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Boston Finance – National Health Care – Less Likely Without Teddy

Boston Money — Mon, 31 Aug 2009 03:22:20 +0000

Kennedy Death Cuts Broad Health Bill Odds, Hatch Says

By Nicole Gaouette

Aug. 30 (Bloomberg) — Congress is less likely to pass sweeping health-care overhaul legislation following the death of Senator Edward Kennedy, a leading Republican said.

“You’re not going to get this big, broad Democrat spending bill — you’re not going to get Republican support,” Senator Orrin Hatch, a Utah Republican and close friend of the Massachusetts Democrat, said on CNN’s “State of the Union” program.

Hatch said Kennedy’s status as Congress’s leading liberal often convinced Democrats they could support deals he had struck with Republicans. “That’s why Senator Kennedy was so important,” Hatch said. “I don’t know if another Democrat has the same clout in Congress.”

Expanding coverage to nearly 50 million uninsured Americans and lowering health-care costs was Kennedy’s life’s work, colleagues said, and is now President Barack Obama’s top domestic priority. Lawmakers failed to get health-care bills through Congress before the August recess. Obama, who is pushing lawmakers to overhaul a health-care system that accounts for about 18 percent of the nation’s economy, said Aug. 20 that “we’re going to get this done one way or another.”

Hatch said Kennedy provided deep experience on health care, united factions within the Democratic Party and worked well with Republicans.

Kennedy’s Work

“Kennedy could bring together all of the base groups of the Democratic Party,” Hatch said on ABC’s “This Week,” recalling that Kennedy worked on health legislation for more than three decades. “In every case, he fought as hard as he could, but when he recognized that he couldn’t get everything he wanted, he worked with the other side. If he was here, I don’t think we’d be in the mess we’re in right now.”

Kennedy’s illness meant he was absent from Congress for much of the past year, though his staff said he kept abreast of the health debate through frequent phone calls. Senator Christopher Dodd, the Connecticut Democrat who temporarily took over from Kennedy as chairman of the Senate Health, Education, Labor and Pensions Committee, told the panel that Kennedy was watching their debate on C-SPAN television and calling him daily to offer feedback.

Four of the five congressional committees with jurisdiction over health have passed bills that would cost about $1 trillion over 10 years. The Senate Finance Committee has stalled over a number of issues, including whether to create a government-run insurance plan, require employers to provide workers with insurance, and impose new taxes that could range from taxing the richest Americans to levies on generous health plans.

Public Plan

Not all Democrats support the idea of a public plan, which Obama has said would be his preferred way to generate more competition among health insurers. Louisiana Senator Mary Landrieu told CNN she would “tend not to” support a bill that included a public option. “I think we can do it without a public option,” the third-term Democrat said. “Hopefully we can keep working. That’s what Ted Kennedy would want us to do.”

John Kerry, now the senior Democratic senator from Massachusetts and a member of the Finance Committee, said he was confident a health-care bill would be passed and he urged Republicans to avoid being “bound by ideology.”

“When we get reality on the table we can have a good conversation,” Kerry said on the ABC program. “I believe we can do this. I think better judgment will prevail.”

Senate Bill

When the Senate returns in September, it will take up the bill the Senate health committee put together in July, Dodd said on NBC’s “Meet the Press.” He said the bill is “sitting there,” ready to be worked on with the Finance Committee.

“If we can get these bills together and sit down with each other, we can produce a strong, vibrant, vitally needed national health care legislation on accessibility, quality and affordability,” Dodd said.

Health-care costs now account for about 18 percent of GDP, according to the president’s Council of Economic Advisers, and are projected to rise to 34 percent by 2040.

“The country cannot afford this, Dodd said on CNN. “How we get there is the challenge before us.”

Senator Maria Cantwell, a Washington Democrat, said bipartisan cooperation on the issue was crucial. “Doing nothing and thinking that we’re going to get out of this expense is not an option,” Cantwell said on CNN’s “State of the Union.”

“Getting true competition into the system and giving consumers choice is what the Democrats and Republicans should be joining ranks on,” Cantwell said.

Democrats Alone

Democrats including Senator Charles Schumer of New York have said that if Senate Finance negotiators — three Republicans and three Democrats — can’t reach a deal by Sept. 15, Democrats may have to pass the bill on their own.

The majority party could use a legislative maneuver called reconciliation which allows the Senate to pass a bill with 51 votes instead of the 60 typically needed for controversial pieces of legislation.

During the August recess, Finance Committee Chairman Max Baucus convened meetings of the six senators on the committee who are working on a bipartisan compromise.

