Financial life in a big town

Union contracts for thousands of AT&T workers expired at midnight but officials said early Sunday that talks were continuing.

The passage of the deadline left the Communications Workers of America free to call a strike, but spokeswoman Candice Johnson says employees would report for work without a contract. She says that could change at any time.

Two separate contracts in eastern areas covering 10,000 workers expired at midnight, while talks were still going on for 33,000 other workers as midnight deadlines approached in the Midwest and West Coast.

The workers are on the shrinking local-phone and long-haul data side of the business, and located mainly in the Midwest and California cash advance payday loan.

When the last big batch of contracts was negotiated three years ago, the parties kept talking past the contract expiration, and reached agreements without a strike.

Dallas-based AT&T Inc. is the country’s largest employer of unionized workers. About 140,000 of its 256,000 employees are union members.

At issue in the negotiations are job protection clauses and health care premiums and co-payments.

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Yahoo said Wednesday that it will eliminate 2,000 employees, around 14% of its workforce, as new CEO Scott Thompson begins radically streamlining the company.

The long-rumored job cuts could be the first of several rounds, as Thompson pares Yahoo (, Fortune 500) down to focus on what he views as the company’s core business lines.

Thompson, who joined Yahoo in January, plans to provide more information about his strategy during the company’s first-quarter earnings announcement, which is scheduled for April 17.

In a written statement, Thompson said the cuts "are an important next step toward a bold, new Yahoo — smaller, nimbler, more profitable and better equipped to innovate. Our goal is to get back to our core purpose — putting our users and advertisers first."

Yahoo said its job cuts will save the company $375 million a year when they are completed. It expects to take a $125 million to $145 million charge this quarter for severance costs.

Thompson is aiming to do something his recent predecessors — including Carol Bartz, who was forced out in September — have repeatedly failed to do: articulate a vision of what Yahoo is.

The Internet’s first giant portal has retained a massive user base, but has lost its edge in nearly every field to newer, nimbler rivals. The company gave up on search in 2009, and it’s losing ground in display advertising to new entrants to the market such as Google (, Fortune 500) and Facebook fast cash advance.

Thompson’s busy 2012: Wednesday’s layoffs come three months to the day that Thompson took over at Yahoo — and his tenure has already been a busy one. In February, four longtime board members, including chairman Roy Bostock, announced they would not seek re-election.

Exactly one week after that, activist shareholder Daniel Loeb and his hedge fund Third Point launched a proxy fight. Third Point, which owns a 5.56% stake in Yahoo, is proposing four new Yahoo board members, including Loeb himself.

Mere weeks later, in March, Yahoo filed a lawsuit against Facebook. The high-profile suit alleges that Facebook infringed on 10 of Yahoo’s patents related to advertising, privacy, customization, messaging and social networking.

Facebook called the lawsuit "puzzling," while outside critics decried the move as "pathetic" and "desperate."

Still, considering that his predecessors failed at fixing Yahoo, Thompson clearly knows he has to make bold moves. Whether they’re enough for the long-promised but so far elusive Yahoo turnaround remains to be seen. 

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The Netherlands, the fifth-largest economy in the euro region, no longer belongs to the core of the common currency and may face rising borrowing costs, Citigroup Inc. said.

The tornadoes that swept through Missouri last year will cost homeowners who didn’t feel so much as a stiff breeze. Home insurance rates in Missouri are rising a little more than 5 percent, according to figures from the Missouri Department of Insurance.

Illinois state insurance officials wouldn’t provide an estimate on how much homeowners premiums may be rising this year.

People in the insurance industry call 2011 “the year of the cat,” as in catastrophe. And that partly explains the rising cost of home insurance here.

Several tornadoes ripped through St. Louis: one on New Year’s Eve of 2010 and then on April 22. Tornadoes laid waste to parts of the mid-South in April, then a massive twister erased much of Joplin in May. All told, twisters killed 1,900 people last year.

The result was the fourth biggest disaster loss in the history of insurance. The $21.3 billion tornado loss ranked just short of the $24 billion cost of 9-11, $25 billion for Hurricane Andrew in 1992 and $47.6 billion for Katrina in 2005.

