Financial life in a big town

Maine’s lobstermen are working harder for less, as demand drops for their expanding harvest.

Lobstermen pulled in a robust 76.3 million pounds in 2009, according to the Maine Department of Marine Resources. That’s the largest harvest in years, according to state records and estimates, but only in terms of volume.

The 2009 take was worth $223.7 million, which is about $22 million less than the prior year, according to the department. State statistics show that the harvest has dropped in value, year-to-year, since 2005, when it totaled nearly $318 million.

As with most things, the recession is to blame. Cash-strapped consumers are avoiding delicacies such as lobsters, driving down the overall price, according to George Lapointe, commissioner of the Maine Department of Marine Resources.

"I think it’s largely a function of supply and demand, and the world economic condition," he said. "Lobster is a luxury product."

Lapointe said the price of lobster managed to "claw its way" back to a range of $2.75 to $3 per pound in 2009, after slumping to $2 to $2.50 in the fall of 2008. That pales in comparison to five years ago, he said, when lobstermen were getting $4 to $4.50 per pound.

Lobstering is an essential part of Maine’s economy, he said, providing about $500 million in annual revenue to coastal communities. He said the tourism industry has managed to hold up, despite the recession, but visitors to Maine only account for one-sixth of lobster purchases.

Lapointe said cruise ships, which are traditionally among the largest consumers of lobsters, are cutting back on their purchases and this has been painful for lobstermen.

"They are certainly in a financial squeeze right now," he said. "When they fish harder, they use more bait and more fuel, and those are huge costs for them."

Lapointe said fuel cost is consuming as much as 40% of a lobsterman’s take, up from 10% to 15% in recent years.

More lobsters, less money

David Cousins, president of the Maine Lobstermen’s Association and a lobsterman for 42 years, said the 2009 harvest was the biggest since the early 1990s, when the annual take peaked at an estimated 100 million pounds. But that is little comfort, considering the dropping prices and increasing costs.

"Our business is based on a $4 dollar-plus lobster [per pound]," said Cousins. "When you’re getting $2.90 a pound, you’re going the wrong way and it just doesn’t work anymore.

The cost of Atlantic herring, an abundant fish used as bait in lobster traps, jumped to a range of 25 to 30 cents per pound from 3 cents in the mid-1990s, said Cousins. The cost of bait now consumes 20% of gross revenue for lobstermen, compared to 2% in mid-1990s, he said.

"Our [net] income has dropped by 35% to 40%, and sometimes 50%, because of increased cost of fuel and increased cost of bait," Cousins said.

This spells trouble for the industry and some lobstermen have lost their boats to bank foreclosures, he said.

"There are a lot of people who are in serious trouble up here, because they have a lot of money out on their business - they owe for boats and traps and houses and trucks and all that," Cousins said.

But getting out of this hardscrabble business isn’t much of an option for most lobstermen, despite its difficulties, he added.

"People are hanging on as long as they can, because there aren’t any jobs any more," Cousins said. 

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Americans backed off from their holiday spending pace in January, but retail sales rose for a third month in a row compared with a year earlier, largely because of higher gas prices, according to figures released Wednesday.

Analysts expect the modest spending pace to improve, though it will be far from robust as high unemployment and tight credit show little sign of disappearing payday loan lenders.

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Solar power company GreenVolts Inc. hired Uday Bellary as its chief financial officer.

Bellary worked previously at Atrica Inc., where he was CFO and helped the company raise $34 million in equity and debt. That company was ultimately bought by Nokia Siemens Network. He was also CFO of Metro Optix. and MMC Networks.

GreenVolts’ CEO David Gudmundson will be his boss. Gudmundson took over as CEO in October, when previous CEO Gary Beasley left for a job in private equity.

Fremont-based GreenVolts makes “concentrating photovoltaic” technology — systems that track the sun and with mirrors that focus sunlight onto solar cells for greater generating efficiency.

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The Reserve Bank of India told lenders to set aside more deposits as reserves than economists predicted after raising its growth and inflation forecasts. Stocks and bonds fell.

Governor Duvvuri Subbarao increased the cash reserve ratio to 5.75 percent from 5 percent, exceeding the median forecast for a half-point move in a Bloomberg News survey, an RBI statement showed in Mumbai today. The bank kept benchmark interest rates unchanged.

