Business News: Ditch Your Wallet and Pay by Phone

Jan. 3 (Bloomberg) -- As Barack Obama prepares to confront a strengthened Republican opposition to his tax, spending and immigration priorities when Congress convenes this week, his advisers are comparing him to another president who faced similar circumstances: Ronald Reagan.

Like Reagan and Bill Clinton, Obama must spend the next two years of his presidency navigating a new balance of power after midterm election losses. Before leaving for a year-end vacation, Obama sought advice from Reagan chief of staff Ken Duberstein and David Gergen, an image adviser to both Reagan and Clinton, said an Obama aide. On his Hawaii trip, Obama brought along journalist Lou Cannon’s Reagan biography, “The Role of a Lifetime,” a selection his press secretary announced over Twitter.

Obama “has the bully pulpit and he’s demonstrated in the clutch that he knows how to use it,” said Patrick Griffin, who was Clinton’s legislative affairs director from 1994 to 1996. “He is going to be a formidable player in defining who did the right thing for the American people, whether the result is legislation or stalemate.”

Obama, 49, has maintained his personal popularity even when his job approval dropped, as did Reagan. While independent voters disapprove of how Obama is handling his job as president by 50 percent to 44 percent, they rate him favorably by 51 percent to 44 percent, according to a Bloomberg National Poll Dec. 4-7.

‘Likability Factor’

“Both Obama and Reagan have retained a strong likability,” said M.B. Oglesby, a congressional liaison and later deputy chief of staff for Reagan. “You have a president who people kind of want to see succeed, and that can help him with Congress,” said Oglesby, now chairman emeritus of Prime Policy Group, a Washington lobbying firm owned by Dublin-based WPP Plc.

One way Reagan capitalized on that popularity was by focusing on moving public opinion, said Duberstein, who declined to comment on his advice to Obama in their Dec. 10 Oval Office meeting.

“The job of the president is fundamentally to build a consensus in the country in order to build the votes in Washington,” said Duberstein, Reagan’s chief of staff from 1988-89 and now chairman and chief executive officer of the Washington lobbying firm The Duberstein Group.

Shift Outside Washington

Obama senior adviser Valerie Jarrett suggested in a Dec. 26 appearance on NBC’s “Meet The Press” that Obama’s approach to governing would shift in that direction, putting more emphasis on communicating with the public. Jarrett said Obama underscored the point just before leaving for his Christmas vacation, telling her, “When I get back, I really want to figure out a way where I can spend more time outside of Washington, listening and learning and engaging with the American people.”

During his 2008 Democratic primary campaign, Obama praised Reagan in an interview with a Nevada newspaper as a president who “changed the trajectory of America in a way that Richard Nixon did not and in a way that Bill Clinton did not.”

Reagan began his term as the country was roiled by double- digit inflation and long-term interest rates. Obama entered office amid the worst financial crisis since the Great Depression. Both presidents’ parties retained control of the Senate in the midterm elections while the opposition expanded in the House, in Reagan’s case weakening a working coalition between minority Republicans and fiscal conservatives among the majority Democrats. Obama’s Democrats lost control of the House.

Reagan’s Alliances

Reagan forged an alliance with Democratic leaders to pass legislation in 1983 to shore up Social Security by raising taxes and increasing the retirement age. In 1986, also with control of Congress divided, Reagan got help from Democratic allies to win passage of tax legislation reducing rates and limiting deductions.

Obama’s agenda will include items that appeal across party lines, such as an education overhaul that expands teacher merit pay and encourages more charter schools, a rewrite of the tax code, and steps to reduce the long-term budget deficit, according to an aide who spoke on condition of anonymity. Obama has yet to offer a plan or say whether he’ll take up the Dec. 3 recommendations by members of his bipartisan deficit commission to reduce the cost of programs such as Social Security and Medicare.

Corporate Taxes

Obama, in an interview with NPR and a statement before meeting with corporate chief executives, said he would like to pursue a tax overhaul that, like Reagan’s tax code revision, would reduce rates and simplify the system.

Jeff Sessions of Alabama, who will become the Senate Budget Committee’s top-ranking Republican, said Obama could gain broad backing across party lines, including “a lot of support from Republicans,” for a plan that reduces the corporate tax burden.

“If he could come across with a compromise on simplifying and reducing tax rates in general, including the corporate side, that would be in the national interest,” Sessions said.

Obama set the stage for compromise during the December lame-duck session of the departing Congress, cutting a deal with Republican leaders to extend Bush-era income tax cuts, reduce Social Security taxes and extend unemployment benefits in return for a two-year continuation of tax cuts for the wealthy. He gained bipartisan support to overcome Republican opposition to ratification of a nuclear arms treaty with Russia and repeal of the ban against gays serving openly in the military.

Relations With CEOs

Obama also moved to reset his relationship with corporate leaders after the midterms, during which the U.S. Chamber of Commerce committed more than $75 million to ads mainly directed against Democrats.

After business-friendly decisions including the tax-cut extensions and a free-trade accord with South Korea, he met Dec. 15 at Blair House with 20 corporate leaders, including General Electric Co. Chief Executive Officer Jeffrey Immelt, UBS AG Chairman for the Americas Robert Wolf and Honeywell International Inc. Chairman David Cote.

Verizon Communications Inc. CEO Ivan Seidenberg, who complained in June that Obama was creating “an increasingly hostile environment for investment and job creation,” praised him on Dec. 8 for “a willingness to learn.”

John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said he anticipates that passage of the South Korea Free Trade Agreement as well as trade deals under negotiation with Panama and Colombia would lead to “some significant economic progress.”

