Loans flow from Europe’s central bank, but analysts debate if they’re a cure or a crutch

Throughout his waning months in office, European Central Bank President Jean-Claude Trichet boasted that he had avoided the excesses of his counterparts at the U.S. Federal Reserve and kept the ECB’s response to his continent’s financial crisis relatively modest.
It has taken his successor, Italian central banker Mario Draghi, less than three months to upend that approach, triggering a debate about whether the ECB has quietly solved the euro-zone debt crisis or simply postponed a reckoning by shuffling hundreds of billions of dollars among banks, governments and the central bank’s own coffers.

As it did in December, the ECB this week is again offering inexpensive three-year loans to euro-region banks. Market analysts expect the central bank to provide new loans worth a trillion dollars or more, putting the ECB on a fast track to catch the Fed.
The policy has stabilized European finances in recent weeks, contributing in a roundabout way to a decline in the exorbitant interest rates that some heavily indebted governments had to pay. After the first round of ECB loans, banks spent some of the money on government bonds, and Italy and Spain as a result saw a drop in the cost they had to pay to attract bond investors.
The banks also began to retire their own bonds, reducing the competition for money on private markets. And bank lending to households and businesses ticked up.
These were all reassuring developments after an autumn consumed by fears that the region’s debt crisis would lead to a breakup of the euro zone.
“There are tentative signs of stabilization,” Draghi said at a recent news conference on ECB policy.
But some analysts and bankers are warning that the policies under Draghi could leave the European financial industry addicted to cheap ECB loans that will be difficult to replace if the region’s economy remains stagnant.
For a variety of reasons, the euro zone remains in trouble. The region is heading into recession, and governments are scrambling to restructure economies ill-suited to compete globally or support the costs of aging populations.
Greece, the region’s hardest-hit country, is in the midst of a bond restructuring that will shape its future. If all goes smoothly, the exchange of new, less-expensive bonds for older ones will greatly reduce the country’s outstanding debts and pave the way for a large package of new international loans. But the debt restructuring has left the country in technical default on its bonds, possibly triggering the insurance payments to bond holders — a development that some analysts worry could stigmatize the euro region for years.
If nothing else, the ECB loans have bought time and helped the currency union through a bulge of borrowing required by governments and financial companies in the first months of the year.
The ECB lending program was launched at a critical moment, when borrowing costs for Spain and Italy were at such a high level that they might have needed a bailout that the rest of Europe and the International Monetary Fund could ill afford. As those rates have dropped, Spain has actually accelerated its borrowing for the year to take advantage.
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Bad Credit Loans for Emergency Pet Vet Bills and Medical Expenses

Sacramento, CA (PRWEB) February 28, 2012
In the current economic downturn, consumers know they can turn to trusted ReallyBadCreditOffers.com for bad credit loans and no hassle financial help, but now the beloved family pet has a financial ally as well. The site has announced a new suite of installment loan offers for pet owners in need of money for emergency vet bills to ensure the family pet receives the medical attention it needs.
According to the U.S. Bureau of Labor Statistics, 77% of veterinarians in private practice service the medical needs of pet owners, predominantly dogs and cats. Medical expenses for treating pets have been rising and families face the tough decisions if they do not have the money required to meet the costs of care for their beloved animals.
People with bad credit ratings facing financial hardship in these tough times do not have access to the traditional resources good credit scores make available. The new personal loans being offered allow families access to money with a 60 second application process and no credit check required. In so doing the site hopes to lend a helping hand in an area traditional lenders do not consider an emergency.
“I own a cat and a dog, they are valued members of my family, and have helped me through some very tough times, we just would like to acknowledge how important our pets are to us in challenging times and ensure no family pet is denied the care they deserve because of money trouble,” said Ariel Pryor, founder.
The popular consumer site offers a variety of resources to help families improve their personal finances, eliminate debt and fix and reenter the financial system after bankruptcy, foreclosure and bad credit. Visitors to the site can see a variety of bad credit loans with no hidden fees to compare the offers and choose the best of the recommended services.
Contact:
Ariel Pryor, Credit Expert http://www.reallybadcreditoffers.com