The tornadoes capped a decade of disaster, in which catastrophic losses of all sorts more than doubled from the 1990s. This year is also shaping up as nasty with 270 tornadoes reported as of March 5, compared to a 7-year average of 123, according to the insurance rating firm A.M Best.

Tornado losses used to be a minor headache for insurers, who were more worried about hurricanes on the coast.

“Insurers are starting to say, ‘maybe this is the new normal,’” said Steve Weisbart, chief economist for the Insurance Information Institute, an insurance trade group. “They’re building into rates a little more margin for catastrophic loss.”

They’re also trying to bolster sagging profits. Earnings for property and casualty insurers dropped about 40 percent last year to $11.7 billion as “catastrophe-related losses wreaked havoc,” according to A.M. Best.

And so, St. Louis homeowners will be paying higher prices for coverage. The Missouri Department of Insurance says that insurers covering 80 percent of homes have filed rate increases averaging a bit over 5 percent from July of last year to early this month.

That was actually lower than in previous years. “Base rates” – rates before any discounts - rose 14 percent in 2009 and 9 percent in 2010, according to Missouri Insurance Director John Huff.

Those 2009 and 2010 increases were due in part to another ‘catastrophe’ hitting insurers — poor returns on their investments. 

Investment income has taken a big hit in recent years because of low interest rates, and falling investment income was pushing up rates before the rash of tornadoes.

Insurance premiums also depends on other factors, such as the amount of competition in the market and the amount of loss claims.

Huff says competition remains strong in Missouri with 130 companies angling to cover homes.

Insurers are looking for ways to lower their disaster losses beyond simply raising rates. More are moving to percentage deductibles, under which the homeowner pays a fixed percentage of any loss, says Weisbart. That’s a step away from fixed deductibles, in which the homeowner pays a certain dollar amount with the insurance company paying everything else up to the policy limit.

In Missouri, regulators are seeing some insurers move away from coverage that replaces damaged property with new property. If an old roof is blown off, they may give the owner a check for the value of an old roof, even if it costs more to replace it with a new roof.

Homeowners have to read their policy to know that they’re getting. “It’s really up to the consumer to do their own homework,” says department spokesman David Owen.

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A growing number of U.S. cities are choosing to fund essential services like public safety and garbage collection over making payments on their outstanding debt, as rising costs and falling revenue deplete their budgets.

So far, the bond defaults are not roiling the $3.7 trillion municipal market because insurance companies are stepping in to make payments to bond holders in some cases. But defaults on insured bonds are putting pressure on these insurers, which never fully recovered from the last decade’s financial crisis.

The California cities of Stockton and Hercules, as well as Pennsylvania’s capital, Harrisburg, have opted to default on some of their insured debt in recent months.

“Municipalities are saying this is what bond insurance is for - bond holders get paid,” said Richard Lehmann, publisher of Distressed Debt Securities Newsletter.

So far in 2012, there have been 21 muni defaults totaling $978 million, versus 28 defaults totaling $522 million for the same period in 2011, said Lehmann, who sees the number rising. A breakdown of defaults on insured munis was not available.

Although issuers contend they are not singling out insured munis for defaults, some believe that municipalities are strategically protecting bond buyers by relying on insurers to pay the debt service.

“Such a default may signal changing attitudes by distressed municipalities to contemplate a strategic default or bankruptcy on insured debt, knowing that bond holders will not suffer losses,” Moody’s Investors Service said in a report this week.

The credit rating agency added that municipal issuers “may be willing to damage their relationship” with insurers, which in turn could potentially be exposed to large losses.

CITY SERVICES TRUMP BOND-HOLDERS

Harrisburg’s state-appointed receiver said earlier this month that $5.3 million of payments due on general obligation bonds insured by Ambac Assurance Corp will be skipped.

“I was aware they were insured bonds when we made the decision,” David Unkovic, the receiver, told Reuters, adding that the city’s financial condition was more important than bond-holders.

“My first concern as receiver is to maintain vital and necessary service in the city,” he said. “In order to do that I need sufficient cash flows.”

