Stocks end mostly lower on mixed data on housing, consumers; IBM boosts outlay for buybacks

EW YORK (AP) -- Stocks mostly fell Tuesday as mixed reports on home prices and consumer confidence gave investors little incentive to step into the market.

Rising energy stocks and a decision by IBM Corp. to double its stock-repurchase plan propped up the Dow Jones industrials but the Nasdaq composite index slid after Chinese Internet search company Baidu Inc. warned its revenue could take a hit as it switches its advertising system.

Two stocks fell for every one that rose on the New York Stock Exchange.

Bond prices rose after strong demand at a government debt auction, signaling that investors are still seeking safety.

Stocks rose at the start of trading following a report that home prices in 20 major metropolitan markets increased for the third straight month in August. The Standard & Poor's/Case-Shiller home price index gained 1 percent in August from July.

However, the gains in home prices couldn't offset worries that consumers might not be in a mood to spend this holiday season. The Conference Board said its Consumer Confidence Index fell unexpectedly to 47.7 in October, its second-lowest reading since May. Analysts predicted a figure of 53.1.

While data on consumer confidence can be volatile, the drop-off still took some of the sheen off corporate profit reports for the July-September quarter, which have been coming in ahead of expectations.

"When I look at the consumer, I think that is the next big test," said Dave Hinnenkamp, chief executive KDV Wealth Management in Minneapolis. "We've passed a big test on the earnings front."

The Dow rose 14.21, or 0.1 percent, to 9,882.17. The broader Standard & Poor's 500 index fell 3.54, or 0.3 percent, to 1,063.41, while Nasdaq fell 25.76, or 1.2 percent, to 2,116.09.

Bond prices rose after a Treasury Department auction of $44 billion in two-year notes drew robust demand. That pushed yields lower. The yield on the two-year note rose fell to 0.94 percent from 1.04 percent late Monday. The yield on the benchmark 10-year Treasury note fell to 3.45 percent from 3.56 percent.

Stocks have fallen for most of the past week on worries about the economy. The Dow dropped 104 points Monday after a similar slide Friday. It was the first consecutive triple-digit loss for the Dow since mid-June.

The drops have come as a strengthening dollar pushed the prices of commodities lower. The dollar mostly rose again Tuesday but didn't dominate trading.

Analysts say the coming days could be choppy as traders look for fuel to extend the market's climb. The down days are welcome by those who say the advance has been too quick. The S&P 500 index is up 57.2 percent since March but down 3.1 percent from the start of last week when it closed at its highest level in more than a year.

The end of the month could also present hurdles. For many mutual funds, the last trading day of their fiscal year is Friday. Fund managers looking to minimize taxes for shareholders could sell some of their investments.

Investors are also looking to the government's first reading on economic output for the third quarter. The report on gross domestic product is due Thursday and could signal an end to the recession that many analysts have said is over, at least officially.

Joe Battipaglia, market strategist for the private client group at Stifel Nicolaus & Co. in Yardley, Pa., said recent economic data don't support arguments for a fast recovery in the economy, nor do they suggest a rebound would be weak enough to push stocks back down to the levels of eight months ago.

"We are in what I would call purgatory right now where the U.S. economy is rather limp," he said.

Crude oil rose 87 cents to settle at $79.55 per barrel on the New York Mercantile Exchange. Gold fell.

IBM, one of the 30 companies that make up the Dow, rose after it added $5 billion to its stock repurchase fund. The total now stands at $9.2 billion. The stock advanced 54 cents, or 0.5 percent, to $120.65.

The rise in oil after a three-day slide helped lift energy stocks and the Dow. Exxon Mobil Corp., which is slated to report earnings Thursday, rose $1.68, or 2.3 percent, to $74.91.

Baidu's American Depositary shares slid $49.31, or 11.4 percent, to $383.66 after it its warning about revenue.

Consolidated volume at the NYSE fell to 5.4 billion shares from 5.7 billion Monday.

The Russell 2000 index of smaller companies slid 6.69, or 1.1 percent, to 586.99.

