beginning Jan. 1, 2011.

Treasuries due in one to three years have returned 0.78 percent since December, after gaining 0.79 percent in 2009, according to Bank of America Merrill Lynch index data. Similar maturity state and local securities returned 0.57 percent this year, extending 2009’s 4.2 percent gain.

Relative Returns

Government securities fell last week after a Labor Department report showed payrolls dropped by less-than-forecast 36,000 in February. Two-year note yields increased 4 basis points to 0.85 percent.

Municipal debt became more expensive as investors bought longer-maturity debt with money stored in short-term tax free money market accounts that yielded as little as 0.02 percent. Assets in the funds dropped by $148.76 billion from the record $528.36 billion in August 2008, according to iMoneyNet of Westborough, Massachusetts.

“Demand for munis is mostly coming from retail investors who have been sitting on a mountain of cash and wondering what to do with it,” said Christine Todd, a managing director and head of the group that oversees $26 billion in tax-sensitive fixed-income portfolios at Standish Mellon Asset Management Co. in Boston. “AAA munis are rich versus Treasuries.”

Baltimore County, Maryland’s AAA rated general obligation bond due in three years yielded as little as 58 percent of comparable Treasuries last week, according to Bloomberg data. The ratio of AAA rated Arlington County, Virginia, debt due in three years dipped as low as 50.7 percent last week, according to Bloomberg data. That means that buyers would be better off buying Treasuries even if they’re in the highest tax bracket.

‘Great Opportunity’

“Most people with wealthy clients think about taxes first, and that usually means munis, even when munis are overvalued,” said Jonathan Lewis, founding principal of New York-based Samson Capital Advisors LLC, which manages more than $4 billion. “Right now there is a great opportunity to go up in quality and increase liquidity by building allocation in Treasuries.”

Municipal bonds may get even more expensive with a proposal in Congress by Oregon Democrat Ron Wyden and New Hampshire Republican Judd Gregg seeking to replace the tax exemption for state and local bonds with a more limited tax credit.

“Supply concerns will continue to be the major issue, even as quality concerns are not emerging to be real issues,” said George Friedlander, municipal strategist for Morgan Stanley Smith Barney in New York. “Add to that the prospect of the possibility for Congress ending tax exemption and it points to more demand for munis going forward. There is still room for munis to get richer.”

Economic Outlook

Even if municipal yields fall, investors can still benefit by switching into U.S. government debt given the relative low level of interest rates and slow economic recovery, said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth management unit in New York.

Federal Reserve Chairman Ben S. Bernanke, who slashed the central bank’s target rate for overnight loans between banks to a range of zero to 0.25 percent in December 2008, has flooded the economy with more than $1 trillion in the largest monetary expansion in U.S. history.

In his semi-annual testimony to Congress last month, Bernanke reiterated that rates will remain low for “an extended period” because the economy’s “nascent” recovery isn’t strong enough to bear higher borrowing costs.

Market Performance

Shorter-maturity Treasures are outperforming longer-dated debt with the Fed in no hurry to raise rates and investors’ concern increasing that inflation will accelerate because of the record borrowing and stimulus measures. Yields on 10-year notes rose to a record 2.94 percentage points more than two-year notes on Feb. 18, and were 2.79 percentage points higher on March 5.

For all the concern about a record federal budget deficit and the rising supply of Treasury debt, U.S. bonds are the place to be so far in 2010, with returns topping equities and commodities. Bank of America Merrill Lynch’s U.S. Treasury Master Index has increased 1.56 percent, compared with a gain of 0.17 percent for the MSCI World Index of stocks and a 0.33 percent increase in the Standard & Poor’s GSCI Index of 24 raw materials.

“Smart investors are doing the math by buying short-term Treasuries, which are giving more after tax returns and adding quality and liquidity to their portfolio,” said Deutsche Bank’s Pollack. “A combination of extremely low rates, lack of muni supply and the prospect of higher income taxes are making munis look extremely rich. If ratios go lower the after tax return will still be there.”

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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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The Senate on Wednesday approved a $15 billion job-creation bill that would give businesses tax breaks for hiring the unemployed and states more money for infrastructure projects.

The four-prong bill would:

• Exempt employers from Social Security payroll taxes on new hires who were unemployed;
• Fund highway and transit programs through 2010;
• Extend a tax break for business that spend money on capital investments, such as equipment purchases;
• Expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects.

The legislation, approved by a 70-28 vote, is a scaled-down version of an $85 billion bipartisan draft bill that was crafted by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa.

Some 13 Republicans, including newly elected Sen. Scott Brown, R-Mass., voted for the measure Wednesday.