State Pensions Find Private Equity Bites as Blackstone Cuts Jobs

February 23, 2012, 12:58 AM EST
By William Selway and Martin Z. Braun
Feb. 23 (Bloomberg) — Shirley Kimber walked off the production line from her $17.56-an-hour job at a Birds Eye Foods plant in Fulton, New York, for the last time in November.
The new owners, Pinnacle Foods Group LLC, a company held by the private equity firm Blackstone Group LP, closed the factory and fired 270 workers. Kimber, 64, got eight weeks severance for her 12 years on the job and lives with her 37-year-old unemployed daughter in the rust-belt town of about 12,000, northwest of Syracuse.
“They just used us. That’s exactly what they did,” Kimber said. “And then they kicked us to the curb.”
While the closing killed union jobs, it may also help protect the retirement benefits that organized labor bargained for on behalf of public employees.
In addition to Blackstone, the world’s largest buyout firm, New York State’s two public employee pensions and four New York City pensions stand to gain from the drive for higher profits at Pinnacle foods. The retirement funds poured $920 million into the $20 billion Blackstone fund that owns Pinnacle, which took over Birds Eye in 2009.
Public pension funds — seeking to boost returns after failing to secure the 8 percent annual investment earnings needed to pay benefits for teachers, police officers and other civil servants — are the biggest source of cash for private equity firms.
Faster Pace
Companies owned by New York-based Blackstone added jobs at a faster pace than the U.S. economy for the past two years, said Peter Rose, a spokesman for the firm. Private equity’s investment returns “are one of the few ways that pension funds can help keep the promises that they have made to their retirees,” he said.
Pinnacle Foods closed the Fulton plant to cut transportation costs by moving operations closer to suppliers, said Michelle Weese, a spokeswoman for the company.
While firms such as Blackstone and Bain Capital LLC, co- founded by Republican presidential candidate Mitt Romney, have drawn scrutiny for their paring of jobs and the low tax rates enjoyed by executives, the role of taxpayer money in financing their acquisitions has received less notice.
By September 2011, public pensions with at least $1 billion in assets had an average of 11 percent of their money in private equity, more than triple their investments a decade earlier, according to Wilshire Associates, a Santa Monica, California- based consulting firm.
Rising Investment
Such funds have about $400 billion with private equity, 29 percent of the total, according to Prequin Ltd., a London-based private equity research firm. That’s more than twice what was put in by private pension funds, the next biggest investor.
Public pensions “have been the investors that have really fueled private equity’s rise,” said Steven Davidoff, a professor of law and finance at Ohio State University’s Moritz College of Law in Columbus, Ohio. “For those people who complain about private equity, the money is really coming from pension funds.”
Private equity firms buy companies and seek to trim costs, improve operations, boost profits and resell them. The takeovers are typically financed by debt taken on by the purchased companies.
The business has been drawn into the presidential contest as Romney parried attacks from Republican rivals who suggested he built a fortune of as much as $250 million with takeovers that cost workers their jobs. He has disputed this characterization.
Private equity executives, including Blackstone managing director and Pinnacle Foods director Prakash Melwani, have helped stock Romney’s campaign war chests. Melwani declined to comment.
Mayor Objects
Fulton Mayor Ronald Woodward, a Republican, said the Birds Eye takeover has devastated his town, adding that he is troubled to learn that New York pension money helped finance the acquisition.
“Isn’t that a slap in the face to the people in Fulton that are losing their jobs and paying the salaries of those union workers and they’re using their investments there,” Woodward said. “It’s like biting the hand that feeds you.”
Her severance exhausted, Kimber now lives off unemployment benefits of $1,620 a month, plus $100 a month in pension payments, she said. She pays 22 percent of that for health insurance. Her daughter, also named Shirley, has a biology degree but can’t find a job using that specialty. To make a few extra dollars, she babysits and sells books online.
Executive Compensation
Robert Gamgort is chief executive officer of Parsippany, New Jersey-based Pinnacle Foods, which also makes Dunkin Hines cake mix, Vlasic Pickles and Hungry Man frozen dinners.
Gamgort was awarded compensation valued at $5.5 million in 2010 and $11.6 million in 2009. Sara Genster Robling, head of the Birds Eye division, got pay packages worth $1.5 million in 2010 and $2.1 million the previous year. Most of the pay was in company stock. Gamgort and Robling weren’t available for comment, she said.
After the collapse of 1990s Internet bubble left pensions reeling from investment losses, state and local government funds poured money into private equity firms. The financial crisis of 2008 and subsequent recession left U.S. state public pensions $694.2 billion short of having enough assets to pay future benefits by the end of their 2010 budget years, according to data compiled by Bloomberg.
Higher Returns
Private equity deals promised higher returns than stocks and bonds. The 15-year median return on stocks for public pension funds with more than $1 billion assets, before fees, is 5.5 percent annualized as of Dec. 31, 2011, while the median return for private equity in that time period is 9.8 percent, according to the Wilshire Trust Universe Comparison Service.
The deals have served pensions well. New York state’s teachers pension’s private equity investments delivered an annual rate of return of 11.8 percent as of June 30, 2011. New York City’s private equity investments in four of its five pension funds have returns ranging from 9.2 percent to 11.1 percent.
That helps save taxpayers money. For workers and the acquired companies, the benefits can be harder to discern.
A study led by the University of Chicago’s Steven Davis, based on 3,200 private equity deals from 1980 to 2005 and published in September, sought to quantify the impact. It found that employment at acquired companies dropped 6 percent in the next five years relative to stand-alone peers as they shuttered lagging businesses.
‘Creative Destruction’
Still, the companies also added workers by opening new business lines and through acquisitions. The study concluded that such deals accelerated the “creative destruction” of jobs, with a “modest” impact on total payrolls.
“Private equity investors are remorseless in their perspective on business,” said Robert Bruner, the dean of the University of Virginia’s Darden School of Business. “That is a manifestation of the rigors of the capitalist system,” he said. “It accelerates the process.”
Rose Pitcher, 50, experienced that first-hand. After working 25 years at the Birds Eye plant in Fulton, she wrapped up her last shift in November, with eight weeks severance, as Pinnacle moved the plant’s jobs to Wisconsin and Minnesota. Other employers in the area, like an apple-packing plant in Oswego, pay less than half the $17 an hour she was making overseeing the machine sealing packages of Voila! ready-made meals at Birds Eye.
“There just doesn’t seem to be anything out there,” she said.
Portfolio Companies
Blackstone says it has a record of boosting employment overall. In 2011, Blackstone’s portfolio companies added 4.6 percent to their payrolls by creating new jobs, rather than through acquisitions, and increased them 3 percent in 2010, said Rose, the company spokesman. That outpaced job growth in the economy, he said.
“Private equity is a vital source of capital to grow and strengthen companies where public capital cannot or is unwilling to invest,” said Rose.
New York Comptroller Thomas DiNapoli, the sole trustee of New York’s $140 billion retirement fund, declined to comment. New York City Comptroller John Liu declined to comment. John Cardillo, a spokesman for New York state’s Teachers’ Retirement System, declined to comment.
Drivers coming into Fulton are greeted by the red-brick Nestle chocolate factory, where for 103 years the company made condensed milk, semi-sweet morsels and Crunch Bars. It shut down in 2003.
The Nestle factory employed 1,500 people at its height. In 1994, Miller Brewing also shut down a plant just outside of town, putting 900 people out of work.
Taking Down Signs
A couple of years after Miller shut its operations, city officials took down signs on Routes 481, 48 and 3, the thoroughfares entering Fulton, that read: “City with a Future.”
It’s a far cry from the 1930s, when the New York Sun wrote a story about Fulton entitled “The Mystery of Fulton, N.Y., the City the Depression Missed.” Then, factories powered by electricity generated by the Oswego River, which bisects the town, churned out knives, textiles and shotguns. The Fort Stanwix Canning Co. opened a plant in Fulton in 1902. In 1938 it began packaging Birds Eye vegetables.
Two Decades
The Birds Eye plant had survived during the past two decades as it passed from General Foods Corp. to Philip Morris Cos. to Dean Foods Inc. In 1998, Dean Foods sold it to Agrilink Foods Inc. for $400 million. In 2002, Agrilink sold a majority stake in the company for $175 million to Vestar Capital Partners, a private equity firm where Melwani was a managing director. Melwani is now at Blackstone.
Vestar transformed the company. In 2006, it shifted focus to brand-named foods and developing new product lines. It announced that it would jettison most of its non-brand frozen food businesses, affecting five facilities, including three in western New York, that employed about 740. In 2007, Birds Eye borrowed money to pay Vestar and Agrilink a one-time $298.2 million dividend, according to corporate filings.
Vestar turned Birds Eye into a smaller, profitable company. By 2009, Birds Eye earned $54 million on sales of $936 million, compared with a $131 million loss and sales of $1 billion in 2002. Its workforce had shrunk to 1,700 from 4,000, filings show.
In November 2009, Pinnacle Foods, owned by Blackstone, agreed to buy Birds Eye for $1.3 billion. The purchase was financed by $1.15 billion of debt. Blackstone contributed $260 million in equity. Carol Makovich, a Vestar spokeswoman, declined to comment.
$17 Million
Blackstone affiliates were paid $17 million in acquisition fees for arranging the Birds Eye deal. Pinnacle has also paid Blackstone at least $15.5 million in management fees since it was taken over by the firm in 2007, according to company filings.
Under Blackstone, Birds Eye’s sales and profits have risen. In the quarter that ended in September, sales were $248 million, an 11.2 percent increase from the year earlier. The growth was driven by expanded distribution and demand for new products, in addition to lower new product distribution expenses, the company said in a filing.
Charles Murphy, 66, had worked at the Birds Eye plant in Fulton through a series of owners for 22 years before retiring at the end of 2010. He said employees were optimistic that the factory would survive.
Schumer Press Conference
In January 2010, U.S. Senator Charles Schumer, the New York Democrat, held a press conference with workers in Fulton, saying he would keep pressuring the company until all the jobs were safe. Schumer said he called Stephen Schwarzman, Blackstone’s chairman and co-founder, and asked him to spare the factory.
“No one expected that place to close,” said Murphy.
Then Pinnacle started cutting jobs. In mid-2010, it began closing down the Rochester, New York headquarters where 200 worked. That December it announced the closure of a Tacoma, Washington, plant that employed 160 and would shift production to Iowa.
On April 13, 2011, a Wednesday, employees coming to work at the Fulton plant saw a makeshift sign taped to a window: A mandatory meeting for all employees would be held at the Fulton War Memorial, the town’s exhibition hall and gymnasium on the 15th.
A Birds Eye lawyer told those gathered that the company would close the Fulton plant and move some of the jobs to Wisconsin and Minnesota.
Paul Robinson, a 59 year-old who ran packing machines remembered asking managers, “What can we do to keep the plant open?”
‘Minds Made Up’
Nothing, he said Pinnacle managers replied. “They had their minds made up.”
Wisconsin had offered Pinnacle $1.3 million in incentives to shift production to the state. Worker’s compensation costs were also lower — an average of $1,100 per employee in Wisconsin compared with $12,000 in New York, Mayor Woodward said.
While new jobs were added elsewhere, the closures cut the Birds Eye’s payroll by about 300, or 17 percent, as it eliminated more jobs than were added elsewhere, according to Weese, the Pinnacle spokeswoman. She said such costs are common after corporate mergers.
“Synergies are true with every deal. It’s not unique to this particular deal,” Weese said. “It’s less expensive to run one company than two.”
Not all public pensions have stood by as a private equity firms managing their money announced job cuts.
Hugo Boss
In 2010, after hearing that clothing-company Hugo Boss AG was planning to close a factory in a Cleveland suburb where it manufactured suits, threatening the jobs of 300 workers, Ohio’s public employee pension fund contacted Hugo Boss’s owner, London-based private equity firm Permira Advisers LLP.
Ohio’s Public Employees Retirement System had invested $80 million in the Permira fund that owned Hugo Boss. After writing to Permira and not getting a response, the pension fund followed up with another letter saying it would “think long and hard” about investing any more money with Permira, said Hugh Quill, a former Ohio pension trustees. The plant was never closed.
“These guys could have cared less about a plant in Cleveland, Ohio, but they did care about not having institutional investors for their next $500 million offering,” Quill said. “I think it was the right thing to do, given the amount of pain and suffering that was going on in the state.”
The California Public Employees’ Retirement System and public pensions from Maryland and Pennsylvania, which invested in Permira, also lobbied the firm. So did New York City’s pension funds.
Liu’s Letter
“New York’s pension funds do not wish to be investing in job loss or in a global ‘race to the bottom,’” New York City Comptroller Liu wrote in a letter to Permira.
Chris Davison, director of communications for Permira, declined to comment.
In Fulton, Charles Murphy’s wife, Donna, had been out on medical leave since October 2010 when the Birds Eye closure was announced. Still struggling with lung cancer, she lost her job when she couldn’t return to work for the factory’s last two months. That meant she didn’t get any severance pay. She worked there for 25 years.
Pinnacle’s Weese said details about medical leave and severance pay were worked out in negotiations with the employees’ union, Workers United Local 1822.
‘Devoting Your Life’
“You spend that many years devoting your life to the company, coming in to work every day, and they think nothing of you,” said Murphy, who lives in nearby Oswego. “This hurt a lot of people’s livelihoods.”
Fulton mayor Woodward, who was a maintenance supervisor with Nestle when the plant shut in 2003, said his story is another sign of the times.
“What you’re doing by doing that — you are systematically eliminating the middle class,” he said. “You’re going to be rich or you’re going to be poor. There’s no in between.”
–Editors: Jeffrey Taylor, Larry Edelman
To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Martin Braun in New York at mbraun6@bloomberg.net.
To contact the editor responsible for this story: Jeffrey Taylor at Jtaylor48@bloomberg.net
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Kenya's Housing Finance 2011 pretax profit, loans up