Britain's FTSE 100 rose 0.2 percent, Germany's DAX index fell 0.1 percent, and France's CAC-40 slipped less than 0.1 percent. Japan's Nikkei stock average fell 1.5 percent.

NEW YORK — The Obama administration's decision to cut the pay of top executives at companies on taxpayer life support will help quiet the popular outrage over excessive compensation. But it introduces a new concern: brain drain.

The 175 executives targeted by "pay czar" Kenneth Feinberg are not only the highest-paid but also considered among the most talented and productive. And competitors outside the restrictions are likely to woo them, recruiters and compensation expects say.

Losses like that could be devastating to the very companies the government spent so much money to save.

"These people are considered the brains of the machine. They are who can pull you through the tough times," said Steven Hall, who runs an executive compensation firm that bears his name. "This will give them reason to leave."

Feinberg announced Thursday that he has ordered seven companies that have received billions of dollars in taxpayer money to slash the base salaries of their top executives by an average of 90 percent and cut total compensation — cash, stock and perks — in half.

That applies to the five top executives and the next 20 highest-paid employees at Bank of America, American International Group, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial.

Another 525 employees at the companies will also face new curbs on pay from Feinberg, but those details have not yet been released.

Those facing pay restrictions outside the executive suite hold leadership positions in areas like finance and investment banking at the banks, and in manufacturing, brand management and design at the auto companies.

They come with years of experience, whether it's making deals or overseeing car design. For example, Ford Motor, which is in far better shape than its two Detroit rivals, could lure auto executives who would be difficult for Chrysler and GM to replace.

"There will be a fallout," said Janice Reals Ellig, co-CEO of the executive search firm Chadick-Ellig. "Talent that is short-term-focused because they have big mortgages, college education payments and other things will feel more pressure to leave."

A Bank of America spokesman, Scott Silvestri, said competitors not subject to pay restrictions "already are exploiting this situation by identifying our top performers and using pay concerns to recruit them away for fair market compensation."

Feinberg, in speaking engagements over the last month, acknowledged the difficulty of balancing "conflicting principles" on pay: Compensation needed to be high enough to attract talent without rewarding risk.

But he also has to deal with Americans angry that their tax dollars have been used to save these companies. The Obama administration has blamed misplaced compensation incentives as one cause of the financial crisis.

Feinberg will limit cash salaries to $500,000. Executives who had been guaranteed certain compensation will have those payments made in company stock to be held over the long term.

Most other pay will also have to come in long-term stock awards, and executives won't be able to sell that stock until the company repays its bailout money. Incentive stock awards can only be paid if executives stick around for three years and the company pays back the government.

Feinberg also gets to sign off on any performance goals used as incentives.

The pay restrictions for all seven companies will also require any executive seeking more than $25,000 in special benefits — things such as country club memberships, private planes and company cars — to get permission for those perks from the government.

Feinberg did say exceptions were made "where necessary to retain talent and protect taxpayer interests." Base salaries above $1 million were approved for the new CEO of AIG, and for two employees of Chrysler Financial.

Under a package approved by Feinberg over the summer, AIG CEO Robert Benmosche will get a pay package of about $10.5 million.

Competitors of all seven companies that have repaid bailout money are free to pay whatever they want — although the Federal Reserve did propose Thursday to monitor executive pay at thousands of banks.

Goldman Sachs, which paid back its $10 billion in government bailout funds in June, has set aside $16.7 billion for compensation and benefits so far this year, on track for a record.

"People who produce the top revenues will always be in demand. They will always be wanted," said recruiter Danny Sarch, president of Leitner Sarch Consultants in White Plains, N.Y. "That's just capitalism."

FARMINGTON — Cindy Dotson is excited she won’t have to pay rent anymore. Finally, she has a place to call her own.

Last week, the Habitat for Humanity of St. Francois County officially turned over the keys to her and her family to their new home in Farmington.

Linda Dickerson, executive director of the local group, said there was a fantastic turnout for the dedication.

Stan Stanfield from Thrivent Financial for Lutherans welcomed the crowd and thanked them for allowing him to be a part of changing the lives of Dotson and her boys.

