Business News: Assessing Wikipedia, Wiki-Style, on Its 10th Anniversary

Business News: Assessing Wikipedia, Wiki-Style, on Its 10th Anniversary

Assessing Wikipedia, Wiki-Style, on Its 10th Anniversary

Posted: 06 Jan 2011 02:00 PM PST

Verizon Wireless May Show iPhone Next Week

Posted: 07 Jan 2011 03:04 PM PST

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By Adam Satariano and Olga Kharif

(Adds timeline of AT&T’s exclusivity in third paragraph.)

Jan. 7 (Bloomberg) -- Verizon Wireless, the largest U.S. mobile-phone company, sent out invitations for an event in New York on Jan. 11 that two analysts say is probably an announcement for its long-awaited iPhone.

“If it looks like a duck, talks like a duck and walks like a duck, it’s probably a duck,” said Yair Reiner, an analyst with Oppenheimer & Co. “The question has always been on timing. We could hear as early as next week.”

Adding Verizon would end Dallas-based AT&T Inc.’s four-year run as the exclusive U.S. carrier of Apple Inc.’s iPhone, a period in which the device has both been a top-seller and faced complaints about reception. The move brings millions of potential customers to Apple and may crimp the growth of devices that run on Google Inc.’s Android operating system, Reiner said.

“By getting on to Verizon, Apple has the opportunity to sell more iPhones and could potentially slow Android’s momentum at the carrier that has been that platform’s most important patron,” Reiner said.

Earlier this week, ComScore Inc. said Android topped the iPhone in U.S. smartphone subscribers for the first time, accounting for 26 percent of the market, compared with 25 percent for Apple. BlackBerry maker Research In Motion Ltd. had the top spot with 33.5 percent.

Apple and Verizon are waiting for the technology industry’s focus to move away from the Consumer Electronics Show being held this week in Las Vegas, said Rajesh Ghai, an analyst at ThinkEquity LLC in San Francisco.

“They didn’t want it to be lost in the noise of CES,” Ghai said. “They wanted a standalone, exclusive event.”

Verizon’s event will be held at Lincoln Center in New York at 11 a.m., Peter Thonis, a Verizon spokesman, said in an e- mail. He declined to provide any details on the event.

Natalie Harrison, a spokeswoman for Cupertino, California- based Apple, didn’t immediately return a call seeking comment.

Verizon Communications Inc., the New York-based company which co-owns Verizon Wireless with Vodafone Group Plc, fell 30 cents to $35.93 today in New York Stock Exchange trading. The shares have risen 21 percent in the past year. Apple gained $2.39 to $336.12 on the Nasdaq Stock Market, and has climbed 60 percent in the past year.

--Editors: Peter Elstrom, Tom Giles

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Olga Kharif in Portland, Oregon, at okharif@bloomberg.net;

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net

Verizon's 4G Offerings

Posted: 07 Jan 2011 10:20 AM PST

The Fresh Prince of Streetwear

Posted: 06 Jan 2011 02:00 PM PST

Gaming in the Cloud

Posted: 06 Jan 2011 02:00 PM PST

Surround Sound for the Earbud Generation

Posted: 06 Jan 2011 02:00 PM PST

Airport-Gate Behavior Types

Posted: 08 Jan 2011 05:19 AM PST

Airbus A380 Gains as Boeing's Jumbo Slumbers

Posted: 06 Jan 2011 10:15 AM PST

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By Andrea Rothman

(Adds that order is the A380’s first since Qantas blowout in fifth paragraph.)

Jan. 6 (Bloomberg) -- Airbus SAS won an order for six A380s from Asiana Airlines Inc., building momentum for sales of the superjumbo after a dry spell of more than three years when the planemaker attracted only one new operator.

Asiana, South Korea’s second-biggest carrier, said today it will take its first A380 in April 2014 in an order valued at $1.8 billion as it challenges larger rival Korean Air Lines Co. on intercontinental routes.

The airline is the second new customer in three months to pick the 525-seater after Skymark Airlines Inc., Japan’s biggest discount carrier, said in November it would order as many as 15. Boeing Co.’s challenger to the A380 passenger model, its 747-8 Intercontinental, has won orders for 33 planes, with no new airline orders since December 2009. Airbus’s A380 now has orders for 240 planes from 18 customers.

“It’s more than a trend, it’s the logic of the industry,” Airbus’s A380 marketing director, Richard Carcaillet, said today. “Airlines are adding capacity, introducing new cabin products, and the A380 is the vector” for much of the growth.