NAIROBI (Reuters) – Kenya’s second-largest mortgage lender Housing Finance posted a 74 percent jump in 2011 profit, as its loan book grew by a third despite high interest rates, it said on Wednesday, adding it planned to raise long-term financing abroad.
Housing Finance said its pretax profit rose to 975.8 million shillings, while its loan book grew by 31 percent to 24.2 billion shillings and earnings per share climbed 26 percent to 2.70 shillings.
“We are optimistic that we can maintain the growth curve in the current financial year on the back of long term financing which will shield the company from current market fluctuation in the money market,” Frank Ireri, the managing director of the lender, told an investor briefing.
He said the firm’s net interest income rose to 1.9 billion shillings from 1.4 billion shillings.
Concerned with the huge fluctuations in short-term funding instruments, Housing Finance said in October it was considering floating a 25-year housing bond targeting pension funds and real estate investment trusts.
Ireri said the company was now seeking to raise funds abroad as opposed to the bond, because of the high domestic rates.
“We cannot come in with a bond right now because guys will ask for very high interest rates. We are borrowing an offshore debt,” Ireri said.
The mortgage lender raised 7 billion shillings through a seven-year bond issue in October 2010. The bond had a fixed rate set at 8.5 percent and a variable rate pegged at 3 percent above the 182-day Treasury bill rate.
High interest rates and double digit inflation in Kenya are hurting the real estate industry, as developers and buyers struggle to meet financing requirements, property pricing index firm HassConsult said in January.
Shilling depreciation for most of 2011 also slowed the flow of real estate developments and hurt the industry as construction material costs rose.
“There is a lot of imported content in construction and with the exchange rate going crazy and interest rates raising last year some developers slowed down,” said Ireri.
“The impact may still be there this year, but in 2013 we may find that there is a housing shortage … and there will be high demand again.”
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Student loans always are due, no matter how long overdue

By  Kathy Lynn Gray
The Columbus Dispatch Monday February 13, 2012 5:24 AM

If you think the student loan you took out years ago but never repaid won’t come back to haunt you, think again.
The debt could land you in federal court, pleading your case before a U.S. district judge.
“There’s no statute of limitations on student loans,” warned Assistant U.S. Attorney Deborah F. Sanders. “That debt is growing, and you still owe it.”
Sanders handles the student-loan default cases that come through the U.S. attorney’s office for the southern half of Ohio. Her office is pursuing about 400 cases.
“We get them because the (federal) Education Department has not been able to collect after many, many attempts,” Sanders said. “If it comes to our office, borrowers have had a lot of chances to pay.”
Defendants fall into two camps: those who don’t pay, and those who can’t, she said.
Usually the loans are years overdue, sometimes as long as 20 years. By that time, a large chunk of the money owed is interest that has accrued and compounded over the years.
In one case filed last year, the defendant owed $160,000, including nearly $25,000 in accrued interest on the 10-year-old loan. On another 10-year-old loan, nearly $40,000 of the $101,000 owed was interest.
If federal lawyers obtain a judgment against a debtor, the government can collect the money in a variety of ways. Wages and savings and checking accounts can be garnisheed, and tax refunds can be diverted, Sanders said. “We have a pretty good rate of collection.”
The court also can set up payment plans once a judgment has been made.
Unlike many other types of debt, student loans cannot be dismissed through bankruptcy except in rare situations, said Stephanie Dailey, a Columbus lawyer who specializes in bankruptcies.
“It’s almost impossible to get out of student-loan debt,” Dailey said. A debtor has to have a dire hardship, such as being completely disabled, she said.
About half the people who come to her with financial difficulties have student-loan debt, Dailey said. She advises them to approach the lender and try to get on a payment plan so that interest doesn’t continue to pile up.
“A lot of people will just stick their head in the sand and hope it’ll go away,” she said. “ Instead, they should let the creditor know they’re having trouble paying and ask for help.”
Dailey herself has nearly $100,000 in student-loan debt from law school. She has deferred her loans — postponed paying them with the blessing of the lender — when paychecks were lean. Interest continues to accrue during a deferral, but the lender won’t turn the loan over to collectors.
The number of student-loan defaults that went to federal court rose significantly in the late 1990s as the Justice Department pushed for collection. Nationwide, 1,142 default cases were filed in 1995; that number surged to 24,404 by 2000. But the number has fallen back since then as the Education Department has set up other ways to collect the debts, Sanders said.
At the same time, students are taking on more debt to attend college. In 2010, the average was $25,250, up 5 percent from the previous year, according to a study by the Project on Student Debt. The average in Ohio was $27,713. An estimated $1 trillion in total student loans is outstanding nationwide.
The default rate in 2009, the most-recent data available, was 8.8 percent. That includes borrowers with loan repayments due between Oct. 1, 2008, and Sept. 30, 2009. An estimate of the total amount of loan money in default is not available.
A survey released last week by the National Association of Consumer Bankruptcy Attorneys found that 81 percent of bankruptcy lawyers said the number of potential clients with student-loan debt has increased “significantly” or “somewhat” in the past three or four years.
The association thinks that student-loan debt could create an economic threat to the country as serious as the home-mortgage crisis did in the late 2000s.
kgray@dispatch.com

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Money-Market Fund Flight From French Banks Reverses in January

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February 13, 2012, 7:29 AM EST
By Radi Khasawneh and Alberto Fuertes
Feb. 10 (Bloomberg) — U.S. money-market funds more than doubled their short-term loans to French banks in January, ending six months during which they reduced funding.
The funds owned $8.6 billion of French bank certificates of deposit, time deposits, commercial paper and repurchase agreements on Jan. 31, up from $3.2 billion in December, according to reports from the eight largest prime U.S. funds compiled and published in today’s Bloomberg Risk newsletter. At the end of 2010, the equivalent figure was $78 billion.
French banks have had to increase their deposit base to secure funding after the sovereign-debt crisis spread last year, spurring concern about the solvency of European financial institutions. The revival of U.S. money fund investing followed the European Central Bank’s decision to provide three-year funding for banks in December, allaying some of those concerns.
“There definitely was a shift in sentiment around the second week in January,” said Deborah Cunningham, head of money market funds for Pittsburgh-based Federated Investors Inc. The ECB’s loans and a reversal of “year-end window dressing” in December played the biggest role, she said.
Federated manages $245 billion in U.S.-registered money funds, according to research firm Crane Data LLC.
Societe Generale
The largest beneficiary among the French banks was Societe Generale SA, which increased funding more than 10-fold to $3.4 billion in January. BNP Paribas SA and Credit Agricole SA attracted 50 percent and 43 percent more funding from the U.S. money markets, according to a Bloomberg survey.
Officials for all three banks declined to comment.
The funds cut investments in Swedish and Japanese banks, each of which suffered a $9.7 billion reduction over the month. Swiss banks had 5 percent less funding, though banks from all three countries have retained their haven appeal, with money- market funding surpassing 2010 levels.
The ECB provided 489 billion euros ($651 billion) to European banks through a three-year refinancing operation in December and plans to offer a further series of loans at the end of February.
The survey included the eight largest prime money-market funds: Fidelity Cash Reserves, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional Prime Money Market Portfolio, BlackRock TempFund, Wells Fargo Advantage Heritage Money Markets Fund and Federated Prime Obligations Fund. Together, they manage $597 billion.
‘More Confidence’
“There are thousands of banks across Europe and we only invest in a small number that we believe to be among the strongest institutions representing minimal risk,” Adam Banker, a spokesman for Fidelity Investments, said in an e-mail.
John Woerth, a spokesman for Vanguard Group Inc., said the firm’s money funds don’t own any French bank debt. Officials for JPMorgan and BlackRock declined to comment. A spokesmen for Wells Fargo didn’t respond to a request for comment.
ECB lending “gave market participants a lot more confidence that liquidity was in that marketplace,” said Cunningham at Federated.
Cunningham said higher short-term interest rates and slightly better economic data also helped encourage money funds to lend more to banks in France and other European countries where they had previously pulled back. Annualized rates for overnight lending to European banks were about 0.18 percent to 0.23 percent in mid-January after dropping to as low as 0.01 just before the end of 2011, Cunningham said.
The lending figures include repurchase agreements, which are backed by collateral such as government debt. Collateral- based repo investments make up a larger part of European overall funding, showing that counterparty risk remains a concern for the funds.
European repo deals amounted to $42.8 billion in January, making up 28 percent of European bank securities held at the funds, up from 21 percent in 2010. French bank repo funding was also 28 percent of the total in January, compared with 6 percent in the fourth quarter of 2010.
–With assistance from Fabio Benedetti-Valentini in Paris and Christian Baumgaertel in Boston. Editors: Keith Campbell, Christian Baumgaertel
To contact the reporters on this story: Radi Khasawneh in London at rkhasawneh1@bloomberg.net; Alberto Fuertes in London at afuertes@bloomberg.net
To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; Edward Evans at eevans3@bloomberg.net; Nicholas Dunbar at ndunbar1@bloomberg.net

