With a new mandate looming that will require business owners to file millions more tax forms, the Internal Revenue Service has begun the daunting process of figuring out how to turn the law’s sweeping demands into actual rules for taxpayers.
The new regulations, which kick in at the start of 2012, require any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services that year. That promises to launch a fusillade of new paperwork: An estimated 40 million taxpayers will be subject to the requirement, including 26 million who run sole proprietorships, according to a report released this week by National Taxpayer Advocate Nina Olson.
Olson’s office, which operates independently within the IRS, flagged the new reporting requirements as one of its priority issues for the next year. Like many who have delved into the details of the new rules, Olson is concerned about their far-reaching scope and potential unintended consequences.
"The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance," the Taxpayer Advocate Service wrote in a report released this week.
The new rules are aimed at reducing the "tax gap" between what individuals and businesses owe and what they actually pay. The federal government misses out on estimated $300 billion each year from tax underpayment. The expanded reporting requirements, which Congress slipped into the landmark health care reform bill passed in March, are an attempt to create a paper trail of 1099s exposing business-to-business payments that might otherwise stay off the radar.
But the cost of that paper trail could swamp the small companies, sole proprietors freelancers forced to generate it. Pennsylvania business networking organization SMC Business Councils surveyed its members and found that they currently average 10 filings a year of 1099 forms. The new rules would push that average to more than 200 filings per year for a typical small business, the industry group estimates.
The IRS will have broad leeway to interpret the rules — and it’s already showing signs that it will look for ways to staunch the paperwork flood.
In a late May speech before the two payroll industry trade group, IRS Commissioner Douglas Shulman announced a major exception to the new rules: The IRS plans to exempt transactions made through credit and debit cards. A separate reporting requirement kicks in next year that will cover card transactions and help the IRS spot unreported payments made through those channels, "so there is no need for businesses to report them as well," Shulman said. "Whenever a business uses a credit or debit card, there will be no new burden under the new law."
How much of a sigh of relief you should breathe depends on what kind of purchases your business makes. Some big-ticket consumer items that are typically paid by card — airline tickets or hotel stays, for example — will be 1099-free. But SMC Business Councils President Tom Henschke, a vocal critic of the new law, estimates that exempting credit-card transactions would affect less than 10% of his members’ reporting requirements.
"Most of the small businesses out there that do small business [purchasing] don’t do it by credit card," he said. "One of the reasons is the transaction cost is very high — 2% to 3%."
Henschke thinks the main beneficiaries of the exemption are likely to be credit-card companies, which will gain an added hook to get small businesses to pay their fees pay day loans. Nolan Newman, a Seattle CPA who specializes in small-business needs, says it’s certainly possible that card usage will rise as a result: "If I’m a small business and I use my credit card moderately, would I try to increase my volume with which I pay vendors with it? Maybe."
Henschke foresees another unintended consequence of the new reporting provisions: that in order to cut down on tax forms to be filed, businesses will trim the number of vendors they do business with. "I’ve actually heard businesses talking about consolidating their purchases, going from 150, 200 vendors, down to less than 100," he said. "That will most certainly lead to some small businesses being swept under the door."
The taxpayer advocate’s office shares that concern. "Many large vendors already have computer systems that can track purchases by customer. They are likely to advertise that they will track each customer’s total purchases and send them a report at the end of the year that business customers can use to comply with the Form 1099 filing requirement," the office wrote in its report. "Small businesses that lack the capacity to track customer purchases may lose customers, leaving the economy with more large national vendors and less local competition."
That was just one of seven major pitfalls the Taxpayer Advocate Service foresees in the new rules. It also questions whether they will actually do much to close the tax gap. Because of product returns and other complications, the payments documented by the 1099 trail won’t match up cleanly against the revenue businesses report. "The IRS will face challenges making productive use of this new volume of information reports," Olson’s office concluded.
That could help explain one otherwise puzzling aspect of the new tax law, which is that despite the sweeping reporting requirements, the Joint Committee on Taxation — a nonpartisan Congressional committee that analyzes pending tax legislation — estimated that it would bring in only about $2 billion a year in new tax revenue. Committee staffers wouldn’t comment on the record.
"Judging from the estimate that the committee has made, they didn’t think it was that far-reaching," said Eric Toder of the Tax Policy Center, a nonpartisan think tank. "Does it close a lot of the tax gap? No."
The IRS did not return repeated calls and e-mails asking for clarification on its timeline for drafting the new regulations.
