Financial life in a big town

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Regulators have closed banks in Colorado, New Mexico, Oklahoma and Wisconsin, lifting to 11 the number of bank failures in 2011 following last year’s toll of 157 taken down by the weak economy and piles of soured loans.

The Federal Deposit Insurance Corp. took over the banks: FirsTier Bank, based in Louisville, Colo., with $781.5 million in assets, First Community Bank, based in Taos, N.M, with $2.3 billion in assets, First State Bank of Camargo, Okla., with $43.5 million in assets, and Evergreen State Bank, based in Stoughton, Wis., with $246.5 million in assets.

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Hyundai Motor’s net profit jumped 48 percent in the fourth quarter to a record high as revenue and vehicle sales rose.

Hyundai said Thursday that it earned 1.4 trillion won ($1.3 billion) in the three months ended Dec. 31. It earned 946 billion won in the same period last year.

The automaker said sales during the quarter rose 3.1 percent to 9.94 trillion won from 9.65 trillion won a year earlier.

Hyundai Motor is South Korea’s largest automaker and has become a major force in the global auto industry.

The company, which with affiliate Kia Motors Corp. forms the world’s fifth-largest automotive group, has expanded aggressively overseas and has factories in China, India, Turkey, the United States, the Czech Republic and Russia online cash advance.

Operating profit _ seen as a direct indicator of business performance before taxes, dividends, asset sales and other items are figured into net profit or loss _ gained 8.6 percent to 908.8 billion won.

Company spokeswoman Song Meeyoung said that net profit, operating profit and sales figures were all-time quarterly highs.

Sales increased 5.1 percent to 943,791 vehicles in the fourth quarter and rose 16.3 percent to a record 3.61 million for all of 2010, the company said.

Annual net profit in 2010 also hit an all-time high, surging 78 percent to 5.27 trillion won.

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As the deficit debate in Washington grows increasingly noisy, a research group said Monday that a tax on financial "speculation" could help resolve some of the nation’s thorniest fiscal problems.

The Center for Economic and Policy Research, a left leaning group, said that a tax on trades of stocks, options, futures and other financial instruments could generate $150 billion this year, or over 1% of U.S. gross domestic product.

While the idea of taxing financial transactions is not new, it has gained some traction overseas in the wake of the global financial crisis.

French President Nicolas Sarkozy, in comments Monday, said a financial transaction tax is one of his top priorities as leader of the Group of 20 nations this year, according to press reports.

The CEPR study looks at a 0.25% tax on stock trades in the United Kingdom and estimates that an equivalent tax in the United States could raise $40 billion a year for the Treasury.

"This is not hypothetical," said Dean Baker, co-director at CEPR and author of the report, in a statement. "The UK has used an FST to collect large amounts of revenue," he said, adding that the International Monetary fund "is currently advocating the tax in recognition of the enormous amount of waste and rents in the financial sector."

Baker argues that taxing speculation will put more of the burden on more sophisticated investors such as hedge funds, and will not hurt individual investors, who will simply make fewer trades.

He says the money generated from the tax could be used to cover the cost of extending benefits for the unemployed, the projected Social Security shortfall and provide much needed aid for cash-strapped U.S. states.

The CEPR also argues that big institutional investors, which use trading algorithms to gain an advantage in the market, do not contribute any "obvious benefit to the economy."

The financial services industry, of course, disagrees.

Scott Talbott, spokesman for the Financial Services Roundtable, said taxing stock trades would hurt individual investors by driving up fees on their 401(k), college fund or pension plans.

"The fund managers would simply pass the tax down to the average Americans who are trying to save," he said.

Kent Smetters, a professor at the University of Pennsylvania’s Wharton School of Business, said he understands why some are calling for the tax.

Some think big investment funds that use sophisticated trading software are middlemen gaming a flawed system. But others argue that a tax would be unfair because traders provide a benefit in the form of efficient pricing and liquidity in the market.

Smetters added that a "small tax" would probably not hurt individual investors, though he said 0.25% "seems steep."

The proposal is one of many being discussed in Washington as the nation’s swelling deficit and growing demand for social services from a rapidly aging population loom large.