Any agreement they reach would have to be coordinated with a plan passed by the Senate HELP committee. The three House committees with jurisdiction over health will meld their bills together after lawmakers return from recess. The House and Senate bills would have to be reconciled before being voted on by both chambers.

Protests at Meetings

The Senate adjourned on Aug. 7 and will reconvene on Sept. 8. Many of the town hall meetings lawmakers held to discuss health-care during the recess were disrupted by protests.

Administration officials have urged lawmakers to honor Kennedy by getting health reform passed.

“The best possible legacy is to pass health reform this year,” Secretary of Health and Human Services Kathleen Sebelius said recently. “Hopefully every step along the way they’ll ask themselves ‘What would Teddy do?’”

Dodd said Kennedy’s death will push his colleagues to work harder at passing legislation.

“We don’t have the luxury of wallowing in our grief; we’ve got to get up and get this done,” Dodd said. “We’re going to roll up our sleeves and do what Teddy would have done and get health-care done.”

– With assistance from Jeff Plungis in Washington. Editors: Ann Hughey, Bill Schmick

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net.

Boston Finance News – Downsizing Big Banks

Boston Money — Tue, 11 Aug 2009 15:17:25 +0000

Downsizing the big banks: A long-term solution

James Cullen

The hundreds of billions in rescue funds needed to support banks — and the trillions in implicit subsidies — has brought the question of appropriate institutional size to the forefront of regulatory reform. Not surprisingly, FDIC Chairwoman Sheila Bair and Federal Reserve Chairman Ben Bernanke favor measures collectively intended to limit the size of banks in the future, Bloomberg News reports.

Options include raising capital ratios as a bank increases in size, accelerating the increases in fees paid to the FDIC, and lowering the cap on the percentage of nationwide deposits any one bank can take. Overall, the goal is to have “financial disincentives for size and complexity,” according to Bair. Complexity encompasses untraditional banking activities, such as the proprietary trading that drove Goldman Sachs’ (GS) hugely profitable quarter, as well as investing in structured financial products.

There’s no doubt that the majority of large banks took on more risk than they could handle during the last few years. Scale can be helpful in banking, but it can also mean that improper activities are occurring because management’s oversight is less effective. A trillion dollar-plus balance sheet can hide a lot of bad assets and hidden risks. As the too-big-to-fail debate rages on, the real goal is how to avoid a bank that is too-big-to-rescue.

If it seems absurd that the current raft of bailout programs could need to be repeated one day in such a larger size as to be impossible for the U.S. government to finance, consider what’s happening in the financial system now. As certain banks go under (like Washington Mutual) and others are absorbed (like Wachovia) — the result is greater concentration of banking assets under the survivors. I’ve argued elsewhere that this is both a natural and healthy part of market cycles. However, if the government is implicitly supporting existing large banks — keeping them around in the hopes that they can help clean up the mess by taking over other failed institutions — then all bets are off.

The current working plan of regulators and the Treasury Department is to increase concentration in the banking system, but it’s a near-term patch job and the exact opposite of what’s necessary long-term. Promoting stability means promoting an environment where the failure of one does not lead to a potential failure of all, and that’s tough to do when the top handful of financial institutions have huge balance sheets and extensive counterparty entanglements with each other. If that means creating a well-defined line between the dealings of regulated banks and unregulated investment banks or hedge funds, then that discussion should be on the table.

Luckily, America hasn’t yet been confronted with a financial crisis “fix” that exceeds its capacity to borrow. But to ensure that doesn’t happen in the future, institutions need to be appropriately sized so that they aren’t crucial enough to create the hope for financial help when times get tough.

James Cullen edits and writes at CollegeAnalysts.com. He is the vice president of the Boston College Investment Club, which owns shares of GS, but he has no personal position in the stocks mentioned above.

Boston Financial – Barney Frank Comments tied to GE Stock Rise

Boston Money — Sat, 01 Aug 2009 18:06:58 +0000

GE stock rises after Barney Frank says it should keep finance unit

By: Rachel Layne and Alexis Xydias
Bloomberg News
July 30, 2009

General Electric Co. rose the most in three months after U.S. Representative Barney Frank said manufacturers that already own finance businesses should be allowed to keep the units under revised banking rules.

GE increased 92 cents, or 7.5 percent, to $13.18 at 10:27 a.m. in New York Stock Exchange composite trading. The shares earlier climbed 8.8 percent, the biggest intraday gain since April 13.