Qantas Blowout

The order is also the first for the model since a Rolls- Royce Group Plc engine exploded during on a Qantas Airways Ltd. A380 in November. Qantas grounded all six of its superjumbos and still hasn’t resumed services with the plane to Los Angeles.

Singapore Airlines Ltd. and Deutsche Lufthansa AG replaced some engines on their Rolls-powered A380s and Airbus says it’s working to resolve associated disruption to the production line.

Airlines are obtaining higher load factors, or seat occupancy levels, and yields, or ticket prices, with the A380 than other planes, Carcaillet said. Lufthansa fills the same percentage of seats in A380s to Tokyo and other cities as it did on using Boeing 747s, spokesman Boris Ogursky said in an e-mail.

“The 747-8 is a very competitive airplane with a strong future and a significant market niche,” said Boeing spokesman Jim Proulx in an e-mail. “Talks continue with several airplanes regarding the airplane, its capabilities and how it could fit into their fleets.”

Shares of Airbus European Aeronautics, Defence & Space Co. rose the most in six weeks. They climbed 3.8 percent, the most since Nov. 24, to 19.08 euros at the 5:35 p.m. close of trading in Paris. That made EADS the day’s leading gainer in France’s benchmark CAC-40 Index.

Repeat Orders

While Airbus has won repeat orders from existing A380 customers, such as Korean Air and Dubai-based Emirates, it’s had trouble winning new customers since the plane began commercial service with Singapore Air in October 2007. The only first-time buyer since a British Airways Plc order in 2007 was Air Austral, a carrier from the Indian Ocean island of Reunion that ordered two in November 2009.

“It’s a big, costly aircraft that’s very much a strategic decision for any airline, as it’s clearly an aircraft to cater for growth,” said Sandy Morris, an analyst at Royal Bank of Scotland. “Given the recession, lack of growth in air traffic and difficulty in getting finance, you wouldn’t have expected very much to happen earlier.”

Morris, with a “buy” recommendation on EADS shares, said he remains a “great optimist for long-term sales of the A380.” The plane has 41 jets in service, according to Airbus.

Asiana, like Skymark in Japan, is using the superjumbo to challenge larger domestic rivals. Korean Air will take delivery of five superjumbos this year, with another five planes set to follow in the next two years.

Long-Haul Routes

Asiana will use the double-decker planes on flights to the U.S. and Europe, the airline’s chief executive, Yoon Young-Doo, said in a statement today.

“There’s huge demand in the long-haul market, especially between Asia and the U.S.,” said Ryu Jae Hyun, a Hong Kong- based analyst at Mirae Asset Securities Co. “Korean Air is earning a lot of profits from that.”

Korean Air and Lufthansa are the only two customers so far for Boeing’s 747-8I, which can seat 467. Boeing in September extended a yearlong delivery delay for the jet by six months to let engineers redesign some parts. Deliveries for the freighter model are set to begin in mid-2011 and for the passenger model later in the year.

The A380 can carry 525 passengers in a typical three-class configuration and more than 800 in a single-class layout, according to Airbus. The plane, which Airbus says is more fuel- efficient than older jets, has a list price of $346 million, though airlines get discounts for multiple purchases.

Engine Choice

Today five carriers fly the A380 -- Singapore Airlines, Lufthansa, Qantas, Emirates and Air France-KLM Group -- and Korean Air and China Southern Airlines Co. will become the sixth and seventh operators this year.

Asiana said it hasn’t decided whether it will order engines from Rolls or a Pratt & Whitney-General Electric Co. venture, the Engine Alliance, that makes a competing turbine and powers A380s including those of Emirates and Air France-KLM Group.

Asiana ordered 30 Airbus A350 planes, worth $7.2 billion at list prices, in 2008, with options for 10 more. The Seoul-based airline expects to take delivery of those aircraft starting in 2016. The carrier has 70 aircraft, including freighters, according to its website.

--with assistance from Cornelius Rahn in Frankfurt. Editors: Jim Silver, Chris Jasper.

To contact the reporter on this story: Andrea Rothman in Paris at aerothman@bloomberg.net.

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.

Iraq’s Muqtada al-Sadr Urges Government to ‘Get Occupiers Out’

Posted: 08 Jan 2011 05:02 AM PST

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By Kadhim Ajrash

Jan. 8 (Bloomberg) -- Shiite Muslim cleric Muqtada al-Sadr, an opponent of U.S. foreign policy, called on Iraq’s newly formed government to force “occupiers” to leave the country.