Republicans in Congress have been calling for drastic spending cuts across a range of government programs. President Obama is widely expected to emphasize "investments" in key areas when he delivers the State of the Union address Tuesday. 

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ST. LOUIS

Air New Zealand said Friday it has bought 14.9 percent of Australia’s Virgin Blue for $143 million, a decade after the national flag carrier was bailed out by the government following an investment gone bad in another Australian airline.

The airline had notified stock exchanges in New Zealand and Australia on Thursday it planned to take a shareholding of 10 percent to 14.99 percent in Virgin Blue, a cut price carrier. Virgin Group, the U.K.-based company founded by Sir Richard Branson, has a 26 percent stake in Virgin Blue.

The Virgin Blue shares were bought for Australian cents 44 each for a total cost of AU$145 million ($143 million).

“The investment in Virgin Blue is part of Air New Zealand’s strategy to develop scale and reach in this region,” Air New Zealand chief executive Rob Fyfe said in a statement.

A recently signed alliance with Virgin Blue on routes between Australia and New Zealand was the first step in this strategy, he said.

Fyfe said the airline has “no intention” of increasing its stake above 14.99 percent, which would trigger a requirement to make a takeover offer to all Virgin Blue shareholders. Nor does Air New Zealand intend to enter Australia’s domestic air travel market in its own right.

News of Air New Zealand’s plans sent Virgin Blue shares soaring 10 percent on the Australian stock market Thursday.

The New Zealand government owns 75 percent of Air New Zealand after a bailout in 2001, under which it injected 1 billion New Zealand dollars ($770 million) to keep the national carrier afloat.

The bailout followed Air New Zealand’s disastrous investment in Australian airline Ansett, which collapsed after years of stiff competition and poor management.

The acquisition of the Virgin Blue stake was funded by Air New Zealand’s existing cash pile, it said.

Last year Air New Zealand and Virgin Blue got approval from New Zealand’s competition regulator to cooperate on routes across the Tasman Sea that separates Australia and New Zealand. The decision followed approval from Australia’s antitrust regulator, which reversed its preliminary objections after the two airlines gave guarantees to boost seats on certain routes.

The airline said it has obtained Australian Foreign Investment Review Board approval to purchase up to 14.99 percent of Virgin Blue, a shareholding which would keep total foreign ownership of Virgin Blue within the statutory limit of 49 percent.

Air New Zealand last week signed a code share agreement with Branson’s Virgin Atlantic that will allow its passengers to book on many Virgin Atlantic services.

Air New Zealand plans to seek representation on Virgin Blue’s board in about six months.

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Japanese Prime Minister Naoto Kan is projected to break his fiscal promise of capping bond sales as he struggles to secure revenue, boosting the case for higher taxes to contain the world’s largest public-debt burden.

Japan’s new bond sales will expand to 46.7 trillion yen ($563 billion) in the year starting April 2012, surpassing Kan’s target of 44.3 trillion yen, according to calculations by the Cabinet Office released in Tokyo today.

Breaking his year-old spending pledges may push up government borrowing costs of around 1.2 percent. The premier this month called for a national debate to raise the nation’s 5 percent consumption tax and tapped Kaoru Yosano, a former opposition lawmaker and finance minister, as his fiscal policy minister to push through changes needed to curb the debt load.

“It’s a miracle that Japan’s 10-year government bonds yields have remained at extremely low levels,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Raising the sales tax would reduce the risk of higher long-term interest rates, but the question is whether Kan can push it through amid falling popularity and opposition from members of his own party.”

The yield on the benchmark 10-year bond rose to 1.215 percent as of 9:22 a.m. in Tokyo. It touched 1.26 percent in Jan. 19, the highest since Dec. 16.

Hurt Credibility

“If the unhealthy situation continues for a long time, long-term interest rates will inevitably rise and hurt Japan’s global credibility,” Economic and Fiscal Policy Minister Yosano said on Jan. 14.

Kan pledged in June to balance the nation’s budget by fiscal 2020 as well as cap new bond issuances and spending for the next three years. He was able to meet that promise when compiling his fiscal 2011 budget in December by tapping into unused funds, most of which have been exhausted and cannot be relied on in future budgets.

