After a grueling 20-hour session, lawmakers early Friday finished melding the House and Senate Wall Street reform bills, bringing Congress closer to passing the most sweeping changes to the financial system since the New Deal.
Finishing at 5:39 a.m. ET, 43 lawmakers agreed to send to their respective chambers a final bill that aims to strengthen consumer protection, shine a light on complex financial products, create a new process for taking down giant, failing financial firms, and make them stronger to prevent such failure.
"We are now on the brink of passing Wall Street reform," said President Obama at the White House, shortly before leaving for Canada to attend the G-20 meeting. "We are poised to pass the toughest financial reforms since the ones we passed during the Great Depression."
The conference committee votes were 20-11 among House negotiators and 7-5 among Senate negotiators, strictly along party lines. The room erupted into claps and hugs when it was all done, with staffers shaking hands and saying, "big bill."
In one of their final votes, lawmakers renamed the legislation the Dodd-Frank Bill for the lawmakers who led the work on the reforms: Senate Banking Chairman Christopher Dodd, D-Conn., and House Financial Services Chairman Barney Frank, D-Mass. The chamber erupted in cheers on the motion’s approval.
"It’s the most extraordinary experience," Frank said. "You hate to have the kind of pain that so many people went through in this economic crisis, but it just doubled our resolve to get it done."
Frank and Dodd insisted on pushing forward and wrapping up the negotiations, to ready the bill for final passage by each chamber before Congress adjourns for the Independence Day recess.
Shortly after the vote, Treasury Secretary Tim Geithner put out a statement supporting the efforts and calling for Congress to move ahead. "We urge Congress to carry the momentum forward and move swiftly towards final passage," he said.
The move was a big win for the White House, giving Obama fodder as he encourages other nations to embrace financial reforms at the G-20 meeting in Toronto on Saturday.
"This will strengthen the hand of the president going to Toronto to make that case," Dodd said. "We can make the case if not to embrace exactly what we’ve done, to embrace the principles we’ve enshrined in this bill."
Despite promises of an open negotiating process, many of the toughest deals were reached in private conversations among Democrats, as well as White House and Treasury officials, outside the Senate meeting room session that was being broadcast on C-SPAN.
Lawmakers, who began negotiations Thursday at 9:30 a.m. ET, grew increasingly short-tempered and weary. Sometimes, the air conditioning shut off, and suit jackets and sweaters came off and sweat ran down faces.
The lawmakers have been meeting for two weeks reconciling the bills, which were largely similar. However, they left most of the toughest decisions to the last day.
Most of Thursday, negotiations were slow going, as Democrats disagreed among themselves on measures that aimed to stop the kinds of problems that lead to the massive taxpayer bailout of American International Group.
Early Friday, lawmakers agreed to a weakened version of a provision originally authored by Sen. Blanche Lincoln, D-Ark., to force large banks to spin off divisions that trade derivatives contracts into affiliates.
The compromise allows banks to engage in trades of contracts of traditional banking bets, such as on interest rates and the price of gold. But banks would have to two years to spin off affiliates if they want to make riskier trades, ranging from commodities to credit default swaps.
But Lincoln fought efforts to weaken the provision further Friday morning.
"Clearly swap dealing is a risky activity, and it’s something we need to deal with," Lincoln said. "Banks should be banks."
Finish line
Congress first started working on financial overhaul last spring. The House passed a version in December, and the Senate passed its version in May.
Since January 2009, financial services firms have spent nearly $600 million and hired hundreds of lobbyists to influence legislation including financial reform, according to the Center for Responsive Politics. This week, dozens of them lined the Senate office building meeting room and hallway, where they often pulled staffers and lawmakers aside.
The final compromise that lawmakers struck will establish a consumer financial protection regulatory bureau inside the Federal Reserve, that will write new rules to protect consumers from unfair or abusive mortgages and credit cards. Lawmakers agreed the regulator would not oversee auto dealers who make auto loans.
