Archive for July 13th, 2009

NEW YORK: Madoff has left New York.Bernard Madoff, otherwise known as prisoner no. 61727-054, has been incarcerated at the Metropolitan Correctional Center since March 12, when he pleaded guilty to 11 federal counts related to running his Ponzi scheme. “Mr. Madoff has left New York,” said Judi Garrett, spokeswoman for Bureau of Prisons. She would not say where Madoff was headed or how he was getting there.Madoff, age 71, was sentenced to 150 years on June 29. His release date is Nov. 14, 2139. He is also being forced to forfeit property to comply with a 170 billion legal judgment against him.0:00
/1:17Madoff gets the maxBefore Madoff was sentenced, many of the thousands victimized in his scam wrote letters to Judge Denny Chin of U.S. District Court in Manhattan, describing how they were financially ruined by his scheme and requesting life in prison for the Ponzi mastermind. Madoff’s lawyer Ira Lee Sorkin requested to the judge that Madoff be sent to Federal Correctional Institution Otisville. The medium-security prison is located about 70 miles northwest of New York City, where Madoff lived in a 7 million apartment before admitting to the scheme on March 12.The judge said that he would recommend that Madoff be transferred to a prison in the northeast, but he did not say where. The Bureau has the final say in deciding where Madoff will live.FCI Otisville is a medium security prison with an adjoining prison camp, a textile factory, a full-time rabbi and “one of the largest and most active religious programs for Jewish inmates in the Bureau of Prisons,” according to Alan Ellis, a prison consultant and author of the “Federal Prison Guidebook.”Madoff’s wife Ruth has also left the 7 million apartment, and has been allowed to keep 2.5 million which has not been connected to the Ponzi scheme.
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Source:CNN

NEW YORK (Fortune) — A self-styled bridge between Wall Street and Main Street is showing some cracks. Now the question is whether Washington might try to shore it up. CIT Group (CIT, Fortune 500), the New York-based lender to small and midsize companies that got 2.3 billion in taxpayer funds in December, spent Monday trying to persuade policymakers to give it more help. CIT said late Sunday it was “in active discussions with its principal regulators.” CIT’s shares have plunged 37% in the past month to just 1.35 each. And the cost of insuring against a default on its bonds has skyrocketed. The company has also reportedly hired lawyers to explore a possible bankruptcy filing.The problems at CIT mark the administration’s first brush with financial crisis since the spring’s stock market rally. While CIT is much smaller than Lehman Brothers, which failed last September with disastrous consequences, the debate in Washington hasn’t changed: Policymakers must weigh the health of the financial system against holding the private sector accountable. “It’s a balancing act. Everyone has been worrying about bailouts creating moral hazard,” said Douglas Elliott, a former investment banker who is now a fellow at the Brookings Institution. “At the same time, they’re still trying to rebuild confidence in the economy.” Speaking in London Monday, Treasury Secretary Tim Geithner said of CIT, “I’m actually pretty confident in that context we have the authority and the ability to make sensible choices.” Cash crunchThe immediate problems at CIT, which says it has been the top Small Business Administration lender nine years running, center on the company’s lack of access to funding. Like many finance companies, CIT funded its operations by borrowing in the debt markets. But the collapse of Lehman all but closed those markets to finance companies — prompting CIT and bigger players, ranging from Goldman Sachs (GS, Fortune 500) and American Express (AXP, Fortune 500), to hurriedly convert themselves to banks. But unlike those firms, CIT has not gotten access to a program that allows financial firms to issue debt backed by the Federal Deposit Insurance Corp. CIT applied in January to join that Temporary Liquidity Guarantee Program, under which banks and finance companies have issued some 285 billion of guaranteed debt since November. But CIT’s application is still pending. And an analyst at Fox-Pitt Kelton said last month approval now appears unlikely, given the long lag since the application was filed and the agency’s desire to wind the program down. The program is scheduled to expire in October. An FDIC spokesman said the agency has been having evaluating the exposure it would take on were it to allow CIT to issue FDIC-backed debt. The Fed said it couldn’t offer any guidance on the CIT situation. At the same time, CIT’s finances have been weakening. It lost 438 million in the first quarter, as revenue dropped 35%. Moreover, it has 1 billion in maturing debt to pay off next month, as well as 10 billion through the end of 2010. 0:00
/3:45Eyeing the Fed’s every moveAs a result, all the major ratings agencies have downgraded the company’s bonds over the past week. On Monday both Moody’s and S&P cut CIT’s ratings, with Moody’s citing the firm’s “inadequate progress” in boosting liquidity. The CIT crisis comes just seven months after the firm sold stock, swapped some new debt for old bonds and submitted to regulation by the Federal Reserve in hopes of regaining its access to funding markets. Executives claimed the moves would be an “inflection point” for CIT, but events haven’t played out as they might have hoped.”As the bridge between Wall Street and Main Street, CIT remains one of the few significant sources of liquidity for small and mid-sized businesses who are struggling to survive in today’s challenging environment,” CEO Jeffrey Peek said in a statement last November, when CIT applied with the Fed to become a bank holding company. Now, it seems, CIT is struggling to survive as well.