SEC Said to Look at Smaller Firms in Review of Private Equity Valuations

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Libyan domestic fund to direct some investments abroad: official

DUBAI (Reuters) – A Libyan domestic investment fund with estimated assets of $1 billion could direct some of its investments abroad, especially to neighbouring Tunisia, the chief executive of the National Investment Company said.
“Although the fund is focused on domestic investment, our laws allow for foreign investment,” Basheer Ashour told Reuters over the telephone from Tripoli.
“We could make some investments in Tunisia,” he said.
He said the fund was planning to invest in what he described as “conservative tourism”, catering to a growing number of tourists looking to stay in hotels and resorts which observe Islamic rules, including banning alcohol.
“It’s a very early stage but there are discussions now,” he said, referring to the Tunisian investment.
Libyan Central Bank Governor Saddeq Omar Elkaber told Reuters last month the Libyan government had no plans to inject fresh cash into its foreign investments, including Italian bank UniCredit, as it needed the money for reconstruction efforts.
Ashour said he was leading a restructuring plan of the fund, established in 1986, that aims at increasing its investments locally and abroad. He said one project was to build a transport network of buses and taxis inside and between Libyan cities.
He said, however, that there are no immediate plans to increase the fund’s capital by tapping into government coffers.
“For foreign projects we’re thinking of seeking external financing, preferably through means of Islamic banking,” he said.
The U.N. Security Council’s sanctions had frozen $170 billion in Libyan assets, but a large sum was released in December when the council lifted the sanctions on the central bank’s $100 billion, mostly cash assets.
Ashour said he expected the National Investment Company’s capital to increase by up to 60 percent over the next two to three years.
“It’s possible that the size of the fund increases in the next two to three years to 1.5-2.0 billion Libyan dinars,” he said.
The fund has investments in the oil, real estate, banking and insurance sectors, including a 55 percent stake in the Sahara Insurance Co.
He said the fund had 200 million dinars in cash that would be mostly used to complete existing real estate projects in Libya, including hotels.
Libya’s main investment vehicles is the $65 billion Libyan Investment Authority.
Its acting chief executive told Reuters late last year the cash-heavy fund could be used to fund reconstruction projects after a nine-month civil war that ended the rule of dictator Muammar Gaddafi.
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Spot profit-eating investment fees

Investing » Don’t Let Investment Fees Strangle Profits
Investors are understandably eager to earn high returns. But nothing erodes that eagerness or kills the investor’s confidence in his or her advisers like a plethora of investment fees that eat away at those gains.
That’s one reason investors are paying a lot more attention to fees these days, according to Ram Subramaniam, head of products at TD Ameritrade, an online stock brokerage firm in Omaha, Neb.
“Any fee is getting more scrutiny, partly because the market returns aren’t as attractive as they were,” he says. “People are conscious and aware of what they’re paying. What you pay in fees eventually impacts your return.”
Here’s what to look for in investment fees and what to do about it.

Investment fees

Examples include account maintenance fees, mutual fund management fees, trading fees or commissions, and investment management fees. Some are for services such as investment advice. Others are tied to activities such as buying or selling stocks, bonds or options. Still others are charged “just for the privilege of keeping your money there,” Subramaniam says.
Investment fees can be structured as a flat rate per month, per year, per trade or as a percentage of account assets or the transaction amount. For example, an annual account maintenance fee might be $100 or 1 percent of assets. A trade might cost $9.95 or involve a commission based on the price and number of shares. Some companies charge lower fees for trades entered online and higher fees for trades placed with the assistance of a telephone operator or stockbroker, according to a Bankrate chart of brokerage companies’ charges.

Fund fees

Mutual fund companies also charge fees that vary in structure and amount, according to Justin Krane, president of Krane Financial Solutions, a financial planning firm in Los Angeles.
“When you’re buying a mutual fund, you have to pay for professional management, and there are commissions to buy or sell. Those could be as little as $8 or as much as 2 percent, or 5 percent for a load fund,” Krane says.
The term “load” means the investor pays the fund company an upfront and/or back-end percentage in addition to the broker’s transaction fee or commission, if any. These deals typically are highlighted on lists of so-called select or premium funds.
A no transaction-fee fund might be a good choice, but investors should understand that fund companies also typically pay a promotional fee to the brokerage company. As a result, that fund’s expense ratio might be higher because those behind-the-scenes fees are wrapped into the fund’s costs, Krane says.

Fee-only or fee-based?

Many investors also pay additional investment fees to financial advisers.
Krane says some advisers earn commissions on the products they sell you, others are only paid a fee by their clients, and still others collect commissions and fees. Financial advisers who act solely in their client’s interest generally are compensated on a fee-only basis. The term “fee-based” generally means the adviser receives a mix of fees and commission.
“The client needs to know,” Krane says. “Granted, I’m paying you a fee, but in what capacity am I paying you? Are you operating as a fiduciary or salesperson? The financial planning community is going for a fee-only model. The Wall Street community wants fee-based.”

Fee-saving tips

Savvy investors can save money on fees. Here are four tips:

Tips to save money on fees

• Do your homework. Investors who dig into the brokerage company’s website or make a phone call and ask about investment fees can get a lot of useful information. Always find out how much an account or trade will cost before you make a commitment. “The more information and power investors have, the better decisions they will make about fees,” Subramaniam says.
• Compare your options. Actively managed mutual, international or global funds and funds from certain brands or brokerage companies tend to involve higher investment fees. Index funds and exchange-traded funds typically have lower fees, Subramaniam says. Still, fees shouldn’t be your only consideration but rather part of your investment decision.
• Do the math. Don’t assume a mutual fund being sold with no transaction fee is a better investment than one that costs a few bucks to buy. At times, a nominal transaction fee might be immaterial in the context of a large investment and expected high return. “If there is a better fund where there is a lower expense ratio and where you can pay the $35 versus something that has a lower fee, maybe you should do that,” Krane says.
• Add it up. Just as banks offer investment services, investment houses offer checking and savings accounts, debit cards, credit cards, mortgages, and other banking products. Subramaniam suggests companies offering cheap investment services might make up the difference on bank fees or visa versa. Consider the company’s entire fee schedule before you consolidate your accounts.