Obama’s Momentum

While many House Democrats criticized the tax deal, the legislative accomplishments restored Obama’s political momentum, said Griffin, now associate director of the Center for Congressional and Presidential Studies at American University in Washington.

“It’s been one of the fastest cycles of political recoveries I’ve ever witnessed,” Griffin said. “It now gives him the chance to set the rhetorical table going into the new Congress.”

In April 1995, by contrast, more than six months after Clinton’s midterm losses the center of debate had so shifted to the Republican congressional majority that he felt the need to tell a news conference, “The president is still relevant here.”

Clinton went on to win re-election, and in the aftermath of the 2010 midterms, Obama met with Clinton, as well as Clinton’s former chiefs of staff, Leon Panetta and John Podesta.

Economy’s Woes

Obama confronts stiffer economic challenges than Clinton or Reagan did. The recovery was already well-established for Clinton in 1994 and unemployment had been falling for more than two years. About the same time as Reagan’s midterm losses, the Federal Reserve began easing monetary policy and the economy was growing at more than 7 percent by the 1984 election.

When Obama faces re-election in 2012, the economy is projected to grow at 3.2 percent, and unemployment -- 9.8 percent in November -- is projected to be 8.7 percent, according to the median forecast of economists surveyed by Bloomberg News in December. The average jobless rate during their re-election years was 7.5 percent for Reagan in 1984 and 5.4 percent for Clinton in 1996.

“I can’t see the president or Congress will have a lot of interest in getting spending or the deficit under control in the next year or two,” said Wells Fargo’s Silvia. “I think they’ll put it off until after the 2012 election.”

Health Care

House Republicans, campaigning last year amid voter distress over the economy, criticized Obama for the level of government spending, including the $814 billion stimulus package, and many vowed to seek a repeal of Obama’s health-care law, which requires most Americans to buy insurance.

Even so, House Republican leaders say repealing Obama’s signature legislation isn’t likely in the next two years and will be a rallying cry in 2012.

House Republicans will be “appealing to the American public” to support repeal of the health-care law by holding hearings to spotlight “what will work and what isn’t working,” said California Representative Wally Herger, who will lead the House Ways and Means Committee’s health subcommittee.

Still, “we know it’s going to be tough sledding to go through the Senate and it’s certainly not going to be easy to get something signed by the president,” he said.

Spending Battles

Republicans have promised to seek cuts to reduce a budget deficit that the White House in July projected will reach $1.4 trillion in the current federal fiscal year. Obama already was laying down lines against spending cuts during his Dec. 22 year-end press conference before departing for Hawaii.

“It’s vital for us to make investments in education and research and development, all those things that create an innovative economy, while at the same time cutting those programs that just aren’t working,” Obama said.

Obama promised to renew his efforts to pass legislation to provide a path to citizenship for children brought to the U.S. at a young age by undocumented immigrant parents. Congress’s failure to pass the so-called DREAM Act was “maybe my biggest disappointment,” he told reporters.

And in praising bipartisan support for the Russia nuclear arms treaty, Obama evoked Reagan: “We will be able to trust, but verify.”

--With assistance from Laura Litvan and James Rowley. Editors: Robin Meszoly, Mark McQuillan.

To contact the reporter on this story: Mike Dorning in Washington D.C. at mdorning@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Hany Farid vs. Photoshop

Posted: 04 Jan 2011 05:28 AM PST

The Apps Class of 2010

Posted: 29 Dec 2010 07:51 AM PST

Former Estonian Champion May Bolster ECB’s German Camp

Posted: 04 Jan 2011 05:24 AM PST

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By Ott Ummelas and Christian Vits

(Adds stock market reaction in ninth paragraph.)

Jan. 4 (Bloomberg) -- Estonia’s adoption of the euro may bolster a German-influenced faction on the European Central Bank’s Governing Council that’s pushing for more government austerity in member states, analysts said.

Andres Lipstok, Estonia’s central bank governor and a former fencing champion, became a voting member of the ECB council when the Baltic nation joined Europe’s currency bloc on Jan. 1. Since winning independence from the Soviet Union in 1991, Estonia’s tight control on spending has given it the lowest level of government debt in the 27-member European Union and the second-smallest budget deficit in the euro zone.

“Estonians prefer a stability-oriented approach, as their fiscal policy shows,” said Carsten Brzeski, senior economist at ING Groep NV in Brussels and a former European Commission official. “So Lipstok most likely will strengthen the Germanic bloc, and Bundesbank President Axel Weber will enjoy a new friend.”

Weber, who has been critical of the ECB’s decision to buy government bonds in response to Europe’s debt crisis, leads a group of policy makers demanding politicians take greater responsibility for their own profligacy. Ireland in November became the second euro nation after Greece to receive an EU-led bailout, sparking concern that contagion will spread through the euro area and undermine the common currency.

‘Austere Coalition’

“Most likely we will witness the creation of an Austere Coalition, actually a modified Hanseatic League, of Germany, Austria, Finland, Estonia, and a few of the smaller countries,” said Simon Johnson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management, in his blog on Dec. 2. “Ending moral hazard -- the prospect of soft bail-out money forever -- is an admirable goal.”

Lipstok, who declined to be interviewed for this article, made headlines in October 2007 by stating in an online chat with readers of Eesti Paeevaleht newspaper that he could “surely” make ends meet on a gross wage of 5,000 krooni ($473) per month. His gross salary at the time was about 115,000 krooni a month.

Lipstok said on Sept. 20 last year that Estonia had kept a tight rein on its finances to comply with EU fiscal rules and qualify for euro membership.

