Europe’s biggest insurer Allianz (ALVG.DE: Quote, Profile, Research) unveiled fresh writedowns at its Dresdner Bank unit of 900 million euros ($1.4 billion) from the global markets crisis and said the turmoil could hurt future profits.
The latest writedowns — more than double what they were when Allianz finance chief Helmut Perlet updated investors at the beginning of the year — take the insurer’s total bill from the financial turmoil to about 2.5 billion euros.
Allianz also warned that its profit targets, while still attainable, would become harder to reach the longer the turmoil lasted. The remarks came as Deutsche Bank (DBKGn.DE: Quote, Profile, Research) retreated from its 2008 goal and announced its first quarterly loss in five years.
Allianz had been aiming to fatten operating profit — it made almost 11 billion euros last year — by an average 10 percent each year between 2007 and 2009 quick payday loans. This would take it over 13 billion euros at the end of next year.
The Munich-based group said its operating profit reached 1.8 billion euros in the first three months of the year.
Chief executive Michael Diekmann has been credited with turning around the group since taking charge after what his predecessor Henning Schulte-Noelle described as the “terrible year” of 2002 that forced his own departure.
Diekmann has since boosted the profitability of its insurance work and cut costs to pull Dresdner out of the red.
Angry about the price of gas? Just imagine paying for gas you don’t get.
Some alert consumers have noticed it over the years: A pump that seems to hesitate a second when the lever is squeezed. Anywhere from 2 to 6 cents tick off before the rush of gasoline starts. That’s what happens with a common, hard to diagnose and mostly ignored problem with the "check valve," which is supposed to make sure gas flows at the same time the price meter starts.
But even if your gas pump works, it can still be off as much as $5 for every fill up. Tests by local regulators allow a pump to charge as much as 6 cents more than the gas delivered in a five-gallon test.
Don’t blame the gas guys. Even consumer advocates say retailers may be losing as often as consumers and no one appears able to rig the meters. But the small "check valve" at the end of the multibillion dollar industry just wears out, and often goes unnoticed for months.
Regulators’ records show short staffing, particularly for financially struggling counties that try to inspect pumps every six months, but too often don’t even meet the one-year requirement in states like New York.
Federal standards require all gas pumps to start pumping gas as soon as the price meter starts, said Ken Butcher of the National Institute of Standards of Technology, part of the U.S. Commerce Department.
Bob Wolfram knew something was wrong when the pump he used in Davenport, Iowa, showed he put two more gallons of gas into his tank than the tank holds.
"I was low, but it wasn’t negative," said Wolfram, a 54-year-old engineer.
He reported it to a consumer Web site then took it to the government regulators, who acted promptly. But even then, the test showed the pump was only off a quart.
"I just kind of said, `What will they do next?"’ Wolfram said.
Correcting the problem depends on alert, well-informed consumers like Wolfram. It also depends on honest retailers who choose to pass along reports to regulators who must confirm the problem before an authorized repair company is called to fix it.
"There’s one Mobil owner, he tells clerks that if there’s a discrepancy within $5 to reimburse the customer," said C. Todd Godlewski, director of the Schenectady County Bureau of Weights and Measures in upstate New York, the agency that inspects pumps.
"Yes, it can be that much," he said.
A bad valve can also work against retailers, freezing the price gauge for an instant after gas starts. No one’s sure who gets gored more, or how deeply.
"Even one penny on the amount of petroleum pumped annually or weekly at a station would be several thousand gallons of fuel, and add that up," Godlewski said. "If you have a meter that is costing a customer, it adds up quite a bit."
The problem compounds the aggravation of record high gas prices. On Tuesday, the national average hit a record $3.51 per gallon, according to a survey of stations by AAA and the Oil Price Information Service free instant credit score estimator. That’s nearly 66 cents higher than last year, and rising.
"We’ll hear complaints about this quite regularly, usually several each week," said Jason Toews, co-founder of the independent nationwide Web site GasBuddy.com that tracks prices and complaints.
"It’s mostly about the principle of it," he said. He said the problem usually only costs a consumer pennies per fill-up, but that’s more than enough these days.
Toews discounts the conspiracy theories that blame the problem on retailers or the oil industry. Most retailers, he said, wouldn’t know how to alter the pumps to their benefit.
A New York Comptroller’s Office audit in 2000 found "many municipalities" statewide failed to inspect their pumps once a year as required (the best practice is two inspections every year) and that meters were corrected during testing, which could mask overcharging. Four years later, a follow-up audit found only partial resolution, partly because of too little staffing.