Source:CNN

NEW YORK: Will the big banks do it again? After enduring criticism that their impressive performance in the previous quarter was largely a fluke, all eyes are on financial giants like Goldman Sachs (GS, Fortune 500), Bank of America (BAC, Fortune 500) and Wells Fargo (WFC, Fortune 500) as they begin to report their second-quarter results starting later this week. “I think you are going to see something quite similar to what we saw in the first quarter,” said Martin Kinsler, a London-based fund manager at Henderson Global Investors, which oversees approximately 80 billion in assets. But not every analyst agrees. While many of the factors that gave top lenders a boost last quarter were still in effect this quarter, big banks were forced to reckon with, among other things, issuing new shares to pay back money from TARP, a special assessment from the FDIC, as well as higher loan losses, all of which has weighed on earnings and muddied expectations. Right now estimates for the banks vary wildly. JPMorgan Chase, for example, is expected to report anywhere from a profit of 27 cents a share to a loss of 23 cents a share. Bank of America’s estimates, on the other hand, range from a loss of 11 cents to a profit of 70 cents a share. Kicking off the earnings season for financial firms is Goldman Sachs (GS, Fortune 500), which reports before Tuesday’s opening bell. The Wall Street firm is expected to have earned 1.7 billion, or 3.54 a share, according to estimates compiled by Thomson Reuters. The Thomson Reuters consensus for JPMorgan Chase (JPM, Fortune 500) is a much smaller profit of 280 million, or 4 cents a share, when it reports on Thursday. Peers Bank of America and San Francisco-based Wells Fargo, which report Friday and next Wednesday respectively, are also expected to remain comfortably in the black this quarter, based on the latest estimates. The exceptions to that group, however, may be Citigroup (C, Fortune 500) and Morgan Stanley (MS, Fortune 500). After logging its first period of profitability in 18 months last quarter, Citi is expected to report a loss of more than 1 billion, or 31 cents a share, when it reports results on Friday morning. A loss is also expected for investment bank Morgan Stanley, which reports next Wednesday.”We expect the quarter to be one of the noisiest in recent memory,” Friedman Billings Ramsey analyst Paul Miller said in a research note to clients Friday.Repeat performanceThe last time the group reported quarterly numbers, there was widespread speculation that their results were little more than a one-off, as lenders were buoyed by a flurry of mortgage refinancing activity and robust capital markets activity, namely a surge in newly-issued corporate debt.0:00
/4:22Bailout culture clashAll signs seem to suggest however, that many of those same factors have been in play over the last three months.Even though mortgage refinancing activity tapered off significantly in June, lower interest rates helped fuel activity during the first two months of the quarter, according to weekly figures published by the Mortgage Bankers Association.And while corporate debt issuance remained vigorous, large lenders like Goldman Sachs, JPMorgan Chase and Bank of America scored big after underwriting their own debt and equity after the government deemed they raise more capital as a result of the stress-test program. Equity underwriting volume alone soared 666% domestically to 105.6 billion from 13.8 billion in the previous quarter, according to data from research firm Dealogic. Still focused on creditWhat is quite clear, however, is that the issue of loan losses, particularly in areas tied to the American consumer, remain front and center for big banks with retail banking arms.Credit card default rates, for example, jumped during the months of April and May at Bank of America, JPMorgan Chase and Citigroup, as the nation’s jobless rate headed higher.The nation’s unemployment rate, a widely relied upon indicator of losses a bank may suffer in consumer-related loans, climbed a full percentage point during the quarter from 8.5% to 9.5%.Commercial real estate, whose health is also closely tied to the nation’s labor market, has also entered a significant slump as of late. At the end of the first quarter, delinquencies on commercial real estate loans had doubled from where they were just a year ago, according to the Federal Reserve.What is encouraging for many of these large lenders, notes Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors, whose firm owns shares of JPMorgan Chase and Citigroup, is that they were rather aggressive last quarter in setting aside money for loan losses. “The assumptions made in the first quarter were so draconian,” said Sorrentino. “It bought them a hall pass for the second quarter.”