The city of Stockton, nestled among the farms of California’s Central Valley, is defaulting on about $2 million in bond payments for debt sold in 2004, 2007 and 2009. Wells Fargo & Co is the trustee on each of the debt issues and has filed a lawsuit against Stockton for missing its February 28 payment on its $32.8 million of 2004 parking facilities debt, said bank spokeswoman Elise Wilkinson.

Hercules, which had considered bankruptcy, reached a settlement this month with Ambac after defaulting on a $2.4 million bond payment due in February.

Some of the companies are starting to feel the pressure. Syncora Guarantee Inc last month told a federal judge in Alabama that the prospect of it having to make good on millions of dollars a month in debt payments owed by bankrupt Jefferson County might sink the company.

In addition, the once-widespread use of insurance on new issuance has shrunk to a sliver of the muni market. After the financial crisis, so-called monoline insurers left the business, and the largest remaining insurer, Assured Guaranty, is scaling back, depending on states’ bankruptcy laws.

Insured bonds, which accounted for 57.3 percent of muni issuance in 2005, sank to only 5.5 percent of issuance in 2011, according to Thomson Reuters data cash advance today.

Insurers do not appear to perceive an immediate risk. “We don’t feel picked on,” said a senior executive at a bond insurer. “I’m not sure it’s correct to say issuers are deciding to default on insured bonds over uninsured ones. The market does not care whether a bond’s insured or not. The fact they defaulted is what the market remembers.” The executive, who spoke on condition of anonymity, said struggling issuers get no tangible benefit from skipping payments on an insured obligation over an uninsured one since any money must eventually be repaid to the insurer.

“It’s not a get-out-of-jail card,” the executive said.

THE FINANCIAL CRISIS LEGACY

There was a time when bond insurers confined themselves to the dull but steady business of underwriting municipal debt, effectively lending their superior credit ratings to cities and towns for a fee. The insurers branched out into structured financial products, which resulted in huge payouts when the credit crisis hit. One-time market leader MBIA chose to restructure, and its municipal National Public Finance business is no longer writing new policies, pending the outcome of a lawsuit filed by a number of banks challenging the restructuring. Ambac, once the second-largest U.S. bond insurer, went bankrupt in 2010, as did the parent of bond insurer FGIC. Syncora went through a major restructuring in 2009 and stopped writing new business as well. The carnage left one bond insurer standing, Assured Guaranty. On Tuesday Moody’s placed its ratings, including the A3 senior unsecured rating of Assured Guaranty US Holding and Assured Guaranty Municipal Holdings, on review for possible downgrade.

“Assured Guaranty’s business and financial profiles may have meaningfully deteriorated due to the firm’s narrower business opportunities and substantial exposure to sectors adversely affected by the financial crisis and current economic stress,” commented Moody’s Associate Managing Director Stanislas Rouyer in a statement.

The company has argued it can still effectively underwrite smaller municipalities with lower-tier ratings. Even so, it is threatening to pull out of some states without tight bankruptcy controls.

“This is weighing more heavily in our underwriting as we examine the legal framework for bankruptcy in every state that we insure municipal securities,” Assured said in a written reply to Reuters. “While some defaults have occurred on insured transactions, most have been on uninsured transactions.”

Assured Guaranty said it believes defaults will remain infrequent, saying its municipal portfolio has experienced “only modest loss development on a few isolated transactions.” As of the end of 2011, Assured Guaranty enhanced $15.2 billion of munis - a drop of 45.1 percent from 2010, when it was also the market’s sole active guarantor. Assured listed exposure to $3.9 billion of debt sold by non-investment grade issuers on its 2011 financial statements. It includes notorious names like Alabama’s Jefferson County sewer system, Harrisburg, Detroit, and Detroit Public Schools. Radian Group, which wrote bond insurance until 2008, said last September it was considering starting a new unit with dormant bond insurance assets it purchased from Macquarie Group. The Financial Times reported this week that Goldman, Sachs & Co has also been hiring for a bond insurance specialist.

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As spring approaches, Occupy Wall Street protesters who mostly hibernated all winter are beginning to stir with plans for renewed demonstrations six months after the movement was born.