GE, Harley-Davidson Inc. and companies that already have finance arms or industrial-loan businesses known as ILCs should be able to retain them without being subject to Federal Reserve oversight of their manufacturing operations, Frank said in an interview with Bloomberg News yesterday. Frank, a Massachusetts Democrat, heads the U.S. House Financial Services Committee.

“While numerous uncertainties remain, we are reducing our probability assumption for a costly separation to 25 percent from 50 percent and this drives our higher target,” Terry Darling, an analyst with Goldman Sachs Group Inc., wrote today in a report. “Greater potential for a manageable regulatory outcome should prompt investors to focus on longer-term benefits of economic and credit stabilization to GE shares.”

Darling raised his 12-month share-price estimate for GE to $15 from $13 and changed his rating to “buy” from “neutral.”

GE Capital

GE, the world’s biggest non-bank financial company, said July 28 during a Webcast meeting with analysts that it has been “very active” in opposing any rules that might force it to split off its GE Capital finance unit, which has $557 billion in assets. GE is also the world’s biggest maker of power-plant turbines, locomotives, medical-imaging machines and jet engines.

Steven Winoker, an analyst at Sanford C. Bernstein & Co. in New York, raised his estimate for GE’s 2009 per-share profit by 3 cents to 99 cents. He lowered his 2010 estimate by 3 cents to 94 cents a share on concerns profit growth in the non-finance divisions may slow.
“The risk/reward balance is improving over a longer, about three-year, time horizon,” Winoker wrote in a note to clients today. “However, we believe the stock is likely to remain range-bound in the near term due to skepticism concerning GE’s earnings power and the potential for dilution.”

Credit-default swaps protecting against a default by GE Capital fell 35 basis points to 260 basis points, according to CMA DataVision.

Financial Regulation

President Barack Obama’s administration is seeking to tighten regulation of the financial industry to reduce the likelihood that any one company’s potential failure would hurt the broader markets and economy. Frank, a leader in Congress in transforming Obama’s plan into legislation, said this week he plans to get the bill through the House by October and to Obama for his signature before the end of the year.

“The Fed was worried about being a regulator, about being held responsible for a lot of industrial activity,” Frank said. “We will work with them to resolve that issue.”

There are ways to allow companies like GE to stay intact and have their finance arms regulated more closely, Frank said. The structure didn’t cause the financial crisis, and it shouldn’t be an obstacle to regulation, Frank said.

“This particular arrangement is not part of the problem,” Frank said.

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.

Boston Banks – SEC May Sue!

Boston Money — Mon, 13 Jul 2009 23:02:54 +0000

State Street Says SEC May Sue Over Bond Investments (Update4)

By Christopher Condon

June 29 (Bloomberg) — State Street Corp., the world’s largest asset manager for institutions, may be sued by federal regulators over bond funds that investors said lost money because of bets on risky mortgage-backed securities.

The company, based in Boston, said in a regulatory filing that it received a Wells notice stemming from a U.S. Securities and Exchange Commission investigation into disclosures and management of fixed-income investments through 2007.

The notification typically lets recipients respond to investigators’ claims before the agency’s five-member commission approves legal action. The SEC may decide not to pursue a case.

State Street, the manager of $1.4 trillion as of March 31, has been sued by investors claiming its funds took too much risk by investing in securities tied to home mortgages. The firm set aside $618 million in the fourth quarter of 2007 to settle legal claims stemming from losses linked to subprime home loans. It made $417 million of payouts as of Dec. 31.

“It’s not a long-term negative, but it could affect near- term earnings if they have to pay civil penalties,” Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, said in an interview.

State Street said in the SEC filing that it’s cooperating with the agency and with related probes by securities regulators and the attorney general in Massachusetts. Arlene Roberts, a spokeswoman for State Street, and John Heine, a spokesman for the SEC in Washington, declined to comment.

The company rose 18 cents to $48.50 at 4:15 p.m. in New York Stock Exchange composite trading. It has gained 23 percent this year, compared with the 13 percent rise for the Standard & Poor’s index for asset managers and custody banks.

Prudential Lawsuit

Prudential Financial Inc., the second-largest U.S. life insurer, sued State Street in October 2007 on behalf of 200 retirement plans for $80 million, the amount lost in two bond funds that were designed to closely track benchmarks. About 28,000 retirement accounts were affected.

The suit, filed in federal court in Manhattan under the federal Employee Retirement Income Security Act, alleged State Street changed the investment strategies of the funds and made “undisclosed, highly leveraged investments in mortgage- related” assets.

State Street lost a bid to have the case thrown out in September. U.S. District Judge Richard Holwell rejected the company’s claim that investors haven’t been injured because Prudential reimbursed them.