Source:CNN

NEW YORK: Steve Rattner, the Obama administration’s point man on negotiations with General Motors and Chrysler through their bailout and bankruptcy process, is leaving the Treasury Department’s auto task force and returning to the private sector.Ron Bloom, a former investment banker who had worked as an adviser to the United Steel Workers union before joining the task force, will become the administration’s top auto adviser.”With the emergence of both General Motors and Chrysler from bankruptcy, we enter a new phase of the government’s unprecedented and temporary involvement in the automotive industry,” said a statement from Treasury Secretary Timothy Geithner. He said with GM’s emergence from bankruptcy on Friday, Rattner decided to move back to the private sector and to New York, where he lived before joining the administration in late February.”We are extremely grateful to Steve for his efforts in helping to strengthen GM and Chrysler, recapitalize GMAC, and support the American auto industry,” said Geithner.Rattner had been Managing Principal of Quadrangle Group LLC, a private investment firm with more than 6 billion of assets under management that specialized in investments in media and communications companies. Rattner is a former reporter for The New York Times.A source close to Rattner told CNNMoney that he is not returning to Quadrangle.Job completed: The auto task force oversaw the decision to pump a total of 50 billion of U.S. taxpayer money into GM and another 12 billion into Chrysler. The task force also oversaw billions in federal help for a rescue program for auto parts suppliers in March, although it turned down a request for additional help from that sector even as bankruptcies loomed.0:00
/2:52GM: No additional money neededTreasury also pumped billions into GMAC, which during this period went from primarily being the finance arm for GM to becoming a bank holding company that serves as the finance operation for both GM and Chrysler.Rattner conceded last week in a conference call with reporters that it will be difficult to recoup much of the government help that flowed into the auto industry, particularly the more than 23 billion given to GM and Chrysler before their bankruptcy filing. But he said he hoped that government stakes in both companies would eventually recapture some of that money, even if he conceded that the government’s intention to sell those stakes as soon as possible worked against getting the best possible return.”We are not here to get the very last dollar out of this investment the way we might have in our former private equity life,” he said in a briefing with reporters the day after GM’s bankruptcy plan was approved by the judge in that case.The automakers had repeatedly sought government help in late 2008 and early 2009, hoping to be able to avoid bankruptcy filings. But on March 30, President Obama announced that the task force had concluded that neither company’s turnaround plan would be enough to make them a viable company. At that point, the move toward the two bankruptcy filings became virtually inevitable. Chrysler filed for bankruptcy on April 30, and GM filed on June 1.Rattner led the strategy that called for both companies to make quick trips through bankruptcy, shedding their unprofitable plants and weaker dealerships as well as leaving their lenders with only pennies on the dollars. Creditors at both companies cried foul, but the bankruptcy court endorsed both plans, pushing both companies through bankruptcy in about six weeks — Chrysler emerging on June 10 and GM on July 10.