“The line of Iraqi resistance will not go away from Iraq,” al-Sadr told thousands of supporters in Najaf, about 100 miles south of Baghdad. “The Iraqi government should seek to get the occupiers out of the country by all means it sees appropriate.”

Al-Sadr returned to Iraq on Jan. 5 after an absence of almost four years.

--Editors: Amanda Jordan, Frank Connelly

To contact the reporter on this story: Kadhim Ajrash in Baghdad at kadhimajrash@yahoo.com.

To contact the editor responsible for this story: Louis Meixler at lmeixler@bloomberg.net.

Jefferson Leads LSU to 41-24 Win Over Texas A&M in Cotton Bowl

Posted: 08 Jan 2011 04:17 AM PST

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By Nancy Kercheval

Jan. 8 (Bloomberg) -- Jordan Jefferson connected with Terrence Toliver for three touchdowns and ran for a fourth as Louisiana State University defeated Texas A&M University 41-24 in college football’s Cotton Bowl.

Jefferson completed 10 of 19 passing attempts for 158 yards for the Tigers (11-2) last night at Cowboy Stadium in Arlington, Texas. Josh Jasper added two field goals, including one kick for 50 yards.

Ryan Tannehill completed 22 passes for 182 yards, two touchdowns and three interceptions for the Aggies (9-4).

--Editors: John Brinsley

To contact the reporter on this story: Nancy Kercheval in Washington at nkercheval@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

Renault Leaks Said to Pose Risk to Nissan, LG Secrets

Posted: 08 Jan 2011 03:59 AM PST

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By Laurence Frost

(Updates with Nissan, LG comments in fourth paragraph, suspected Chinese involvement in sixth paragraph.)

Jan. 8 (Bloomberg) -- Suspected leaks of Renault SA electric-car secrets may have compromised Japanese affiliate Nissan Motor Co.’s battery blueprints, as well as designs by LG Chem Ltd. and Better Place, two people with knowledge of the matter said.

Three executives accused by the French carmaker of knowingly passing on strategic data had access to designs for Nissan and LG power packs and battery-management systems supplied by California-based Better Place, the people said. They asked not to be identified because the investigation is ongoing.

Renault has fallen victim to an “organized, international ring,” and while the carmaker believes data on vehicle architecture and costs may have been passed to foreign competitors, battery technologies appear not to have been leaked, Chief Operating Officer Patrick Pelata told Le Monde in an interview. Pelata discussed the matter at length with his Nissan counterpart Toshiyuki Shiga and “reassured him about the technology we share,” he was quoted as saying.

“We continue to be updated by Renault on their internal processes and will handle accordingly if there is any impact to Nissan,” Nissan spokesman Simon Sproule said today in an e- mailed statement.

Chinese Link

LG Chem is checking whether its technologies were compromised, said Brandon Song, a spokesman for the Seoul-based unit of LG Group. Better Place spokeswoman Julie Mullins declined to comment.

The investigation so far points to possible Chinese involvement, Bernard Carayon, a lawmaker who has advised the French government on counter-espionage policy, told Agence France-Presse yesterday.

Renault-Nissan has invested about 4 billion euros ($5.1 billion) in electric vehicles and batteries. Nissan developed batteries in a venture with NEC Corp. for the Leaf electric car and models planned by its French alliance partner, while South Korea-based LG has a contract to supply batteries to Renault to meet demand in excess of the alliance’s manufacturing capacity.

The Renault leaks show that “French companies need to protect themselves better,” Industry Minister Eric Besson said today on Europe 1 radio. “The economic war is intensifying.”

Better Place

Better Place, founded by former SAP AG executive Shai Agassi, is in partnership with Renault to build and operate electric-car charging networks and battery-exchanging stations in Denmark and Israel. It is not clear whether any of the Renault partners’ designs were actually leaked, the people said.

Renault said this week it had suspended three senior executives after a five-month internal investigation. Michel Balthazard, a Renault vice president in charge of long-term product development, is the highest-ranking of the three managers now awaiting a decision on permanent sanctions, two people with knowledge of the matter said Jan. 5.

Another of the suspended executives, Matthieu Tenenbaum, previously worked at Nissan before overseeing the Better Place partnership and development of four battery-powered cars as deputy head of Renault’s electric-vehicle program.

In a statement released yesterday by his lawyer, Thibault de Montbrial, Tenenbaum said he was “stunned” by his suspension and did not understand the company’s accusations.

