NEW YORK — Coming off its worst year in three decades, the market for initial public offerings is starting to show signs of life.
Eight companies are looking to raise as much as $3.7 billion when they go public this week, the most activity the U.S. IPO market has seen in a single week in nearly two years and a clear sign that Wall Street’s appetite for risk is returning.
IPOs all but dried up in 2008 as investors shunned the traditionally risky bets and moved into safer assets like cash and Treasurys as the stock market tumbled.
Only 43 companies completed IPOs in the U.S. last year, down from 272 the year before and 221 in 2006, according to Renaissance Capital’s IPOHome.com. It was the slowest year for IPOs since 1978.
The IPO market has trudged along so far this year, with 22 companies raising $5 billion in capital. This week’s heavy load of offerings could mark a turning point in the market — if all goes well no teletrack payday loans.
"The IPO market has windows that open and close, and right now the window is open to get deals done," said Sal Morreale, an institutional salesman with Cantor Fitzgerald in Los Angeles.
The number of companies preparing to go public has been gaining pace since early July. There are now 89 companies in the IPO pipeline, up from 29 in March.
A123 Systems — Apollo Commercial Real Estate Finance — Artio Global Investors — Foursquare Capital — Colony Financial — Select Medical Holdings — Shanda Games Ltd. — Vitacost.com
With Democrats and Republicans fighting a death match over health care reform, some small business owners fear that their priorities will get lost in the fray.
"Congress hasn’t approached health care reform from a small business owner’s standpoint," says Todd McCracken, president of the National Small Business Association. No one knows how the legislative battle will pan out, but here are three crucial health care issues to keep on your radar this fall.
The Penalty Box. What if hiring one more employee saddled your company with tens of thousands of dollars in federal fines? According to legislation before the House, businesses with payrolls as low as $250,000 would pay a 2% tax if they didn’t provide health insurance (that would rise to 8% as payroll grew to $400,000). And in early Senate legislation, firms that employ 25 or more workers would have to insure them all or pay a per-employee penalty. Those tipping points could discourage business growth.
The Senate Committee on Health, Education, Labor and Pensions addressed this problem in July, amending its version of the bill to exclude a firm’s first 25 employees — not just firms with 25 or fewer — from an annual fee of $750 per worker. So putting a 26th employee on the payroll would trigger only one $750 fee — not 26 of them.
More taxes, please. When did you last request more taxes? Never? Well, there’s a first time for everything.
Some entrepreneurs would like to see the federal government put a cap on the value of tax-deductible insurance. Under the current, uncapped system, big businesses can offer deluxe insurance tax-free, which helps them recruit and retain employees.
A tax on premium insurance would generate necessary funding for healthcare reform, limit plans that cover unnecessary procedures and level the playing field for small businesses. Also, Congress could grant self-employed taxpayers the same healthcare deductions as businesses.
Pool power. Small businesses and the self-employed don’t have the bargaining power of corporate behemoths. That could change if Congress gives entrepreneurs the right to form insurance purchasing pools. In 2008 and 2009 a bipartisan group of lawmakers introduced Small Business Health Options Program (SHOP) bills to allow such pools.
The global economic crisis will continue and countries must do more to adopt financial market regulations, International Monetary Fund Managing Director Dominique Strauss-Kahn told a German magazine on Saturday.
“The global economic crisis will continue, even if Germany and France had some good figures in the second quarter,” Strauss-Kahn was quoted as saying in an advance copy of an article to be published in Der Spiegel on Sunday.
Strauss-Kahn said he wanted to see more action from nations to curb bankers’ pay and tighten capital requirements in the banking sector.
“It is right to say that not enough has happened. I hope the Group of 20 meeting in Pittsburgh will bring new momentum,” he said. Leaders of the G20 meet later this month to try to agree on measures to help stop a repeat of the financial crisis.
Strauss-Kahn said the lesson of the financial crisis was that the market economy needed rules to function.
“Without new rules, there will be a return to the old behavior,” he said.
Governments needed to develop ‘exit strategies’ from the stimulus packages introduced to boost economies, said Strauss-Kahn, adding, however, that it was dangerous to think the crisis was already over.
“We need such “exit strategies.” We are working on them, but I would disagree with any …. demand to think about implementing them now,” he said.
Asked by the magazine how liquidity that had been pumped onto the markets would be withdrawn, Strauss-Kahn said a combination of higher interest rates and ending direct intervention of central banks would be needed.
He also said the IMF had sufficient resources for now but that if the body were to take on additional responsibilities to coordinate a financial safety net for countries in financial difficulty, it would need a further financial boost.
(Reporting by Madeline Chambers; Editing by Andy Bruce)
The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.