"Today’s progress is a small step forward but an important one," said Senate Majority Leader Harry Reid, D-Nev., who surprised many lawmakers last week when he announced the slimmed-down measure. "This morning’s vote is a victory for hard-working Americans, especially those trying to find work. This will help our economy grow."

It now moves to the House, which may take it up as soon as Friday, said a Democratic aide at the House, which passed a more comprehensive $154 billion bill in December.

However, the bill does not extend the deadline to apply for unemployment benefits or the Cobra health insurance subsidy. Some 1.2 million people will run out of benefits after Feb. 28 if the deadline is not extended cash advance. Lawmakers are looking to pass a separate, shorter extension by the end of the week in order to give them time to enact a longer fix.

Also, unlike the House’s bill, the Senate’s jobs measure does not provide additional assistance for states. Many governors want the Obama administration to send more federal dollars so they can cope with yawning budget gaps.

The administration said on Monday that it strongly supports the $15 billion jobs measure but indicated it is only one step in the job-creation effort. The president wants lawmakers to take up a bill that would increase small businesses’ access to credit.

Reid said the Senate will vote on extending tax provisions and small business job measures in the near future. The majority leader also said lawmakers will consider providing additional Medicaid money for states, which governors have been requesting.

"We have other things in mind," Reid said. "Remember, we don’t have a jobs bill, we have a jobs agenda."

Still, labor leaders and left-leaning think tanks say the Senate must do more to spur job creation.

"We need to create 11 million jobs to get back to the level of unemployment we had before the recession began," said Lawrence Mishel, president of the Economic Policy Institute. "Yet the Senate jobs bill would create no more than a couple hundred thousand jobs."

CNN Radio Correspondent Lisa Desjardins contributed to this report. 

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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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ST. LOUIS — People attending the first day of the St. Louis Auto Show filed past a shimmering lime-green Ford Fiesta — a fuel-sipping car that will roam 40 miles for every gallon of gas.

Ford was among a handful of automakers inside America’s Center to give prominent display to their eco-friendly, fuel-efficient cars at the start of the four-day event Thursday. Ford launched its strategy three years ago — before $4-a-gallon gas — and it’s still a top priority, said Cory Miller, a Ford zone manager in Kansas City.

"The Nineties was a decade where people didn’t necessarily care so much about fuel consumption; they cared more about style of the vehicle they wanted," Miller said. "Since the spike in the gas prices — even though the prices have stayed relatively moderate — people are once-bitten, twice shy.

"People remember having to dip into their pockets quite deeply to fill up."

While gasoline prices have returned to Earth, many car owners are still jittery about future price swings, Miller said. But they also want cars that are fun to drive, safe and of good quality. The Fiesta — a top seller in Europe — will be available in U.S. showrooms this spring.

Despite a dismal two-year stretch that resulted in the

government bailout of General Motors and Chrysler, industry officials said Thursday that there is guarded optimism that the worst may be over for the beleaguered auto industry.

"Really, I think we’ve turned the page," said Brian Sullivan, executive producer of the St. Louis Auto Show.

Still, not all manufacturers have been able to shake bad news entering the show.

Toyota was forced to suspend U.S. sales of top sellers because of problems with the gas pedals. Toyota representatives staffing the St. Louis display declined to talk about the halt to sales or a related recall, referring questions to company officials in California.

A federal judge on Thursday rejected the United Auto Workers’ request for a temporary restraining order that would have allowed the union to pass out leaflets in the lobby of the America’s Center. The UAW sought to draw attention to Toyota’s recent product problems and Toyota’s decision to close a plant in California.

Honda touted its entry-level Fit and its hybrid Insight alongside its Accord Crosstour, CR-V and Element, although Joe Duco of Meyer Honda in O’Fallon, Ill., said fuel efficiency isn’t the only thing driving today’s car buyer.

"There are still a lot of people inquiring about fuel efficiency," Duco said. "I think right now they’re kind of looking for that in-between vehicle."

Jeff Blair of Festus crawled behind the wheel of the Insight but concluded it would be too small for his family of four. While he’s not in the market for a new car right now, Blair said fuel efficiency is important when deciding to buy a car.

Blair is a copy machine technician in St. Louis who spends a lot of time on the road. His wife drives 45 miles each way to work at Barnes-Jewish Hospital.

"Gas mileage is definitely a big thing when you buy a car," said Blair, who owns a Honda Civic.

Not far away, Volkswagen’s display boasted that its TDI clean-diesel vehicles would make owners the toast of "tree-huggers and road-huggers alike."

While the blending of green technology and vehicle performance has been a theme at auto shows nationwide, so has one of relief among automakers who believe the worst is over, said Jeff Schuster, executive director of global forecasting for J.D. Power and Associates.

To that end, Schuster said, there is a correlation between attendance at auto shows and the public appetite to buy cars.

