Financial life in a big town

The U.S. government plans to put government sponsored mortgage finance companies Fannie Mae and Freddie Mac under federal control, the New York Times and Washington Post newspapers reported late Friday, in what could be the largest financial bailout in the nation’s history.

The two government sponsored enterprises (GSEs) own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt.

The Wall Street Journal reported earlier on Friday that the U.S. Treasury Department is close to finalizing a plan to restructure the two companies that includes changes to their senior management.

The plan could be announced as early as this weekend, the Journal said.

U.S. Treasury spokeswoman Brookly McLaughlin declined to comment on the Journal report on Friday. Fannie Mae and Freddie Mac spokesmen also declined to comment. The Federal Reserve, which earlier this year gave both companies the right to borrow from its discount window if necessary, declined comment also http://paydayloans-on.com.

The two firms would be placed in “conservatorship”, the Washington Post said, citing sources familiar with the discussions.

The value of the company’s common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the Washington Post said.

Senior Bush administration and Federal Reserve officials called in top executives of Fannie Mae and Freddie Mac on Friday and told them that the government was preparing to place the two companies under federal control, officials and company executives told the New York Times. 

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Kohl's Department Stores said Wednesday its same-store sales fell 5.8 percent in August.

Menomonee Falls, Wis.-based Kohl's (NYSE: KSS) said overall sales for the four-week period ending Sept. 1 increased 2.6 percent, to $1.26 billion, compared with $1.22 billion over the similar period in 2007.

For the fiscal year to date, Kohl's said total sales were up 2.6 percent, to $8.6 billion, compared with $8.4 billion in the same period a year earlier. On a comparable store basis, sales for the period decreased 5.6 percent.

Kevin Mansell, Kohl's president and CEO, said some back-to-school business such as footwear and children’s performed well while other areas, such as juniors and young men’s, were more challenging.

“As expected, August was more difficult than our expectations of a 2 to 4 percent comparable sales decrease for the third quarter," Mansell said.

As of Aug faxless payday loans. 30, the company operated 957 stores in 47 states, including Georgia, compared to 834 in 46 states at the same time last year.

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Euro area inflation fell in August from a record high, offering some relief as economic confidence plunged to the lowest level in five years, the European Commission said Friday.

Inflation dropped to 3.8 percent in August, down from a record high of 4 percent in June and July when prices for fuel and food rose sharply from a year ago, the EU statistics agency Eurostat said.

But businesses are gloomy about prospects ahead for the 15 nations that share the euro. Economic confidence fell again in August to 88.8 with industry, the construction sector and retailers more worried than they were last month.

The European economy is slowing as prices at the gas pump and grocery store soar and amid tight borrowing conditions triggered by the global credit crisis as well as a slowdown in major trading partners, Britain and the United States.

The EU figures add pressure on the European Central Bank to hold off an interest rate increase that would make borrowing more expensive and risk hurting a fragile economy payday loans lenders. It raised rates from 4 percent to 4.25 percent in June to try to contain rocketing inflation. 

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Partial payments for people claiming that the withdrawn painkiller Vioxx caused heart attacks will go out starting Aug. 28, under the $4.85 billion settlement between drugmaker Merck & Co. and plaintiffs’ lawyers, the claims administrator said Wednesday.

Those payments will amount to about 40% of each plaintiff’s estimated total payout, but it’s unclear how many people will be receiving checks from the first batch going out.

The settlement, meant to end the bulk of personal injury lawsuits against Whitehouse Station, N.J.-based Merck, was reached last November. Merck had pulled Vioxx from the market on Sept. 30, 2004, after its own research showed the once-blockbuster arthritis pill doubled the risk of heart attack and stroke.

During the monthly status conference with the New Orleans federal judge who is coordinating most of the massive Vioxx litigation, Orran Greer of claims administrator BrownGreer PLC said 49,954 eligible claimants have now registered for a settlement. That amounts to more than 97% of claimants eligible for the settlement - well above threshold levels the company required for the deal to proceed - and most of the others cannot be located by their attorneys, Greer told U.S. District Judge Eldon Fallon.

Greer said Merck waived its right to walk away from the settlement on Aug. 4 and, over the next 2 days, deposited $500 million in an escrow account and gave the claims administrators a letter of credit worth up to $4.1 billion to cover payments to claimants.