That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.
What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.
The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey
"There was a major drop in foreclosures on subprime ARM loans," said Jay Brinkmann, chief economist for the MBA, in a prepared statement. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase."
Indeed, the MBA survey reported that prime, fixed-rate mortgages accounted for nearly one in every three foreclosure starts. That’s way up from a year ago, when only one of every five foreclosure start involved a prime loan.
That bodes ill for the future health of the mortgage market. Prime loans make up two-thirds of the mortgage market, and if delinquencies among these mortgages continue to proliferate, the number of foreclosures will soar free credit report instantly.
Brinkmann forecasts continued delinquency and foreclosure increases until the economy starts to recover. He predicts that job losses will peak by mid-2010, as will delinquencies, and foreclosures will start to fall about six months later.
Problem areas
The so-called "sand states" continue to contribute disproportionately to the mortgage meltdown. Four states — California, Florida, Arizona and Nevada — accounted for 44% of all foreclosure starts during the quarter.
"Issues related to the deteriorating economy and deteriorating home prices in those states have driven their delinquency problems]," said Brinkmann
In Florida, 12% of mortgages were somewhere in the process of foreclosure, the highest in the nation; another 5% were at least 90 days past due as of the end of June.
Adding in 30 days and 60 days past due and Florida’s total delinquency rate comes to 22.8% — almost twice the national percentage. The next highest states are Nevada at 21.3%, Arizona at 16.3% and Michigan at 15.3%. California stood at 15.2%, but because it is such a large state, that represents nearly 900,000 mortgage borrowers.
"It’s hard to look at a national recovery," Brinkmann said. "We could have multiple bottoms with some markets recovering much faster than others."
The Federal Reserve Board Thursday recommended new disclosure rules for homeowners and compensation guidelines for mortgage brokers to correct some abuses of the recent runaway housing market.
Prospective borrowers would receive a one-page notice of key questions about their loan and see a graph comparing their interest rate to that of a low-risk borrower, the Fed said.
Mortgage brokers would not receive greater compensation if they put a borrower into a high-cost loan, under the rules cheap payday loans.
"Consumers need the proper tools to determine whether a particular mortgage loans is appropriate for their circumstances," Fed Chairman Ben Bernanke said during an open meeting of the board.
CIT and its many borrowers are in limbo.
A day after the cash-strapped small business lender had its bailout hopes deflated, CIT Group (CIT, Fortune 500) appeared headed for a bankruptcy filing.
Credit ratings agency Fitch cut its rating on CIT debt, saying a default appears "imminent or inevitable."
A spokesman for the New York-based company didn’t reply to a request for comment. CIT shares lost three-quarters of their value in trading Thursday and were fetching as little as 31 cents each at one point.
Though the century-old firm has sharply cut back its lending over the past year, a bankruptcy filing could add to the pressure on small businesses at a time when they have been shedding hundreds of thousands of jobs every month.
"Things don’t look good for CIT," said Jerry Reisman, a partner at law firm Reisman, Peirez & Reisman in Garden City, N.Y. "But they look downright perilous for the small businessman."
Small businesses — those employing fewer than 50 people — have cut 1.4 million jobs since December, according to data from payroll processor ADP’s latest monthly employment report. Small and midsize businesses — those employing fewer than 500 people — have lost 3 million jobs over the same period, according to ADP data.
Small and midsize businesses are among CIT’s chief customers, and a lack of access to credit could force many out of business, Reisman said. He said many CIT customers would have trouble getting loans elsewhere in the best of times, but their pain could be acute in a deep recession in which banks aren’t lending and sales have dwindled at many businesses.
"If you assume CIT customers tend to be a little riskier than the typical community bank borrower, then some of them won’t be bankable," said Bill Dunkelberg, chief economist for the National Federation of Independent Businesses.
According to several news reports, CIT is trying to line up a capital infusion from private investors. But observers were skeptical about the company’s chances.
Before Wednesday, Wall Street had assumed the government would provide support to CIT, given its earlier receipt of $2.3 billion in federal funds and its connection to small businesses. Investors took the Treasury Department’s decision not to do so as an indication that its books have taken a sharp turn for the worse no fax needed payday loans.
"Although we had originally thought CIT would have enough liquidity to survive through year-end, the recent negative press appears to have accelerated the liquidity drain with deposits fleeing and clients drawing down as much credit as possible before bankruptcy," Stifel Nicolaus analyst Chris Brendler wrote in a note to clients Thursday. "We think CIT’s poor credit quality ultimately led to its demise."
Complicating CIT’s outlook is the tepid market for lending to bankrupt companies, known as debtor in possession, or DIP, financing.