Source:CNN

NEW YORK: The federal budget deficit increased in June as spending surged and tax receipts sunk, pushing the total budget shortfall to over 1 trillion in the first 9 months of the fiscal year, according to a government report released Monday.The Treasury Department said the June deficit was 94.3 billion, a reversal of fortune from the 33.5 billion surplus the government managed in June 2008. In May, the deficit was 189.7 billion.Economists surveyed by Briefing.com had forecast a budget deficit of 97 billion. The Congressional Budget Office had also forecast a 97 billion shortfall last month.For the first nine months of the fiscal year, which began in October, the total deficit hit 1.09 trillion.In the first nine months of 2008, the United States government was 285.9 billion in debt. For all of fiscal 2008, the government racked up a 454.8 billion shortfall. The government has been spending at a breakneck pace to slow the deceleration of the economy in the current recession. At the same time, as both company and individual incomes have shriveled, the government’s coffers have not been replenished.

Source:CNN

WASHINGTON (Reuters) — A key bank regulator has been “very reluctant” to provide relief to lender CIT Group through a government debt guarantee program, a source familiar with the matter said Monday.The source said the Federal Deposit Insurance Corp. has been cool to the idea of granting CIT access to its debt guarantee program, partly because the regulator is not satisfied with the lender’s collateral, even though the Treasury Department and Federal Reserve have been more supportive of such a move.The Treasury and Fed are exploring other ways to provide relief to the New York-based commercial lender, including possibly granting CIT’s request to transfer assets to its CIT Bank unit, the source said, speaking anonymously because the government discussions have been private.An FDIC spokesman said the agency does not comment on pending applications. Treasury and the Fed did not immediately respond to a request for comment.CIT (CIT, Fortune 500), which provides financing to many small and medium-sized businesses, has said it is in talks with regulators about how to improve liquidity after billions of dollars in losses have resulted in a credit crunch.It previously received government aid in December when it became a bank holding company and obtained a 2.33 billion capital injection from the government’s Troubled Asset Relief Program (TARP).CIT’s request to access the debt guarantee program comes as the FDIC tries to wind it down. The program was put into place in October in a bid to boost confidence in the banking sector and unfreeze credit markets.Many of the largest banks which previously participated in the program have been issuing large amounts of debt not guaranteed by the FDIC — a key requirement for banks to repay government TARP funds.The program is also designed as a program for healthy institutions, and the FDIC fears granting CIT access to it involves too much risk exposure.The Treasury and Fed have been exploring other options for CIT, including the transfer of troubled assets from the holding company to its depository bank unit, which the source said would take a lot of pressure off CIT’s financial situation.Treasury Secretary Timothy Geithner said on Monday that the government is closely watching developments associated with CIT and is confident the government would be able to deal with the lender.”I am actually pretty confident in that context that we have the authority and the ability to make sensible choices,” Geithner said in London in response to a question about how the U.S. government might deal with the company.CIT’s deteriorating condition comes as the government is seeking the authority to resolve problems at bank holding companies in an orderly manner.The FDIC currently has the authority to wind down troubled depository banks but does not have similar authority to resolve issues at bank holding companies that have become insolvent.The Obama administration has proposed expanding FDIC’s powers to include bank holding companies.In afternoon trading, CIT shares were off 12 cents or 7.8% at 1.41.

Source:CNN

NEW YORK (Fortune) — The Russian investment company Digital Sky Technologies has begun a tender offer to purchase up to 100 million of common stock from current and former Facebook employees, according to sources close to the company. The investment boutique has agreed to pay 14.77 per share, putting the valuation of the company at 6.5 billion.Digital Sky Technology’s last 200 million investment for 2% of the company was an investment in preferred shares and put the valuation at 10 billion. The difference in valuations is attributable to the type of stock that is changing hands.0:00
/2:58Facebook struggles to grow upIf fully subscribed, this will give the company, which is based in Moscow and London, a further 1.54% stake in the company and will propel DST’s ownership stake to 3.5%.Digital Sky Technologies partner Alexander Tamas and his team will bring invaluable knowledge about doing business in Russia and Eastern Europe, where companies are testing different types of business models for social networks. Digital Sky Technologies has investments in several of the largest Internet companies in Russia so the partners are able to evaluate not one strategy, but several strategies in the Russian market place.In an interview with Fortune last month, Tamas said he believes Facebook is worth every cent. He says he flew to Palo Alto for his first meeting with Chief Executive Mark Zuckerberg several months ago and walked away certain Facebook would be the most important global Internet company.This valuation is more generous than the company’s program to let employees sell stock last fall at a valuation that was reported to 4 billion.Facebook confirms the deal is underway, and CEO Mark Zuckerberg said in a statement that the program is “recognition of Facebook’s growth and progress towards making the world more open and connected.”