"Fuel economy … raises itself in importance more when fuel prices are high," said General Motors spokesman Craig Eppling. "They’re moderate now. We would have thought maybe three or four years ago $2.50 or so was high. Now, we’re generally accustomed to it."

Eppling said General Motors tracks why people buy cars. Style now rates high — along with safety and price. GM expects vehicle sales to track with the U.S. economy, Eppling added, so 2010 should be a good market but not necessarily a great one.

"This past year, the motivation has been value," Eppling said. "With the economy and the mind-set of ‘Do I have a job?’ and so forth, people are looking for a value."

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The road for another stimulus bill just got tougher following Tuesday’s election of Republican Scott Brown to the Senate in Democratic stronghold Massachusetts.

After health care, Congress’ next big priority is to pass something that shows voters in an election year that they’re on top of the nation’s unemployment scourge.

But the Democrats’ loss of a filibuster-proof super-majority in the Senate throws hurdles onto an already rocky path toward a new stimulus bill aimed at saving jobs.

Given how controversial the first stimulus package remains, passing a new jobs bill, or "second stimulus," was never going to be easy. Republicans have especially targeted the first stimulus package as a prime example of the kind of big government spending they aim to end.

"There is a reason the nation was focused on this race," said Senate Minority Leader Mitch McConnell, R-Ky. "The American people have made it abundantly clear that they are more interested in shrinking unemployment than expanding government. They are tired of bailouts."

Experts and policy analysts say the Republican win in Massachusetts will shore up Republican opposition to anything that looks like big spending.

"I think it’ll be very hard," said Julian Zelizer, a professor of history and public affairs at Princeton University. "Democrats will be under more pressure to pass a jobs bill, because if they don’t do something about the economy, voter dissatisfaction will increase. But Republicans are going to be more emboldened not to vote for it." (Democrats scramble on health care - CNN.com.)

The bills: The House passed a $154 billion jobs bill in December, but Senate Democrats are planning to debut their own jobs-creation bill in coming weeks.

The two bills were developed independently but share some components, like infrastructure spending to build roads and bridges, as well as state aid to plug budget holes and keep teachers and police officers employed.

Senate Democrats have been brainstorming in backrooms since last summer to come up with a package that incorporates ideas from all parts of their caucus, according to congressional aides. Party leaders Dick Durbin of Illinois and Byron Dorgan of North Dakota have been running the negotiations.

The final package will offer something for the left, like spending for green sector jobs, and something for the right, like tax breaks for small businesses that hire new workers.

On the tax breaks, Senate leadership is considering a proposal that Sen. Robert Casey, D-Pa., plans to introduce this week incorporating ideas Republicans have touted.

Casey wants to give a one-year payroll tax break to companies that create new jobs offering wages up to $50,300. Small companies would qualify for a 20% tax break and larger companies with more than 100 employees would qualify for a 15% break fast cash loans.

Another way to make a jobs bill more palatable to both fiscally conservative Democrats and Republicans is to craft a bill that pays for itself and doesn’t add to the deficit. That’s a big goal of the jobs proposal, Democratic aides say. But they wouldn’t spell out how.

The bill may try to take advantage of money freed up in the budget by the fact that the Troubled Asset Relief Program is coming in under budget.

Wooing Republicans: Will such fiscal carrots be enough to woo any Republicans?

"Small business tax breaks are great," said Brian Darling, director of Senate relations at the conservative Heritage Foundation. "But when they’re basically being used just to get some Republican support and the balance of the proposal is just federal spending, this sounds very similar to the first stimulus plan."

Douglas Holtz-Eakin, a former Congressional Budget Office director, said that the Massachusetts win should send a signal to Democrats to start from scratch on the jobs bill and start working with Republicans. He said Republicans would prefer a bill that focuses more on bigger and more effective tax cuts, like blanket breaks on payroll taxes and capital dividend taxes.

"The landscape has changed," said Holtz-Eakin, who advised 2008 presidential candidate Sen. John McCain. "They’re going to have to go back and think about what policies are going to get the Republicans on board."

Indeed, a couple of Republican senators’ offices said they can’t imagine a Democratic proposal on jobs that could win them over.

"A second stimulus bill, packed with more spending, is the wrong way to approach this," said Jeff Sadosky, spokesman for Sen. Kay Bailey Hutchinson, R-Texas. "Obama’s budget has already ballooned the debt. More spending is not the answer."

But Democrats may be able to peel off someone like Sen. Susan Collins, R-Maine, one of three Republicans who last February voted with Democrats to pass the original stimulus package. But she’d only be game if the jobs bill really didn’t add to the deficit, a spokesman said.