In his talk to accountants in May, Shulman put off questions about the expanded 1099 reporting, saying that even the idea of exempting credit-card transactions was just "an example of where we are headed, not as a complete implementation plan." The agency is currently seeking public comment on how it should implement the new rules.
The IRS has some leeway in implementing the new law — but only some. "The regulations are supposed to implement the intent of Congress; they’re not supposed to be independent policy-making," Toder said. "But obviously, there’s some discretion there."
Shulman himself hinted that it may take new legislation — not just IRS regs — to fix what Congress has wrought. "We won’t hesitate to consider alternate approaches," he said in his speech, "including working with Congress to address any potential implementation issues that may arise during this process."
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Combined Austin Energy and Austin Water bonds totaling about $200 million garnered "AA-" ratings and are scheduled to sell next month, Fitch Ratings reported Friday.
The utility revenue refunding bonds were rated in two series of $98.8 million tax-exempt and $100.9 million in direct subsidy-build America bonds. The release said the bonds are expected to sell via negotiation early next month. They are secured through the utility company's net revenue.
The rating agency also reaffirmed grades for three city of Austin outstanding bonds: $498 million in outstanding combined utility system revenue bonds at "AA-"; $1 billion in outstanding city of Austin electric utility system revenue bonds at "AA-"; and $1.5 billion in outstanding water and wastewater system revenue bonds at "AA-."
Overall outlook was listed as stable cash advance companies. Fitch cited Austin Energy's stable service territory, diverse supply mix and competitive rates. The agency said rate increase delays could cause some concern to creditors and though Austin Energy has low debt, that could change as the company pursues 35 percent renewable energy by 2020.
"While rates are competitive and fuel adjustment charges are adjusted regularly, the utility's base rates have not been changed since 1994," Fitch said in the release. "Raising some concern about city council's willingness to raise rates in the face of declining financial performance"
Austin Energy powers more than 407,926 customers and Austin Water provides treated water and wastewater to about 209,994 and 196,842 customers, respectively.
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Danny Ayala, head of global remittance at Wells Fargo & Co., has only to look at the numbers from Mother’s Day week to see improvement in the business of zipping money from country to country.
In a sign of an improving economy, the bank saw a 57 percent increase in volume during that week and an all-time daily high on May 10 — the day Mother’s Day is celebrated in Mexico.
"It shows that remitters have money to send," Ayala said in an interview Thursday. "Last year was a much different story."
Wells Fargo & Co. expects even bigger things from the remittance business, with the addition of eight new recipient countries at the end of last year and the gradual rollout of its "ExpressSend" service in Wachovia branches.
Wells started ramping up ExpressSend in 2003 and now offers service to 15 countries in Latin America and Asia. Customers can send money overseas from a branch, by phone or online. Wells is also looking to add mobile and ATM options.
In the first quarter, total transactions increased 36 percent to Mexico and 35 percent to all countries, compared with the same period a year earlier. The bank handles billions of dollars in remittance volume each year, but doesn’t provide specific volume or transaction figures.
With the business, Wells sees a way to help a growing immigrant population send money home — and an opportunity to sell them checking accounts and other banking products, Ayala said.
The remittance business is at the center of two hot issues lately: immigration and financial services. Many customers who use the product are in the U.S. legally, but Ayala acknowledges that some may not be. The company follows laws that require it to check customers’ identification, but not immigration status, he said.
"The immigration issue is an issue of public policy," he said. "We are here to provide financial services."
As part of financial reform legislation being debated in Congress, some lawmakers are pushing for more consumer protections for remittance customers. One proposal would require remittance providers to display fees in their storefronts and give the cost to customers upfront.
Ayala said the bank favored transparency but wasn’t comfortable with current proposals. The legislation could be difficult to implement because prices change frequently as exchange rates fluctuate, he said. According to World Bank figures, the remittance flow to developing countries fell 6 percent to $316 billion in 2009. As the world economy picks up, the World Bank expects remittances to increase by 6.2 percent in 2010.
Wells competes with money transfer giants such as Western Union Co. and MoneyGram International Inc., as well as other banks. Bank of America Corp. has a product that allows customers with checking accounts to send money to Mexico by phone. The bank also has an online wire transfer service.
German business software maker SAP AG has agreed to buy Sybase Inc. in a $5.8 billion deal that ratchets up SAP’s rivalry with database leader Oracle Corp.
The deal intensifies the battle between SAP and Oracle to run more of the programs that corporations use to manage their data.