Robert DeFillippo, a spokesman for Prudential, declined to comment on the SEC’s action.

Galvin Probe

Secretary of the Commonwealth William F. Galvin, the top securities regulator in Massachusetts, said in April his office was investigating State Street for allegedly misleading pension funds over the risks of their investments.

Evergreen Investments agreed this month to pay $40 million to settle claims by the SEC that it overstated the performance of its Ultra Short Opportunities Fund from February 2007 to its closing in June 2008. When values were changed, investors were informed selectively, the agency said. The fund has been liquidated. Boston-based Evergreen was acquired by Wells Fargo & Co. in its takeover of Wachovia Corp.

OppenheimerFunds, a unit of Springfield, Massachusetts- based Massachusetts Mutual Life Insurance Co., was sued this month by investors seeking to recoup losses allegedly caused by mismanagement of the Oppenheimer Pennsylvania Municipal Fund.

The SEC has opened more than 50 inquiries and brought at least 10 cases linked to subprime loans since rising defaults triggered the global credit crisis in 2007.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

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Facebook – Boston Financial News

Boston Money — Tue, 19 May 2009 06:48:05 +0000

Facebook raises $150 million more to cash out employees

Matt Marshall | May 16th, 2009
Facebook

Facebook has almost finished raising $150 million in capital, in an extraordinary move by the company to buy out shares of hundreds of regular employees.

Hundreds of the Palo Alto, Calif.’s employees have now toiled at the company for more than two years, and many have worked three to five years. Increasingly, some have become restless, and would like to cash in on the huge value they’ve created. Most employees were awarded several thousands of shares valued at far less than a dollar each. Now, by selling to those shares investors for a private market value of $10 each, employees can enjoy a nice windfall. According to our sources, the transaction will include the buying out of roughly 15 million common shares – thus equaling around $150 million total value.

Facebook declined comment on the financing.

The deal has not quite closed yet. But it’s another sign that large private companies like Facebook are desperately seeking ways to find “liquidity” for their employees – especially now that the IPO market remains difficult, in particular for unprofitable companies.

Because of the size of the round, Facebook’s existing investors – Accel, Greylock, Founders Fund and several others – found it a stretch to supply the full amount of capital. We’re hearing the final part of the deal is being sold to new Asian investors.

Speculation about Facebook raising cash has swirled for several months, but most reports have misunderstood the reason why Facebook wanted to do so. Some outsiders claim the social networking company needs the cash to cover high storage and server costs, now that more than 200 million users are sharing photos at an increasing rate. But the company has constantly rejected such arguments, and now our sources are corroborating that.

The company declined to comment specifically on the fundraising, or the amount. Spokesman Larry Yu confirmed the existence of a Facebook common stock sale program, which lets employees sell up to 20 percent of their common share holdings, but he wouldn’t comment on any other details. “Facebook is a private company, so as a matter of policy, we don’t typically share details about our financial plans or comment on rumor and speculation,” he said, using a prepared statement. The company delayed the program in October, but we’re hearing the program will resume once this latest funding is finalized, which should happen very soon.

Before this, the company raised more than 400 million. It also raised debt of at least $100 million, much of that coming last year, and most of it in the form of a lease line to buy servers.

There’s no denying the company faces significant costs in covering photo-sharing costs. However, over the past six months, the company dedicated a crack team of three engineers to drive down the costs considerably. The initiative, called Haystack, replaced off-the-shelf storage products – which contained a lot of “head room” costs – with a proprietary architecture that shrunk the company’s computing costs to what really mattered. There’s also no sign the company is holding back from rolling out new high-bandwidth initiatives. It’s about to roll out a new live video chat feature, according to a report by AllFacebook (Update: We’ve since heard from another source that, while this is video chat feature in testing, there are no current plans to launch it).

Yu said speculation last last year by TechCrunch about Facebook’s server costs were an “order of magnitude wrong:” He added: “There’s a perception that our costs are skyrocketing…But those costs are not as nearly as radical as people are beginning to report.” He said that if nothing were to change at all, the company is on a “clear path to be cash-flow positive in 2010.” This is possible given Facebook’s cash in the bank, its managing of infrastructure costs and growth of its business, he said.

The company has repeated several times that it doesn’t need cash. Last month, the company’s COO Sheryl Sandberg told Bloomberg: We could not be doing better financially … We might take money-but it doesn’t mean we need to.”

The buyout of employee shares in this latest transaction should be distinguished from the separate process of “secondary market” transactions, in which former Facebook employees sell their shares to accredited investors. Those transactions are commonplace. Until now, however, Facebook has asked its current employees to refrain from such sales.