The decision is India’s biggest step yet toward raising borrowing costs as inflation and asset-bubble concerns reverberate across Asia. China, Malaysia and the Philippines moved closer toward raising rates this month and Australia and Vietnam have already done so, spurring a sell-off in stocks and bolstering the outlook for currency gains in the region.

“The policy is indicating a sequential step towards monetary tightening in India,” said Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai. “The bank may raise policy rates before the next scheduled meeting,” on April 20.

India’s benchmark stock index extended its drop, bond yields rose and the rupee weakened after the report. The Sensitive stock index fell 1.2 percent to 16,105.75, while the yield on 10-year government bonds increased to 7.59 percent from 7.55 percent at 11:20 p.m. in Mumbai. The rupee weakened to 46.39 against the dollar from 46.36 before the report.

Gaining Momentum

Governor Duvvuri Subbarao said India’s economic growth could “gain momentum” over the next year and “reinforce” inflationary pressures. The central bank raised its inflation forecast to 8.5 percent by March 31 from 6.5 percent.

“The message being sent across is that stern steps will be taken going forward to contain inflation,” said Killol Pandya, who oversees the equivalent of $152 million in Indian debt at Shinsei Asset Management India Pvt. in Mumbai. “There are indications the economy is turning around.”

In China, the central bank ordered some banks to pare lending, raised the ratio for deposits banks must set aside as reserves and guided bill yields higher this month after loan growth surged.

Malaysia kept borrowing costs unchanged on Jan. 26, while warning that rates cannot be kept “too low” for too long because of the need to prevent a build-up of “financial imbalances.” The Philippines increased its so-called rediscounting rate, one of the interest rates it charges lenders for borrowing money from the central bank, as it began unwinding stimulus measures.

Equities Retreat

Equities have retreated on concern that the withdrawal of stimulus measures will slow a rebound in corporate earnings. The MSCI Asia Pacific index has lost 7.3 percent in the past two weeks.

Analysts anticipate currency gains as strengthening economies force central banks to act. The rupee may gain almost 8 percent by year-end to 43 per dollar, according to the median forecast in Bloomberg survey. China’s yuan and Malaysia’s ringgit are estimated to advance 3.7 percent.

The Reserve Bank estimates India’s $1.2 trillion economy, Asia’s third largest, will expand 7.5 percent in the year ending March 31, more than its October forecast of 6 percent “with an upward bias,” Subbarao said in the statement today.

The bank left its benchmark reverse repurchase rate unchanged at 3.25 percent and the repurchase rate at 4.75 percent, today’s statement said. The increase in cash reserves will drain 360 billion rupees ($7.8 billion) from the banking system in two stages, on Feb. 13 and Feb. 27.

Exacerbate Inflation

“As growth accelerates and the output gap closes, excess liquidity, if allowed to persist, may exacerbate inflation expectations,” Subbarao said in the statement. “Though the inflationary pressures stem predominantly from the supply side, the consolidating recovery increases the risks of these spilling over into a wider inflationary process.”

India’s benchmark wholesale-price inflation accelerated to 7.3 percent in December, the fastest pace since November 2008. Food accounted for 80 percent of December’s inflation reading, government data showed, as deficient rains last year hurt output of rice, wheat and sugar.

Subbarao’s move is aimed at checking manufacturing inflation that surged to 5.2 percent in December from 1.6 percent in October. Industrial production rose 11.7 percent in November, the fastest pace in two years, as sales at companies including Hero Honda Motors Ltd. surged.

Hero Honda, the nation’s biggest motorcycle maker, reported a better-than-estimated 79 percent increase in third- quarter net income after sales climbed.

Food Inflation

“Tighter monetary policy will have no impact on inflation as it is largely a supply-side-driven phenomenon,” Harsh Pati Singhania, president of the Federation of Indian Chambers of Commerce and Industry in New Delhi, said before the report. “Interest rates should not be increased.”

Subbarao said there have been “some signs” of demand pressures on inflation and that he expects the current growth rate of 7.5 percent to continue in the next financial year starting April 1.

To ease supply constraints, the government on Jan. 13 announced plans to sell as much as 3 million metric tons of wheat and rice in the open market until March and permit duty- free imports of white sugar until Dec. 31 to increase supplies.

Prime Minister Manmohan Singh’s government is under pressure to tame inflation as opposition parties stepped up their criticism for failing to curb prices. Inflation is politically sensitive in India, where the World Bank estimates almost three-quarters of the nation’s 1.2 billion people live on less than $2 a day.