Renault spokeswoman Caroline De Gezelle and the interior ministry declined to comment on a report in Le Figaro that France’s DCRI domestic intelligence services were probing possible Chinese involvement.

--With assistance from Francois de Beaupuy in Paris and Sookyung Seo in Seoul. Editors: Kenneth Wong, Hellmuth Tromm

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.

Near-Zero Short-Term Interest Rates May Go Lower Under FDIC Rule

Posted: 08 Jan 2011 03:35 AM PST

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By Liz Capo McCormick

Jan. 7 (Bloomberg) -- A planned change in deposit insurance fees for U.S. banks may lower already near-zero short-term interest rates, according to strategists at Barclays Plc, Bank of America Merrill Lynch and the Royal Bank of Canada.

The Federal Deposit Insurance Corp. proposed broadening the base for deposit insurance fees to banks’ liabilities, rather than domestic deposits. The plan is designed to fund depositor protection while shifting the burden to larger lenders whose reliance on riskier funding may pose greater threats to the financial system.

Increased FDIC fees may cut into banks’ interest income and drive money market rates lower, the strategists said. The volume weighted average for overnight fed funds, the so-called effective rate, may slide by as much as 0.1 percentage point if the FDIC change is implemented, according to Wrightson ICAP LLC, a Jersey City, New Jersey research unit of ICAP Plc.

“The FDIC’s actions would have the same effect as a cut in the interest rate the Federal Reserve pays banks on excess reserves,” said Joseph Abate, money-market strategist at Barclays in New York. “This will drive repurchase agreement and Treasury bill rates lower.”

Rate Catalysts

Even lower short-term interest rates will potentially make it even harder for the $2.8 trillion money-market fund industry to retain customer assets. The FDIC changes will add to catalysts for lower money-market rates, chiefly the Fed siphoning of about $1 trillion in Treasuries from the market through its debt purchases by June, according to New-York based Brian Smedley, a strategist at Bank of America Merrill Lynch, a unit of Bank of America Corp.

“The Fed will likely achieve lower short-term rates even without lowering the 25 basis points it currently pays on banks’ excess reserve balances,” said Smedley, a former senior trader at the Federal Reserve Bank of New York. With short-term interest rates likely to decline this year, “it will make money- market mutual fund managers lives more difficult and could lead to further consolidation of the industry.”

Deborah Cunningham, chief investment officer in Pittsburgh for taxable money markets at Federated Investors Inc., which manages more than $336 billion in money-market investments, said a fall in overnight rates would at most be only about five basis points and wouldn’t be sufficient to speed any consolidation of the money-fund industry.

Consolidation Happened

“There will be pressure on short-term rates depending upon how this plays out, but a 10 basis points fall is pretty draconian and we don’t expect that,” Cunningham said in a telephone interview. “Most of the consolidation of the industry has happened, is happening and will continue to happen, but this wouldn’t push it any faster. This isn’t like a nail in the coffin or anything that really pushes people over the edge.”

FDIC-member banks pay quarterly assessments to the insurance fund, which fell into deficit as bank closings soared in the wake of the 2008 credit crisis. The Nov. 9 FDIC proposal, a response to the Dodd-Frank financial-regulation law, is in a 45- day comment period. If adopted, it would be implemented April 1.

Record-low interest rates during the past two years have made it difficult for the money market fund industry, which saw assets fall by $491 billion, or 15 percent, in 2010, according to the Investment Company Institute. Fund yields average 0.07 percent for the biggest 100 taxable funds, according to Crane Data, down from 1.16 percent two years ago.

Excess Reserves

Banks’ excess reserves held with the Fed above required amounts total about $991 billion, compared with $2.2 billion at the start of 2007. The Fed began paying interest on these reserves in October 2008 to keep the benchmark U.S. overnight interest rate traded in the market close to the target set by policy makers. The Fed’s deposit rate is 0.25 percent.

The central bank’s official target for overnight funds has been held in a range of zero to 0.25 percent since December 2008.

“Now that all banks’ assets, including short-term liquid assets, are included in the FDIC’s assessment base, it means that every bank faces its own interest rate on excess reserves,” said Lou Crandall, chief economist at Wrightson ICAP. “For a large number of custodial banks, at the margin, the benefit to them to keeping an extra dollar of reserves at the Fed will be about 15 basis points or some number in the mid teens rather than the 25 basis points the Fed is now actually paying. That will lower overall the structure of overnight rates.”