Thrivent Builds and Thrivent Financial For Lutherans were the Super Sponsors for the local Habitat’s 11th house. Together they worked to provide 65 percent of the funding for the home as well as 50 percent of the volunteer labor.

Thrivent members were on hand to show their support of the project and their commitment to work in conjunction with Habitat for Humanity of St. Francois County, Inc. on another project in 2010.

Dotson, as well as her son, Ricky Rawson, thanked everyone who had any part in making this dream come true for their family.

She said she would never have dreamed in a million years that she'd ever be able to buy a home. She said with all the hard work of all the volunteers, Thrivent members and Habitat volunteers, she is pleased to call this her home.

Board president, Ed Pultz said Habitat for Humanity is not a hand out. He said it's important that the general public realizes that the homes are not free.

The families have to help build as well as pay monthly payments to the local Habitat. Habitat makes no profit, and charges no interest, but every penny Habitat spends on the home is recouped by the owners of the homes by them paying monthly mortgages just like any other homeowner.

He said they are currently collecting more than $30,000 a year in mortgage payments from homeowners. The money will help homeowners in the future.

Thrivent Chapter Specialist Doug Pratt was presented a Certificate of Appreciation by Pultz on behalf of Habitat for Humanity of St. Francois County, Inc. for all his hard work and dedication in organizing and demonstrating excellent leadership capabilities and taking on the task of organizing the Thrivent and Lutheran congregations to keep plenty of volunteers on the job site each work day.

Other Habitat homeowners like Paula Franks and her family and the Hill family took part in the celebration.

Matt Sansoucie who has recently been selected as a future family partner was on hand to tour the home and witness first-hand what happens when the families are awarded the homes that they have worked to earn.

Habitat’s next homeowners were also there. The Bryan family has been selected for the next house to be built. Shelby and Jim (Bimbo) Bryan have two teenage sons, Calvin and Petey.

The Bryan family signed their Family agreement, and has picked out a lot for their home. They are now waiting to finalize the house plans for their new home so that construction can begin in the coming weeks.

The home will be constructed in Park Hills on Allen Street and will consist of three bedrooms, one and a half baths, vaulted ceilings, and most importantly, a floor plan that will allow Jim to be able to maneuver throughout in his wheelchair.

Dickerson said Jim was injured in a vehicle accident in July of 2008 and was left a quadriplegic. He is confined to a wheelchair, but you won't ever see Jim without a smile on his face and ready to tease or aggravate someone if given half a chance, she said.

She said this family is looking forward to being in their home where their father can enjoy the freedom of being able to move from room to room without assistance, and most of all the use of restroom facilities that his wheelchair will fit into.

Business advisory firms FTI Consulting Inc. and Compass Advisers LLP said Monday they have created a new investment banking firm that will focus on global real estate.

The companies said their joint venture, EdgeRock Realty Advisors, will use the two companies' experience in real estate, financing and restructuring to build a boutique-style firm. It will advise real estate companies and institutional investors on mergers and acquisitions, private capital raising and initial public offerings and other strategies.

Robert Swain was a businessman with a wide portfolio — Florida real estate, a storied Rhode Island restaurant chain, oil, bath supplies, clothing and more.

But his most recent real estate deal has ended with a guilty plea.

Swain, 64, recently pleaded guilty in Pinellas-Pasco Circuit Court to four counts of selling unregistered securities, and also pleaded no contest to four similar charges.

The case stemmed from his effort to develop Rutland Estates in St. Petersburg, and Tarpon Highlands and Tarpon Pointe in the Tarpon Springs area, developments in which investors lost hundreds of thousands of dollars.

Victims are "obviously glad to have gotten back some of their money and they're glad to see that Mr. Swain has finally pleaded guilty," said David M. Boggs, an attorney representing some of the victims in a separate civil case.

Swain must serve four years of probation and will have adjudication withheld, meaning that he will not have a formal conviction on his record after completing probation.

But Assistant State Attorney James Helickson said the plea arrangement is a good one because Swain is required to pay $325,000 to his victims. He paid $100,000 earlier this month.