Subbarao said the withdrawal of monetary accommodation can’t be “effective” in controlling inflation unless the fiscal stimulus is also rolled-back in a coordinated manner. He said government borrowing must be cut to contain inflation and to meet credit demand of companies.

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Hoya Corp. kept its Pentax camera plant north of Tokyo open as rivals steadily moved factories overseas to cut costs, yet it couldn’t compete as the yen surged against the dollar and euro during the global recession.

The company paid suppliers and workers in yen, sold products in dollars and euros, and converted revenue into yen. Six straight quarterly losses prompted Hoya in June to close the last domestic Pentax plant, in Tochigi prefecture, as the yen rallied against the dollar.

“The rise in the yen is definitely one of the biggest triggers that convinced us to accelerate our move offshore,” said Hiroshi Hamada, Hoya’s chief operating officer. “There was no reason to keep high-cost manufacturing in Japan.”

Lens-maker Hoya is one of 13 companies — including Komatsu Inc. and Panasonic Corp. — shutting or downsizing Tochigi factories in the past year. The strengthening yen, weakening domestic demand and second-highest corporate taxes among major economies are spurring the exodus of manufacturers to Vietnam, the Philippines and China, companies and analysts say.

Hoya rose 2 percent to 2,570 yen at the close trading in Tokyo, outpacing the 1.1 percent gain on the benchmark Nikkei 225 Stock Average. Shares of the Tokyo-based company have gained 55 percent in the last 12 months.

About 740,000 Japanese manufacturing jobs disappeared last year through November, the statistics bureau said. More than a third of factory capacity sits idle, trade ministry figures show.

‘Breaking Point’

Japan’s industrial output is 19.8 percent below its pre- recession peak, with the country shipping 35 percent fewer goods in November than the peak of 7.6 trillion yen ($82 billion) in March 2008.

“Corporate Japan is voting with its feet,” said Jesper Koll, now head of equity research at JPMorgan Chase & Co. in Tokyo. “They’re going overseas. The hollowing out of Japan is being turbo-charged.”

Profits from overseas operations at Japanese companies exceeded domestic earnings for the first time in fiscal 2008, said the Japan External Trade Organization, a government-funded organization focused on luring investment. Foreign operations generated 52.5 percent of earnings, according to JETRO’s analysis of 890 listed companies.

The yen surged 14 percent since Lehman Brothers Holdings Inc. filed for bankruptcy protection in September 2008, the most among 16 major currencies tracked by Bloomberg. It reached a 14- year high of 84.8 against the dollar on Nov. 27. The yen gained 20 percent against the euro since January 2008.

No Incentives

A stronger currency erodes the value of repatriated earnings and makes Japanese exports more expensive for foreign buyers.

Overseas markets are more lucrative as domestic demand slips because of declining wages — down 14 percent since a 1997 peak — and an aging, shrinking population. More than 20 percent of Japanese are over 65, and the population will decrease by 3.2 percent this decade, according to the National Institute of Population and Social Security Research.

Japan’s 39.5 percent corporate tax rate for large firms is second-highest behind the U.S.’s 40.8 percent, according to the Finance Ministry.

“There’s less incentive to keep, stay or do business in Japan, especially the factories,” said Masafumi Yamamoto, chief foreign-exchange strategist at Barclays Capital in Tokyo instant payday loans completely online. “That movement should continue.”

Last month’s 7.2 trillion yen government stimulus package didn’t promote long-term growth, said Yasukazu Shimizu, senior market economist at Mizuho Securities Co. in Tokyo.

Komatsu, Panasonic Leave

Manufacturing is 40 percent of Tochigi’s economy –twice the national average. Before the recession started in November 2007, there were three job openings for every two applicants, according to the Labor Ministry.

Now there are three applicants for every opening in the prefecture, about an hour from Tokyo on the bullet train.

Komatsu, the world’s second-biggest maker of construction equipment behind Caterpillar Inc., closed a dump-truck assembly plant there. China surpassed Japan as Komatsu’s biggest market for construction and mining machinery in the quarter ended June 30.

Komatsu forecasts full-year profits of 35 billion yen as sales decline by 6.5 percent.

Consolidating Operations

Panasonic Communications Co., subsidiary of Tokyo-based Panasonic Corp., the world’s biggest maker of plasma TVs, shut its fax-machine factory in June. The parent company says cost cuts, including 15,000 jobs, will help narrow a net loss for the current fiscal year to 140 billion yen from the earlier estimate of 195 billion yen.