Source:CNN

NEW YORK: The Ilikai Hotel, which was made famous by the TV show “Hawaii Five-0,” could soon reopen its doors after the company that recently bought the Waikiki landmark shut it down last week. Real estate investment firm iStar Financial Inc., which purchased the Ilikai for 51 million at a foreclosure auction in May, said that the hotel “will reopen as soon as practically possible under a new management team and operational structure.”The announcement came after iStar said its subsidiary had reached an agreement with the union representing workers at the hotel. iStar had shut the Ilikai down Thursday after efforts to cut costs and become more efficient fell short.The Ilikai was Hawaii’s first high-rise luxury hotel when it opened in 1964. The distinctive Y-shaped building became an icon after being featured in the opening sequence of the 1970s police drama “Hawaii Five-0.”During its heyday, the Ilikai played host to U.S. presidents Lyndon Johnson and Gerald Ford. World famous celebrities such as Elvis Presley and baseball great Mickey Mantle also visited the hotel. The 30-story hotel has 203 guest rooms, as well as 806 condominium and timeshare units that were not directly affected by the closure, iStar (SFI) said. Under the new union contract, the Ilikai will rehire about 50 hotel employees. The hotel had roughly 65 full-time employees before it was shut down last week. “We are optimistic that this new agreement will not only help to preserve jobs but also to help achieve the operational efficiencies that are needed to succeed,” said Andrew Backman, an iStar spokesman, in a statement.

Source:CNN

NEW YORK: America should attack global warming by … painting rooftops and road surfaces white.Seriously. No kidding.Among those promoting the idea is Energy Secretary Steven Chu, a big-thinking physicist who has a bully pulpit and influence over billions in research and stimulus funds.Chu spoke about the idea at a London conference last month while Congress was busy hashing out a complex, 1,400-page bill to cut greenhouse gases.Whitening the world’s roofs and roads would have the same effect on global warming as removing all the world’s cars for 11 years, he said.”So I’d like to appeal to all people — we should convert to white limousines,” he said.Chu was joking about the limousines, of course. But his proposal for addressing climate change is genuine.It sounds kooky, but environmentalists say the idea is legit.They say recent research shows it’s even more beneficial than previously thought. Moreover the Energy Department, flush with 38 billion in stimulus money, is in a position to make it happen.Chu’s comments were based on recent research from Arthur Rosenfeld, a former colleague of Chu’s at the Energy Department’s Lawrence Berkeley National Laboratory. The 11 million cars number is meant to be illustrative — no one really expects all roofs and all roads will be painted white.But for new projects and some retrofits, it does make sense.A white roof has three benefits:It keeps buildings cooler, reducing the amount of energy required for air conditioning.It reduces the so-call “heat island” effect, the heating up of entire urban areas which then causes other buildings in the vicinity to heat up, whether they are in direct contact with the sun or not.A white roof or road will actually reflect the sun’s rays back into space, keeping the atmosphere cooler.”This is a great idea,” said Lane Burt, an energy policy analyst at the Natural Resources Defense Council. “We always knew it was good, and now we’re just just starting to realize it’s even better than we previously thought.”The Associated General Contractors of America, while saying costs for white roofs vary greatly, recommends them as one energy-efficient upgrade. The Energy Department said a white roof can knock 10% to 20% off a building’s electric bill. To that end, it is encouraging anyone replacing or building a roof to take advantage of 2 billion in tax credits available under the stimulus plan.A spokesman said the department is looking to use more of its stimulus money to promote “cool roofs,” which don’t have to be white and could include silver reflective paint or even rooftop gardens.As for white roads, the spokesman said the department isn’t actively promoting them, but said an effort may be made to educate communities on the benefits of using cement-colored asphalt.The Energy Department’s recent push into innovative conservation measures and renewable energy research is largely credited to its current head. Chu, with a Nobel Prize to his name, is former head of Lawrence Berkeley National Laboratory and a strong advocate of renewable energy and conservation.This is a marked contrast from previous energy secretaries, who often came from business or political backgrounds and had little experience in the energy industry itself, let alone the scientific community that many now hope will help the country move away from fossil fuels. President Reagan’s first energy secretary tried hard to abolish his own department. 0:00
/3:44Kennedy on Obama, climate bill”We now have a secretary who wants to go pedal-to-the-metal on efficiency,” said Burt. “That’s a significant difference.”The department is pursuing several other projects, both by doing primarily research itself and awarding grants to companies working in the space. They include computerized control systems to make buildings even more efficient; longer-lasting and cheaper batteries for electric cars; thinner and cheaper solar panels; biofuels that are not made from food crops, and technology to capture and bury carbon dioxide from coal plants.