Even as the economy shrank 13.9 percent in 2009, Estonia raised sales, alcohol and fuel taxes, froze payments into workers’ pension funds and cut salaries. The measures helped reduce the budget deficit to 1.7 percent of gross domestic product, well below the EU’s 3 percent limit. By contrast, Ireland and Greece had deficits of more than 14 percent of GDP.

The Nasdaq OMX Tallinn stock index rose 6.1 percent since Estonia joined the euro, the largest gain among 84 benchmark indexes tracked by Bloomberg. The index advanced 73 percent last year, ranking it third behind the Mongolian Stock Exchange Top 20 and Sri Lanka Stock Market Colombo All-Share Index.

High School Swordsman

Lipstok, who turns 54 next month, was Estonia’s best high school swordsman in his youth and could have represented the Soviet Union at the junior world fencing championships in 1975, according to the 2004 book “Kapital” by Tiina Jogeda, for which Lipstok was interviewed. He chose instead to end his sporting career and study finance at Tartu University, where he obtained the equivalent of a master’s degree.

“He stood out already in the auditorium and was always eager to reply and discuss,” said Mart Sorg, professor emeritus at Tartu University, who was chairman of the central bank’s board when Lipstok became governor in June 2005. “We chose him for his compromise-building skills,” Sorg said.

Earlier in his career, when Estonia was still part of the Soviet Union, Lipstok held finance positions at regional and central-government level. He rose to prominence as the head of Laeaene regional government in western Estonia from 1989, when the pro-independence movement started gathering strength.

Coup Attempt

According to Kapital, Lipstok helped ensure a bloodless transition to autonomy for Estonia during the failed 1991 coup attempt by Communist hardliners on Soviet President Mikhail Gorbachev, which precipitated the collapse of the Soviet Union.

Lipstok’s good relationship with the head of the Soviet garrison in western Estonia allowed him to negotiate a deal to keep the troops inside the barracks as the coup destabilized Russian control across the Baltics. On Aug. 20, 1991, Estonia proclaimed independence.

A member of the business-friendly Reform Party until 2005, Lipstok served as finance minister and economy minister in successive governments in 1994 to 1996.

“There were all sorts of people in the government back then, the share of the crazy ones was pretty high, and Lipstok was remarkably well-mannered and constructive against that background,” said Andres Tarand, a Social Democratic prime minister during Lipstok’s term as finance minister.

Short ECB Tenure

Lipstok’s tenure on the ECB’s council won’t be a long one. His seven-year term as Estonian central bank chief expires in June 2012 and he can’t be re-elected.

In joining the ECB, Lipstok will be plunged into top-level policy making in Europe during a time of crisis. While Estonia is the euro region’s second-smallest economy after Malta, Lipstok’s vote on the ECB council carries as much weight as any of its other 22 members.

Given Estonia’s track record of fiscal rectitude, Lipstok will find himself in good company with the likes of Weber and Juergen Stark, the ECB’s chief economist, said Hardo Pajula, a Tallinn-based economist with SEB AB. Stark said last month that every euro-area country must be responsible for its own debt.

“The rhetoric of the Bank of Estonia over the last 20 years has been influenced primarily by the postulates of Washington consensus and German ‘Ordnungspolitik’,” Pajula said. “Hence, I am rather certain that Lipstok and his team will probably make natural allies of Messrs Weber and Stark.”

--With assistance from Aaron Eglitis in Riga. Editors: Matthew Brockett, Jana Randow

To contact the reporters on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net; Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

Moynihan Fights Fires at BofA Amid Book-Value Doubts

Posted: 04 Jan 2011 05:21 AM PST

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By Hugh Son

(Updates with WikiLeaks threat in the sixth paragraph.)

Jan. 4 (Bloomberg) -- Brian T. Moynihan spent his first year as Bank of America Corp.’s chief executive officer putting out fires smoldering from the financial crisis. In 2011, he’ll do it all over again.

Since succeeding Kenneth D. Lewis on Jan. 1, 2010, Moynihan, 51, has struggled to stanch loan losses and a surge of litigation at the biggest U.S. lender while trying to mend relations with customers, regulators and investors. He paid $2.8 billion last week to government-owned companies Fannie Mae and Freddie Mac to settle claims the bank sold them defective mortgages, a major step toward resolving liabilities taken on with the 2008 purchase of Countrywide Financial Corp.

“Brian’s got his hands totally full dealing with the internal issues and the external focus on some of the problems of the company,” Stephen A. Schwarzman, CEO of Blackstone Group LP, the world’s biggest buyout firm, said in an interview. “He is in firefighter mode, dealing with fires that will be contained but need attention.”

A year ago, Moynihan pledged to improve customer service and assigned more than 26,000 employees to help delinquent homeowners. By last month, at least two states sued, claiming the bank foreclosed on people enrolled in loan-modification programs. Moynihan supported the Obama administration’s push to protect consumers, only to see new regulations blow an estimated $4 billion hole in annual revenue. When he told investors Dec. 7 the dividend may be restored in 2011, the shares, instead of jumping, slid by 7 cents.

Behind Citigroup

“Moynihan needs to win the confidence of the markets, which he obviously doesn’t have now,” said Marty Mosby, a Nashville, Tennessee-based analyst at Guggenheim Securities LLC, which manages more than $100 billion, including 1.9 million Bank of America shares. “If he doesn’t do well in 2011, it will be hard to change that perception.”

One challenge for this year may come from the website WikiLeaks, whose director, Julian Assange, said he intended to “take down” a major American bank by releasing a cache of data from a company executive’s hard drive, the New York Times reported Jan. 2.

While Assange never named Bank of America, Moynihan has set up a “counterespionage” team to oversee an internal investigation in case sensitive private documents at the bank become public, the newspaper said.