“We wanted to increase efficiency,” Panasonic spokesman Akira Kadota said. “It made sense to consolidate our operations.”

Shuttered shops abound in Utsunomiya, a city of 500,000 where Tochigi’s government established an unemployment center. The converted storefront advised more than 12,000 people since April, manager Chiaki Yashiro said.

“There isn’t anything out there,” said Yuuji Takashi, 53, who lost his job at a car parts-maker early last year. “They’re sending it all to China.”

Toyota City, Japan-based Toyota Motor Corp., which makes more than half of its cars abroad, plans to suspend one domestic assembly line and add capacity in China and India, its fastest- growing markets. Domestic passenger car sales are down 25 percent since the 1990 peak of 5.1 million, according to the Japan Automobile Dealers Association.

Yen Tips Scale

The surging yen helped tip the scales, Toyota Vice President Takeshi Uchiyamada said in October.

“We’re affected by the exchange rate,” Toyota spokesman Paul Nolasco said. “We deal with that by building as much of our product as close to our customers as possible.”

The Pentax factory peaked in the 1970s, with 1,500 workers making 35-millimeter, single-lens reflex cameras. Hoya’s Hamada moved all camera production offshore helping the company’s Pentax division to return to profit with operating income of 1.19 billion yen last quarter. Continuing to manufacture in Japan was “stupid,” according to Hamada.

“It was a waste,” he said.

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A federal appeals court on Tuesday upheld a lower court’s $290 million patent infringement ruling against Microsoft that will prevent the world’s largest software maker from selling the current version of its popular Word program.

The injunction goes into effect on Jan. 11, but Microsoft said sales of Word will not be affected: The company will have a new version of the Word software available before that date that eliminates the feature in question.

"We have been preparing for this possibility … and have put the wheels in motion to remove this little-used feature from these products," said a Microsoft spokesman. "Therefore, we expect to have copies of Microsoft Word 2007 and Office 2007, with this feature removed, available for U.S. sale and distribution by the injunction date."

Microsoft noted that Word 2010, which is scheduled for release early next year, does not contain the technology covered by the injunction.

The U.S. Court of Appeals for the Federal Circuit affirmed an August 2009 ruling by a Texas jury that found Microsoft in violation of a patent held by Toronto-based document collaboration firm i4i payday loans for people with bad credit. After the jury ruled in favor of i4i, a U.S. District Court judge fined Microsoft $290 million and said that Microsoft could no longer sell Word 2003 or Word 2007, with the disputed feature that allows users to edit XML — a computer code that instructs the computer how to display content in a document.

Microsoft had appealed the lower court’s ruling, saying the i4i patent was invalid. The appeals court rejected Microsoft’s claim on Tuesday, upholding the validity i4i’s patent and the lower court’s ruling that Microsoft willfully violated it.

"We couldn’t be more pleased with the ruling," said i4i chairman Loudon Owen in a statement. "This is both a vindication for i4i and a war cry for talented inventors whose patents are infringed."

The injunction does not affect copies of Word that have already been sold, and Microsoft will be allowed to support those previous versions.

Shares of Microsoft (MSFT, Fortune 500) rose 1% Tuesday. 

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AMSTERDAM–Sweden said a last-ditch bid by Spyker Cars for Saab offered a thread of hope the iconic brand would survive, as talks between the Dutch luxury automaker and General Motors extended into the evening.

Russia-backed Spyker said on Sunday it had lodged a renewed fast-track offer to buy Saab from General Motors just two days after talks with GM over a rescue of the loss-making Swedish manufacturer collapsed.

The surprise new offer from Spyker – which made 43 luxury cars last year against Saab’s sales of 93,295 – was set to expire at 5 p.m. EST, but Spyker said it has extended that deadline until further notice.

"We hope, naturally, that even if it is a very, very slim thread of hope, there is a chance of finding some kind of solution to the question of Saab," Swedish Enterprise Minister Maud Olofsson told a news conference.

"It is very late, there is a very tight timetable and that means the situation is very difficult," she said after meeting with representatives of Saab and local authorities.

Spyker Cars said on Sunday it had submitted a new offer to GM, including an 11-point plan addressing issues that arose during the due diligence process for its old bid.

"We’ve had various discussions with them (Monday)," Spyker Cars chief executive Victor Muller told Reuters, adding that talks were "definitely" ongoing, but there was nothing new to report.