Source:CNN

NEW YORK: America should attack global warming by … painting rooftops and road surfaces white.Seriously. No kidding.Among those promoting the idea is Energy Secretary Steven Chu, a big-thinking physicist who has a bully pulpit and influence over billions in research and stimulus funds.Chu spoke about the idea at a London conference last month while Congress was busy hashing out a complex, 1,400-page bill to cut greenhouse gases.Whitening the world’s roofs and roads would have the same effect on global warming as removing all the world’s cars for 11 years, he said.”So I’d like to appeal to all people — we should convert to white limousines,” he said.Chu was joking about the limousines, of course. But his proposal for addressing climate change is genuine.It sounds kooky, but environmentalists say the idea is legit.They say recent research shows it’s even more beneficial than previously thought. Moreover the Energy Department, flush with 38 billion in stimulus money, is in a position to make it happen.Chu’s comments were based on recent research from Arthur Rosenfeld, a former colleague of Chu’s at the Energy Department’s Lawrence Berkeley National Laboratory. The 11 million cars number is meant to be illustrative — no one really expects all roofs and all roads will be painted white.But for new projects and some retrofits, it does make sense.A white roof has three benefits:It keeps buildings cooler, reducing the amount of energy required for air conditioning.It reduces the so-call “heat island” effect, the heating up of entire urban areas which then causes other buildings in the vicinity to heat up, whether they are in direct contact with the sun or not.A white roof or road will actually reflect the sun’s rays back into space, keeping the atmosphere cooler.”This is a great idea,” said Lane Burt, an energy policy analyst at the Natural Resources Defense Council. “We always knew it was good, and now we’re just just starting to realize it’s even better than we previously thought.”The Associated General Contractors of America, while saying costs for white roofs vary greatly, recommends them as one energy-efficient upgrade. The Energy Department said a white roof can knock 10% to 20% off a building’s electric bill. To that end, it is encouraging anyone replacing or building a roof to take advantage of 2 billion in tax credits available under the stimulus plan.A spokesman said the department is looking to use more of its stimulus money to promote “cool roofs,” which don’t have to be white and could include silver reflective paint or even rooftop gardens.As for white roads, the spokesman said the department isn’t actively promoting them, but said an effort may be made to educate communities on the benefits of using cement-colored asphalt.The Energy Department’s recent push into innovative conservation measures and renewable energy research is largely credited to its current head. Chu, with a Nobel Prize to his name, is former head of Lawrence Berkeley National Laboratory and a strong advocate of renewable energy and conservation.This is a marked contrast from previous energy secretaries, who often came from business or political backgrounds and had little experience in the energy industry itself, let alone the scientific community that many now hope will help the country move away from fossil fuels. President Reagan’s first energy secretary tried hard to abolish his own department. 0:00
/3:44Kennedy on Obama, climate bill”We now have a secretary who wants to go pedal-to-the-metal on efficiency,” said Burt. “That’s a significant difference.”The department is pursuing several other projects, both by doing primarily research itself and awarding grants to companies working in the space. They include computerized control systems to make buildings even more efficient; longer-lasting and cheaper batteries for electric cars; thinner and cheaper solar panels; biofuels that are not made from food crops, and technology to capture and bury carbon dioxide from coal plants.

Source:CNN