The charges were filed in 2001, and even without a trial, the case was a hard-fought battle by attorneys on both sides. After 30 years as a prosecutor, "this was probably the most complicated case I've ever been involved in," Helickson said.

Although Swain did enter guilty pleas, his attorney, David Weisbrod, said Swain was pleased there was no finding of fraud under the plea arrangement.

Swain was an active businessman, but several of his ventures ended up in bankruptcy proceedings, including the popular Newport Creamery, known for its "Awful Awful" milk shakes. Weisbrod said he is out of real estate development.

Boggs, the lawyer handling the civil suit, said he would meet with his clients to see how they wanted to proceed from here.

The problem with U.S.'s light bulb mandate

Arrol Gellner
Inman News

On Sept. 1 of this year, the European Union began banning the sale of incandescent light bulbs -- another well-meaning but heavy-handed effort on the part of EU bureaucrats to go green. This is the same government, you may recall, that blundered into requiring that 5.75 percent of its fuel come from biofuel sources by 2010 -- a mandate as ill-considered as it was premature.

Anyone who feels like tut-tutting the European nanny state, though, should know that, here in the good old free-market U.S., our own government is planning to phase out incandescent bulbs beginning in 2012. Rather than letting the obvious economies of more efficient lighting speak for themselves, Congress feels obliged to fine-tune America's buying habits with a sledgehammer.

Such meddling by legislative fiat is precisely the wrong way to coax people toward more environmentally responsible choices. As a recent editorial in London's Telegraph said of the EU's ban:

"(It is) an attempt to forward a policy goal -- combating global warming -- by statutory means. Such legislation imposes substantial costs on both consumers and the economy, but hides them so that legislators avoid blame."

Although this kind of criticism is widespread, most Europeans seem to be taking the new edict with docile resignation. This is hardly an endorsement, however, and Congress would be ill-advised to follow in the footsteps of the EU's ban, with its implicit endorsement of a competing technology (compact fluorescent lamps, which carry their own environmental risks) and the unavoidable appearance of government pandering to narrow corporate interests.

Rather than handing down arbitrary decrees on what sort of hardware people can and cannot install in their own homes, Americans would be better served by the creation of a rational, performance-based energy conservation policy -- one that would mandate energy budgets and declare, in essence:

"Americans, we must become more responsible consumers of energy. Therefore we are mandating energy consumption limits that are reasonable and fair. There are many ways to comply with these limits, some easy, some not, but how you choose to comply is entirely up to you."

If such a policy sounds impossible to enforce, note that the mechanism has already long existed, and that it runs quite smoothly, thank you. California's Title 24 energy code, for instance, has mandated minimum levels of energy efficiency in building construction since 1978, yet it still manages to provide a great deal of latitude in how the standards are met. Most states today have similar legislation.

Few would dispute that the incandescent lamp, which has seen little fundamental change since Thomas Edison perfected it 130 years ago, is a product whose time has passed for all but a few special purposes. Yet given the many less draconian means available to discourage its use, it's neither advisable nor necessary for Congress to insert itself into the issue.

Incandescent lamps are, after all, just one minor facet of America's profligate energy use. What's needed is not a scattering of arbitrary edicts, but rather one intelligent plan.

Next time: A closer look at the incandescent lamp's heir apparent, the compact fluorescent lamp.

***

What's your opinion? Leave your comments below or send a letter to the editor . To contact the writer, click the byline at the top of the story.

Copyright 2009 Arrol Gellner

Visa posts 4th-quarter profit as lower costs, debit card growth offset lower payment volume

NEW YORK (AP) -- Visa Inc. on Tuesday posted a profit for its fiscal fourth quarter, reversing a year-ago loss, as cost reductions and growing debit card use made up for a decline in payment volume reflecting consumer spending cutbacks.

The payments processor posted profit of $514 million, or 69 cents per share, on revenue of $1.87 billion. Adjusted for restructuring charges and other items, the company said it earned 74 cents per share.

That compares with a year-ago loss of $356 million, or 45 cents per share, on revenue of $1.71 billion.