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Spain tries again to clean up troubled banks

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MADRID (Reuters) – Spain’s government will force its banks to recognize some 50 billion euros (41.3 billion pounds) in losses on bad loans to builders in a fresh financial sector reform on Friday, but doubts will still linger over the worthless property on the banks’ books.
The aim is to trigger a fresh wave of mergers to create stronger new banks four years after a property boom went bust and restore confidence to Spain, which has yet to shake off the euro zone debt crisis.
The new centre-right government has pledged to straighten out the banks once and for all, but officials are worried the reform will put great strain on Bankia, Spain’s fourth-biggest bank by market value, which is particularly exposed to real estate.
The reform will give newly merged banks up to two years to write down toxic assets by setting aside provisions on their books, other banks will get one year, said several sources close to the negotiations on the new rules.
The government will also lend funds to banks that struggle to meet the steep new provisions, through 5-year preferential shares bearing an 8 percent coupon in exchange for curbs on bank executives’ pay and bonuses, the sources said.
Spanish banks underwent a round of mergers and recapitalization under the former Socialist government. At that time banks boosted provisions against problem loans and property losses to about 30 percent. That will rise to 50 percent or higher with another 50 billion euros in coverage.
With the deeper reform the new government hopes to revive international interbank lending, mostly closed to Spain’s banks since the first Greek bailout in 2010, so that they can restart lending at home.
Bank lending continues to be stagnant as Spain heads into a second recession in four years and unemployment soars to 23 percent. The bank reform, as well as labour market reform and austerity measures are all part of Prime Minister Mariano Rajoy’s efforts to prove to investors that Spain is solvent.
But the banks’ potential losses are so deep — total exposure is some 176 billion euros or 18 percent of Spain’s economic output — markets may still be wary.
“We’ve got to be aware that investors could still ask for more provisioning after this. You can’t say categorically that doubling provisions means the uncertainty is over,” said a source in the financial sector.
BOOKING LOSSES
The new measures to be decreed by the cabinet on Friday will break down what losses banks must recognize on assets linked to real estate — foreclosed property, unrecoverable loans and substandard loans.
“What is key is what assets are priced and how they are priced,” said Carmen Munoz, senior director at Fitch Ratings.
The system will need an additional 64 billion euros if foreclosed property assets are marked down by 65 percent, bad loans with housebuilders at 80 percent and substandard loans at 50 percent, says Bank of America Merrill Lynch.
Total potential additional capital needed is equivalent to 79 percent of the system’s two-year pre-provision profit, the bank says. However, this rises to 248 percent if profits from Spain’s two biggest banks Santander and BBVA are removed.
INDISCRIMINATE LENDING
Spanish lenders lent indiscriminately to developers over a decade-long property bubble. When developers went bust, many creditor banks took on their land and unfinished housing blocks, booking them on their balance sheets at unrealistic prices.
Land classified for building has practically no resale value in Spain since there are between 700,000 and a million unsold homes and no appetite to build more.
The government hopes the most highly exposed banks get folded into stronger ones.
Particularly in focus is Bankia, the result of a merger between seven regional banks. Bankia has more customers than any other bank in Spain and is defined as a systemic bank that could drag down other lenders if it had trouble.
“The real problem they have is Bankia. The rest is minor,” said one Madrid-based banker.
Nomura estimates Bankia will need 5 billion euros in extra provisions — 12 times its estimated 2011 pre-tax profit. This compares with 4 billion for Santander at 0.3 times 2011 pre-tax profit and 3.3 billion euros for BBVA at 0.5 times profit.
Bankia, which has already received 4.5 billion euros in public money, has 41 billion euros in developer loans and 11 billion euros in foreclosed property on its books.
Finding a partner to take it on could be difficult, seeing as a stronger bank would only take it on if given generous guarantees by the government.
“At the end of the day, it will cost the government more to pay a private bank to take over Bankia than bail it out themselves, because buyers are only going to step in if it comes with a whopping big cheque from the state,” said one banking analyst.
WHERE WILL THE MONEY COME FROM?
Spain’s government, unwilling to swell state debt as the euro zone crisis has forced up borrowing costs, will probably have to raise some 10 billion to 12 billion euros to loan to the most troubled banks.
One source close to the deal said that since the loans will be at a market rate they will not count towards the public deficit, which Spain must reduce this year under European Union rules.
European help looks unlikely, as it will come attached with conditions and will be politically negative for the government.
“I don’t think appealing to the European rescue fund will be an option for bank restructuring in Spain,” said Santander Chief Executive Alfredo Saenz on Tuesday.
(Additional reporting by Andres Gonzalez, Carlos Ruano and Jesus Aguado; Editing by Mike Nesbit)

5 bad financial fumbles by NFL players

Hall of Fame quarterback John Elway often escaped trouble on the field. But in 2010, Elway and a business partner invested $15 million with a hedge-fund manager who was arrested on charges that he ran a Ponzi scheme, The Denver Post reported. Elway lost $3 million.
Athletes can fall victim to Ponzi schemes if they do a poor job vetting the people who are handling their investments, says Michael Chasnoff, chief executive of Truepoint Inc., a wealth management company in Cincinnati.
Athletes often think they can trust the person investing their money if he or she was recommended by someone the athlete respects.
Investors have to perform their own due diligence no matter how much they trust the person who recommends an investment adviser, Chasnoff says.
The National Association of Personal Financial Advisors offers a questionnaire to help investors interview potential advisers. Before signing on, an investor should also contact the adviser’s other clients as a reference.
Look for advisers who are known in the community and give back to the community through charities or nonprofit groups. “They are usually very professional, high-integrity people,” Chasnoff says.
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Hotel industry looks for deal pace to pick up

LOS ANGELES (Reuters) – Hotel companies and real estate firms are optimistic that deal transactions will pick up this year despite concerns about Europe‘s economy and challenges in obtaining debt financing.
While a business-led economic recovery has helped lift U.S. hotel occupancy rates, development is still a soft spot as tight credit conditions have limited new-hotel builds. Still, there is a growing sense that the hotel sector has momentum and performance will continue to improve.
“People are expecting 2012 to be a pretty positive year, with solid performance by the industry in terms of the demand for hotel accommodations and the ability to get deals done,” Arthur de Haast, chairman of Jones Lang LaSalle Hotels, said at this week’s Americas Lodging Investment Summit.
The hotel investment services firm has forecast that hotel deals in the Americas this year will at least match the 2011 level in value of an estimated $15 billion.
U.S. hotel deal activity picked up in the first half of 2011 but calmed in the latter part of the year as debt woes in Europe began dominating the headlines.
While Europe is still a risk, attendees at the three-day hotel conference said a continued recovery marked by rising room rates would make the sector attractive for investment.
“There’s a lot of money on the sidelines waiting to pounce and find opportunities,” said Christian Charre, president and chief executive of the Charre Group, a Florida-based hotel brokerage and consulting firm.
FOREIGN MONEY
Private equity funds that have capital will be in a good position to make acquisitions, some said. Real estate investment trusts were active buyers in the first half of 2011 but are expected to be quieter this year as their share prices suffered in the latter part of 2011.
“The mix of the investors probably will change,” said Sri Sambamurthy, co-founder of real estate firm West Point Partners in New York. He said Middle Eastern, European and Asian investors especially find the U.S. market to be extremely attractive now.
“The U.S. is still considered very safe, the dollar has performed extraordinarily well,” Sambamurthy added.
Hotel companies said they were looking to make acquisitions in a bid to expand their reach.
“No question that we’ll be active in the marketplace in 2012,” said Paul Whetsell, president and chief executive of Loews Hotels, which owns and/or operates 18 hotels. The unit of Loews Corp has committed more than $500 million to acquiring hotels or developing new properties.
Whetsell said Loews is looking for 4-star or higher-rated hotels in major cities where it does not have a presence such as Boston, Washington, San Francisco, Chicago and Los Angeles, as well as smaller markets like Charlotte, North Carolina, and Baltimore, Maryland.
Choice Hotels International , which franchises hotels focused mainly at the mid-tier and economy market segments under brands such as Comfort Inn and Econo Lodge, said it is in the hunt to acquire a value-oriented, full-service upscale brand that would help attract more business customers.
“We clearly would be a very aggressive purchaser of brands that come up,” Choice Chief Executive Steve Joyce said in an interview [ID:nL2E8CO1IS].
(Editing by Gary Hill)
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Private college students: Tackle the CSS Profile

Financial aid season is upon us, and in addition to filling out the Free Application for Federal Student Aid, or FAFSA, the form that qualifies students for federal grants, loans and work-study jobs, some students will also have to file the College Scholarship Service, or CSS, Profile. Used by more than 350 private institutions throughout the U.S., the CSS Profile is much more extensive than the FAFSA and can qualify students for enormous nonfederal financial aid packages funded by their college. Here’s what you need to know.