The global protests against corporate excess and economic inequality are generally thought to have begun Sept. 17 when tents sprang up in a small granite plaza in lower Manhattan. The movement has lost steam in recent months, with media attention and donations dropping off as Occupy encampments across the country were dismantled, some by force.

On March 7, the finance accounting group in New York City reported that just about $119,000 remained in Occupy’s bank account _ the equivalent of about two weeks’ worth of expenses.

The Occupy movement has influenced the national dialogue about economic equality, with the word “occupy” itself becoming part of the public lexicon. In his third State of the Union address, President Barack Obama issued a populist call for income equality that echoed the movement’s message. But has anything really changed in the past six months?

Some achievements that can be connected to the efforts of the Occupy movement, and some plans for the near future:

WHAT GOT DONE

In Albany, N.Y., Occupy protesters dubbed Democratic Gov. Andrew Cuomo “Gov. 1 Percent” for his refusal since the 2010 campaign to agree to a millionaire tax, and because his major campaign financial support comes from corporate executives.

Cuomo tried to evict Occupy Albany from the park co-owned by the city and the state. But the Democratic mayor, Gerald Jennings, agreed to allow Occupy Albany to stay on the city-owned side. Local Democratic District Attorney David Soares also announced he wouldn’t prosecute anyone for disorderly conduct at Occupy Albany who might be arrested by state police _ who answer to Cuomo.

In a surprise, Cuomo reversed his position on the millionaire tax in December to avoid further cuts to schools and health care. Part of the $2 billion in revenue went to a modest but rare income tax cut of $200 to $400 for most middle class families. Cuomo refers to the millionaire tax as the biggest tax cut for the middle class in decades.

Democratic lawmakers attributed Cuomo’s move in part to the Occupy protesters who had targeted him across the street from the Capitol for months and had begun demonstrating just outside his office.

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An Atlanta pastor, whose church struggled to pay its bills after its building was struck by a 2008 tornado, credits Occupy Atlanta with helping it to avoid foreclosure. The Rev. Dexter Johnson’s church, the Higher Ground Empowerment Center, took out a loan to rebuild and has struggled to pay its mortgage in recent months.

Johnson said the bank had agreed to work with the church to help pay its mortgage after demonstrations by Occupy members. Demonstrators had set up a camp at the church in Atlanta’s Vine City neighborhood, just west of downtown.

In January, Johnson learned his congregation would be allowed to stay in the building.

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In Rhode Island, Occupy Providence pushed for _ and won _ a temporary day center to serve the homeless during the winter. Protesters made the center’s opening a condition of their departure from a public park downtown, where they had camped against the city’s wishes for more than three months.

While the city didn’t fund the center, officials pledged to help its operator, the Roman Catholic Diocese of Providence, find money for it.

“It shows that with pressure from people, a government can be made to move,” protester Robert Malin said at the time of the center’s opening.

The city had threatened legal action to remove the protesters and their tents from the park, but the two sides instead went into mediation before a judge.

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Also in Rhode Island, the state’s junior U.S. senator, Sheldon Whitehouse, introduced a bill in November to crack down on high credit card interest rates _ the same week he visited the Providence encampment. While there was no direct relationship between Occupy and the bill, Whitehouse spokesman Seth Larson said Thursday, the legislation no doubt resonated with the protesters.

“It was timely, and I’m sure the Occupy folks appreciated this bill,” Larson said.

Whitehouse had introduced similar legislation a year earlier.

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Occupy protesters helped save an Iraq war veteran’s home from foreclosure in Atlanta, the Huffington Post reported. “I strongly believe Occupy Atlanta accelerated the process and helped save my home,” Brigitte Walker, whose home activists began occupying Dec. 6, told the website. “If it had not been for them standing up, I probably wouldn’t be having this happy ending.” Walker had left Iraq in May 2004 when she was injured by the shock from mortar rounds, the Post reported.

Occupy Minneapolis also worked with community organizers to help a former Marine who faced eviction from his home strike a deal with his bank, the Post reported.