Analysts polled by Thomson Reuters, on average, expected Visa to post profit of 72 cents per share, on revenue of $1.78 billion. Analysts typically exclude one-time items in their estimates.

Visa, which is based in San Francisco, said payment volume slipped 2 percent, to $687 million. But the total number of cards carrying the Visa brand rose 5 percent worldwide, to 1.7 billion, and total processed transactions rose 9 percent to 10.5 billion.

The increased number of cards and the higher transaction volume reflect the growing use of debit cards over credit cards, as consumers continue to tighten their belts.

Debit card use is also up because banks have cut back on the number of credit cards and amount of available credit they offer to consumers, as defaults continue to rise. Several large card issuers have reported past-due credit card payments approaching 10 percent in recent weeks. That figure tends to track unemployment, and is expected to keep rising through mid 2010.

Visa's fourth-quarter operating expenses dropped by more than half, to $1.01 billion, from $2.15 billion a year ago.

The majority of the decline came from reduced litigation spending following the settlement of several major lawsuits. But even while the company said earlier Tuesday that it renewed its sponsorship of the Olympic Games through 2020, it reported a 12 percent drop in advertising and marketing spending in the fourth quarter to $283 million.

Chairman and CEO Joseph W. Saunders said Visa is beginning to see signs of stabilization in its business that appear to reflect early signs economic recovery.

For the fiscal year, Visa posted a profit of $2.35 billion, or $3.10 per share, up from $804 million, or 96 cents per share, last year. Revenue rose 10 percent to $6.91 billion, from $6.26 billion in fiscal 2008.

The company also said its board approved plan to buy back up to $1 billion in stock through Sept. 30, 2010.

For 2010, Visa predicted greater than 20 percent growth in its per-share earnings, implying profit above $3.72 per share. Revenue is expected to rise 11 to 15 percent, implying a forecast between $7.67 billion and $7.95 billion.

Analysts were projecting 2010 profit of $3.44 per share, on revenue of $7.51 billion.

Visa shares closed Tuesday trading up $1.12 at $73.90. In aftermarket trading following the earnings release, its shares were up 91 cents to $74.83.

UBS names former Merrill exec Robert McCann as CEO of US wealth management unit

Swiss investment bank UBS AG said Tuesday it has named former Merrill Lynch & Co. executive Robert McCann as CEO of its U.S. wealth management unit, replacing Marten Hoekstra, who had held the position since February.

The hiring of McCann, 51, comes after UBS became the target of an Internal Revenue Service effort to get the names of thousands of Americans thought to be hiding assets in secret accounts. Ultimately, UBS paid a $780 million penalty and agreed to disclose the names of 4,450 wealthy Americans.

The Internal Revenue Service had originally tried to force Zurich-based UBS to turn over names of some 52,000 American clients believed to be hiding nearly $15 billion in assets. UBS and the Swiss government had argued the request violated Swiss banking confidentiality laws that date back centuries.

McCann will oversee UBS's U.S. and Canadian wealth management business as well as any international business that is booked in the U.S.

Until January, he was president of global wealth management at Merrill Lynch, where he had worked for 26 years. At Merrill, McCann had also worked as head of global securities research and chief operating officer of global markets and investment banking.

Bank of America Corp. agreed to acquire Merrill Lynch in a hastily arranged deal in September 2008, at the height of the financial crisis, just as Lehman Brothers was preparing to file for bankruptcy. That deal closed on Jan. 1.

McCann had been picked to lead the banks' combined brokerage unit, but instead left the same month the deal was completed.

Icahn makes offer to purchase CIT Group debt if bondholders agree to reject restructuring plan

NEW YORK (AP) -- Billionaire investor Carl Icahn offered Tuesday to buy certain classes of debt from CIT Group Inc. bondholders as he tries to thwart the commercial lender's restructuring plan.

Icahn said in a letter he will pay those bondholders 60 cents on the dollar for their bonds if they agree to reject CIT's debt restructuring plan.