Getting DIP financing has become more difficult since the credit markets collapsed in mid-2007. Ironically, CIT has been a leading DIP lender. Last week it, along with GE (GE, Fortune 500) Capital and Bank of America (BAC, Fortune 500), provided a $100 million line of credit to retailer Eddie Bauer (EBHIQ), which filed last month for its second Chapter 11 reorganization in six years. A spokesperson from Eddie Bauer didn’t comment.
Mark Sunshine, president of First Capital, a lender in Boca Raton, Fla., said Treasury could support small businesses without bailing out CIT investors by providing DIP financing in the event of a CIT bankruptcy filing.
Sunshine said federal financing of the bankruptcy loan could enable an orderly workout at CIT over two years or so. Without such a backstop, he said, small business customers that sold their accounts receivable to CIT in exchange for upfront cash — a transaction known as factoring — could find themselves in the unenviable position of seeking repayment in court along with other creditors.
"Without Treasury, it isn’t going to happen," Sunshine, whose firm is a CIT competitor, said of the DIP loan.
Whether the problems at CIT end up taking another bite out of the economy will depend on how the company’s case is resolved. Dunkelberg noted in a report last week that data from the NFIB’s small business survey don’t support talk of a credit crunch — though that was before CIT’s brush with failure.
"This could certainly contribute to a constriction of credit, but we’ll just have to see how it plays out," he said.
On some level, we always knew it: Every company has its price. If someone is willing to pony up enough cash, a reluctant company can be forced to give up and sell.
We knew this.
And yet, it still shocked us a year ago Monday, when Anheuser-Busch’s board of directors — after a month of stiff resistance — yielded to a hostile takeover bid by Belgian brewer InBev.
One year later, St. Louis is still coming to terms with the takeover deal, which became official after shareholders approved the offer last November.
The loss of St. Louis icons wasn’t new. TWA was purchased by American Airlines. Ralston Purina became a unit of Nestl
NEW YORK — Your credit card debt may soon get a lot more expensive.
Two of the biggest issuers in the nation — Bank of America and Chase — say they’re switching some fixed-rate cards to variable rates, which could push up the amount of interest taken out of your monthly payment. The changes will take effect in August for both banks.
Chase and Bank of America wouldn’t give specifics on how many accounts the change will affect but said they will continue to offer some fixed-rate cards. Chase has 159 million credit cards in the U.S. and Canada, while Bank of America has 70 million worldwide.
Fixed-rate cards are generally reserved for the best customers. Fixed-rate cards currently make up 34 percent of credit cards issued by the nation’s largest lenders, according to Bankrate.com.
Despite the name, the terms on fixed-rate cards always could be changed in the past. That allowed banks to make the gamble of offering customers favorable fixed rates — then raising rates if the customers later proved too risky, said Leigh Allen, CEO of Global Consumer Finance Advisory, a consulting firm based in New York business
The children of baby boomers will eventually resuscitate the pummeled U.S. housing market, Harvard University said on Monday, but in the meantime, limits on income and credit are sustaining the three-year bust.
The highest unemployment in almost 26 years, record foreclosures and rigid lending threaten to overcome emerging home sales progress despite unprecedented efforts by the Obama administration, Harvard’s State of the Nation’s Housing 2009 report said.
Echo boomers, the children of the post-World War Two baby boomer generation, offer a massive source of support for housing, the study said. The generation is entering the peak home buying and renting ages of 25 to 44 and numbers over five million people more than did their parents’ record-sized group in the 1970s.
“Echo boomers are larger than the baby boomer population. Couple that with immigration and you have the seeds, the possibility of a housing recovery,” Nicolas Retsinas, director of Harvard’s Joint Center for Housing Studies, said in an interview.
The group will bolster demand for the next 10 years and beyond, supporting the sagging housing market even if immigration drops, the study said.
The challenges are myriad, however, said Retsinas, a widely followed housing industry expert and former senior official in the Department of Housing and Urban Development.
“We have to find a way to stabilize housing finance in this country,” he said businesscards.com.
A healthy housing market is integral to a growing economy. In the current cycle, the housing crash has propelled the economy into its longest recession since the Great Depression. Jobs lost to the recession have derailed any housing recovery.
“Seedlings of the housing recovery have to come through this thicket of job losses and foreclosures,” Retsinas said. “The housing market has not seen these challenges for over 60 years.”
Mortgage rates have risen from all-time lows in the past two months despite massive government steps to keep them down.
Foreclosures escalate as federal efforts to keep borrowers in their houses cannot keep pace with loan failures caused by job losses or punishing home price erosion.