More questions, fewer sheltered accounts

The CSS Profile is a much lengthier application than the FAFSA. That’s because the application considers income streams and assets the FAFSA does not such as retirement accounts, life insurance plans, home equity on a family’s primary residence, and income and assets held by a noncustodial parent in cases of divorce.
“(The application) basically asks you about every little bitty detail about parents’ finances and assets,” says Dan Maga II, vice president of American College Funding, a college planning firm in Wilmette, Ill. “It can get down into what kind of car you drive, what kind of church you go to, just about everything under the sun they can ask.”
In addition to the basic CSS Profile, many colleges also add their own supplemental questions to get an even fuller view of your financial situation. The reason, explains Michael McLaughlin, director of financial aid operations at Middlebury College in Middlebury, Vt., is because at private institutions that require the CSS Profile, bigger aid is often at stake. Whereas the FAFSA can only qualify students for a maximum need-based grant package of $9,550 per year — and only the lowest-income students will qualify for a package that big — the average yearly grant package at Middlebury tops $32,000.
“We need to be more diligent on the information that we collect and get a more accurate picture for each student when giving out high amounts of institutional aid,” he says.
The Profile assesses the money you have, but it also takes the money you pay out into consideration by asking questions about your family’s medical expenses, debts, whether your family’s home is underwater, business expenses and other miscellaneous costs that aren’t included on the FAFSA.
The Profile may ask for more information, but that doesn’t necessarily mean all assets will subtract from a student’s financial aid package.
“As far as retirement assets go … we like to have that information available, but it’s not factored into (our) actual aid calculation,” says Kim Downs-Burns, associate vice president for student financial services at Middlebury.
Unlike the FAFSA, which determines how much government aid you’re eligible for regardless of where you attend school, colleges and universities individually decide how to interpret CSS Profile information and which assets and expenses to take into consideration.

Maximizing your aid

The Profile is more thorough than the FAFSA, but there are steps families can take to maximize their aid eligibility. Maga says the number one mistake families make is overestimating the value of their primary home.
“The lower they keep their value, within reason, they’re going to help keep their expected family contribution down and potentially garner more aid,” he explains.
Maga adds that as with the federal aid methodology, many schools also give greater weight to assets held in a student’s name than those held in a parent’s name, though it’s difficult to quantify by exactly how much because aid formulas vary from institution to institution. To up your federal aid eligibility as well as potential aid eligibility on the CSS Profile, Maga recommends that families shift assets from accounts held in a student’s name to those held in a parent’s name prior to filling out either form.
With so many questions, mistakes are easy to make, and deadlines are easy to miss, says Al Hoffman, director of the College Funding Service Center college consulting firm in Waterford, Conn. Whereas the FAFSA is free, goes to all schools and doesn’t become available until Jan. 1 of the year students will attend college, the CSS Profile is limited only to select private schools, costs $25 to submit for the first school applied to and $16 per school after that (fee waivers are available to certain students) and becomes available in fall of the year before the student will attend school.
The CSS Profile is frequently due significantly earlier than the FAFSA as well. Many schools require students applying for early decision or early action to file the application by Nov. 15 of the year before they attend. And regular admission students often must file by Feb.1 of the year they will attend. Financial aid deadlines for both the CSS Profile and the FAFSA vary from school to school and in both cases, families are urged to estimate their income tax figures and submit the forms as early as possible to take advantage of aid awards that are distributed on a first-come, first-serve basis.
“You really can’t wait,” says Hoffman.
More From Bankrate.com
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Anchorage condo king indicted on fraud, criminal charges

Four years after his financial world began collapsing, Anchorage condo king Lee Baker Jr. has been indicted by a federal grand jury on charges that he lied and cheated on federal credit union loans connected with his construction projects, the U.S. Attorney’s Office announced Friday.

The 14-count indictment accuses Baker, 55, of misleading Denali Alaskan Federal Credit Union in a number of transactions in 2005, including when he sought a loan to purchase and develop Lake View Estates in Wasilla.
Federal prosecutors allege that Baker created a series of land-sales transactions to obtain the loan under false pretenses, transferring Lake View Estates property from his company, Discovery Construction, to himself, then back to the company.
When he “sold” the land back to Discovery Construction, Baker told the credit union that a legitimate deal valued at $1.4 million had taken place, and sought the loan to finance it, prosecutors said. Instead, the indictment alleged, Baker used the money he obtained from the federally insured credit union to reduce his shareholder debt to Discovery Construction.
The indictment also accuses Baker of lying to the credit union when he drew down the proceeds of a $9.2 million construction loan for the Bryn Mawr apartment project on Northern Lights Boulevard in East Anchorage.
Normally, contractors tap into a construction loan as they complete phases of a project and the bills come due. Baker claimed to have completed 12 separate work phases, and each time obtained a chunk of the total loan.
In fact, the prosecutors alleged, “very little work had been done and the total amount completed in each request was false.”
Baker eventually defaulted on the loan, prosecutors said.
Baker also faces a count of money laundering for paying a subcontractor on a different project out of the Bryn Mawr money.
Baker faced a parade of lawsuits from subcontractors and suppliers in early 2008 as the local version of the national housing bubble began to burst and he stopped paying his bills.
Baker was known for building “site condos,” controversial developments where cheap houses were squeezed onto the smallest possible piece of land — in some cases, using access roads the size of alleys in which fire trucks were unable to maneuver.
In March 2008, the Denali credit union followed the contractors and other creditors, suing him and his company to recover $16 million in delinquent loans. The credit union said the delinquent loans were the main reason it lost $2.8 million in 2007.
In its lawsuit, the credit union accused Baker of fraud. Baker acknowledged that he defaulted on the loans, but denied fraud had anything to do with it.
Now it’s federal prosecutors accusing him of fraud and other criminal violations. The U.S. Attorney’s Office in Anchorage said the charges against Baker carry a maximum penalty of 30 years in prison and a $1 million fine, though judges rarely apply the maximum.
Baker couldn’t reached for comment.
In lawsuits and criminal cases filed across the country, the Justice Department has been targeting lenders, contractors, financial managers and others who contributed to the financial collapse associated with the burst U.S. housing bubble in the late 2000s.
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CashUSA.net Debuts New Look and Improved Functionality

Redesigned Consumer Site Connects Borrowers with Short-Term Loans
(PRWEB) January 18, 2012
CashUSA.net announces the re-launch of its flagship consumer-lending site, which features an easier online application and streamlined user-interface. For consumers who find themselves in a financial bind, the options today are more limited than ever before. Banks are tougher on loan applicants than they were just a few years ago; so, where can a cash-strapped consumer turn when the car’s clutch goes out or the roof starts to leak?
CashUSA.net provides working people with access to its extensive network of payday-loan providers, who offer short-term loans at higher interest rates in exchange for almost immediate approval and funding. The length of the loan usually only runs until the borrower’s next payday, at which point the loan and all interest and fees must be paid in full. Although not meant as a long-term financial strategy, payday loans are a useful short-term tool to alleviate a financial crisis.
“The new site makes it even easier for working people to get the money they need without having to jump through hoops,” said company spokesperson Todd McMillan. “Our site delivers a service that’s urgently needed in a time of shrinking household income — small loans with quick turnaround times, which fit the needs of today’s consumer.”
No credit check is required for payday loans made through the Cash Advance USA network of lenders. Requirements for a payday loan secured through CashUSA.net are kept to a minimum, making it possible for nearly anyone with a job to qualify:
Once a borrower fills out a loan application through the new CashUSA.net, it is distributed to all the payday loan providers in the network. Because the payday loan providers in the network know they are competing with each other, many offer lower interest rates and fees than commonly found at local retail payday loan centers.
After a borrower chooses a loan, provides an e-signature on the document and returns it to the lender, the loan funds are electronically transferred into the borrower’s checking account. The whole process, from application to transfer of money, usually takes about an hour. This is a speed banks just cannot match.
Payday loan providers in the Cash Advance USA network offer loans ranging from $100 to $1,500. The borrower’s income helps determine how much a payday loan provider will lend to that person. Most payday loan providers will not lend more than the borrower can reasonably pay back on his or her next payday.
The Truth in Lending Act requires that all lenders provide detailed information on the cost of a loan to a potential borrower. This detailed information is referred to as the loan’s terms and includes the loan amount, the interest rate of the loan, the loan fees, and the length of the loan.
###
James McCormick
CashUSA.net
818-779-5874
Email Information
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Bank doubles profit from home loans

Commonwealth Bank ATMs. Picture: Alan Pryke Source: The Sunday Telegraph

AUSTRALIA’S biggest bank has more than doubled the money it makes on home loans since the height of the global financial crisis.