Oracle is the world’s leading database maker a market where Sybase is a small player and has been on a buying binge in an attempt to take business in other areas from SAP.
Bank of America Merrill Lynch is one of several financial institutions providing debt financing Cerberus Capital Management’s acquisition of DynCorp International Inc.
The deal is valued at $1.5 billion, including the assumption of debt. It is slated to close in the third or fourth quarter.
DynCorp International, based in Falls Church Va., provides government services related to U.S. national security and foreign policy objectives. The company (NYSE:DCP) operates programs in logistics, contingency operations and training to reinforce security.
New York-based Cerberus Capital Management is a private-investment firm with $23 billion under management.
Along with BofA Merrill Lynch, the lenders financing the deal include Citigroup Global Markets Inc., Barclays Bank plc and Deutsche Bank Securities Inc. Each institution also acted as a financial adviser to Cerberus.
BofA Merrill Lynch is a global strategic adviser and underwriter, raising nearly $3 trillion for clients worldwide over the last 10 years. It is a division of Charlotte-based Bank of America Corp. (NYSE:BAC).
Stocks ended with modest losses Thursday, fighting off a bigger decline that surrounded the latest worries about Greece’s debt crisis and weaker-than-expected reports on the economy.
The Dow Jones industrial average (INDU) lost 53 points or 0.5%. The S&P 500 index (SPX) fell 2 points, or 0.2%. The Nasdaq composite (COMP) lost 2 points or 0.1%.
Stocks tumbled out of the gate after both Standard & Poor’s and Moody’s said they may have to cut Greece’s debt rating if the country doesn’t implement its so-called austerity measures, meant to rein in its deficit.
But after a bigger selloff through the early afternoon, stocks cut losses heading into the final hour of the session.
Greece has said it will raise the retirement age and have civil servants take bonus cuts, among other measures. A workers’ strike Wednesday added to questions about the nation’s ability to cut its debt. Investors are concerned about the broader implications for other euro zone countries, and the euro, should Greece default.
"It seems like the market doesn’t know how worried it should be about Greece, which is why we’re rallying off the lows of the day," said Ryan Atkinson, market analyst at Balestra Capital.
While the Greek debt situation is a serious one for the market, it’s probably going to come in waves over the next six to nine months, Atkinson said. "Maybe they’ll cut a deal initially [with officials], but longer term there are going to be more issues."
He said that investors were likely just as concerned about the day’s economic news, including worse-than-expected reports on jobless claims and factory orders.
Market breadth was mixed. On the New York Stock Exchange, losers and winners were roughly even on volume of 1.15 billion shares. On the Nasdaq, decliners topped advancers five to four on volume of 2.1 billion shares.
Greece: The threat of a Greek default rattled global markets earlier in the month, pushing U.S. stocks to three-month lows and causing the S&P 500 to lose over 9%, just shy of the technical definition of a correction.
Investors worried that Greece’s problems could reflect a broader euro zone debt crisis that could impact Portugal, Spain, Ireland, Italy and other debt-challenged European nations.
But European officials said earlier this month that they were ready to step in and help Greece if need be, and that seemed to calm investors for a few weeks. S&P and Moody’s downgrade talk revived the worries.
In addition, stocks have been rising for the last two weeks, setting the market up for a little pullback, particularly in the aftermath of last year’s big rally.
Bernanke: Federal Reserve Chairman Ben Bernanke told Senators Thursday that the central bank is looking into whether Goldman Sachs and other big banks worsened Greece’s debt crisis.
News reports have said that Goldman and other banks helped arrange deals that may have disguised the extent of Greece’s debt problems. In addition, the banks have made bets that Greece will default on loans it took from U.S. financial institutions, according to a New York Times article.
Bernanke spoke before the Senate Banking Committee Thursday in his second day of Congressional testimony on the economy payday loans.
On Wednesday he told a House committee that while the economic recovery is chugging along, the job market remains weak. Against that backdrop, interest rates will stay low for the foreseeable future. That seemed to reassure investors worried about the outlook for the economy and stocks rallied Wednesday.
Jobs: The number of Americans filing new claims for unemployment jumped last week to 496,000 from a revised 474,000 the previous week. Economists surveyed by Briefing.com expected 460,000 new claims.
Claims have jumped 12% over the past two weeks, due in part to the impact from the severe winter storms on the east coast.
Durable goods orders: Orders for big-ticket items meant to last three years or more jumped in January, with aircraft demand fueling the rise.