His firm is now painstakingly reviewing millions of pages of documents submitted by claimants, electronically or on paper, for accuracy and to make sure that no documents - particularly those releasing Merck from any future legal liability - are missing or incomplete.

Lynn Greer, also of BrownGreer, said 44,680 claimants have submitted at least some of the required materials, and those missing items are being notified free credit report .com. She said 3,441 claimants have reached the stage where administrators are determining how many points they get toward a settlement amount - decided by a complicated formula that factors in how serious a claimant’s injury was, how much Vioxx was taken and how many health risk factors the person had.

"Our projected value of each point [is] in excess of $1,900," she said, adding, "it is unprecedented that claims can begin going out in an 8-month period" since the complex settlement process began.

The 4-year legal saga begun when Merck yanked Vioxx off the market, triggering tens of thousands of lawsuits, damaging Merck’s once-spotless reputation and forcing out its then-chief executive.

Settlement amounts can run from the minimum of $5,000 up to a couple of million dollars, but the federal government is arranging to be reimbursed for care provided to Vioxx users under the Medicare and Medicaid programs. Likewise, private insurers are seeking reimbursement, although Fallon has ruled that their claims cannot hold up interim payments to claimants.

Payments to Vioxx users who suffered strokes are set to start in February 2009.

Merck (MRK, Fortune 500) still faces about 260 potential class-action suits, alleging either harm or financial losses related to Vioxx, that still must be resolved, plus 2 cases already certified as class actions in Canada.

The Vioxx case has cost Merck at least $7 billion, including more than $1.74 billion through July 31 on legal costs for defense research and individual trials, most of which it has won.

Vioxx, which was launched in 1999, brought Merck revenue of $2.5 billion at its peak in 2003 and a total of at least $11 billion. 

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The American banking system has become a melting pot in recent years as financial institutions from all over the world have set up shop in the United States.

Now more Chinese banks, bolstered by a booming economy and recently forged alliances with big Western players, are eyeing a stateside presence.

Earlier this month, the Federal Reserve gave the go-ahead to Industrial and Commercial Bank of China, China’s largest lender, to open a wholesale banking operation in New York - a sign that some experts say could herald a wave of other Chinese banks entering the United States.

"This is an acknowledgement that they are on the way," said Henry Fields, a partner at the law firm Morrison & Foerster whose practice has centered around assisting foreign banks looking to establish operations in the United States.

China’s ICBC is hardly the first foreign financial institution to put down roots in the United States. This year alone, a number of banks from such far-flung countries as Azerbaijan and India were approved by the Fed to establish representative branches here in the United States.

ICBC is the second Chinese bank to set up shop in the United States over the past year. China Merchants Bank won similar approval from the Fed in November. Currently, only a handful of Chinese banks are chartered domestically.

Under the Fed authorization, ICBC will be able to finance trade and support the increasing number of its clients doing business in the United States.

ICBC will not be able to take in FDIC-insured deposits, but the start of a commercial branch is often considered to be the first step for a foreign bank looking to expand into the United States.

"Foreign banks have traditionally come through wholesale branches and then the banks usually expand into retail banking if there is a strategic reason to do so," said Fields.

Indeed, Chinese banks are enjoying a period of robust growth. Last year, the country’s four largest financial institutions experienced a surge in loan growth, reporting double-digit percentage profit increases or better. Combined, ICBC and China Construction Bank collected close to $20 billion in profits in 2007, based on the latest figures compiled for the Global Fortune 500.

That’s a sharp contrast to a decade ago when many of those same banks lost money at an alarming rate after after doling out funds to poorly-run government businesses only to find themselves on the hook for those same troubled loans.

Given that growth, Chinese banks would seem to be ideal candidates to expand overseas - except for the fact that many of these financial institutions are still quite unsophisticated.

Currently, most of their investments are financed through retained profits, and their lending, credit card and risk management practices remain largely outdated, notes Edmund Harriss, a London-based investment director for Guinness Atkinson who helps run three Asia Pacific-focused funds.

"Chinese banks are really still learning how to run a fully commercial operation," said Harriss.

Hoping to catch up with the rest of the financial services world, a number of China’s biggest banks have sold stakes or partnered with some of the top global financial firms, including HSBC (HBC), Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and Merrill Lynch (MER, Fortune 500).