The Swedish government said it would allot 542 million Swedish crowns ($79 million Canadian) to measures, mainly for education and job schemes, to help deal with the thousands of jobs set to disappear if Saab was shut down.

Abandoning the 60-year-old Swedish auto brand would eliminate 3,400 jobs in Sweden and hit 1,100 Saab dealers, but General Motors raised hopes on Sunday when it said it would evaluate several new expressions of interest for Saab.

"We should be careful about fuelling new hopes in a situation where the people in Trollhattan, and at Saab and their subcontractors are thrown between hope and despair," Swedish Prime Minister Fredrik Reinfeldt told journalists.

Shares in Spyker Cars closed up 19.9 per cent in Amsterdam as its renewed approach to Saab sparked talk the Dutch firm – which had a market capitalization of just 26.6 million euros ($40.37 million) at Friday’s close – may exponentially expand operations and perhaps become profitable.

"The stock’s value is close to nothing but if they succeed to buy Saab, invest, and turn the company around then the shares can become valuable," said a Dutch analyst who declined to be named.

Swedish daily Svenska Dagbladet, citing unidentified sources, said the ownership structure backing the Spyker bid had been altered and that Russian parties were no longer involved. "That which was considered a problem has been solved," it quoted a source as saying.

Russian banking tycoon Vladimir Antonov holds an almost 30 per cent stake in Spyker Cars.

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European Central Bank council member Ewald Nowotny indicated he sees no need to raise interest rates in the first half of 2010 as inflation pressures stay muted.

“Our interest rate decisions are to be seen in connection with our price stability goal and in this context I do not see major threats for price stability in the near future,” Nowotny, 65, said in an interview in Vienna. The comment was in reply to a question whether economists were correct to assume no increases in the first half. There is no “strong need” to shift policy in the absence of inflation pressures, he said.

The Frankfurt-based central bank is starting to withdraw emergency measures designed to fight the financial crisis as the euro-region economy recovers from its worst recession since World War II. While President Jean-Claude Trichet says the ECB has no immediate plan to raise its benchmark rate from the current 1 percent, officials have given themselves room to do so next year if necessary.

The ECB on Dec. 3 tightened the terms of its final tender of 12-month funds to take account of any rate increase next year and Executive Board Member Juergen Stark said five days later that rates that are left too low for too long may fuel more bubbles.

‘Steady Hand’

At the same time, the aftershocks from the recession are keeping a lid on prices. The ECB projects inflation to average 1.3 percent next year and 1.4 percent in 2011, below its 2 percent ceiling.

“If there’s no infringement with regard to these goals then I wouldn’t see strong pressure or a strong need to change the policy that we have, that means a policy of steady hand,” said Nowotny, who joined the ECB in September 2008. He said the ECB never “precommits” to any specific policy.

Nowotny “validates expectations that it’ll take a bit more than six months for the ECB to change its monetary policy stance,” said Laurent Bilke, an economist at Nomura International in London. “I assume the ECB needs to see some further signs of consolidation of economic momentum before they act. We’ve really only seen one quarter of positive GDP growth.”

The ECB is pulling back some of the flagship policies introduced at the depth of the crisis to encourage banks to lend again. In addition to stopping the 12-month tender, it will discontinue its six-month loans after March and only guaranteed unlimited funding in its other refinancing operations until April 13.

Survey

The ECB will probably lend banks 75 billion euros ($122 billion) in the 12-month tender, according to the median of 23 forecasts in a Bloomberg News survey. That compares with a forecast of 150 billion euros in a survey conducted before the ECB announced that the rate would be indexed. The results will be announced at 9:30 a.m. in Frankfurt.

Nowotny, an economist and former chief executive officer of Vienna-based Bawag PSK Bank, said he expects no changes on terms of the three-month operation as “tenders that we didn’t mention will go on for the time being as they are now payday loan.”

When the first year-long operation expires next summer, the ECB “will take all measures necessary to prevent a liquidity shortage” by providing funds with a shorter maturity, he said.

“What the markets see — and I think this message has been taken very well — is that with the decisions that we took in December, the ECB is signaling a cautious policy of exiting,” Nowotny said. “Our intention clearly was not to send a signal on rates.”

Recovery

The economic recovery is giving the ECB room to embark on exit strategies. Europe’s economy resumed expansion in the third quarter as governments stepped up spending and exports rose. A slump in industrial output eased in October and manufacturing expanded for a second month in November.