Behind Citigroup

There are other signs that the Charlotte, North Carolina- based bank, with $2.3 trillion in assets, 284,000 employees and 5,879 branches, is lagging behind rivals including Citigroup Inc., the third-largest U.S. bank by assets, in putting the financial crisis behind it.

The company’s shares were down 11 percent last year, the second worst in the 24-company KBW Bank Index. Only Bridgeport, Connecticut-based People’s United Financial Inc. fared worse. Citigroup rose 43 percent. Bank of America, which repaid $45 billion in U.S. bailout funds in 2009, traded by year-end for about 60 percent of book value, reflecting investor doubts that assets are properly stated. The industry average is 94 percent.

“They’re the most troubled large bank -- it’s an unfortunate place to be,” said Christopher Whalen, a former Federal Reserve Bank of New York analyst and co-founder of Institutional Risk Analytics in Torrance, California.

The announcement yesterday of last week’s settlement, which Whalen said was “clearly a gift,” sent Bank of America up 6.4 percent to $14.19 in New York Stock Exchange composite trading, the biggest increase in almost eight months.

FleetBoston Acquisition

Improving the share performance of Bank of America, which reports fourth-quarter results Jan. 21, is a top priority for Moynihan, a graduate of Brown University and Notre Dame Law School who joined the bank after the 2004 acquisition of FleetBoston Financial Corp., where he worked for 11 years.

“The stock price doesn’t reflect, I think, the value of the franchise or the work we’ve done,” Moynihan said on Bloomberg Television’s “InBusiness with Margaret Brennan” on Dec. 10. “I can’t be successful unless the shareholders get paid and get paid well.”

Moynihan, who declined to comment for this story, is pursuing a strategy of integrating the businesses assembled by Lewis through more than $130 billion in acquisitions that made Bank of America the largest retail bank, debit-card issuer and mortgage servicer in the U.S.

Charlotte Slideshow

Growth will come from marketing products to customers across divisions, Moynihan told 200 top executives in Charlotte in November, according to a slideshow used at the two-day meeting. Retail deposit customers will be encouraged to make transactions with the bank’s credit cards, and commercial- banking clients will have access to capital markets and financial advisers gained through the 2009 acquisition of Merrill Lynch & Co., the presentation said.

Moynihan also disposed of $16 billion in businesses and investments that weren’t considered essential, including most of its stake in money manager BlackRock Inc. and holdings in Brazilian and Mexican lenders.

“He’s methodically trying to make the place better, and I think he’s making the right moves,” said Sydney Finkelstein, a professor of management at Dartmouth College’s Tuck School of Business in Hanover, New Hampshire. “There’s just so much to fix, and they’re in the news all the time with the foreclosures, the toxic assets and all the rest.”

Credit-Card Losses

As its name suggests, Bank of America’s fortunes are more closely linked with the U.S. economy than those of New York- based rivals Citigroup and JPMorgan Chase & Co. Eighty percent of the bank’s 2009 revenue came from the U.S., compared with 55 percent at Citigroup and 75 percent at JPMorgan. That means it doesn’t stand to benefit as much from faster-growing economies.

Investor concerns focus on the bank’s retail units, whose deposit, credit-card and home-loan operations provide about half of the firm’s revenue and will bear the ultimate costs for soured mortgages and home-equity loans.

Retail-banking profit slipped 21 percent to $1.6 billion through the third quarter of 2010 as interest income declined and federal regulation limited fees. The firm’s credit-card unit posted an $8.1 billion loss, driven by a $10.4 billion writedown tied to debit-card regulation that will squeeze revenue by about $2 billion a year starting in the third quarter of 2011. Overdraft and credit-card fee limits are expected to decrease 2010 revenue by another $2 billion, Bank of America said.

Putback Demands

In home lending, where Bank of America is the second- largest mortgage originator after San Francisco-based Wells Fargo & Co., according to industry newsletter Inside Mortgage Finance, the cost of loan buybacks drove a $4 billion loss in the first three quarters of 2010, widening from $2.9 billion in the year-earlier period.

The company had received $21.6 billion in demands to repurchase soured mortgages from Fannie Mae and Freddie Mac, Bank of America said yesterday. The firms were seeking to force the lender to buy back loans allegedly made with incorrect data, such as inflated incomes for borrowers and whether the property is a primary residence.

Bank of America said it paid $1.5 billion to Fannie Mae to end claims on $4 billion of Countrywide loans. It gave $1.3 billion in cash to Freddie Mac to resolve or preclude claims on $127 billion in loans. The payments “largely addressed” liabilities tied to the two firms, the bank said.

MBIA, Ambac

The lender booked a $3 billion fourth-quarter provision related to the settlements and a $2 billion writedown on the value of Countrywide operations, wiping out the $2.7 billion in net income analysts had expected the company to post, according to the average estimate of 14 analysts surveyed by Bloomberg before yesterday’s announcement.

Nothing has been set aside for suits from insurers including MBIA Inc. and Ambac Financial Group Inc. alleging that Countrywide fraudulently induced the firms to guarantee bonds filled with faulty mortgages.

The bank lost a bid last month in New York State Supreme Court to prevent MBIA from using statistical sampling to determine if it improperly insured $21 billion in securities. The ruling is a setback for Bank of America, which had vowed to review claims loan by loan, because sampling reduces the time and expense of examining thousands of mortgages and could make it easier for others to pursue suits, said David Grais, a partner in New York law firm Grais & Ellsworth LLP.

‘Black Cloud’

The bank said in a November filing that it was “not possible at this time to reasonably estimate future repurchase obligations” tied to litigation brought by the insurers.

Moynihan also must fend off demands from Pacific Investment Management Co., BlackRock and the New York Fed for putbacks tied to about $47 billion of bonds, people familiar with the matter have said.