Until then, banks in China are looking inward for growth.

With the industry experiencing further government deregulation and rapid domestic growth, more Chinese banks are teaming up to build out their branch networks domestically, notes Richard Gao, the lead portfolio manager of the Matthews China Fund, which has about $1.4 billion of assets under management and invests primarily in companies located in China.

"Right now they see that the home market is rapidly growing," said Gao.

While Chinese banks from are making the necessary moves to enter the U.S http://pay-day-home.com. market, most experts believe it will be several years before one opens a branch on Main Street or becomes a Wall Street player.

A representative at ICBC’s offices in New York declined to comment on whether the company had plans to expand further within the United States.

Breaking out into the U.S. retail banking market, for instance, would require buying a U.S. bank or establishing their own branch network - both of which would require further approval from top U.S. banking regulators, including the Federal Reserve.

And certainly a greater stateside presence by a Chinese bank would raise eyebrows among lawmakers in Washington.

The Chinese state-run oil company, China National Offshore Oil Corp., or Cnooc, sparked a storm of controversy in 2005 when it made a bid for the U.S. oil and gas producer Unocal Corp. Cnooc ultimately dropped its bid in the face of congressional opposition.

Having learned from this experience, Chinese financial institutions, many of which are still majority owned by the China’s government, will exercise plenty of caution in the face of those U.S. protectionist fears, notes Fields.

"There is a lot of xenophobia about China," he said. "They [Chinese banks] have to be careful about their profile politically in the U.S." 

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McDonald’s Corp (MCD.N: Quote, Profile, Research, Stock Buzz) posted July sales that beat many analysts’ forecasts as its key U.S. market posted its largest gain in five months with offers like $1 beverages appealing to cash-strapped consumers.

Shares of the world’s largest restaurant chain rose to an all-time high on Friday after it reported an overall 8 percent increase in sales at stores open at least 13 months.

The United States, where McDonald’s derives about 45 percent of its sales, has been under pressure as consumers cut back on spending due to rising food and fuel costs.

But $1 beverage offers and marketing focused on the company’s Big Mac hamburger sandwich helped lift same-store sales in the United States to a 6.7 percent increase, the largest since an 8.3 percent rise in February when sales were helped by an additional day for the leap year, the company said.

Analysts had been expecting a July same-store sales increase of 4.5 percent to 6.4 percent globally and 4 percent to 4.5 percent in the United States, according to three analysts’ research notes.

The company has also benefited as U.S easy payday loans. consumers trade down from casual dining chains when they do eat outside the home. Casual dining has been particularly hard hit by the U.S. slowdown, as evidenced by the bankruptcy of Bennigan’s and other chains.

“There probably is some continuing trading down,” John Owens, restaurant analyst at Morningstar, said. “I think that they are also gaining share in the fast-food space as well.”

Owens noted that McDonald’s also appeals to consumers because of the ubiquity of the chain. 

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Washington Mutual reported a $3.3 billion quarterly loss Tuesday — far worse than Wall Street was anticipating — as it set aside more money for bad loans.

The Seattle-based thrift reported a net loss of $6.58 a share, which included a charge related to a $7 billion capital raise the company announced in April.

Excluding the charge, WaMu reported a loss of $3.34 a share. Analysts polled by Thomson Reuters were expecting the nation’s largest savings and loan to report a loss of $1.05 a share on this basis.

Just a year ago, the company reported a profit of $830 million, or 92 cents a share.

Washington Mutual (WM, Fortune 500) shares initially climbed in after-hours trading, before turning lower after the credit rating agency Moody’s put WaMu under review for possible downgrade. WaMu shares finished Tuesday’s regular session more than 6% higher.

When quizzed about the report from Moody’s by an analyst, WaMu management said it didn’t see much impact from the announcement, saying there wasn’t any need to raise debt at this time.

Driving this quarter’s loss was a sharp increase in WaMu’s loan loss reserves, which grew $3.74 billion during the quarter to $8.46 billion.

WaMu warned that the company would need to continue to reserve against loan losses over the next couple years, but said that 2008 would represent the peak of loan loss provisioning.