Overnight Lending

Overnight Treasury general collateral repurchase rates, which typically move in the same direction as the fed funds rate, may fall this year to as low as “single digits” from about 0.22 percent at present, according to Bank of America, as the Fed’s quantitative easing drains securities from the marketplace.

The Fed in November began buying $600 billion of Treasuries in a second round of debt purchases, expanding its stimulus measures in an attempt to reduce 9.8 percent unemployment and avoid deflation. The Fed also plans to reinvest $250 billion to $300 billion of proceeds from mortgage-backed debt and agency securities into Treasuries in the same time period.

Fewer securities available for borrowing and lending in the repurchase markets typically causes rates to fall as investors are willing to take lower interest rates on loans in order to get needed securities.

Another $200 billion in Treasury bills will be removed from the market by late February, as the Treasury’s Supplementary Financing Program is forecast to expire as the government reaches the federal debt limit and Republicans won’t likely allow an increase, according to Barclays and Bank of America. Through the program the Treasury sells bills at the Fed’s behest.

The FDIC fee assessment change “should have a pronounced effect on the fed funds effective rate,” Michael Cloherty, head of U.S. rates strategy for fixed income and currencies at Royal Bank of Canada in New York, wrote in an e-mail. “The banks subject to the new insurance fees should only be willing to borrow fed funds at rates more than 10 basis points below where they are currently borrowing.”

--With assistance from Christopher Condon in Boston. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Queensland Town Avoids ‘Worst-Case’ as Flood Waters Near Peak

Posted: 07 Jan 2011 09:05 PM PST

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By Jacob Greber and Michael Heath

Jan. 8 (Bloomberg) -- The Queensland town of St George, in the path of a deluge that is moving south through the state, will peak at a lower level than forecast, providing a potential reprieve for residents.

The Balonne River in St George is expected today to reach about 13.4 meters (44 feet), which is the level of record flooding that hit last year, the Bureau of Meteorology said in a statement on its website today. The bureau’s earlier forecast was for the water to climb above that level.

“There’s been a lot of relief here in St George as we’ve been able to establish that the water is not going to get past the previous record, or only slightly,” state Premier Anna Bligh said today while visiting the town with Prime Minister Julia Gillard. “We’re not going to see the worst-case scenario here.”

St George has established a flood defense barrier at a level of 14.5 meters, using natural high ground and earthworks, the Balonne Shire Council said in a statement. The river was at 13.2 meters at noon today, according to the bureau.

The floods, Queensland’s worst in 50 years, have forced the evacuation of 4,000 people and affected about 1 million square kilometers, or an area the size of France and Germany. Major General Mick Slater, who is leading the state’s recovery taskforce, said it may take years to repair infrastructure.

Premier Bligh has estimated the bill from the disaster, which has closed mines and spoiled crops, may be more than A$5 billion ($5 billion). The state is Australia’s largest coal exporter and accounts for about 20 percent of the nation’s A$1.3 trillion economy.

‘Force Majeure’

The region is losing A$480 million a week in lost coal exports, said Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne. About 160 million metric tons of annual coal production has been halted under force majeure contract clauses, equivalent to 41 percent of the world’s export coking coal supply, and 8 percent of global export thermal supply, he said.

St George, a town of 3,500 people about 500 kilometers (310 miles) inland from the state capital of Brisbane, expects river levels to remain above 13 meters until mid next week.

“We know that as flood waters rise it’s going to get tougher here in St George, and it’s tough for many, many people throughout Queensland,” Gillard told reporters today.

The Bureau of Meteorology today warned of heavy rain in parts of Queensland that may trigger flash flooding and worsen existing river levels.

Ten Dead

The southeastern state of Victoria has sent 23 emergency service volunteers and New Zealand is sending 16 flood response workers, Emergency Management Queensland said yesterday.

Ten people have died in floodwaters in the past few weeks and an estimated 200,000 people in the state have been affected, according to Queensland police. Police said today that a 55- year-old man died in a traffic crash involving his truck, which was part of a convoy transporting drinking water to the flood- ravaged town of Condamine.

The floods closed the airport at Rockhampton, a coastal city of 75,000 residents about 500 kilometers north of Brisbane. Train lines were cut and roads to the south and west of the town were closed. The airport may remain shut to commercial flights until at least Jan. 11, according to a notice on its website.

“The peak has held steady for a couple of days longer than what we thought,” Rockhampton Mayor Brad Carter said in a press briefing broadcast on Sky News today. He doesn’t expect water to recede before Jan. 14.