WHAT’S NEXT

Occupiers in New York City will commemorate the six-month mark with a rally Saturday in Zuccotti Park, where protesters camped out for months until the city ousted them in November.

Organizers are hoping donations will start to flow in as protests begin anew this spring, including a global day of “economic disruption” on May 1.

And in some states, Occupy supporters are making forays into politics. Asher Platts is running for the state senate in Maine as a “Clean Elections” candidate. Platts, an activist who attended the protests last fall, is running on an Occupy platform.

In suburban Philadelphia, Occupy protester Nathan I. Kleinman is running a write-in campaign for Congress against four-term Rep. Allyson Schwartz in the Democratic primary on April 24. The 29-year-old said he never would have mounted a run without his Occupy experience. Kleinman withdrew from the ballot after a court hearing in which Schwartz’s supporters questioned some of the 1,500 required signatures he had gathered to appear on the ballot.

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With little more than three months until the interest rates on federally subsidized student loans double, students are pushing lawmakers to help them out.

On July 1, the interest rate on federal subsidized loans will double to 6.8%. That means students taking out loans for the next school year will eventually dig deeper in their pockets to pay them off.

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Nearly 8 million students have subsidized student loans, which means the federal government subsidizes the interest rate for lower- and middle-income families based on financial need.

Without congressional help, students borrowing the maximum $23,000 in subsidized loans are poised to pay an extra $5,000 over a 10-year repayment period.

That’s why the consumer advocacy group U.S. Public Interest Research Group delivered 130,000 student petitions to lawmakers on Capitol Hill on Tuesday, asking Congress to stop the rates from doubling.

College degree = $650,000 more in earnings

"We’ve got 110 days to fix this problem," said Rep. Joe Courtney, a Connecticut Democrat, who is sponsoring a bill to extend current interest rates. "Middle class families, every single day, are struggling in terms of making sure their kids have a chance to succeed in life."

Subsidized student loan interest rates used to be 6.8%. But when Democrats took over the House in 2007, they passed phased-in cheaper rates for subsidized student loans. The rates fell to a current low of 3.4% for subsidized Stafford loans this past school year. The rates are scheduled to revert back to 6.8% for the 2012-2013 school year.

Student loans are a big deal. The Federal Reserve of New York last week reported that the $870 billion in student loan debt tops $693 billion in credit card debt and $730 billion car loan debt.

And with unemployment just below 24% for teenagers and 14% for those ages 20 to 24, more young people are going back to school or staying in school, according to new data by Equifax. Last year, new student loans grew by 4%, the firm reported Tuesday in its National Consumer Credit Trends Report.

Additionally more students struggle to pay back those loans. Student loan delinquencies involving payments more than three months late rose 14.6% in 2011 from the year before, according to Equifax.

President Obama urged lawmakers in his State of the Union address to stop this student loan rate hike from going into effect. But the deficit-conscious Congress has yet to act, especially since extending the 3.4% rate would cost $5.6 billion a year, according to FinAid.org.

While the president has focused on expanding access to college for low- and middle-income children, lawmakers have taken several steps to whittle away at student aid.

Congress has eliminated subsidized loans for graduate students, as well as most discounts. They also cut $8 billion out of the Pell Grant program for low-income students and reduced the income threshold for eligibility for a full Pell Grant.

The impending higher interest rates on subsidized Stafford loans worries Samantha Durdock, a sophomore at the University of Maryland in College Park, who currently has $8,000 in subsidized Stafford loans and expects to borrow another $15,000.

"Even though graduation is several years away, I am worried about the amount of debt I will have," Durdock said at the Capitol Hill event. "If interest rates double, the extra debt might also impact my ability to pay basic expenses like rent." 

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Ferrari will unveil its fastest street car ever at next month’s Geneva Motor Show.

The Ferrari F12berlinetta is intended to replace the 599, which is currently the automaker’s top-of-the-line production car. The 599 has a starting price of about $310,000. Pricing for the F12berlinetta has not yet been announced.

The new car will be powered by a 730-horsepower, 6.3-liter V12 engine. It will be capable of going from zero to 60 miles an hour in about three seconds — the fastest zero-to-60 time for any Ferrari — with a top speed of 211 miles per hour.