"I still think there is more to come in the way of provisions because of the increasing rate of non-performing loans in the home loan, home equity, and subprime categories," said Stephanie Hall, a senior analyst with the Scottsdale, Ariz.-based research firm Gradient Analytics. "But they have taken a step in the right direction by increasing the loan loss accrual."

Yet, the company offered some signs of encouragement as delinquencies in its troubled subprime and home equity portfolios showed "early signs of stabilization" during the quarter, according to the company.

"We believe this portfolio may be starting to burn out," said John McMurray, WaMu’s chief enterprise risk officer during the conference call.

The company also announced that top management, including Killinger, the company’s chief operating officer and finance chief, would not receive bonuses this year in light of the company’s financial performance to date.

Including Tuesday’s results, WaMu has reported three consecutive quarterly losses. Scrambling for cash, the firm has cut its dividend twice, shut down some of its key business units and trimmed its payroll.

Killinger stressed that the company remained well capitalized even as the housing market and the broader economy has deteriorated further since April when it announced a plans to raise $7 billion by selling an equity stake to an investment group led by the private-equity firm TPG online payday loan.

WaMu also said its Tier 1 capital ratio, a measure of a bank’s ability to absorb losses, stood at 8.44% at the end of the quarter. A ratio above 8% is generally considered a good sign for financial institutions.

"We remain confident that we have sufficient capital to successfully manage our way through this challenging period," Killinger said.

Concerns about WaMu’s fate surfaced last week after Lehman Brothers analyst Bruce Harting wrote in a research note he suggested the company would report $26 billion in cumulative losses when the company delivered its quarterly results, and would have to "substantially" raise its loan loss reserves as a result.

Those concerns were compounded by comments from Ladenburg Thalmann analyst Richard Bove, who warned that WaMu is on the edge of the "danger zone."

That spooked WaMu investors, who were already fearing further bank failures following the high-profile collapse of the California-based mortgage lender IndyMac just days earlier.

WaMu issued a statement later that day stressing it was well capitalized with more than $40 billion in excess liquidity.

Shares of WaMu have nearly doubled in the past week after hitting a new 52-week low. But WaMu’s stock, currently hovering around $6, still trades well below its 52-week high of $41 50.

The latest figures from WaMu come just hours after the Charlotte-N.C.-based Wachovia (WB, Fortune 500) booked a nearly $9 billion loss.

WaMu’s results also come at the tail end of what has been a tumultuous round of second-quarter earnings reports for the nation’s banks.

A number of large financial institutions, most notably Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), reported quarterly figures that, while not good, still managed to beat analysts’ expectations. Bank stocks have rallied sharply in the past few days on the news.  

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The clown trying to win your mother’s heart has a new rival and this guy’s royalty.

After watching its bigger rival McDonald’s Corp (MCD, Fortune 500). try to woo mothers and grab a share of the family budget, Burger King Corp. (BKC) — known for its edgy ads featuring a man with an oversize plastic king mask — is launching a new marketing and promotional campaign Monday targeted to moms.

"A large part of our customer base is parents with children," said Russ Klein, president of global strategy, marketing and innovation. "As a parent, the challenge is always trying to get the kinds of things you want to but have some dimension of fun."

The centerpiece of the effort, Klein said, is a new kids’ meal featuring a four-ounce serving of Kraft macaroni and cheese, lowfat milk and the company’s "Fresh Apple Fries", which are uncooked apple slices shaped like french fries and served with low-fat caramel dipping sauce. The meal will go on sale Monday for $3.49 and will be a permanent fixture on Burger King’s menu.

The launch will be followed by an in-restaurant merchandising and television ad campaign, with the first commercial airing July 7. That spot will introduce "Little King" meant to be the masked king’s young son.

The company will be offering free samples of its apple fries through July in New York, Los Angeles, Chicago, Miami and Houston. Burger King will also give away samples at Jonas Brothers concert tour sites. Burger King is an official sponsor of the group’s "Burning Up Tour" and will be offering some free tickets to the concerts.

Klein declined to specify the value of the advertising and marketing effort, saying only that the company will spend millions "supporting this vehicle."

Burger King certainly isn’t the first fast food restaurant to try to convince moms to listen to the pleas in the backseat for fast food free instant credit score estimator. McDonald’s launched a public relations campaign targeted to mothers last year in a bid to neutralize criticism that the company’s food is a contributor to childhood obesity.