Durable goods orders rose 3% in January, the biggest increase since last summer and better than the 1.5% jump forecast by economists. Orders rose 1.9% in the previous month.
Orders excluding transportation fell 0.6% after rising 2% in December. Economists expected a rise of 1%.
Coke: Coca-Cola (KO, Fortune 500) said it will buy the North American operations of its biggest bottler, Coca-Cola Enterprises (CCE, Fortune 500) (CCE) in a deal that would cut costs and give it more control of its distribution.
The multi-layered deal has Coca-Cola giving up its 34 percent stake in CCE, worth about $3.4 billion, and taking on $8.88 billion in debt.
Additionally, the companies agreed that CCE will buy Coke’s bottling operations in Norway and Sweden for $822 million and that it has the right to buy Coke’s 83% stake in its German bottling operations.
The deal comes as rival PepsiCo (PEP, Fortune 500) is about to close a $7.8 billion deal to buy Pepsi Bottling Group and PepsiAmericas, its largest bottlers.
Coke shares plunged 4% and CCE shares rallied 33%.
Palm: Palm (PALM) said it expects revenue to fall far below current forecasts due to worse-than-expected sales of its new smartphones. Shares plunged 19% on the forecast.
Health care: The Obama administration’s health care summit was underway Thursday, with Republican and Democratic leaders from both houses of Congress debating ways to reform the system.
The president said that both sides agree that costs need to be contained, but they remain bitterly divided over whether to press through with the current bill or start over.
World Markets: In overseas trading, major European and Asian markets ended lower.
The dollar and commodities: The dollar gained versus the euro after seesawing versus the European currency throughout the session. The greenback fell versus the yen.
U.S. light crude oil for April delivery fell $1.83 to settle at $78.17 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose $11.30 to settle at $1,108.50 per ounce.
Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.63% from 3.69% late Wednesday. Treasury prices and yields move in opposite directions.
India’s credit rating may be raised from junk if Finance Minister Pranab Mukherjee provides a comprehensive plan to roll back fiscal stimulus and cut the budget deficit this week, Moody’s Investors Service said.
“If we think the exit path is well articulated and well executed, the local currency rating could be upgraded,” Aninda Mitra, a Singapore-based sovereign analyst at Moody’s, said in a telephone interview on Feb. 19. India’s long-term local currency debt is placed at Ba2 by Moody’s, two levels below the investment grade and at par with Armenia and Turkey.
Mukherjee has an opportunity to narrow the budget shortfall as accelerating economic growth boosts tax revenue and a stronger political mandate after last year’s elections paves the way to resume asset sales. Rating changes have less impact on India than other countries like Greece, which borrow more from abroad. India’s foreign borrowings make up only about 4 percent of government debt compared with 83 percent for Greece, according to Citigroup Inc.
Stocks, Bonds Gain
“India has lived with a budget deficit for so long, and with a high growth rate you can run a deficit,” said Andrew Michael Spence, a Nobel prize-winning economist and professor emeritus at Stanford University’s Graduate School of Business. “You don’t want the credit rating to go too low. It’s more signaling rather than anything else.”
India’s budget deficit may narrow to 5.5 percent of gross domestic product in the financial year starting April 1 from 6.8 percent of GDP in the previous year, Chakravarthy Rangarajan, Prime Minister Manmohan Singh’s top economic adviser, said on Feb. 19. Mukherjee is scheduled to unveil the budget in parliament in New Delhi on Feb. 26 at 11 a.m.
Stocks snapped a two-day decline while the yield on India’s benchmark 10-year note fell the most in more than four weeks after Moody’s comment. The rupee gained the most since Feb. 15.
India’s Sensitive Index rose 1.1 percent to 16,369 on the Bombay Stock Exchange and the rupee appreciated 0.3 percent to 46.14 per dollar. Bond yields fell four basis points to 7.84 percent as of 1:24 p.m. in Mumbai.
Indian government debt accounts for about 80 percent of the gross domestic product. Standard & Poor’s and Fitch Ratings have a BBB-, the lowest investment grade rating, on Indian local currency debt.
Positive Outlook
“Although the debt level is high relative to other emerging markets, the fact remains that it’s not increasing sharply,” Mitra said. “It’s hovering around 80 percent of the GDP. So, that’s a reasonably good outcome and which is why we shifted towards the positive outlook,” in December 2009.
Mukherjee, who allowed the budget deficit to widen to provide fiscal stimulus to the economy amid a global recession, is relying on asset sales and faster growth to spur tax collections in next year’s budget.