THIN SILVER LININGS
Home sales have started to pick up, thanks mostly to a first-time buyer tax credit this year of up to $8,000 and demand for foreclosure properties at bargain-basement prices.
“While we do see some signs of stabilization, you can barely see those silver linings,” Retsinas said.
The lending pendulum swung vastly after the unsustainable five-year record home price surge early this decade. Lenders clamped down after lax conditions spawned record home sales and then fueled the torrent of foreclosures.
The Securities and Exchange Commission on Thursday filed securities fraud charges against former Countrywide Chief Executive Angelo Mozilo and two other former executives.
The trio was charged with deliberately misleading investors by telling them the company was a quality lender of mostly prime mortgages and had prudent underwriting standards, while it actually was engaging in very risky lending practices in order to build and maintain market share.
Mozilo was also charged with insider trading for selling his Countrywide stock for nearly $140 million in profits while knowing that Countrywide’s business model was deteriorating.
Along with Mozilo, the SEC charged former Chief Operating Officer and President David Sambol and former Chief Financial Officer Eric Sieracki with hiding the company’s true practices and condition from shareholders.
"This is the tale of two companies," said Robert Khuzami, director of the SEC’s Division of Enforcement. "Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk."
From 2005 to 2007, Countrywide engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, according to the SEC. The senior executives knew that defaults and delinquencies would rise.
In particular, the SEC pointed to Countrywide’s increased origination of pay-option mortgages, which allow borrowers to choose their monthly payments even if they don’t cover the entire interest amount. While the lender maintained they were being prudently underwritten, the SEC says, Mozilo wrote in an email that there was evidence that borrowers were lying on their applications and many would be unable to handle the eventual higher payments.
Also, Mozilo was very concerned about the lender’s 80-20 mortgage product, which allowed borrowers to take out two loans to cover the entire cost of the house. He called it "the most dangerous product in existence."
"In all my years in the business I have never seen a more toxic prduct[sic]," he wrote in an email to Sambol, according to the SEC.
By the end of 2006, Countrywide’s underwriting guidelines were as wide as they had ever been, the SEC said. Countrywide made an increasing number of loans based on exceptions to those already wide guidelines, even though these mortgages had a higher rate of default.
The SEC’s civil action seeks financial penalties and the return of ill-gotten gains.
An attorney for Mozilo called the SEC’s allegations "baseless."
"Mr. Mozilo acted properly and lawfully at all times as the CEO of Countrywide," said David Siegel. "Those sales were entirely lawful, complied with applicable laws and regulations, and were made under the terms of a series of written sales plans which were reviewed and approved by responsible professionals free business cards."
Siegel said it is "demonstrably false" that Mozilo knew about risky lending practices at Countrywide and refused to disclose them. "The mix and risks of Countrywide’s loan portfolio and its underwriting standards were well disclosed to and understood by the marketplace."
Sambol’s attorney said the SEC has no case against his client.
"Indeed, Dave’s own statements during investor presentations and earnings calls demonstrate that he provided the detailed, accurate information the SEC now falsely asserts was absent from Countrywide’s public filings," said Walter Brown.
Sieracki’s attorney said her client did not violate any securities laws.
"The Company provided robust, timely information concerning the risks affecting its business and monthly information on loan delinquencies," said attorney Shirli Weiss.
Countrywide acquired by Bank of America
Mozilo, who founded the company in a New York apartment, built Countrywide into the nation’s largest mortgage lender. But Countrywide buckled during the housing meltdown and was acquired last year by Bank of America (BAC, Fortune 500).
BofA came under heavy fire for originally naming Sambol to lead the combined company’s mortgage operations. A few months later, the bank reversed course before the acquisition was completed, saying Sambol would retire and appointing a BofA veteran to the top mortgage post instead.
"Current economic and business conditions have highlighted the need for strong and focused executive leadership with a deep understanding of the Bank of America culture and operating model," said BofA Chief Executive Lewis said at the time.
Soon after the acquisition closed, BofA entered into an $8.7 billion settlement with a group of state attorneys general over Countrywide’s lending practices. The bank agreed to modify the loans of certain Countrywide borrowers with subprime and pay-option mortgages.
In the first four months of the program, BofA contacted more than 100,000 potentially eligible borrowers, twice the requirement in the agreement, and completed modifications for more than 50,000 of them.
Bank of America referred comment to Siegel, saying the Countrywide executives were not employed at the company following the acquisition.
Mozilo became a poster boy for the subprime crisis. He reportedly stood to collect a windfall of $115 million in the $4 billion sale to BofA. But after facing heavy criticism from lawmakers, Mozilo said he would forfeit $37.5 million in payments tied to the deal.
CNN Senior Producer Scott Spoerry contributed to this report.
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