The McDonald’s approach included adding a bevy of healthier menu items to its menu meant to entice both kids and parents, including "Apple Dippers" — pre-cut slices of apples similar to the new Burger King version. The chain also started a "mom’s quality correspondence" campaign in which six mothers got a behind-the-scenes look at how the chain operates. The moms write about their experience on the company’s Web site.

Zack’s Investment Research senior analyst Anne Northrup said McDonald’s has been "a trailblazer" in changing the perception that fast food is an indulgence that will likely lead to gaining a few extra pounds.

But convincing parents to correlate healthy eating with the home of the Whopper may not so be easy, particularly since Burger King has been lambasted by critics for not switching to trans-fat free oil as fast as some of its competitors. The chain has committed to making the switch in all of its restaurants by the end of the year. Wendy’s International Inc (WEN)., meanwhile, cut out trans fat oil in August 2006.

Northrup said getting parents to take their families to Burger King may also be dependent on the pace of the chain’s remodeling campaign. Burger King has been attempting to turn around its sales partly by renovating its restaurants.

Northrup said a large number of the chain’s unit are still more than 30 years old.

"That’s a key driver of earnings growth in the next few years," she said. 

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A lawsuit filed by a Wisconsin couple against their mortgage lender could have major implications for banks should a U.S. appeals court agree that borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law.

The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB (CCX_pc.N: Quote, Profile, Research, Stock Buzz) had hidden the true terms of what they believed was a good deal on a low-interest loan.

In their 2005 lawsuit, the couple said the loan’s interest rate had more than doubled by their second monthly payment from the 1.95 percent rate they thought was locked in for five years. The interest rate rose well above the 5.75 percent fixed-rate loan they had refinanced to pay their children’s college tuition.

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S free credit report and score. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial Corp (CFC.N: Quote, Profile, Research, Stock Buzz) mortgages originated under “unfair or deceptive practices.”

‘MASSIVE CLASS SUITS’

The mortgage banking industry already faces pressure from state and federal regulators, who have accused banks of lowering underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-interest investment vehicles. 

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Polish central bank monetary policy makers accused Governor Slawomir Skrzypek of involving the rate- setting body in his dispute with the government, a move that may dent their credibility as members of an independent panel.

Skrzypek called on the government to overhaul public finances, cooperate with the central bank in fighting inflation and prepare a program to adopt the euro during a press conference on June 25. The comments were not agreed to by the council beforehand, policy maker Dariusz Filar said in a phone interview in Warsaw today.

“I was totally surprised as I found out about the governor's address from the media,'' he said. “It was a blunder as it happened during a press conference to explain the council's rate decision. These two things should not have been combined as they involve policy makers in a political conflict.''

The central bank chief and the Cabinet blame each other for accelerating inflation that has led to higher borrowing costs and concerns that faster wage growth and employment will boost price growth even more. The inflation rate, at 4.4 percent in May, will remain above 3.5 percent upper limit of the central bank's target until 2010, the institution said yesterday.

Prime Minister Donald Tusk said on June 22 that the Monetary Policy Council waited too long before raising interest rates as inflation accelerated. That assessment was echoed by Finance Minister Jacek Rostowski.

Rate Increases

Policy makers raised borrowing costs four times this year to curb demand that has been derived from wage growth and employment pay day loans.

“The governor has defended the Monetary Policy Council, but the views of its members vary so it should have been earlier agreed to with us,'' Filar added.

Fellow policy maker Halina Wasilewska-Trenkner agreed.

“The cooperation with the government would be needed, and appealing for that through the media is inappropriate,'' she said in a phone interview. “The escalation of a conflict with the government won't help this issue. As long as there is no consensus between two parties, it should not be publicized.''

She added that even though the substance of Skrzypek's appeal is justified, it's not the way to resolve the problem.

The clash marks a fresh conflict between policy makers and the governor. The nine rate setters earlier this year criticized changes in the central bank's structure, prompting Deputy Governor Jerzy Pruski to quit. Policy makers asked the parliament's top official and the Constitutional Tribune to clear up the issue.

“Mutual relations now require serious discussion with Governor Skrzypek to clarify some things,'' said Filar. “It's a pity that we have to talk about it'' after the fact and not before.

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