The final deal will also create a 10-member council of regulators, headed by the Treasury Secretary. The group is tasked with sounding an alarm before companies are in position to trigger a financial crisis.
Regulators will be tasked with ensuring banks beef up their capital cushions, such as forcing financial firms to move more of their assets into investments that are more easily converted into cash over the next several years.
The bill would also establish new procedures for shutting down giant financial firms that are collapsing.
The bill aims to shine a brighter light on some of the different kinds of complex financial products, called derivatives, that are blamed for the problems that forced a bailout of American International Group (AIG, Fortune 500) and the bankruptcy of Lehman Brothers. It would force most derivatives on to clearinghouses and exchanges, to help pinpoint the value of the trades.
Republicans objected to some of the bill’s major provisions, particularly parts that establish the consumer agency and create new rules for the derivatives. While they generally favored more consumer protection and more regulation of derivatives, they argued that the legislation is too heavy-handed in these areas.
Late night calls
Derivatives: After midnight, lawmakers began discussing differences on the bills that aim to shine a light on derivatives.
Lawmakers agreed to push many derivatives onto clearinghouses and exchanges that can better pinpoint the value of the securities and create firewall’s between buyers and sellers.
They also agreed to allow leeway for financial firms to avoid exchanges and avoid posting collateral on such contracts for so-called commercial end-users, such as airlines that are trying to hedge against the changing price of jet fuel.
Additionally, lawmakers embraced a provision that prevents big banks from making risky bets on "nontraditional" derivatives and having access to emergency taxpayer-backed loans. Banks would have to spin off their swaps desk into affiliates, if they want to make such bets.
Volcker: Just before midnight, lawmakers agreed on a new version of the so-called Volcker Rule, which was first proposed by former Federal Reserve Chairman Paul Volcker. The measure prevents banks from owning hedge funds and trading for their own accounts.
Lawmakers agreed to gives regulators more specifics and less leeway when it comes to preventing banks from trading for themselves or owning hedge funds. But they also watered it down in several ways: It doesn’t impact insurers. And it allows some proprietary trading in areas, such as government debt, for hedging purposes and small business investments.
As for the ban on banks owning hedge funds, the provision allows Wall Street banks that take commercial deposits to sink as much as 3% of capital in hedge funds or private equity.
Consumer groups and policy analysts watching the negotiations noted that 3% of a giant Wall Street bank’s capital means billions could still be invested on risky bets.
"Three percent of Goldman Sachs’ capital is a big number, and it enables very large funds," said Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy.
Also, for some banks, the provision may not fully go into effect for up to seven years, according to Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group.
Bank tax: The cost of implementing Wall Street reform bills is around $19 billion and Congress decided to pay for it by taxing the largest financial firms, with firms taking the biggest risks paying the most.
Moody’s Investors Service cut BP’s long-term rating by three notches Friday, marking the second downgrade in a month, citing the worsening impact of the oil disaster.
Moody’s cut BP’s senior unsecured ratings and long-term debt securities to A2 from Aa2 and said there could be further downgrades as it continues to review BP’s ratings.
"Moody’s update assessment is that the spill will have a sustained negative impact on the group’s free cash flow generation and overall financial profile for a number of years," said the rating agency in a statement.
Also on Friday, Moody’s downgraded the senior unsecured issuer rating of BP Finance by three notches to A3 from Aa3 and the senior unsecured issuer rating of BP Corporation North America by four notches to Baa1 from Aa3.
The rating agency had downgraded BP once before, on June 3. On that same day, Fitch Ratings also announced a downgrade of the oil giant. Since then, Fitch announced a second downgrade to just above junk status.
Moody’s referred to the BP’s agreement to set up a $20 billion escrow to cover damages and liabilities related to the spill as a "mildly positive development."
"Establishing a clear funding mechanism to make payments to injured parties may moderate pressure for the government to pursue more punitive actions," said Moody’s.
BP (BP) owns 65% of the well that is spilling up to 60,000 barrels per day in the Gulf, according to government estimates. The problem has been ongoing since April 20, when the Deepwater Horizon offshore rig, which is owned by Transocean (RIG) and leased by BP, exploded and sank, killing 11 workers.