Bob Renkes of the Petroleum Equipment Institute based in Tulsa, Okla., has heard about complaints, "mostly when gas prices are high." He said meters "get looser over time," which could make them malfunction and start to count pennies before fuel starts pumping.
"I think our industry would love to replace anything that wears down," Renkes said. But the check valves aren’t a high priority when the industry is dealing with issues such as preventing identity theft when swipe cards are used, static electricity discharges and the 5% of retailers whose old mechanical equipment can’t register a price of $4 a gallon.
State and local regulators doubt any but the most ambitious consumers would contact them in case of a problem, even though the phone numbers are on inspection stickers. More likely, consumers fume and wonder if they were cheated, or report it to the manager of the gas station or convenience store.
"That’s what’s tough about this," said Jessica Chittenden, spokeswoman for New York’s weights and measures office that oversees local inspectors. "The two cents or whatever would go to the retailer."
Even when a report is made, and a local inspector is dispatched, the problem might not be fixed.
Chittenden said a faulty valve would likely work sporadically: "It’s very difficult to find it unless you are there every day several times a day."
Godlewski, the upstate New York inspector, said he’s found pumps off by as much as three times the 6-cent threshold. Because of it, his county this year is tracking pump problems and hopes to quantify it for the first time.
"You ask yourself," he said, "`If nobody said anything … and it’s run like that for six months, how many were taken?"’
Google Inc believes regulators would not bar a potential business deal with Yahoo Inc because it would be “non-exclusive” and falls short of an outright merger, a person familiar with Google’s thinking said on Friday.
Yahoo is exploring alternatives to Microsoft Corp’s $42.7 billion takeover offer, which the Web pioneer has rejected for being too low.
The U.S. Justice Department is questioning the companies about potential competitive issues raised by a partnership, sources said this week, as Yahoo completed a two-week test of Google’s system for selling ads alongside Yahoo’s own Web search results.
Google believes such a partnership would not be anti-competitive because it would be an arrangement in which Yahoo would use Google’s more profitable search advertising platform to make more money for itself, said the source, speaking on condition of anonymity absolutely free credit report.
A deal would be no different from partnerships Google has with other Web companies including Time Warner Inc’s AOL and IAC/InterActiveCorp, the source said.
By contrast, Google thinks a takeover by Microsoft of Yahoo would raise far more antitrust concerns because the combined company could corner large chunks of multiple markets, from Web mail to instant messaging, the person said.
Google and Yahoo have said they cooperated with the Justice Department and told the agency about the test.
When Yahoo said two weeks ago that it had begun testing Google’s AdSense system, it drew outcry from critics who see Google’s domination of the market as a barrier to a deal.
Sales of existing homes fell in March, after registering a modest increase the month before, according to a report by an industry group released Tuesday.
The National Association of Realtors (NAR) reported that sales by homeowners fell 2% in March to an annual pace of 4.93 million, down from the February reading of 5.03 million. The number was down 19.3% from 6.11 million a year earlier.
Economists were expecting the measure to fall to an annual pace of 4.92 million.
"Though mortgage rates are at historically low levels, some borrowers are facing restrictive lending practices in declining markets," said Lawrence Yun, NAR chief economist.
With a large number of homes to choose from, many buyers are biding their time, he added pay day loans.
The median price of a home sold during the month fell 7.7% to $200,700 from $217,400 a year earlier. In February, the median home price fell 8.2%, which was the largest year-over-year price drop on record.
Overall, the median home price has now tumbled 12.8% since the record high reached in July 2006.
Home prices in the West fell 14.7% to $285,100, which helped spur a 2.2% increase in home sales in that region.
Sales also increased 2.2% in the Northeast, where home prices rose 4.6%.
Private equity is getting a nice chunk of National City for a song. But if house prices keep falling and foreclosures continue to rise, even Monday’s steeply discounted price tag may soon look dear.
Shares of the Cleveland-based bank tumbled 26% in trading Monday after National City (NCC, Fortune 500) lined up a $7 billion capital infusion from investors led by Corsair Capital, a New York-based private equity firm. The deal, along with National City’s decision to slash its dividend for the second time this year, will bolster the bank’s cushion against losses on its mortgage portfolio.
The agreement makes National City the third big U.S. bank this month to come hat in hand to the market, after similar deals at big mortgage lenders Washington Mutual (WM, Fortune 500) and Wachovia (WB, Fortune 500).
"We are pleased with the confidence that our investors have expressed in the value underlying National City’s franchise and the fundamental strengths of our business model that will help drive a return to profitability," CEO Peter Raskind said.