"Senator Collins has said that she is open to considering the possibility of a jobs bill but her main concern is how it would be paid for?" said Collins spokesman Kevin Kelley. "She believes that the debt levels we are accumulating now, and that are projected, are simply not sustainable and pose a considerable threat to the health of our economy." 

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Stocks rose Thursday, led by technology shares, as investors looked past the day’s ho-hum economic news and geared up for Intel’s quarterly report, released shortly after the bell.

The Dow Jones industrial average (INDU) added 30 points, or 0.3%. The S&P 500 index (SPX) added 3 points, or 0.2%. Both closed at the highest point since Oct. 1, 2008. The Nasdaq composite (COMP) rose 9 points, or 0.4%, ending at the highest point since Sept. 3, 2008.

After the close, Dow component Intel (INTC, Fortune 500) said it earned 40 cents per share in the fourth quarter on sales of $10.6 billion. Both earnings and sales trounced estimates and marked a sharp improvement from the previous year. The stock gained 2% in extended-hours trading.

Overall S&P 500 earnings are expected to have risen more than 200% from the previous year, the worst quarter in Thomson’s history. JPMorgan Chase (JPM, Fortune 500) is due to report results Friday morning.

The financial behemoth is expected to have earned 66 cents per share on revenue of $27 billion.

Stocks ended higher Wednesday, with the Dow closing at a 15-month high, as investors looked past Google’s potential shutdown of its China operations and mea culpas from the nation’s major bank executives. After a weak start Thursday, stocks turned higher, despite the day’s mixed economic news.

The major indexes posted sizable gains last year as investors dove back in after moving beyond the worst financial crisis in decades. But any gains this year are likely to be more subdued.

"The next few months is going to be about merging expectations and reality," said Jack Ablin, chief investment officer at Harris Private Bank.

"Expectations have been set pretty high for earnings and the economy, in terms of where stock valuations are set," he said. "Now we need to see if the results can deliver."

Economy: Retail sales fell 0.3% in December, the government reported Thursday. The report was a surprise to economists who were expecting sales to have risen 0.5%, according to a consensus of economists surveyed by Briefing.com. Sales rose a revised 1.8% in November.

Retail sales excluding autos fell 0.2% in December after rising 1.9% in the previous month. Economists thought they would rise 0.3%.

Helping to soften the blow, the National Retail Federation said holiday sales for the November-December period rose 1.1%, a better showing than the retail group’s forecast of a 1% decline low interest rate personal loans.

The number of Americans filing new claims for unemployment rose last week to 444,000 from 433,000 in the previous week. Economists thought claims would rise to 437,000.

Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to 4.596 million from 4.807 million in the previous week. Economists thought claims would fall to 4.750 million.

November business inventories rose 0.4% after rising 0.4% in the previous month. Economists thought claims the increase would be 0.3%.

Banks: A congressionally appointed panel investigating the lead-up to the financial crisis was holding a second day of hearings, with government officials including Attorney General Eric Holder testifying.

On Wednesday, CEOs of the largest financial institutions testified that while the banks took on too much risk and made mistakes, they were not aware at the time that a financial crisis of such a magnitude could develop.

In other news, President Obama proposed a plan Thursday to tax companies that took bailout funds, legislation he says is necessary to make sure the banks return the money they accepted in full.

Results: Intel shares gained ahead of its results. Merck (MRK, Fortune 500), Microsoft (MSFT, Fortune 500), IBM (IBM, Fortune 500) and Hewlett-Packard (HPQ, Fortune 500) were the Dow’s other big gainers.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by four to three on volume of 890 million shares. On the Nasdaq, advancers topped decliners five to four on volume of 2.3 billion shares.

World markets: Asian and European markets mostly ended higher.

Commodities and the dollar: The dollar fell against the euro and gained versus the yen.

COMEX gold for February delivery rose $6.20 to settle at $1,143 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.

U.S. light crude oil for February delivery fell 26 cents to settle at $79.39 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.73% from 3.79% late Wednesday. Treasury prices and yields move in opposite directions.  

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MONTREAL–Bombardier Inc. has received an order from Spain's national rail operator to maintain a fleet of high-speed trains for 14 years, the transportation equipment maker announced Thursday.

RENFE will pay US$917 million to Bombardier and Spanish railway vehicle maker Talgo to maintain the new trains. Bombardier's share of the contract comes to US$405 million.

The maintenance activities will take place at RENFE's depots in Spain with work expected to begin in 2010.

Bombardier will be responsible for the preventive and corrective maintenance of the train power-heads, power supply, signalling and propulsion system and auxiliaries.

The trains that will be maintained are currently being manufactured by Bombardier in association with Talgo.

Bombardier is no stranger to Spain's railway industry, and employs more than 600 people at various sites in the country. The AVE 102 and AVE 103 high speed trains and the Madrid Barajas airport people mover are among its key projects in the region.

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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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