India’s $1.2 trillion economy may grow 7.2 percent in the current fiscal year through March, accelerating for the first time since 2007, the statistics office said Feb. 8.
Singh’s government plans to reduce stakes in 68 companies including NMDC Ltd., the nation’s largest iron-ore producer, and NTPC Ltd., the biggest electricity provider, after he returned to power in May without the help of communist parties, who as part of the previous coalition had opposed the policy.
Inflation Risk
The government may borrow a net 3.8 trillion rupees in the year starting April 1, compared with 3.97 trillion rupees this year, said Abheek Barua, an economist at the Mumbai-based HDFC Bank Ltd.
Central bank Governor Duvvuri Subbarao last month urged the finance ministry to cut borrowings to support the monetary policy’s goal to contain inflation. Subbarao raised the proportion of deposits lenders need to maintain as cash reserves to 5.75 percent from 5 percent and said monetary policy alone won’t be effective in curbing price-gains unless Mukherjee rolls back fiscal stimulus.
“The growth has rebounded and at the same time there is a risk of inflation,” Mitra said. “Inflation expectations need to be anchored better, either through higher policy rates or if that process could be helped by lower government borrowing and spending.”
India’s inflation accelerated to 8.56 percent in January, the most in 15 months.
“India in on the cusp of a new tryst, which is fiscal destiny, and I hope they will take it,” Mitra said.
Boeing Co. said commercial orders will pick up by 2012, after dropping to the lowest level since 1994 last year, as an economic recovery boosts air-travel demand and airlines return to profit.
"We’re starting to see the economy turn around after a really difficult year last year in terms of traffic," Randy Tinseth, Boeing’s marketing chief, said. Growth in travel and cargo shipments this year will translate into airline profits and "then we can start to see an increase in demand for new airplanes in 2012," he said.
Boeing had 142 net orders last year after 121 cancellations, the Chicago-based company said in a statement Thursday. That’s the fewest since 125 orders in 1994, according to spokesman Jim Proulx. The total also trails the 194 that rival Airbus SAS reported as of Nov. 30.
Boeing’s orders fell from 662 in 2008, when Airbus had 777, and from a record high of 1,413 in 2007.
"On a gross-order basis we’re probably in the same ballpark, but clearly we had challenges with some of our programs," with 83 cancellations for the delayed 787 Dreamliner, Tinseth said. The two rivals have generally split the market in the past few years and "I don’t see any major trends in terms of orders this year," he said easy online payday loans.
Airbus also kept the lead in deliveries, which are when planemakers get the bulk of payments. Boeing said it delivered 481 planes in 2009, while Airbus shipped 498, according to a person familiar with the Toulouse, France-based company’s production who declined to be identified because its figures won’t be released until Tuesday. Airbus has held the lead every year since 2003.
Boeing’s deliveries in 2009 rose from 375 in 2008, when factories had been shuttered during a two-month strike by machinists. Even with the recession, Boeing and Airbus combined built a record number of aircraft last year as the long lead time for jets and the threat of penalties for last-minute cancellations protected manufacturing rates.
Both companies are scaling back now to better match demand after airlines pushed back hundreds of delivery dates because of the global economic crisis.
Treasury Secretary Timothy Geithner said the government is unlikely to recoup its investments in insurer American International Group Inc. or the automakers General Motors Co. and Chrysler Group LLC.
Geithner, in testimony today before the Congressional Oversight Panel, also said he chose to extend the $700 billion Troubled Asset Relief Program to give the Obama administration more time to unwind its bank-rescue efforts. The economy faces “significant headwinds,” and housing markets remain dependent on government support even as they are stabilizing, he said.
Still, U.S. financial and economic conditions have improved, Geithner told the panel in Washington. The Treasury now expects to make money on its banking investments, if not on its efforts to stabilize the automobile and insurance industries.
“It’s unlikely that we will be repaid for all of our investments in AIG, G.M. and Chrysler,” Geithner said.
The Government Accountability Office yesterday said that U.S. taxpayers will lose $30.4 billion from the auto-industry bailout, down from a prior estimate of $43.7 billion. The GAO report predicted a similar loss of $30.4 billion in AIG, down from a previous estimate of $31.5 billion.
Bank Repayment
Asked about future repayment by the largest banks still with government investments, Geithner said it is “generally desirable” that they raise all the money they need to repay in equity offerings.