The deal’s terms will help to protect the buyers - which include some of the bank’s biggest institutional shareholders - against a further decline in National City’s fortunes. The bank agreed to sell the investing group 126 million common shares at $5 apiece and $6.4 billion worth of preferred shares that effectively will convert to common stock at the same price. That 40% discount to Friday’s closing price is steep even compared with the ones that prevailed at Washington Mutual (33%) and Wachovia (14%).
Yet some observers are wondering how smart National City’s new private equity investors will feel looking back at this deal in a year or so. "There is much uncertainty about the depth, breadth and timing of the credit downturn," former Wall Street executive Roger Ehrenberg writes at his Information Arbitrage blog. "With all of these unknowns, clearly the investors in these deals are looking at the price they’re paying and saying ‘This is my margin of safety; I’m buying cheap.’ But does anyone really have enough information yet to make such an assessment?"
Like TPG, the private equity firm that led the $7 billion infusion at WaMu earlier this month, Corsair has deep roots in the banking industry. The firm was was part of JPMorgan Chase (JPM, Fortune 500) before it was spun out of the giant bank back in 2005. The firm, which has focused since its 1993 startup on financial services investments, is already emphasizing that it’s not expecting a quick turnaround at National City.
"Our decision to make a long-term investment in National City reflects our recognition of the company’s important role as a leading provider of core banking services to its many customers," said Corsair Vice Chairman Richard E. Thornburgh, who is joining the National City board, "and our confidence in the potential of National City to achieve enhanced value for its customers, stockholders and employees in the future."
Even so, there are reasons to wonder how even a recapitalized National City will fare in the coming year. For one thing, in-state rivals such as KeyCorp (KEY, Fortune 500) and Fifth Third (FITB, Fortune 500) - which could have benefited from the overlap between their own retail banking operations and National City’s - reportedly passed on the deal after taking a look at National City’s books payday advance lenders.
More tellingly, while house prices peaked in most of the U.S. in the summer of 2006, some industry players believe the banking sector is only beginning to feel the full brunt of falling prices and other sour trends. Rival Bank of America (BAC, Fortune 500), for instance, on Monday posted a 77% drop in first-quarter earnings, as its provision for credit losses soared to $6 billion from $1.2 billion a year ago. "We remain concerned about the health of the consumer," CEO Ken Lewis said, "given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices."
Lewis isn’t the only one making that point. Merrill Lynch (MER, Fortune 500) CEO John Thain made similar comments on Friday, as he addressed the firm’s brokers. "So far the slowdown has been finance-driven," Thain said, the New York Times’ DealBook reported. "What we haven’t seen yet is the impact on the consumer of falling house prices, rising energy prices, higher food prices and higher unemployment."
National City may have an early view on those trends, given that it’s based in economically-stricken northeast Ohio. At the end of the latest quarter, the bank’s allowance for loan losses - reflecting expected losses on residential real estate loans - was $2.6 billion, or 2.23% of the portfolio. That’s double the year-ago level of 1.11%. National City said on its conference call Monday that it expects $3 billion in losses on its home-equity and nonprime losses in the next year and a half.
National City’s problems go well beyond the economic pain being felt in its Midwest base, however. Just a year ago, National City was putting new signs on scores of recently acquired bank branches in Florida. The bank’s $2.1 billion Sunshine State acquisition spree could hardly have come at a worse time: Florida ranked third nationally in foreclosure filings last month, according to RealtyTrac.
To be sure, the trends won’t keep running against banks like National City forever. Rising foreclosures have stoked a debate in Congress over measures that might ease the pain of the housing bust on cash-strapped homeowners. Rep. Barney Frank has proposed a $300 billion Federal Housing Administration mortgage-guaranty program that could help hundreds of thousands of homeowners refinance high-cost loans. Whatever shape an eventual federal action takes, it might be expected to slow the decline in house prices and therefore reduce the defaults and delinquencies that leave big lenders nursing hefty loan losses.
But for now, legislators don’t appear eager to undertake a costly homeowner-relief effort - which means that banks such as National City can expect to see house prices continuing to fall and mortgage defaults rising. In all likelihood, says David Merkel, chief economist at broker-dealer Finacorp Securities, "We’re still going to be facing this problem at this time next year."
Charter Communications Inc. is in danger of losing its listing on the Nasdaq national market because its stock has closed below $1 per share for 30 consecutive business days.
The Town and Country cable provider on Friday said it received a warning on Monday from Nasdaq and has until Oct. 13 to get its stock at or above $1 for 10 consecutive business days. If Charter doesn’t make that deadline, it can apply for an extension to regain compliance bad credit payday advance.