Since then, BP has been unable to plug the leak. The company’s chief executive, Tony Hayward, was subjected to blistering Congressional testimony on Capitol Hill Thursday, where he was accused of "stonewalling."
BP’s stock has plunged 47% since the accident by Thursday’s close. The company was not immediately available for comment. Under pressure from the government, BP has canceled its dividend for the rest of the year.
The company was not immediately available for comment.
Starbucks Corp. has opened its first store in Hungary.
The Seattle-based coffee giant (NASDAQ: SBUX) created a joint venture with Amrest, a restaurant operator in in Central and Eastern Europe, to manage the store, located in Budapest.
“We have great respect for the longstanding and colorful Hungarian coffeehouse culture and are excited to become a part of the community,” said Vladan Armus, Starbucks Brand President for Central and Eastern Europe, in a statement.
Full Starbucks press release below.
BUDAPEST, Hungary–(BUSINESS WIRE)–Starbucks Coffee has opened its first store in Hungary in the lively and popular WestEnd Mall.
AmRest Kavezo KFT, a joint-venture company between Starbucks Coffee International, Inc. a wholly-owned subsidiary of Starbucks Coffee Company (NASDAQ: SBUX), and AmRest Sp. z o.o., a wholly-owned subsidiary of AmRest Holdings S.E. (AmRest, WSE: EAT), will manage the daily operations.
“We have great respect for the longstanding and colorful Hungarian coffeehouse culture and are excited to become a part of the community,” said Vladan Armus, Starbucks Brand President for Central and Eastern Europe. “Over the past few years, coffeehouses have regained their popularity in Hungary, and we look forward to introducing our customers to our high quality coffees and the unique Starbucks Experience.
“WestEnd Mall is a vibrant and dynamic location in the heart of Budapest where people love to shop and meet,” continued Armus. "We think it will be an ideal location for people to enjoy a place where they can rest, relax and chat with friends over a great cup of coffee.”
Starbucks and AmRest have worked together since 2008 opening stores together in the Czech Republic and Poland. They now operate 16 stores across the three markets.
“We are excited to open our first store in Hungary and are committed to being part of the community, a good neighbor and a force for bringing our partners (employees), customers and their communities together,” said Buck Hendrix, president of Starbucks Europe, Middle East and Africa. “Our expansion into Hungary with our trusted partner AmRest is another positive step forward in growing our presence in markets that have a longstanding coffeehouse tradition throughout Central and Eastern Europe.”
Customers in Budapest will be able to enjoy Starbucks full range of offerings including hot and cold beverages made from 100% Fairtrade certified espresso, brewed coffee, and a full range of Tazo Teas. Starbucks will also offer a selection of 16 different varieties of the world’s finest whole bean arabica coffees sourced from farms across Latin America, Africa and Asia Pacific.
Starbucks will offer traditional coffeehouse fare like cakes, muffins, donuts, sandwiches and salads. Exclusive to Starbucks Hungary will be a selection of local favorites including Reform Triangle Sandwiches, Sausage Sandwiches and Pick Salami Sandwiches. Starbucks Hungary is very proud to feature Cheese Pogácsa and Almond Nougat Cake baked by the treasured local patisserie, Gerbeaud Confectionery.
Since 1971, Starbucks Coffee Company has been committed to ethically sourcing and roasting the highest quality arabica coffee in the world. Today, with stores around the globe, the company is the premier roaster and retailer of specialty coffee in the world. Through our unwavering commitment to excellence and our guiding principles, we bring the unique Starbucks Experience to life for every customer through every cup. To share in the experience, please visit us in our stores or online at www.starbucks.com.
AmRest is the largest independent restaurant operator in Central and Eastern Europe. It manages KFC, Pizza Hut, Burger King, Starbucks, Applebee’s, freshpoint and Rodeo Drive sites in Poland, the Czech Republic, Hungary, Bulgaria, Serbia and Russia. The company will operate Starbucks coffeehouses in Poland, Hungary and the Czech Republic. For more information, please visit www.amrest.eu.