“Cleaner exit is better than a staged exit,” he said. “I’m not sure that is going to be possible in every circumstance.”
While he didn’t discuss Citigroup Inc.’s efforts to extricate itself from the TARP, Geithner did note Bank of America Corp.’s repayment, which came yesterday. “I got a check for $45 billion,” he said, adding that was a “good thing.”
Under questioning by panelists, Geithner defended the government’s handling of last year’s AIG rescue, which has come under fire because banks were given the full value on credit- default swaps purchased from the New York-based insurer. Geithner was president of the New York Federal Reserve at the time and had a leading role in the bailout.
“You cannot selectively default on contractual obligations without courting collapse,” Geithner told the panel, explaining why the government paid banks 100 cents on the dollar. “There is no other way in the context of that storm to protect the economy from that failure.”
Extend TARP
The Treasury chief also faced skepticism about his decision to extend the TARP until next October.
The program is “essentially a blank check to finance any macroeconomic stimulus initiative that the executive branch can imagine, to the tune of hundreds of billions of dollars,” said panel member Paul Atkins, a former Republican member of the Securities and Exchange Commission easy payday loans.
“The economy would not be growing again without TARP,” Geithner said.
The U.S. economy expanded at a 2.8 percent annual rate in the third quarter after shrinking for a year. The economy will expand 2.6 percent in 2010, according to the median forecast of 58 economists surveyed by Bloomberg News this month. The jobless rate will average 10 percent next year.
Assisting AIG
While assisting AIG and the auto companies will cost taxpayers, the Treasury predicts a $19 billion profit on its banking investments, Geithner said.
Long-term TARP costs will be no higher than $140 billion, the Treasury said. The ultimate return will depend on how the economy fares, Geithner said.
The Treasury expects “substantial income” from sales of TARP warrants, received as part of the government’s investment in banks, in coming weeks, Geithner said. He said that auctions will often bring the highest returns for the government.
Banks that pay back their capital injections must also dispose of the warrants that the Treasury received, either by repurchasing them or allowing the department to sell them. Goldman Sachs Group Inc. redeemed its warrants for $1.1 billion, while JPMorgan Chase & Co. opted to allow the government to auction its warrants after the Treasury rejected an appraisal as too low.
Personnel Shift
Geithner appeared before the panel, led by Harvard law professor Elizabeth Warren, as it prepared for a personnel shift. Representative Jeb Hensarling, a Texas Republican, resigned yesterday.
Hensarling, who is being replaced by Dallas attorney Mark McWatters, has repeatedly criticized the bailout. George Rasley, a spokesman for the congressman, said Hensarling had agreed to stay on the panel for the expected duration of the TARP. The effort was set to expire Dec. 31 until Geithner extended it yesterday.
In his testimony, Geithner told the panel that the Treasury can’t force small banks to participate in initiatives aimed at stimulating small-business lending. He said these programs have been less successful than hoped because banks have been wary of submitting to the extra regulation that comes with taking TARP aid.
Geithner said parts of the securitization markets are “still impaired,” especially for securities backed by commercial mortgages. He also hailed improvements in the markets for asset-backed securities, which he said are no longer as dependent on publicly supported markets like the Federal Reserve’s Term Asset-Backed Securities Lending Facility.
Shares in Exxon Mobil Corp, the world’s largest publicly traded oil company, could rise more than 20 percent to $90 next year if energy prices increase as expected, Barron’s reported on Sunday.
Exxon shares have lagged rivals in the stock market rally this year, falling about 10 percent, but futures contracts anticipate higher energy prices next year that would be a major boost to the company, according to Barron’s November 16 edition.
The Irving, Texas-based company could earn $6.50 a share in 2010 if the higher oil and natural-gas prices materialize, compared to its expected 2009 profit of $4 a share, the newspaper said. Exxon earned a record $8.69 a share in 2008 when oil prices peaked.
Analysts have criticized Exxon for weak production growth, but it has an impressive record for getting a high return on its investments, according to Barron’s. It replaced more than 100 percent of its production in each of the last 15 years and, between 2004 and 2008, its finding costs of $7 a barrel on average were below its peers, Barron’s said.
In addition, Exxon has a relatively low dividend yield of 2.3 percent, which is below several of its rivals, but analysts estimate the dividend could rise another 5 percent or more in 2010, Barron’s reported.
Exxon shares closed at $72.47 on the New York Stock Exchange on Friday.
(Reporting by Elinor Comlay; Editing by Leslie Adler)
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