Charter almost lost its listing in 2003, but its shares rebounded in time.
The company’s stock closed Friday up at 93 cents a share.
An analyst warned investors Thursday to "be cautious" of JPMorgan Chase & Co. in the current economic slump, though he noted the national bank has done the country a "major service" by buying Bear Stearns Cos.
Punk, Ziegel & Co. analyst Richard Bove said a post-earnings rally of JPMorgan Chase shares - in which the stock shot up nearly 7% despite a 50% drop in first-quarter profit - makes little sense.
Even though the results beat Wall Street’s expectations, the numbers miss that mark if one-time benefits are excluded, he said.
Investors may be happy JPMorgan did not post a large write-down, he said, or be reacting to the Bear Stearns buyout - which some feel may boost earnings by $1 billion.
The Bear Stearns deal, though, likely will detract from profit for "some time" and the investment bank "has very little to add" to JPMorgan (JPM, Fortune 500), which does not need another New York City building, he said.
Beyond any sense of hope that may have sent shares up, operating numbers from the investment unit, the retail financial services unit and the card services unit were discouraging, he said.
"My analysis at the moment is that this company is having a great deal of difficulty dealing with the current economic downturn faxless payday loans. Be cautious," Bove said in a note to clients.
Bove kept a "Market Perform" rating and $44 price target, implying he expects shares to dip about 2% from Wednesday’s $44.96 close.
Despite the wary tone, Bove said he is a "fan" of JPMorgan Chief Executive and Chairman Jamie Dimon.
"I believe that he has done his country a major service by buying Bear Stearns," Bove said. "Moreover, I believe that JPMorgan is a great company with a very attractive long term future."
The Bear Stearns (BSC, Fortune 500) buyout was seen by many as a positive to prevent further hemorrhaging in the credit markets.
Wachovia Chairman and CEO Ken Thompson defended plans to raise $7 billion in capital through a stock offering announced Monday, citing fears of a protracted downturn in the housing market and rejecting suggestions that the sale was done at the behest of regulators.
During a conference call, Thompson told analysts that the stock sale, which would include an equal mix of both common and preferred shares, was done to gird the company’s balance sheet against future mortgage-related losses.
"This was not simply to fill a hole in our balance sheet," said Thompson. "[It was done to] increase sharply capital ratios to deal with any conceivable circumstances that might develop in the future."
Wachovia (WB, Fortune 500) witnessed the impact of a worsening housing market first hand in recent months.The company reported a surprising first-quarter loss of $350 million Monday, hurt, in part, by its ill-timed 2006 acquisition of California mortgage lender Golden West Financial Corp.
The Charlotte-based bank, which is the first of a group of banks expected to report dreary results, also said Monday it would cut its quarterly dividend by 41% to 37.5 cents, a move it hopes would save the company $2.1 billion annually.
Thompson, however, rejected the notion that the dividend cut and the planned stock sale was done under pressure from federal regulators, who have been keeping a close eye on the capital levels of banks and other large financial services firms in the wake of last month’s near collapse of Bear Stearns (BSC, Fortune 500).
"This was a decision we made that the right thing to do at this point was to take on a lot of capital and get prepared," Thompson said during a question and answer session on the conference call.
What Thompson and his fellow Wachovia executives seem to be preparing for is further weakness in the U.S advance america cash advance. economy and rising loan losses, driven in large part by its mortgage portfolio.
Don Truslow, Wachovia’s chief risk officer, said the company expected home prices to continue to fall through 2008 before finally hitting bottom sometime in the middle of 2009.
As a result of Monday’s announcements, Thompson said the company’s Tier 1 capital ratio, a gauge of the bank’s ability to absorb huge losses, would hover around 8.75% by the end of 2009. Federal regulators require a bank to have a Tier 1 ratio of 4%. A bank with a ratio of 6% or more is considered to be well-capitalized.
But the Wachovia chief also apologized to current shareholders, who will bear the brunt of the capital-raising efforts. Besides seeing their dividend payments slashed, Wachovia shares fell 10% in Monday morning trade, following the news.
"I know these actions are not without costs," said Thompson. "I wish they were not necessary, but they are."
The Bank of England lowered its key interest rate Thursday a quarter point to 5% — its lowest in 17 months — while the European Central Bank left its benchmark rate unchanged.
Both central banks acted as analysts predicted in response to their own, somewhat different challenges: record inflation for the ECB, growth worries for the Bank of England.
The ECB’s decision was made after inflation among the 15 countries that use the euro rose to 3.5%, well above the roughly 2% level of comfort the ECB aspires to.