The pace of the recovery may be restrained by the euro’s 16 percent appreciation against the dollar since mid-February. The current level of the euro “is bearable,” Nowotny said. “But it’s quite obvious that a prolonged and strong revaluation of the euro would have a negative effect on the export performance of the euro area.”

The euro was little changed at $1.4550 today after falling 0.8 percent yesterday.

The ECB this month raised its economic outlook, forecasting growth of 0.8 percent next year and 1.2 percent in 2011 after a 4 percent contraction this year. Nowotny said it’s a ‘positive outlook but a very cautious one,”

Collateral Rules

The central banker also said that the ECB won’t consider the situation of individual euro-region member countries when normalizing its collateral rules. Greek government bonds, which were cut to BBB+ by Fitch Ratings last week, may not be eligible as collateral if the ECB reverts to pre-crisis rules in 2011.

“The policy with regard to collateral is part of monetary policy and it is only monetary policy considerations that are relevant in this case,” Nowotny said. “We’re not looking at particular countries.”

The ECB currently accepts bonds rated BBB- as collateral for loans after relaxing its rules in response to the financial crisis last year. It may revert to the old rules at the end of 2010, under which A- is the minimum required rating.

Soaring government bond-yield spreads in countries with excessive deficits “can serve as a wake-up call,” Nowotny said. Rising deficits are “a matter of substantial concern both for the ECB and the European Union.”

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EDWARDSVILLE — Construction of a four-story office building in downtown Edwardsville is expected to begin early next month.

Scott Plocher, speaking for the developers, said construction would be completed in about a year. He said the entire building would be leased to a single tenant — a business already located in Edwardsville — and would help keep at least 50 or 60 well-paid jobs in the city.

He said that business would announce its plans in coming weeks.

Plocher is president of Highland-based Plocher Construction, a partner in the development group, North Main Street Plaza LLC, and will build and manage the $6 million, 30,800-square-foot structure.

"We believe it is a good project at the right time," he said.

The building will be in the 100 block of North Main Street, near the Madison County Courthouse and Administration buildings. It will replace existing buildings at 130 North Main Street, between Erato on Main, a wine bar-restaurant, and Big Daddy’s Patio Bar & Grill.

The project will include a public walkway from Main Street to parking lots at the rear of the building. New construction will also make it possible for Erato to add an outdoor dining area. Chris Byron, part owner of Erato, is among a group of lawyers who are investors in North Main Street Plaza.

In August, about 30 people demonstrated against demolition of the existing structures — parts of which are a century old — but Plocher said it would be "virtually impossible" to renovate them under today’s codes. He said the developers do not consider them historic, though they are in the city’s Downtown Historic District. The Historic Preservation Commission later approved demolition.

Plocher said the commission wanted a design that complemented the look of older downtown buildings, and that the exterior design will resemble the century-old Wildey Theatre down the street. The city owns the long-closed theater and recently decided to undertake its renovation.

Other opposition to the North Main Street Plaza project focused on the developers’ request for $125,000 in assistance for asbestos abatement and demolition from the city’s existing downtown TIF fund no fax payday loans. Plocher said the request was reasonable because of the need for asbestos abatement, the difficulty of demolition due to the buildings’ age and proximity to other buildings, and the additional expense of building a structure in keeping with the historic look of the business district.

Plocher said the redevelopment is expected to boost property taxes to about $133,000 from about $8,000. A development agreement provides that 60 percent of the projected $125,000 annual tax increment would go to the developer and 40 percent to the city. The TIF district will expire in 2020.

The City Council voted 4-2 last week to approve the agreement, which included the money for abatement and demolition.

Alderman Rich Walker, one of the dissenters, said he thought the project would be good for the city but objected to providing money to developers before increased tax revenues started coming in. He said it would be inconsistent with what the city had done in two previous TIF projects.

City Administrator Ben Dickmann said Mayor Gary Niebur and his administration were pleased by the outcome.

Dickmann said the developers did what they were asked and "put forward a design that was a better fit for downtown than a lot of new construction. We believe it will help us retain professional offices downtown. It will add office space so we will be positioned to take advantage when this recession ends."

Dickmann said Edwardsville is lucky for a city of its size to have two major downtown development projects planned or under way.

Work continues on Plaza on the Park, a combined retail and residential development on two corners of the intersection of Vandalia and Buchanan streets. Dickmann said total investment in that project will be about $14 million. Its developer is Joseph E. Meyer & Associates of Edwardsville.