And, while the Commonwealth Bank and its peers complain of having to pay depositors higher rates for the funds they lend out, Reserve Bank figures show the gap between deposit rates and the RBA cash rate is narrowing. In fact, the gap is at the narrowest point in more than four years – evidence that bank lending is not entirely as expensive as they make out.
Of particular note, figures from the recent Commonwealth Bank profit announcement show net home loan incomes jumped more than 130 per cent since the height of the global financial crisis, to more than $2.6 billion.
Despite the income growth, the nation’s top lenders have drawn widespread criticism for suggesting future Reserve Bank rate cuts may not be passed on in full due to “higher lending costs”.
Speaking to reporters after Westpac’s annual meeting last month, boss Gail Kelly warned global money markets, a key source of funding for Australian banks, had “effectively closed”.
“As a direct result of the turmoil going on around the world, funding has become a more difficult issue,” she said.
“And when they open up, our estimation is that the cost of raising money will actually be more than it was at any point during the global financial crisis.”
The World Bank yesterday slashed its global growth forecasts, warning the world is on the edge of a new financial crisis, more damaging than the one that followed the collapse of Lehman Brothers in 2008.
Meanwhile, some analysts have suggested the impact of rising wholesale funding costs have been overstated by the banks, particularly as the sector can tap other sources for cheaper funding.
Deutsche Bank analyst James Freeman said he believed none of the major banks had yet to experience pressures on pricing. “While offshore wholesale funding costs have risen materially over recent months, the impact on banks margins and hence profit will be contained,” he said.
Matt Levey, head of campaigns at consumer group Choice, is another cynic of banks “crying poor”.
“We’ve seen from bank profits that they’re obviously very profitable,” Mr Levey said yesterday.
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Ask the Elder Law Attorney: Disclosures and Loans

Craig Reaves, past president of the National Academy of Elder Law Attorneys, practices elder law in Kansas City, Mo., and fields occasional questions from New Old Age readers. Submit yours to newoldage@nytimes.com. Please limit your queries to general legal issues, as Mr. Reaves cannot respond with individualized legal advice. Questions have been edited and condensed.
After my mother died in 2006, my father’s doctor said he shouldn’t be left alone. Apparently Mom was covering for him. I’d visited seven weeks earlier and had not recognized how advanced his dementia had become.
Their will, stored in a safe, indicated that two of my sisters should manage things if both parents died. So the family — eight siblings in all — agreed that these two should have legal authority. They were added to financial accounts and given power of attorney. No one was in a position to care for my father, so he moved into a care facility, first in Florida, now in Michigan. He’s in relatively good health at age 80, cheerful on most days. He still knows me.
We siblings have had some squabbles regarding the sale of my parents’ house and other issues. Their estate was not large, probably under $350,000; given my father’s condition, it was always a concern whether he could pay for the care he needed.
I’ve requested, from both sisters who are managing things, some kind of statement as to exactly what Dad’s financial status is. These requests have fallen on deaf ears at times and been met with fury at other times. One sister, who’s slightly more forthcoming, recently told me that Dad has about 18 months of long-term care insurance coverage remaining. After that, he probably has enough money for another 18 months’ care.
Do I have any way to compel my sisters to share what I believe they already should have? Friends have warned that their secrecy in itself could mean unethical goings-on. I’m worried that in three years, they’ll ask me for a significant contribution — even greater than a one-eighth share, because some siblings can’t afford to help at all. That will present a wrenching quandary; I’ve accumulated much less myself than the $350,000 Dad started with. He may yet live a good long while, and I’d like to find a way to help my family avoid becoming more anxious about money as time goes on.
Gina
Phoenix, Ariz.
Unfortunately, this is not an unusual story. I strongly suggest that you contact an elder law attorney in the state where your father resides. Every state has its own statutes governing durable powers of attorney, and they can be very different. Whether an attorney-in-fact — meaning the person appointed by the power-of-attorney document to act on another’s behalf — has a duty to keep other heirs and siblings informed will depend on how the document is worded, the applicable state law and the facts of the situation.
Generally, though, the attorney-in-fact owes a fiduciary obligation to the principal (your father, in this case), not his heirs (the rest of the family). Unless the law or the document requires disclosure, an attorney-in-fact is usually not required to share any details with the heirs. She may even be prohibited from doing so.
There may be extenuating circumstances in this case, though, since all the children at one point apparently agreed to contribute time and effort to help their father. Moreover, I’m unsure what you mean when you say that your sisters were added to your father’s financial accounts. It may make a difference whether their names were only added as agents for your father or as joint owners of the accounts.
If directly approaching the attorneys-in-fact brings no satisfaction, and especially if you’re concerned that your sisters may be taking advantage of your father, you can petition the probate court in his county to appoint a guardian or conservator for him.
That will not only provide court oversight but will give you and your siblings access to your father’s financial information. And it will provide a forum in which you can air grievances about your father’s situation. The court will make sure that your father won’t be taken advantage of.
This can be an expensive solution, though, and it is probably a last resort. Perhaps the mere threat of going to court will convince your sisters to be more forthcoming about what they’re doing.
By the way, if your father runs out of money for his long-term care, he should qualify for Medicaid assistance. It generally won’t become his children’s responsibility to pay for his care themselves.
My ex-husband died five months after we divorced. My minor children are his sole heirs. All the accounts and assets were probated, and I was made legal representative. Now my ex-father-in-law is suing the estate for $2,800 in “loans” he made to his son when my ex’s business was slow in 2010.
What proof does he need to provide that this was not just a gift? He may just be trying to hurt me. I’m not sure he realizes, at age 85, that this money would be coming from his grandchildren, not from me.
Dawn
Davie, Fla.
The answer to this question will vary by state, so I suggest that you contact the lawyer who represented you in the probate or an elder law attorney in your community. But generally speaking, if the probate has closed and the decedent’s father knew of the probate, he should be barred from suing to collect on an alleged loan.
If the probate is still underway, the father can file a claim with the court. If the personal representative — that’s you — disputes this supposed loan, the court will schedule a hearing and your former father-in-law will have the burden of proving that this sum was a loan. Normally, that would require a promissory note signed by his son. If he can’t prove that this was a loan, then he can’t collect.

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Craig Reaves, past president of the National Academy of Elder Law Attorneys, practices law in Kansas City, Mo., and fields occasional questions from New Old Age readers. Submit yours to newoldage@nytimes.com. Please limit your queries to general legal issues, as Mr. Reaves cannot respond with personalized legal advice.
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The New Old Age Blog: Ask the Elder Law Attorney: Disclosures and Loans

Craig Reaves, past president of the National Academy of Elder Law Attorneys, practices elder law in Kansas City, Mo., and fields occasional questions from New Old Age readers. Submit yours to newoldage@nytimes.com. Please limit your queries to general legal issues, as Mr. Reaves cannot respond with individualized legal advice. Questions have been edited and condensed.
After my mother died in 2006, my father’s doctor said he shouldn’t be left alone. Apparently Mom had been covering for him. I’d visited seven weeks earlier and had not recognized how advanced his dementia had become.
Their will, stored in a safe, indicated that two of my sisters should manage things if both parents died. So the family — eight siblings in all — agreed that these two should have legal authority. They were added to financial accounts and given power of attorney. No one was in a position to care for my father, so he moved into a care facility, first in Florida, now in Michigan. He’s in relatively good health at age 80, cheerful on most days. He still knows me.
We siblings have had some squabbles regarding the sale of my parents’ house and other issues. Their estate was not large, probably under $350,000; given my father’s condition, it was always a concern whether he could pay for the care he needed.
I’ve requested, from both sisters who are managing things, some kind of statement as to exactly what Dad’s financial status is. These requests have fallen on deaf ears at times and been met with fury at other times. One sister, who’s slightly more forthcoming, recently told me that Dad has about 18 months of long-term care insurance coverage remaining. After that, he has enough money for probably another 18 months’ care.
Do I have any way to compel my sisters to share what I believe they already should have? Friends have warned that their secrecy in itself could mean unethical goings-on. I’m worried that in three years, they’ll ask me for a significant contribution — even greater than a one-eighth share, because some siblings can’t afford to help at all. That would present a wrenching quandary; I’ve accumulated much less myself than the $350,000 Dad started with. He may yet live a good long while, and I’d like to find a way to help my family avoid becoming more anxious about money as time goes on.
Gina
Phoenix
Unfortunately, this is not an unusual story. I strongly suggest that you contact an elder law attorney in the state where your father resides. Every state has its own statutes governing durable powers of attorney, and they can be very different. Whether an attorney-in-fact — meaning the person appointed by the power-of-attorney document to act on another’s behalf — has a duty to keep other heirs and siblings informed will depend on how the document is worded, the applicable state law and the facts of the situation.
Generally, though, the attorney-in-fact owes a fiduciary obligation to the principal (your father, in this case), not his heirs (the rest of the family). Unless the law or the document requires disclosure, an attorney-in-fact is usually not required to share any details with the heirs. She may even be prohibited from doing so.
There may be extenuating circumstances in this case, though, since all the children at one point apparently agreed to contribute time and effort to help their father. Moreover, I’m unsure what you mean when you say that your sisters were added to your father’s financial accounts. It may make a difference whether their names were only added as agents for your father or as joint owners of the accounts.
If directly approaching the attorneys-in-fact brings no satisfaction, and especially if you’re concerned that your sisters may be taking advantage of your father, you can petition the probate court in his county to appoint a guardian or conservator for him.
That not only will provide court oversight but will give you and your siblings access to your father’s financial information. And it will provide a forum in which you can air grievances about your father’s situation. The court will make sure that your father won’t be taken advantage of.
This can be an expensive solution, though, and it is probably a last resort. Perhaps the mere threat of going to court will convince your sisters to be more forthcoming about what they’re doing.
By the way, if your father runs out of money for his long-term care, he should qualify for Medicaid assistance. It generally won’t become his children’s responsibility to pay for his care themselves.
My ex-husband died five months after we divorced. My minor children are his sole heirs. All the accounts and assets were probated, and I was made legal representative. Now my ex-father-in-law is suing the estate for $2,800 in “loans” he made to his son when my ex’s business was slow in 2010.
What proof does he need to provide to demonstrate that this was not just a gift? He may just be trying to hurt me. I’m not sure he realizes, at age 85, that this money would be coming from his grandchildren, not from me.
Dawn
Davie, Fla.
The answer to this question will vary by state, so I suggest that you contact the lawyer who represented you in the probate or an elder law attorney in your community. But generally speaking, if the probate has closed and the decedent’s father knew of the probate, he should be barred from suing to collect on an alleged loan.
If the probate is still under way, the father can file a claim with the court. If the personal representative — that’s you — disputes this supposed loan, the court will schedule a hearing and your former father-in-law will have the burden of proving that this sum was a loan. Normally, that would require a promissory note signed by his son. If he can’t prove that this was a loan, then he can’t collect.
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Movement under way to ease investment by Web