Third-Wettest Year

Australia had its third-wettest year on record during 2010, according to the weather bureau, which says showers and storms will continue across Queensland into next week.

The rain has destroyed cotton crops, halted coal deliveries, shut mines and prompted producers including BHP Billiton Ltd. and Rio Tinto Group to declare force majeure, a legal clause allowing them to miss contracted deliveries.

The “timing of the recovery depends on the rain,” ANZ Bank’s Pervan said in a note to investors yesterday. “The rub is that the wet season normally peaks in February/March, so risks remain high for an extended delay.”

Bligh said the government is working with coal miners on discharging water out of their pits. “They’re some of the biggest employers in central Queensland, and the best thing we can do for those communities is to get people back to work.”

Australia’s dollar touched a two-week low versus the U.S. currency on speculation the Reserve Bank of Australia will slow the pace of interest-rate increases after the floods tempered the economic outlook.

The cost of hiring larger ships to haul coal fell this week by the most in almost six months as the flooding shut mines and cut cargoes, according to the Baltic Exchange in London.

--With assistance from Angus Whitley in Sydney. Editors: John McCluskey, Jake Lloyd-Smith

To contact the reporters on this story: Jacob Greber in Sydney at jgreber@bloomberg.net; Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Jim McDonald at jmcdonald8@bloomberg.net

Paulson Group Said to Seize CNL Hotels From Morgan Stanley Funds

Posted: 07 Jan 2011 09:03 PM PST

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By Hui-yong Yu and David M. Levitt

Jan. 8 (Bloomberg) -- A lender group including Paulson & Co., the New York-based hedge fund run by John Paulson, seized control of former CNL Hotels & Resorts Inc. properties from Morgan Stanley’s real estate funds through a $600 million debt restructuring, said two people with knowledge of the deal.

The transaction involves the corporate debt used to finance Morgan Stanley’s 2007 acquisition of the hotel owner near the peak of the real estate market. Under the terms of the restructuring, $200 million of corporate debt was extinguished and $400 million was converted into equity, said the people, who asked not to be identified because the information is private.

In addition to Paulson, the lenders are Winthrop Realty Trust, Capital Trust Inc. and Morgan Stanley’s special property group, according to the people. The restructuring, completed Jan. 6, gave the group control of eight luxury resorts, one of the people said. Morgan Stanley’s real estate funds have the right to participate in future capital raising, they said.

Erica Platt, a spokeswoman for Morgan Stanley in New York, declined to comment. Armel Leslie, a Paulson spokesman, declined to comment, as did Beverly Bergman, a spokeswoman for Boston- based Winthrop. Stephen Plavin, chief executive officer of Capital Trust, didn’t respond to a call and e-mail yesterday.

Morgan Stanley has suffered losses from its real estate funds after the credit crisis pummeled property values and soured deals made at peak prices. The company bought CNL Hotels in 2007 for about $6.7 billion, adding luxury resorts including the Grand Wailea Resort Hotel & Spa in Maui; La Quinta Resort & Club and PGA West in La Quinta, California; and the Arizona Biltmore Resort & Spa in Phoenix.

Deal Financing

The financing for the acquisition included $1.5 billion of senior debt, $1 billion of mezzanine debt and $800 million of corporate debt, of which $200 million was previously converted to equity.

The other properties taken over by the lender group are the Doral Golf Resort & Spa in Miami, where PGA Tour events are played; the Ritz-Carlton Orlando and JW Marriott Orlando at the Grande Lake Resorts; the JW Marriott Desert Ridge Resort & Spa in Phoenix; and the Claremont Resort & Spa in Berkeley, California.

Morgan Stanley booked about $4.4 billion in real estate losses in 2008 and 2009. In November 2009, Morgan Stanley agreed to hand over Crescent Real Estate Equities to Barclays Capital, ending its obligation on a $2 billion loan.

One of the firm’s property funds defaulted in July 2009 on a $192.5 million mortgage on the Maui Prince Hotel in Hawaii, prompting Wells Fargo & Co. to foreclose. The fund bought the golf resort with a Hawaiian developer for $575 million in 2007.

--Editors: Kara Wetzel, Daniel Taub

To contact the reporters on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net; David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Massachusetts Top Court Hands Foreclosure Loss to U.S. Bancorp

Posted: 07 Jan 2011 09:03 PM PST

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By Thom Weidlich

Jan. 8 (Bloomberg) -- U.S. Bancorp and Wells Fargo & Co., in a ruling that drove down bank stocks, lost a foreclosure case before Massachusetts’s highest court that will guide lower courts in that state and may influence others in bank disputes involving state real-estate law.