“He’s convinced investors that they’re focused on it, and they’re trying to allocate the right level of resources,” said Jonathan Finger, whose family-owned investment company, Finger Interests Ltd., holds 1.1 million Bank of America shares and led a 2009 proxy fight that helped drive Lewis into retirement. “The problem is he really can’t know the full extent of putback losses until they get cleared up through litigation or settlement. That’s the black cloud hanging over this stock.”

Another concern is $141.6 billion in home-equity lines of credit, said Whalen of Institutional Risk Analytics. Home-equity loans get wiped out in a foreclosure if the sale of a home doesn’t raise enough to pay off the first mortgage.

Home Equity

Many borrowers have remained current on home-equity loans to maintain their liquidity while defaulting on their primary mortgages, Whalen said. That’s obscuring inevitable losses for Bank of America, which may be forced to book writedowns approaching $70 billion, he said.

The “vast majority” of these loans are performing and charge-offs are declining, said spokesman Jerry Dubrowski.

The cost of resolving soured mortgages may force Moynihan to restructure Countrywide, housed in a separate legal entity, through bankruptcy, said Mike Mayo, a CLSA Ltd. analyst, in a Nov. 2 note. Moynihan said Nov. 4 that he didn’t see liabilities that would force the company to put Countrywide into bankruptcy.

A bright spot for Bank of America has been investment banking, boosted by the Merrill acquisition. The division, run by Thomas K. Montag, 53, posted $5.6 billion in net income in the first three quarters of last year, a 16 percent increase from the first nine months of 2009 after excluding a unit sale. While the unit accounted for 27 percent of the bank’s revenue, it made up more than half of the income from the firm’s profitable divisions through September 2010. Revenue from underwriting stocks and bonds and advising on mergers will rise this year, Goldman Sachs Group Inc. has said.

Sallie Krawcheck

Bank of America’s brokerage unit, run by Sallie L. Krawcheck, 46, posted a profit of $1.1 billion, unchanged from the year earlier. It has about 15,300 financial advisers and is expanding overseas, as is the investment-banking unit.

The investment-banking and brokerage businesses will help make Bank of America “very formidable” in three to five years, said Blackstone’s Schwarzman, whose New York-based firm gets financing from the bank for buyouts.

Moynihan told executives in November that he planned to remake the firm into the “finest financial services company in the world,” according to his presentation. He talked about reinforcing company values, including cooperation and consumer focus, said two managers who attended the session in the new 32- story glass-and-steel Bank of America Center in Charlotte, across the street from the bank’s headquarters.

‘Tribal Warfare’

“Brian has made it very clear that he has no patience for the tribal warfare you see in some companies,” said Chief Financial Officer Charles H. Noski, 58, in an interview in December. “For us to succeed, all of our business leaders need to work together effectively. Our incentives are tied to the success of the overall enterprise.”

Moynihan’s emphasis on cross-selling products to clients across divisions has been the holy grail of banking since at least the 1980s. Previous efforts, including those that drove mergers at Citigroup, haven’t produced promised results.

“It’s been difficult to pull off in the past,” said Sophie Schmitt, a Boston-based senior analyst at research firm Aite Group LLC. “But they have all the ingredients. The fact that Bank of America has Merrill Lynch will help them from a brand perspective.”

Rapid-Fire Style

To soothe concerns, Moynihan met investors more than 120 times last year, according to Scott Silvestri, a bank spokesman. The CEO is “much more aggressive” in reaching out to shareholders than his predecessor, said Finger.

In contrast to Lewis, who punctuated his appearances with anecdotes and humor, Moynihan has a rapid-fire speaking style that sometimes detracts from his message, said Nancy Bush, an independent banking analyst at NAB Research LLC in Annandale, New Jersey, who has a “buy” rating on Bank of America.

“He’s always thinking way faster than he can talk,” Bush said. “The thoughts tend to run together, and it’s been somewhat of an impediment to getting people to focus on what he’s saying, rather than the way he’s saying it.”

Moynihan, who grew up in Marietta, Ohio, is one of eight children. His father was a research chemist at DuPont Co. One of his younger brothers, Patrick, is a missionary and director of a Catholic school in Haiti, according to Brown Alumni Magazine.

After getting his law degree from Notre Dame in 1984, Moynihan worked at Edwards Angell Palmer & Dodge LLP, a firm in Providence, Rhode Island. He took a job as deputy general counsel at Fleet in 1993 and headed wealth management at the Boston-based bank when it was acquired by Bank of America.

Four Jobs

Moynihan accepted four posts in the year before being named CEO, serving in rapid succession as head of consumer banking, general counsel and chief of investment banking twice.

Bank of America directors persuaded Lewis, 63, to allow Moynihan to remain after he refused in 2008 to move his family to Delaware to head a credit-card division, a person with knowledge of the situation said in 2009. Moynihan survived an 11-week search for Lewis’ successor, which involved directors interviewing more than a dozen candidates, including Bank of New York Mellon Corp. CEO Robert Kelly.

“Many of you know him because he’s been in so many different jobs,” Lewis quipped before introducing Moynihan to employees as CEO a year ago. “Another unique characteristic about him is that he wanted the job.”

Returning Capital

Unlike Lewis, who bought Countrywide and Merrill Lynch, Moynihan has said he won’t be pursuing acquisitions. Instead, the firm is emphasizing internal growth and will start to return capital to investors “as fast as we can” through dividends and share buybacks, he said last month.

The CEO has the “absolute” confidence of the board, Chairman Charles Holliday said last month in an interview.

“We’re all disappointed in the stock, wish it would be higher,” Holliday said. “Brian’s putting the fundamentals in place, and the stock will follow.”