“Our fiscal management policies were a promise we made to the world,” Finance Minister Yoshihiko Noda said in Tokyo today. “We need to do our utmost to avoid deviating from them.”

The primary deficit will be 23.2 trillion yen, or 4.2 percent of gross domestic product, in fiscal year 2020, the government said. A primary balance is achieved when revenue matches spending, excluding bond sales and interest payments flat iron.

Noda said the government’s spending goals will be subject to review in the middle of the year. He said the government isn’t planning to alter its goal to balance the budget by 2020.

Six-Month High

Costs to protect against a default by Japan reached a six- month high on Jan. 18, suggesting increasing concern about the ruling Democratic Party of Japan’s ability to control debt. Credit-default swaps, used to protect against nonpayment and speculate on changes in creditworthiness for five years, climbed to 86.49 basis points, higher than U.S. debt cost of 49.85 basis points.

“To reach a primary balance by 2020, we need reforms in both spending and revenue,” Yosano told reporters in Tokyo today. “We need to outline a comprehensive roadmap for tax reform — corporate taxes, income taxes, inheritance taxes, sales taxes — to address how we can boost revenue.”

The Cabinet Office estimate assumes nominal growth of around 1.5 percent over the next decade.

Japan’s public debt is set to exceed twice the size of the economy this year and reach 210 percent of GDP in 2012, the Organization for Economic Cooperation and Development estimates, the highest among group members. Today’s report, which uses different calculation methods, said debt will swell to twice the size of the economy in fiscal 2016.

Popularity Falls

Kan, whose approval rating halved since he took office in June, opens discussion about a record 92.4 trillion yen budget next week at parliament, where he lost ground in mid-term elections in July after he proposed increasing sales tax.

Japan in December forecast economic growth would slow to 1.5 percent in the year starting April 1 after expanding a projected 3.1 percent this year. In nominal terms, the economy will expand 1 percent, little changed from the estimated 1.1 percent, it said last month.

Recent economic data have shown signs for a recovery. Industrial production rose for the first time in six months in November and retail sales increased more than forecast. Today’s report estimates prices will stop falling next fiscal year.

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A federal appellate court ruled Wednesday that a consumer lawsuit may go forward against KV Pharmaceutical Co. for allegedly putting an adulterated hypertension drug on the market.

The ruling by the 8th U.S. Court of Appeals in St. Louis overturns a previous decision by a federal district judge in St. Louis. The lower court held that federal law pre-empted the potential class-action lawsuit from pursuing claims based on the Missouri Merchantability Practices Act, a state law that deals with fraud and deceptive business practices.

KV Pharmaceutical officials did not return phone calls for comment.

The suit was filed in April 2009 on behalf of Allen Lefaivre, a resident of Rhode Island, and other consumers of a KV drug for hypertension, Metoprolol Succinate ER. According to the complaint, Lefaivre had a prescription for the drug, which he purchased several times at retail pharmacies in Rhode Island.

The suit seeks actual economic damages (the purchase costs of the medicine) for Lefaivre and other consumers, plus an award of punitive damages. He did not allege any physical injuries from consuming the medicine.

Earlier this year, the lower court held that Lefaivre’s state law claims were pre-empted by federal law because they were based entirely on KV’s violations of federal regulations in failing to properly manufacture and label the drug instant payday loan.

In March 2009, KV’s wholly owned subsidiary, Ethex Corp., stipulated in a federal consent decree that it had not used proper quality control procedures when making the medicine, and that some of its tablets may have been oversized and delivered higher than labeled doses. The subsidiary agreed to destroy its remaining stockpiles of the drug and to issue a recall to retailers.

In their appeal, Lefaivre’s lawyers successfully argued that U.S. District Judge Stephen Limbaugh Jr.’s decision to bar the lawsuit would leave purchasers of the adulterated medication without a legal remedy for economic injuries or a private cause of action.

The lower court had held that allowing the suit to proceed would interfere with the Food and Drug Administration’s authority to regulate the manufacture and sale of prescription drugs. But the three-judge appellate panel ruled that Congress’ purpose in passing the 1906 Federal Food and Drugs Act and its later amendments was to protect public health and to supplement the consumer protections offered by state laws.

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WASHINGTON