The state Supreme Judicial Court yesterday upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were transferred into two mortgage-backed trusts without the recipients’ being named.

Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., called the decision “a landmark ruling” showing that at least in Massachusetts a mortgage “must name the assignee to be valid.”

“This is likely to open the floodgates to more suits in Massachusetts and strengthens cases in other states,” Rosner said.

“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote for a unanimous court.

Wells Fargo, the fourth-largest U.S. lender by assets, fell 65 cents, or 2 percent, to $31.50 in New York Stock Exchange composite trading yesterday. U.S. Bancorp, the fifth-largest U.S. bank by deposits, declined 20 cents, or 0.8 percent, to $26.09 yesterday.

Bank Index Drop

The 24-company KBW Bank Index fell as much as 2.4 percent yesterday after the decision was handed down.

Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed.

Although the decision was issued by a Massachusetts state court, it will be used by homeowners in foreclosure cases in other states, said Matthew Weidner, a St. Petersburg, Florida, lawyer who represents such homeowners.

“This is a very detailed, very specific indictment of an entire industry’s practices and procedures, and it’s an indictment that is going to send shockwaves throughout the entire mortgage, foreclosure, real-estate servicing industry,” he said.

The nationwide probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures.

Trustee Role

“This judgment has no financial impact on U.S. Bancorp,” Teri Charest, a spokeswoman for the Minneapolis-based bank, said in an e-mailed statement. “Our role in this case is solely as trustee concerning a mortgage owned by a securitization trust” and the bank had no responsibility for transferring the loans.

Wells Fargo said in a statement that, as trustee, it had no role in originating or servicing the loans.

“Wells Fargo believes the court’s ruling does not prevent foreclosures on loans in securitizations,” it said. “The court simply set forth a standard legal process that mortgage servicers must follow in Massachusetts.”

“The SJC’s ruling effectively rejected many grounds for the lower court’s decisions, and generally represents a good result for the mortgage-loan securitization industry,” Coppell, Texas-based American Home Mortgage Servicing Inc., the mortgage servicer on the trusts, said in a statement. “The SJC’s decision confirms that the securitization processes currently in place in the secondary mortgage market are sound, and can and do validly transfer mortgages for foreclosure purpose.”

‘Unique and Specific’

American Home Mortgage added: “The SJC’s decision is of limited applicability because it is based on law that is unique and specific to Massachusetts.”

The Massachusetts cases started in 2005 when Rose Mortgage Inc. lent Antonio Ibanez $103,500 and Option One Mortgage Corp. lent Mark and Tammy LaRace $129,000, according to the banks’ brief to the high court. Ibanez and the LaRaces stopped paying on their adjustable-rate subprime mortgage loans and were foreclosed on in 2007.

By that time, U.S. Bancorp and Wells Fargo & Co. said they controlled the loans, which had been subsumed in mortgage-backed trusts. The banks bought the homes in foreclosure auctions in July 2007.

In March 2009, Massachusetts Land Court Judge Keith C. Long voided the foreclosures, finding that the mortgage transfers were done months after the house sales and so U.S. Bancorp and Wells Fargo didn’t own them.

Bundled

In October of that year, Long declined the banks’ request to abandon that ruling after they argued the documents that bundled together the mortgages had transferred those instruments to them.

Long found that Option One Mortgage Corp., which early in the “chain of title” owned the mortgages, erred in assigning the mortgages without naming who they were transferred to, so- called blank assignments.

“We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void,” the Supreme Judicial Court said yesterday.

Tom Deutsch, executive director of the American Securitization Forum, an industry lobbying group, said in a statement that yesterday’s decision, unlike Long’s, holds that “assignments of mortgage can be executed in blank, as long as a complete chain of transfers can be shown through the applicable deal documents.”

Deutsche said that because the deal documents with the loan schedules weren’t introduced as evidence in the Ibanez and LaRace cases, “the court ruled that an otherwise valid confirmatory assignment was not sufficient to prove right to foreclose.”

‘Fully Enforceable’

Deutsche added that his group was “pleased the court validated the use of the conveyance language in securitization documents as being sufficient to prove transfers of mortgages under the unique aspects of Massachusetts law.” He added: “The ASF is confident securitization transfers are valid and fully enforceable.”

The banks argued, as does the securitization industry, that the right to a mortgage follows the sale of the promissory note it secures, and since they held the notes, they should be deemed to have the right to the mortgage.

The court disagreed.