Morgan Stanley and JPMorgan Chase are the leading candidates to handle the underwriting of an initial public offering for General Motors, according to published reports.
A move to settle on underwriters would suggest that GM is getting closer to filing for an IPO. A sale of GM stock to the public would help taxpayers start to recoup most of the money GM received as part of a federal bailout.
Still, an offering will not take place before the fourth quarter, according to the Treasury Department, which holds a 61% stake in the company.
Morgan Stanley (MS, Fortune 500) and General Motors declined to comment on the reports in the Wall Street Journal and the New York Times, while a spokesman for JPMorgan Chase (JPM, Fortune 500) was not available for comment.
It would make sense that Morgan Stanley is in the running. GM’s vice chairman Stephen Girsky was formerly a managing partner at Morgan Stanley.
The Treasury Department also refused to comment on the reports but issued a statement late Thursday that said the selection of underwriters would be GM’s decision.
Treasury added though that the choice of banks would be subject to the department’s "agreement that the selection is reasonable." It also said that Treasury, not GM, will determine the fees paid to underwriters.
Both Morgan Stanley and JPMorgan Chase received their own federal bailout funds Treasury in 2008, although all that money has since been repaid. Still, the department likely has a fair amount of leverage in negotiating fees for the IPO with the banks.
But even a fee of 1% of the offering would likely generate more than $100 million in income for the firms — assuming that GM sells at least $10 billion worth of stock easy payday loans.
Independent International Investment Research estimates that the GM IPO will raise $12 billion, which would be enough to make it the second largest U.S. IPO on record, behind only the $17.9 billion IPO for Visa (V, Fortune 500) in 2008. It would be about 10 times the size of the Google (GOOG, Fortune 500) IPO in 2004.
The IPO is a key step for the Treasury Department being able to recoup some of the remaining $44 billion in taxpayer money the automaker has yet to repay.
While GM has repaid $7 billion in loans it got from treasury, Treasury received $2.1 billion in preferred GM shares along with the 61% stake in GM’s common shares in exchange for the help.
The Treasury Department is expected to sell some, but not all, of those shares in the IPO. Experts say it will take months, if not years, for the government to sell its entire stake.
GM shares would need to have a market value of $69 billion in order for Treasury’s common shares to recoup their portion of the bailout money. Numerous analysts last month estimated GM’s total market value at between $64 billion and $90 billion.
But it may prove difficult for GM to reach that value. The company’s peak market value was $61.3 billion in May of 1999, according to research by the Center for Research in Security Prices at the University of Chicago.
Alan Faber, executive vice president of Waltham, Mass.-based Accounting Management Solutions, has won the Lifetime Achievement award for the Boston Business Journal’s CFO of the Year contest. A special section with profiles of this year’s winners will run in the July 16 edition.
According to one of the many nominations in his favor, Faber, a veteran of such companies as IBM Corp. and Sylvania, has been a fixture in the Boston business community for over 45 years whose influence on behalf of executives has only been surpassed by his mentor and friend, F. Gorham Brigham Jr., for whom this award has been named.
“I’m most honored and flattered to be such an important part of the continuing legacy of F. Gorham Brigham Jr.,” said Faber, 72. “I take the liberty of speaking for so many of Gorham’s admirers who have and continue to benefit both professionally and personally from his wise counsel and enduring friendship no teletrek payday advance.”
The High Point City Council has voted to approve an incentive package for a startup drug company that is considering locating there.
The incentives for Apixir Pharma Sciences would be worth up to $35,000, if the firm does open a facility and meets certain milestones. Officials with the High Point Economic Development Corp. said Apixir plans to create at least 25 local jobs within three years, mostly in scientific and research positions. The average wage would be between $40,000 and $50,000 per year.
The company is considering a location at Premier Office & Technology Park, but is also considering other locations in the Triad and elsewhere, officials said.