New York-based CIT, one of America's largest lenders to small and mid-sized businesses, is trying to get bondholders to swap existing debt for new debt that matures later and stock. CIT is trying to reduce its near-term debt maturities by $5.7 billion.

On Monday, CIT sweetened its exchange offer for a second time in two weeks in an apparent sign debtholders are balking at the program.

Icahn said CIT's restructuring plan is unfair to small bondholders. He is offering to buy CIT's classes of fixed-rate notes whose principal totals less than $100 million. Icahn's offer does not include the purchase of floating rate notes, foreign-issued notes or U.S. fixed-rate notes whose principal exceeds $100 million.

Late in the day, CIT said in a release that Icahn's letter contained "important inaccuracies" and "misrepresented the fundamental economics of the company's restructuring plan."

Specifically, CIT disputes Icahn's claim that the reorganization plan provides "no protection for noteholders," stating that the plan calls for bondholders to receive new bonds and equity.

And while Icahn said the plan would "entrench the very board members who have gotten us into this mess in the first place," CIT said it would have a board comprised of "a majority of new independent members."

CIT is likely to file for bankruptcy protection if it is unable to win acceptance for the restructuring plan. Even if it can complete the restructuring, it has warned it still might have to reorganize under bankruptcy protection.

While CIT is asking bondholders to swap their debt, it is also seeking their approval for a prepackaged bankruptcy plan that might be needed even if the debt exchange is successful.

Icahn's offer would go into effect only if CIT's debt exchange offer, which expires Thursday, fails. Icahn would give bondholders 30 days to accept his offer.

Separately, late Tuesday Icahn sent a second letter, this time to CIT, detailing the backing he received for a $4.5 billion loan he proposed CIT accept in lieu of one being worked out with Bank of America. The letter followed an offer Icahn made last week to lend CIT $6 billion in an effort to get the company to stop the restructuring plan. If CIT goes ahead with the BofA loan, Icahn said he would challenge its validity through the courts.

If CIT were to collapse, it could hurt an economy already struggling to recover. It is a short-term financier to about 2,000 vendors that supply merchandise to 300,000 stores, according to the National Retail Federation.

CIT's losses have been mounting as its borrowing costs have risen faster than its income following the credit crisis of a year ago. It received $2.3 billion in federal bailout money last fall and a $3 billion emergency loan in July from some of its largest bondholders.

Shares of CIT fell 11 cents, or 10.3 percent, to close Tuesday's regular session at 96 cents.

NEW YORK (AP) -- Online brokerage E-Trade Financial Corp. on Tuesday said its loss widened in the third quarter in large part because of a hefty charge it took to shore up its capital position.

While the company's trading activity has been volatile in recent quarters, E-Trade's streak of dismal earnings have largely been the result of its souring investments.

E-Trade was slammed by the recession and credit crisis in part because of the firm's investments in real estate loans and bonds backed by the troubled assets.

The New York company has been working to improve its capital position through debt exchange and stock offerings as it continues facing losses from those investments. As part of the $1.74 billion debt exchange in August, the company swapped out senior notes due in 2011 and other notes due in 2017 for new debt that can eventually be converted into common stock.

Exchanging the debt lets the company cut interest payments and fortify its ownership base.

About a year ago, the company also sold a number of assets to raise capital. Among the sales were its Canadian business for $515 million and its stake in an Indian brokerage for $145 million.

CEO Donald Layton had even contemplated taking advantage of the government's bailout of financial institutions, although E-Trade never ended up receiving any money.

Despite its ongoing investment troubles, Layton noted that the company's third-quarter results suggest that its core business is healthy, as average investors start returning to the market.

Quarterly revenue was $575.3 million, up 52 percent from $377.7 million in the year-ago period. Total daily average revenue trades were 196,413 for the quarter, up 7 percent from the same period in 2008.

At the end of the quarter, E-Trade said it had 4.5 million customers accounts, which included a record 2.7 million brokerage accounts.

Total customer assets rose to $148.7 billion, up from $142.2 billion the same time last year.

E-Trade shares were unchanged in after-hours trading following the release of the earnings report. In the regular session, the stock fell 3 cents to close at $1.57.