Some investors view Moynihan’s woes as an opportunity. Bruce Berkowitz, whose Miami-based Fairholme Capital Management LLC is the biggest private investor in bailed-out insurer American International Group Inc., bought 16.6 million Bank of America shares in the third quarter, according to regulatory filings. Berkowitz was named the domestic stock-fund manager of the decade last year by Morningstar Inc.

‘Has a Window’

Ania Aldrich, a principal of Cambiar Investors LLC, said the bank’s low valuation won’t last as Moynihan moves into his second year.

“The mess that he inherited, it will take time to sort this out,” said Aldrich, whose Denver-based firm manages $5.3 billion and holds more than 8 million warrants in the bank. “Once you see some clarity on their issues, the market will realize this is a good, cheap stock.”

How long it takes to get that visibility could determine Moynihan’s fate.

“He still has a window to take care of these issues,” Guggenheim’s Mosby said. “This is the year he proves himself.”

--With assistance from David Mildenberg in Charlotte, North Carolina, and Cristina Alesci and Jason Kelly in New York. Editors: Rick Green, Robert Friedman

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

Indonesia May Hold Rate Steady at First 2011 Meeting

Posted: 04 Jan 2011 05:21 AM PST

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By Shamim Adam and Manish Modi

(Adds today’s stock and currency moves in ninth paragraph.)

Jan. 4 (Bloomberg) -- Indonesia’s central bank may keep interest rates at a record low at its first meeting of 2011, delaying an increase even after inflation accelerated to a 20- month high.

The reference rate will stay at the 6.5 percent level set in August 2009 this month, according to 13 of 15 economists surveyed by Bloomberg News. Two expect a quarter-point increase. Bank Indonesia will give its decision in Jakarta tomorrow.

Indonesia ordered banks to set aside more cash as reserves to reduce inflationary pressure in 2010, while refraining from joining Malaysia, Thailand and India in boosting borrowing costs. A rate increase would risk luring more capital as Europe’s sovereign credit woes and a U.S. unemployment rate that remains above 9 percent restrain growth in developed markets, spurring funds to seek better returns in emerging economies.

“Indonesia has been reluctant to hike interest rates, preferring to tighten via non-rate measures and ascribing the inflation surge to largely volatile food prices,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “We expect Bank Indonesia to hold its policy interest rate at 6.5 percent, despite the inflation threat.”

Consumer prices rose 6.96 percent last month from a year earlier, a report showed yesterday, exceeding the 6.71 percent median forecast in a Bloomberg survey of 14 economists. Core inflation was 4.28 percent in December, easing from 4.31 percent the previous month.

Core Inflation

Bank Indonesia “won’t hesitate” to raise its benchmark rate if core inflation exceeds 5 percent, Deputy Governor Hartadi Sarwono said Dec. 22. The current rate is consistent with Indonesia’s goal of achieving inflation of 4 percent to 6 percent in 2011 and 3.5 percent to 5.5 percent in 2012, Deputy Governor Budi Mulya said last week.

Southeast Asia’s largest economy escaped a recession during the 2009 global slowdown and its expansion has pushed stocks to a record and lifted the rupiah to a three-year high. Moody’s Investors Service said last month it’s placed the nation’s Ba2 credit rating on review for a possible upgrade, citing the nation’s economic resilience and improving debt position.

The rupiah gained 4.6 percent in 2010 and reached 8,875 a dollar on Nov. 5, its strongest level since June 2007. The Jakarta Composite Index gained 46 percent last year, the best performer among Asia’s 10 biggest stock markets.

Growth Target

Indonesia’s benchmark stock index rose for a sixth day, climbing 0.1 percent as of 11:17 a.m. in Jakarta today. The rupiah was little changed at 8,978 a dollar on a day when Asian currencies including the Taiwan dollar and Thai baht gained on optimism the global economic recovery will spur demand for emerging-market assets.

President Susilo Bambang Yudhoyono is targeting annual growth of 6.6 percent on average through the remainder of his term ending in 2014, and companies from PT Bank Pan Indonesia to AirAsia Bhd. are counting on rising demand in the world’s fourth-most populous nation to boost their businesses.

Bank Pan Indonesia, known as Bank Panin, said last month 2010 net income may have reached about 1.5 trillion rupiah ($167 million) and loan growth may be as much as 32 percent. AirAsia, Southeast Asia’s largest budget carrier, said in November its Indonesian operations may surpass its Malaysian unit, which is now more than three times as big.

The Indonesia business may pass Malaysia in the “not-too- distant future,” AirAsia Chief Executive Officer Tony Fernandes said Nov. 26. “We’re really in the best playground for growth.”

Tighter Rules

As the country’s growth lured funds, policy makers took steps to counter capital inflows. Last week, Indonesia said it would tighten rules on banks’ foreign-exchange holdings and overseas borrowing, requiring lenders to set aside 5 percent of their total foreign-exchange holdings as reserves as of March 2011, from 1 percent currently. Bank Indonesia will also reintroduce a 30 percent cap on lenders’ short-term overseas borrowing to minimize the risk of sudden capital outflows.

The Philippines and Indonesia are the only two major Southeast Asian economies using interest rates as a policy tool that didn’t raise rates last year. A recovery from the 2009 global slump has quickened inflation and raised the risk of asset bubbles in the region, prompting China, India, South Korea, Thailand, Malaysia and Vietnam to boost borrowing costs in 2010.

“Bank Indonesia would likely continue to insist that the run-up in prices has been driven by volatile food prices,” Wellian Wiranto, an HSBC Holdings Plc economist in Singapore, said in a report yesterday. “Nonetheless, with the economy continuing to hum nicely, it is increasingly running short of comfort zone. We still expect a 25 basis-point rate hike this Wednesday, even if the risk of BI’s reluctance to touch on policy rate remains substantial.”