“In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage,” Gants wrote.

Ownership Question

A holder of the note in that case could file a lawsuit to obtain the mortgage, the court said. Otherwise, the mortgage holder remains unchanged, which is why the banks didn’t have the right to foreclose in the two cases, according to the opinion.

“The question about ownership is certainly a big one for the banks, and any time you have a case that sets a precedent, there is the possibility that other states and a federal court will be influenced by that,” said Michael Nix, who helps manage about $900 million at Greenwood Capital Inc., in Greenwood, South Carolina.

He said he sold his Bank of America stake in the last week for Citigroup shares because of BofA’s foreclosures and mortgage issues.

Bill Halldin, a spokesman for Bank of America, declined to comment.

‘Onus’ on Banks

“This decision affirms our belief that the onus should be on the banks and other holders of notes to follow proper procedures before initiating foreclosure on any Massachusetts homeowner,” state Attorney General Martha Coakley said in an e-mailed statement. Coakley filed a friend-of-the-court brief on behalf of the borrowers.

On Jan 6, JPMorgan Chase & Co. won a case before Maine’s highest court challenging the bank’s right to foreclose on a home because it didn’t own the mortgage when it filed suit. Maine’s Supreme Judicial Court agreed that JPMorgan had satisfied the requirements for standing in the foreclosure case by the time a lower court ruled the bank’s favor, according to the decision.

Delinquent Borrowers

Bank stocks got hit in the market yesterday because investors don’t fully understand the ruling and it looks as though it may preclude banks from foreclosing on delinquent borrowers, said Paul Miller, a bank analyst for FBR Capital Markets in Arlington, Virginia, and former examiner for the Federal Reserve Bank of Philadelphia.

“I don’t think that’s the case at all,” Miller said, adding that the decision will probably slow down the process. “Any time you bring into question the foreclosure process, it will be negative for the banks.”

“It definitely puts into question some of the foreclosure practices of the transfer of notes,” Miller said. “The banks are going to feel some pain until we get a better, clearer picture of what’s happened.”

Credit-default swaps protecting debt issued by Wells Fargo jumped to the highest level in more than a month, climbing 7.8 basis points to 113 basis points, according to data provider CMA. Contracts on Bank of America added 4.1 basis points to 173.7, the data show. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

The swaps typically rise as investor confidence deteriorates and fall as it improves. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The high court said that documents properly transferring a mortgage, along with a schedule of the pooled loans clearly identifying it as one of those assigned, “may suffice to be proof that the assignment was made by a party that itself held the mortgage.”

Proof

“However, there must be proof that the assignment was made by a party that itself held the mortgage,” the court said. U.S. Bancorp and Wells Fargo didn’t supply the proof in this case, it said.

The court rejected the banks’ request to apply the decision only to future foreclosures if they lost. It does that when it makes a big change in the law, which it didn’t do here, it said.

“All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements” in the law “in the rush to sell mortgage-backed securities,” Gants wrote.

Thomas Mitchell, an analyst at Miller Tabak & Co., said yesterday in a note that “we do not see this type of decision as representing a major financial event” for banks. Lenders will already have taken 85 percent to 90 percent of their losses on the loans by the time of a foreclosure, he said.

Legal Rights

“In most cases, we believe, the lender will end up retaining significant legal rights once the paperwork is properly amended,” Mitchell wrote.

In a concurring opinion, Justice Robert J. Cordy said he was struck by “the utter carelessness with which the plaintiff banks documented the titles to their assets.”

He said the court’s decision didn’t address, because it wasn’t raised in the case, what effect that conduct would have on “a bona fide third-party purchaser” who relied on the methods the banks used and may now not have clear title to their homes.

Anthony Laura, who heads mortgage-banking litigation at Patton Boggs LLP in Newark, New Jersey, said those homeowners’ titles might be challenged, which would force lenders “into battle on two fronts -- one with those who lost their property to foreclosure and one with those who acquired their property after foreclosure.”

The case is U.S. Bank v. Ibanez, 10694, Supreme Judicial Court of Massachusetts (Boston). The lower-court cases are U.S. Bank National Association v. Ibanez, 08-Misc-384283, and Wells Fargo Bank NA v. LaRace, 08-Misc-386755, Commonwealth of Massachusetts, Trial Court, Land Court Department (Boston).

--With assistance from Hugh Son, Dawn Kopecki, David McLaughlin and Mary Childs in New York. Editors: Charles Carter, Stephen Farr.

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, at tweidlich@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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