In addition to being faster, Ferrari said the F12berlinetta also more fuel-efficient. The new car uses 30% less fuel than the 599, which would put its combined city and highway fuel economy at about 17 miles per gallon.

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The F12berlinetta is a mid-front-engined coupe, Ferrari said. The engine is mounted as far back under the hood and as low as possible to optimize the car’s balance and center of gravity. Ferrari also promises "exceptional in-car space and comfort" despite an overall smaller size.

Last year, Ferrari had record sales and profits. It sold a total of 7,200 cars worldwide while earning a profit of $280 million. Almost 2,000 of the cars were sold in the United States, which was also a record for the brand.

Ferrari is almost wholly owned by Italy’s Fiat, which is partnered with Chrysler Group in the United States. 

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Official data show that Germany’s unemployment rate edged up to 7.4 percent in February, due to a spell of bitterly cold weather.

The Federal Labor Agency said Wednesday the unadjusted jobless rate was up from 7.3 percent in January. The number of people registered as unemployed was 3.11 million _ that’s 26,000 more than in January but 203,000 fewer than a year ago.

Germany’s job market is nonetheless remains in a good condition after two years of strong economic growth.

Its strength contrasts with high unemployment in economically weaker countries that have been hit hard by the eurozone debt crisis. Spain and Greece have jobless rates above 20 percent.

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A drop in the paper value of the financial instruments known as derivatives hurt profits at Berkshire Hathaway Inc., the conglomerate run by billionaire investor Warren Buffett.

Some of its subsidiaries performed well enough to offset some of the losses. Buffett detailed the company’s 2011 performance Saturday in his annual letter to shareholders.

Berkshire reported fourth-quarter net income of $3.05 billion, or $1,846 per Class A share. That was down from $4.4 billion net income, or $2,656 per share, a year ago.

Berkshire’s profit fell short of the $1,875 per share expected by the four analysts surveyed by FactSet, a provider of financial data. Quarterly revenue grew 5 percent to $37.96 billion from last year’s $36.17 billion.

The biggest difference in the quarter was the change in estimated value of Berkshire’s investments and derivative contracts. That fell to $382 million this year from last year’s $1.4 billion.

Derivatives are complex investments that have been blamed in part for the 2008 financial crisis and the recession. Berkshire’s derivatives are designed to operate like insurance policies, with some covering the risk of bond defaults by certain companies and some covering whether certain stock market indexes will be lower 15 or 20 years in the future.

Buffett reiterated Saturday that he believes Berkshire’s derivative contracts will ultimately prove profitable, but he said the company doesn’t plan to write any more major derivative contracts. Buffett said he does not want Berkshire to deal with new requirements for how much collateral companies must post when they hold derivatives payday lenders.

For 2011, Berkshire generated $10.3 billion in net income, or $6,215 per Class A share, down from nearly $13 billion, or $7,928 per share, in 2010.

Strength in the Burlington Northern Santa Fe railroad, MidAmerican Energy, and the Marmon Group helped offset insurance underwriting losses related to catastrophes like the Japan tsunami. Newly acquired chemical maker Lubrizol added $1.7 billion in revenues to Berkshire since September.

Stockbroker Andy Kilpatrick, who wrote “Of Permanent Value: The Story of Warren Buffett,” said Buffett managed to outperform the overall market in a tough year for Berkshire’s insurance and housing-related subsidiaries.

“It was not a great year, but he still beat the S&P. It’s still an incredible moneymaking machine,” Kilpatrick said.

Buffett’s preferred measure of Berkshire’s performance is the growth in its book value, which is a calculation of the company’s assets minus its liabilities. Buffett said Berkshire’s book value grew 4.6 percent to $99,860 per share in 2011. The S&P 500, which Berkshire is part of, gained 2.1 percent last year when dividends were factored in.

Berkshire owns roughly 80 subsidiaries, including clothing, furniture and jewelry companies, but its insurance and utility businesses typically account for more than half the company’s net income. It also has major investments in such companies as Coca-Cola, IBM and Wells Fargo.

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