--With assistance from Novrida Manurung and Widya Utami in Jakarta and Lilian Karunungan in Singapore. Editors: Stephanie Phang, Greg Ahlstrand

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Big Lenders May Be First to Settle Foreclosure Probe, Iowa Says

Posted: 04 Jan 2011 05:21 AM PST

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By Margaret Cronin Fisk and Prashant Gopal

Jan. 4 (Bloomberg) -- The five largest loan servicers, including Bank of America Corp. and JPMorgan Chase & Co., may be the first to settle with the 50 state attorneys general probing foreclosure practices, Iowa Attorney General Tom Miller said.

No settlements have been reached yet, Miller said yesterday in a phone interview. The other three are Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc., said Miller, the leader of the 50-state investigation. The five have 59 percent of the U.S. market, Miller said.

“What we’re looking at is five separate agreements with the five largest servicers,” Miller said. “We’re still a ways away” from reaching agreements, he said. “We’re working very hard to figure out what should be in the settlement.”

All 50 U.S. states are investigating whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures. The probe, announced Oct. 13, came after JPMorgan and Ally Financial’s GMAC mortgage unit said they would stop repossessions in 23 states where courts supervise home seizures, and Bank of America, the largest U.S. lender, froze foreclosures nationwide.

Tom Kelly, a spokesman for JPMorgan in New York, declined to comment. Shannon Bell, a spokeswoman for New York-based Citigroup, declined to comment. Gina Proia of Detroit-based Ally declined to comment. Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment.

Teri Schrettenbrunner, a spokeswoman for San Francisco- based Wells Fargo, declined to comment, saying it was premature since no agreement has been reached.

Probe Widens

The probe has since widened to include other mortgage practices, with attorneys general suggesting a potential resolution should include improving the loan modification process, barring foreclosures when people are modifying loans and creating a general fund to compensate homeowners who may have been victims of wrongful foreclosures.

Miller said the attorney-general group has had at least one face-to-face meeting with representatives from all five of the largest banks, along with “follow-up phone calls.”

The group will reach individual settlements rather than a global agreement with the servicers, he said.

“It won’t be the same document for everybody,” he said. “There are differences in the companies and in performances.”

‘Not Criminal’

The group isn’t pursuing a criminal investigation, Miller said. “Our focus is to reform the servicing process and that’s inherently civil, not criminal,” he said.

In an interview last week, Miller said the group might consider matters including whether servicers are charging borrowers appropriate fees.

“We hear stories far too often of it taking months before servicers get back to people, or they lose documents and that they don’t modify a loan when it makes sense,” Miller said last week.

The 50-state group “offers one of the most promising avenues to increasing loan modification and servicer accountability that we have seen so far,” said Paul Leonard, California director for the nonprofit Center for Responsible Lending in Durham, North Carolina.

He said the group would act more independently than Congress or federal regulators because of the influence of industry lobbyists in Washington.

“The attorneys general come at this with a fresh eye,” Leonard said in an interview yesterday. “They can assess and make changes that they feel necessary.”

--With assistance from Donal Griffin, Hugh Son and Dawn Kopecki in New York and Dakin Campbell in San Francisco. Editors: Andrew Dunn, Fred Strasser.

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Prashant Gopal in New York at pgopal2@bloomberg.net.

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

Korea Pension May Form Private-Equity Fund for Energy

Posted: 04 Jan 2011 05:20 AM PST

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By Saeromi Shin and Shinhye Kang

(Adds spokesman’s comment in third paragraph.)

Jan. 4 (Bloomberg) -- National Pension Service, South Korea’s biggest investor, may set up a private equity fund with the nation’s business groups, including Samsung Group and Hyundai Motor Group, to invest in overseas resource development.

SK Group, GS Group and KT Corp. may also join the plan, Kim Seok Joo, a spokesman for the pension fund, said by phone today. The timing and size of the fund have yet to be decided, he said.

“We may sign a preliminary agreement with major companies to invest in energy resources,” said Kim, whose pension fund manages 317 trillion won ($282 billion) in assets.

South Korea, Asia’s fourth-largest crude importer, has said it aims to boost supplies of oil and gas from overseas resources owned by the nation’s companies to 30 percent of its annual requirements by 2019 from 9 percent in 2009.

National Pension said in October it bought a stake in Colonial Pipeline Co., operator of the largest pipeline linking U.S. Gulf Coast refiners and East Coast markets, to diversify its portfolio. In September, state-owned Korea National Oil Corp. also won control over Dana Petroleum Plc in a 1.87 billion-pound ($2.9 billion) hostile takeover.

Funds are increasing their investments in resources as energy costs rise. Hedge funds raised bullish bets on crude oil to the highest level in more than four years on speculation that futures will climb as the U.S. recovers from the deepest recession since the 1930s.

The funds and other large speculators increased net-long positions, or wagers on rising prices, by 4.6 percent in the seven days ended Dec. 28, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the top total in records going back to June 2006.

The wagers gained on signs that demand will advance as the U.S. economy improves. Analysts have forecast that prices may top $100 a barrel for the first time since the beginning of the financial crisis in September 2008. Global oil use will increase 1.7 percent to a record 87.8 million barrels a day this year, according to the U.S. Energy Department.

The Chosun Ilbo newspaper reported earlier the fund will be formed next month.