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After a 44-year run serving one of the poorer neighborhoods in St. Louis, Gateway Bank collapsed last month under a pile of bad loans.

Now, a small bank from Kansas City thinks it can build a profitable enterprise on the wreckage of Gateway. Central Bank of Kansas City bought Gateway from the Federal Deposit Insurance Corp., which took over the bank a month ago.

So, why would Central Bank think it can make a go of it in a north St. Louis city neighborhood where another bank failed?

A cheap price is part of the equation. Central Bank paid 70 cents for each $1 in face value of Gateway’s assets. Of course, many of those assets aren’t worth face value. When it failed, 7 percent of Gateway’s loans were seriously behind in payments. Central Bank will also inherit 70 foreclosed properties, most of them houses and apartment buildings.

The FDIC will pay $9.2 million to cover Gateway’s losses.

Central’s executives didn’t have long to mull the decision. The FDIC opened Gateway’s books to prospective bidders on a Thursday in late October. Central Bank made its bid the next Monday, and took over the bank that Friday, Nov. 6.

William Dana, Central Bank CEO, says it will succeed because it knows how to serve poor neighborhoods. That’s its forte in Kansas City, he says.

Most banks want to go where the money is. They want "high net worth, low transaction, low-touch customers," says Dana. They’re people who have big bank accounts, borrow much and deal with the bank by computer.

"Our customers are the antithesis of that," says Dana. They have lower credit scores and small bank accounts. "Many people have trouble coming up with the minimum deposit, $50, to open an account," said Dana. "It’s just tougher."

Serving them requires a bigger staff. But Central’s customers are more willing than the well-off to keep their money in checking and savings accounts paying low interest. That low cost of deposits allows the bank to make a wider profit margin on its loans, Dana said.

Serving low-income neighborhoods qualifies the bank to dole out federal largess under the federal New Markets Tax Credit program. It can give those credits to business borrowers who qualify.

"They work in these challenged neighborhoods where access to capital is limited or difficult," said Ruben Alonso, who runs the New Markets program for the Kansas City municipal government. He cites a loan the bank made to an engineering firm that is going to anchor a redevelopment planned for an area near downtown.

"They bring a lot of expertise in how to bring capital to low-income areas," he added.

The lack of banking services in poor, minority neighborhoods has been a vexing issue for federal regulators. In a study released last week, the FDIC reported that 21.7 percent of U.S. black households have no checking or savings accounts, while 19.3 percent of Hispanic households are "unbanked." Roughly 3.5 percent of Asian and white households have no checking or savings accounts.

The same study found the disparity is even greater in St. Louis: 31 percent of the area’s black households are unbanked, while only 1.1 percent of white, non-Hispanic households have no accounts.

St. Louis’ unbanked percentage among black households was the highest among 20 most populated metro areas studied by the FDIC, though seven areas didn’t report a breakdown for black households. Detroit was the second-highest at 30 percent, followed by Chicago’s 25.5 percent.

BIG BUSINESSES HELP

In Kansas City, Central Bank gets a helping hand from big businesses. A local electric utility and Microsoft deposit money at low interest to encourage Central’s lending. "We guarantee them that we’ll make loans into the community," said Dana.

Central’s strategy seems to be working. The bank earned $1.6 million in the first nine months of the year. That gave it a return on assets — a standard measure of bank profitability — of 1.26 percent, far above the 0.17 percent of peer banks. It’s been profitable for at least the last four years.

Central has $169 million in assets, ranking it as tiny by banking standards. Gateway had a mere $30 million.

Gateway Bank’s single branch is on Union Boulevard near Natural Bridge Road. Median income in the bank’s ZIP code was 58 percent of the national average, according to 2000 census figures. That matches the income around Central Bank’s headquarters, east of downtown Kansas City.

Central Bank’s neighborhood is a Kansas City melting pot — 50 percent white, 16 percent black, 7 percent Asian and 18 percent "some other race." The Census lists 30 percent as Hispanic, who can be of any race. By contrast, Gateway’s ZIP code is 98 percent black, according to the 2000 census.

Gateway was born in the civil rights movement. It was founded in 1965 by black businesspeople and professionals who wanted a bank to serve the minority population. For its last two decades, it was the only black-owned bank in St. Louis.

Central Bank’s ownership is white, the family of Lucille Tutera. Will that affect customer loyalty?

"We have to convince our depositors that our products and services will be better than before," said Dana.

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