The Bank of England cut its rates by a quarter percentage point in the face of pressures both from rising inflation and fears about growth, fueled by sagging house prices and falling consumer confidence.
The bank’s key rate hit its recent peak of 5.75% in July and stayed there until December. The last time the rate was as low as 5% was November 2006.
Several analysts were disappointed the bank didn’t cut more.
"The growing downside risks to growth stemming from markedly tighter credit conditions and elevated market interest rates meant that there was a compelling case for the Bank of England to cut interest rates further," said Howard Archer, chief European economist at Global Insight.
The ECB has a mandate to keep inflation in check. In the Frankfurt-based bank’s view, concerns about the credit squeeze are no match for inflation running at 3.5% and recent wage deals in Germany — the largest economy in the 15-nation euro area — that could send it even higher.
The ECB’s rate has been unchanged since last June fast cash advance loan. Back then, the ECB — which sets monetary policy for the bloc of 317 million people that accounts for some 15% of the world’s global domestic product — appeared likely to keep raising rates amid steady growth.
ECB President Jean-Claude Trichet underscored his bank’s tough stance on interest rates last week, saying that "price stability is something which is essential for the poorest and the most vulnerable of our citizens."
Since the wave of subprime defaults began and led to a credit crisis in August, central banks in the U.S., Britain and elsewhere have been steadily cutting rates in an effort to encourage banks to lend and promote more economic activity.
Central banks usually raise rates to increase the cost of borrowing and cool inflation in an overheating economy — something that is difficult to do now as banks tighten loan conditions, making it harder for businesses to get credit and home buyers to secure mortgages.
Amid concern over the fallout from a weakening U.S. economy and the euro’s strength against the dollar, economists will be looking to Trichet’s post-decision news conference for hints as to how long the ECB will maintain its no-cut stance.
The euro reached a new all-time high of $1.5912 shortly before Thursday’s ECB decision, breaking through its previous record of $1.5904, set March 17.
You may have read something like this before, but the numbers are worth repeating.
Rose, starting at age 20, socks away $2,000 a year in her Roth IRA, putting the money in a diversified stock fund. She stops contributing at age 30 and never adds another cent. Her friend, Carlos, waits until he is 30 to start, then puts in $2,000 a year in the same fund until he is 65.
Carlos contributed $70,000 compared to Rose’s $20,000. But assuming an average annual compounded return of 8 percent, realistic if not conservative for a long-term stock fund investment, Rose would have accumulated $462,647 by age 65, compared to $372,204 for Carlos. The reason: With more time to let her money grow, Rose benefited from the power of compound interest.
A knowledge of compound interest is the most powerful motivator to get more Americans to save, according to a recent survey by the Consumer Federation of America. But based on years of federation research, "most people underestimate the power of compound interest by two-thirds," said Stephen Brobeck, the group’s executive director.
The basic concept of compound interest is that the interest you make on your savings earns additional interest — and that interest in turn makes more interest, and so on.
For example, if you deposit $100 in an account that pays 5 percent interest, you’ll earn $5 and have $105 after one year. The second year, you will earn 5 percent interest not just on the original $100 but also on the $5 interest from the first year. That makes for a total of $5.25 in interest, bringing your account to $110.25 after two years.
The term compound interest is also used broadly to refer to the compounding of any type of investment earnings, such as capital gains no fax payday loans. If you invest $100 in a stock fund that returns 5 percent each year, you also will have $110.25 after two years.
That doesn’t seem like much. But even at a modest 5 percent, your money will double in a little more than 14 years.
For typical rates of return, you can use the "Rule of 72" to estimate how long it would take your money to double. Just divide 72 by the rate of return. If you earn 8 percent a year compounded, for example, it would take about nine years.
The way the math of compounding works, the growth in the account value is relatively modest at first. Perhaps that’s why so many people underestimate its eventual impact. Most of the growth of a long-term investment occurs in the later years. Therefore, you must be patient. Rose, the early saver who accumulated $462,647 by age 65, would have had $99,260 at age 45 and $214,295 at age 55.
Just a small increase in return can make a huge difference over the long run. For example, if you invest $100 a month for 30 years and earn 5 percent a year compounded, you’ll end up with $83,226. But if you earn 6 percent, you’ll have $100,451. Earning 7 percent results in $121,997; 8 percent in $149,036; 9 percent in $183,074, and 10 percent, $226,049. Conclusion: It pays to try to improve your rate of return. But don’t take more risk than you can afford because a big loss can wipe out years of gains.
2008, TRIBUNE MEDIA SERVICES INC
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