--Editors: Linus Chua, Reinie Booysen

To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Shinhye Kang in Seoul at skang24@bloomberg.net

To contact the editors responsible for this story: Reinie Booysen at rbooysen@bloomberg.net;

Warren Plans Information-Sharing With States on Non-Bank Lenders

Posted: 04 Jan 2011 05:20 AM PST

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By Carter Dougherty

Jan. 4 (Bloomberg) -- Elizabeth Warren, the White House adviser assigned to set up a U.S. consumer financial-protection bureau, is planning to share information with state regulators to streamline oversight of nonbank firms such as payday lenders.

Under an agreement to be announced today, the new bureau will exchange information about banks and non-bank financial companies that are normally examined by state supervisors, said Thomas Gronstal, Iowa’s superintendent of banking and chairman of the Conference of State Banking Supervisors.

The agreement “will help states and the Feds” and should by welcomed by the lenders, Gronstal said in an interview yesterday. “What you don’t want is the state coming in January and the Feds in February.”

Warren, 61, the Harvard University professor appointed by President Barack Obama in September, is establishing oversight of non-bank lenders under the Dodd-Frank Act. The regulatory law brought payday lenders and other non-bank firms under federal oversight after consumer groups accused them of taking advantage of borrowers through high interest rates or hidden fees.

Regulation of non-bank financial firms, which finance their business through wholesale borrowing rather, will affect payday lenders such as Advance America Cash Advance Centers Inc. of Spartanburg, South Carolina, and installment lenders such as Greenville, South Carolina-based World Acceptance Corp. It will also cover non-bank subsidiaries such as CitiFinancial, a consumer unit New York-based Citigroup Inc. wants to sell.

The agreement to have the consumer bureau share information with banking supervisors follows the pattern of Warren’s outreach to state attorneys general, said Arthur Wilmarth, a law professor at Washington’s George Washington University.

“Politically, supervisors are supporters rather than opponents,” Wilmarth said in an interview yesterday. “And they can solve staffing problems that Warren probably cannot.”

Peter Jackson, a spokesman for Warren, declined to comment.

States’ Expertise

The information-sharing agreement will allow the consumer bureau to take advantage of states’ expertise in ensuring U.S. rules are being followed, Gronstal said. When state examiners turn up violations they will be able to pass them along to attorneys general or the consumer bureau for enforcement action.

“The states have been, for the most part, doing licensing and regulation for a long time, so we have quite a bit of experience,” Gronstal said.

Federal-state cooperation could help bring uniformity to regulation of non-bank lenders, which “varies wildly by state,” said Jean-Ann Fox, director of financial services for the Washington-based Consumer Federation of America.

There were 71,121 non-bank financial firms in the U.S. at the end of 2009, about 10 times the number of banks and thrifts, according to a survey conducted by the state supervisors.

‘So Large’

“The numbers are so large that it would be absolutely impossible for a federal agency to regulate and supervise those entities without help,” said Chris Stinebert, president and chief executive officer of the American Financial Services Association, a Washington-based group representing companies that offer installment credit and auto loans.

Stephen Altobelli, a spokesman for the Hackensack, New Jersey-based Financial Service Centers of America, which represents title lenders, said the industry welcomes any state- federal cooperation that minimizes overlap.

“One concern we have with the CFPB is that we are layering on a level of federal bureaucracy, beyond what the states do,” Altobelli said.

--Editors: Gregory Mott, Lawrence Roberts

To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

Treasury Said to Plan Sale of Ally TruPS as Soon as This Month

Posted: 04 Jan 2011 05:20 AM PST

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By Dakin Campbell

Jan. 4 (Bloomberg) -- The U.S. Treasury Department may sell as much as $2.5 billion of Ally Financial Inc. trust-preferred securities this month as it looks to recoup bailout funds for taxpayers, a person with direct knowledge of the plan said.

Treasury will look to sell at least $1 billion of the securities to investors in January or “shortly after” fourth- quarter earnings are announced in February, said the person, who asked not be named because the plans are private. Timing of a sale depends on the state of capital markets, the person said.

The Federal Reserve is likely to rule that the securities can continue to count as Tier 1 capital, making them more attractive to investors, the person said. Treasury holds $2.67 billion in TruPS issued by Detroit-based Ally.

Ally, the auto and home lender that benefited from a $17.2 billion bailout from U.S. taxpayers, moved closer to regaining its independence last week as the government converted $5.5 billion of preferred stock into common shares. Treasury said it would begin selling the TruPS, with Ally’s help, “as soon as practical,” according to a Dec. 30 statement. Gina Proia, an Ally spokeswoman, declined to comment.

The government received $2.54 billion of TruPS and warrants to purchase another $127 million, which it exercised at the closing of the transaction, as part of a $3.79 billion bailout in December 2009, according to a statement at the time. The securities, issued “to best protect the taxpayers’ investment,” are senior to all other “capital securities” and pay interest of 8 percent, according to the 2009 statement.

Treasury’s Exit

The share swap and the upcoming sale of TruPS is “designed to accelerate Treasury’s ability to exit its investment,” according to last week’s statement. The swap boosted the U.S. taxpayers’ stake to 73.8 percent of Ally’s common shares from 56.3 percent.

The government is trying to break even or turn a profit on the preferred and common stakes it took in banks and other companies that got capital infusions under the $700 billion Troubled Asset Relief Program.

In September, the government announced plans to sell $2.2 billion of TruPS it received from New York-based Citigroup Inc. as payment for $301 billion of asset guarantees provided to help shore up investor confidence as the bank’s shares plunged in November 2008.

--Editors: Dan Reichl, David Scheer.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

Hany Farid vs. Photoshop

Posted: 29 Dec 2010 02:00 PM PST

Business News: Ditch Your Wallet and Pay by Phone

Business News: Ditch Your Wallet and Pay by Phone

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