This ought to keep the Maytag repairman busy for a while.
The appliance manufacturer along with the Consumer Product Safety Commission on Thursday announced the recall of about 1.7 million dishwashers made by the company between February 2006 and April of 2010.
"An electrical failure in the dishwasher’s heating element can pose a serious fire hazard," said the recall notice issued by the CPSC.
"Maytag has received 12 reports of dishwasher heating element fires that have resulted in fires and dishwasher damage, including one report of extensive kitchen damage from a fire," the CPSC said. There have no reports of injuries.
The recall includes select Maytag, Amana, Jenn-Air, Admiral, Magic Chef, Performa and Crosley brands manufactured by Maytag.
The company has set up a website where customers can check their unit’s serial number to see if it is included in the recall — www.repair.maytag.com. Consumers will be able to choose between having their dishwasher repaired or accepting a rebate toward the purchase of a new dishwasher.
The Maytag repairman has been a staple of the company’s corporate image. Since 1967, Maytag has touted its quality by showing a bored repairman with nothing to do.
Leafing through newspapers and magazines, I ran into these mutual fund ads.
From Janus: "100 percent of Janus equity funds have beaten their benchmarks since inception."
From T. Rowe Price: "Proven performance that has stood the test of time. For each 3-, 5- and 10-year period ended Dec. 31, 2009, over 75 percent of our funds beat their Lipper average." (That refers to the average performance of funds tracked by Lipper, a fund analysis firm.)
From Fidelity Investments: "In each of the past one-, five- and 10-year periods, at least 8 of the 10 Fidelity Select Portfolios broad-market sector funds beat their benchmark indexes." (This one refers to 10 Fidelity "Select" funds. Each invests in specific sectors of the economy.)
For many fund companies, performance sells (although some major firms, such as Vanguard, advertise low costs rather than performance, and others, such as Dodge and Cox, do not advertise at all). And when the fund’s "absolute," or actual return isn’t all that great, then "relative" performance, or how a fund did compared to others, is the thing to tout when you can.
For example, the Fidelity Select Technology fund did beat the so-called MSCI technology sector index for the 10 years ended March 31. But with technology stocks in the tank, the fund lost an average of 7.15 percent a year. It’s just that the index lost more, or 8 percent.
We need to read ads critically, including the tiny-print disclaimers in the footnotes. We also need to question how significant performance numbers are.
As the ads all say to comply with Securities and Exchange Commission rules, "past performance cannot guarantee future results." But even so, isn’t past performance a factor to consider?
Debate has been raging on that front for years, with a recent academic study suggesting fund performance advertisements are misleading investors payday advance low fees.
"A large body of studies has found little evidence that high past returns predict high future returns. In fact, advertised mutual funds even tend to underperform the market after being advertised," said Ahmed Taha, a professor at Wake Forest University School of Law and co-author of the study.
"We found that people viewing the advertisement with the current SEC disclaimer were just as likely to invest in a fund, and had the same expectations regarding a fund’s future returns" as people shown the ads without the disclaimer, said Alan Palmiter, another co-author and law professor at Wake Forest.
The study, also co-authored by Molly Mercer, an accounting professor at Arizona State University, suggests investors would be more likely to heed a more strongly worded disclaimer such as: "Do not expect the fund’s quoted past performance to continue in the future. Studies show that mutual funds that have outperformed their peers in the past generally do not outperform them in the future."
On the other hand, I can cite evidence that sectors in the market that have done well recently — and therefore, the funds that invest in them — continue to do well for a while.
That is, in fact, the basis of the "upgrading" strategy of moving incrementally into funds with superior near-term performance — a strategy that has led to strong absolute and relative long-term returns for DAL Investment Company of San Francisco, which publishes the NoLoadFundX newsletter and manages the FundX Upgrader mutual funds. (Disclaimer: I invest in some of these funds.) Overall, I consider many factors when choosing a fund, including performance in up and down markets, costs, manager tenure and sticking to a well-defined discipline.
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