OAKLAND, Calif. – Ian Schuster and his business partners have raised almost a quarter of a million dollars to launch their craft beer brewery company, but if they had more money, they could grow the business much faster.
Bryan Brumfield has poured most of his life savings into the artisanal wine business he plans to launch after he retires as an Oakland firefighter in March, and needs additional capital to bring in outside expertise.
Each would love to tap the power of social media to find additional investors online who would each put up small amounts of money in exchange for equity stakes in their companies, a concept called “crowdfunding.”
But they can’t do so under current law. Companies can sell shares to what the SEC calls “accredited investors” – seasoned, high-net-worth people who understand the risks. But financial stakes for small-time investors are limited to 35 people (fewer in some states), just enough to enable some friends-and-family funding, but not enough to harness the Internet’s reach to attract a larger number of equity investors.
Popular websites like Kickstarter and IndieGoGo show the power of crowdfunding, by letting people request funds online from strangers to back specific projects – a theater performance, for instance. But the people who pledge money can only receive perks like T-shirts, not equity shares, in exchange.
Then there are lending websites like Prosper.com that allow for person-to-person loans. People ask to borrow money for anything from plastic surgery to starting a company and offer a fixed interest rate in return. But again, equity stakes are not allowed.
Now, legislation pending in Congress that enjoys strong bipartisan support and Obama administration backing may make crowdfunding possible for entrepreneurs.
Crowdfunding “has the potential to be a powerful new venture capital model for the Facebook and Twitter age, and its potential to create jobs is enormous,” said Sen. Scott Brown, R-Mass., in congressional testimony last month.
“But crowdfunding is currently illegal because of obsolete regulations, some dating back to the 1930s.”
Brown is sponsoring the Democratization of Capital Bill, which would let small companies sell up to $1 million in equity online in chunks of $1,000 or less. It is under review by the Committee on Banking, Housing and Urban Affairs.
A similar bill, the Entrepreneur Access to Capital Act, passed the House in November by a wide margin. It would allow up to $2 million in crowdfunded investments in $10,000 increments.
But some worry that crowdfunding would entice online hucksters to set up shop.
“A lot of people believe everything they see on the Internet, so we are concerned about fraud,” said Jack Herstein, president of the North American Securities Administrators Association. “Scam artists follow the hottest trends. They could make up fraudulent websites. … Once you push the button and send your credit card number, your money is gone.”
Still, he said, he is not opposed to crowdfunding. He just wants built-in safeguards.
“Everybody should be behind anything that helps the economy,” he said.
At a time when banks can be reluctant to make loans, letting small enterprises solicit funds online so they can start up and grow makes sense, crowdfunding supporters say.
“Crowd sourcing for us would be a dream come true,” Schuster said. His Schubros Brewery, based in San Ramon, will start beer production in March after getting its government license. The five partners have done well raising money from themselves, friends and family and a couple of accredited investors.
“We have enough to get started,” he said. “But if we could get more money, we would be more stable from Day 1. We could hire full-time salespeople and grow faster than planned.”
Brumfield, the Oakland firefighter, said crowdfunding would make a huge difference to him. “Unless things change in the banking world, crowdfunding would be the best opportunity besides friends and family for the additional capital I need to launch,” he said.
csaid@sfchronicle.com
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Q&A: Private-equity returns and the Carlyle Group

What did you think of the compensation and share of the profits paid to the three founders of the Carlyle Group, and did they deserve it?
Obviously, $400 million — the amount the founders earned — is a large amount of money.
But they earned it because compensation is heavily tied to performance in private equity.
Carlyle returned at least $15 billion to its investors this year. The $15 billion represents the [very successful] performance of Carlyle’s investments in companies over the last five to 10 years.
And $400 million is less than 3 percent of the $15 billion. In years that Carlyle does not return money to its investors, like 2009, the founders earn far, far less.
My guess is that the investors in the Carlyle funds are extremely happy with the returns they have received this year even after paying the fees.
Discuss the private business model by which people can earn that kind of money.
The big investors in private equity are pension funds and endowments. In Carlyle’s case, those investors include the Maryland State Retirement and Pension System, the New York State Teachers’ Retirement System and Calpers [the California Public Employees’ Retirement System]. When private-equity fund returns are strong, a lot of pensioners and workers benefit.
Private-equity funds take this capital and use it to buy companies. When the private-equity funds buy the companies, they often use leverage, hence the common name of leveraged buyouts. These days, the leverage is usually on the order of 60 or 70 percent of the purchase price — less than the leverage in most home purchases.
The private-equity funds then work very hard to increase the value of the company. Usually, this involves looking for ways to increase the growth of the business as well as cutting costs. If the values of the companies increase, the private-equity fund and its investors will make money (when the companies are sold). If the values decrease, the private-equity fund and its investors lose money.
Private-equity funds receive an annual management fee on the money invested. For large funds, this is usually 1.5 percent per year. In addition, private-equity funds typically receive 20 percent of the profit of their investments. The founders earned so much this year because they had an unusually profitable year. (It is worth adding that funds get this share of the profits only if their investors earn at least an 8 percent annual return.)
Overall, the performance of private-equity funds has been very strong over the past 20 years. On average, each dollar invested in one has returned 27 percent more than that same dollar would have earned in the S&P 500 or other public-equity fund.
Please explain carried interest and why it is taxed at a lower rate than income tax.
The carried interest is the 20 percent share of investment profits I mentioned above. It is taxed at capital gains rates rather than ordinary income tax rates. That has been the case for a very long time.
There is a lot of debate about whether this is appropriate. Some argue that carried interest is compensation and should be taxed as ordinary income.
The counterargument is that the carried interest represents an investment return and should be taxed like other equity investments. If the carried interest were taxed as ordinary income, I think it also is likely that private-equity firms would be able to avoid much of the tax increase by restructuring the carried interest into equity investments.
Who invests in private equity and how does it work?
As mentioned above, the big investors in private equity are pension funds and endowments.
Do private-equity firms create jobs, destroy jobs or neither?
The best empirical evidence says the answer is that private equity both creates and eliminates jobs. After a buyout, employment in existing operations tends to decline relative to other companies in the same industry by about 3 percent. (This may mean employment actually grows, but just by less than at other companies). At the same time, employment in new operations tends to increase by more than other companies in the same industry by more than 2 percent. Net job losses were relatively greater in retail buyouts. This is not surprising, given that Wal-mart and Amazon have put a great deal of pressure on retailers over the past 20 years. If retail buyouts are not included, it is likely that net employment growth was positive. In other words, there does not seem to be a large net employment effect. That is not to say, however, that some people do not lose jobs. The overall pattern suggests that private-equity firms make firms more productive. They make cuts or grow more slowly when that makes sense, and they invest and grow more quickly when that makes sense.