Boston hosting 1st Latino professional convention

As the nation’s first Latino Supreme Court justice is set to be sworn in today, Boston will welcome its first-ever convention of Latino professionals.

Some 2,000 members of the Association of Latino Professionals in Finance and Accounting are expected to gather here starting today for their national convention.

A Greater Boston Convention & Visitors Bureau official said this will be the biggest gathering of Latino professionals ever in the Hub.

The association’s Boston chapter – which has more than 1,500 members – is the nation’s largest, said Romina Wilmot, vice president of marketing and public relations for the Hub chapter.

She attributed the Boston chapter’s success to its leadership and the region’s growing number of Latino professionals. In the past decade, Boston’s Latino population has grown 21 percent, to 103,000, according to city data.

“We have had very strong and active leaders, who are very passionate about this group,” said Wilmot, a former advertising specialist for Marshall’s who relocated from Honduras to Boston as a young girl.

The conference runs through Wednesday and association members will be gathering in three different hotels in the Copley Square area.

As attendees gather for their first day of meetings, many will be celebrating Sonia Sotomayor’s swearing in as Supreme Court associate justice.

“I’m sure everyone will be discussing that,” Wilmot said.

Article URL: http://www.bostonherald.com/business/general/view.bg?articleid=1189894

Young investors wary of jumping into market lows

By Erin Kutz

BOSTON (Reuters) – Young investors may accept the argument that those who begin investing when stocks are cheap end up with more retirement money, but after the turmoil of the past year, some find it hard to put their money in the market.

Asset managers and analysts say that those who invest in rock-bottom stocks of a bear market will see share values rise for decades.

But many in their 20s and early 30s are not buying rosy projections, due to immediate financial pressures and exposure to the longest recession since the 1930s Great Depression.

“I would keep all my money in cash,” said Alex Corbacho, a senior at Boston University.

The trend has some worrisome long-term implications. Stock brokers may find themselves largely shut out of a big customer base, and demand for equities will likely be crimped as investors favor safer havens, hurting the stock market’s prospects. It’s also unclear whether these young investors will have accumulated enough to fund their retirements when the time comes.

Corbacho is no stranger to markets. At age 13 he invested his birthday money and a matching donation from his father, $1,000 in total, in tech stocks only to feel the sting when the Internet bubble burst.

He carried the lesson with him in early 2008, after seeing signs of economic trouble as an intern at a Boston investment bank. He put the majority of his stock investments, which had reached about $5,000, into a certificate of deposit instead.

Corbacho doesn’t plan returning to stocks for a few years after graduation and is instead focusing on saving.

The recent market collapse has made holding cash for immediate expenses far more attractive to young people than investing, said Rodger Smith, managing director of Connecticut consulting firm Greenwich Associates.

“They are taken aback by how much they lost and how quickly they lost it,” Smith said.

The early exposure to such dramatic declines could restrain many from investing aggressively when they are older and have accumulated more money to put into the market, some say.

Asset managers, financial advisers and investors agree that young people will emerge from the financial crisis more educated, and more cautious, about managing their money.

“I do think they are taking a more practical and slightly more conservative view of the world,” said Michael Doshier, vice president of Fidelity’s Workplace Investing Group.

Corbacho said his generation should not expect to accumulate sudden wealth like some in the past.

“We might be a little smarter and a little wiser moving forward. We will have been more conservative and more observant and won’t have 65 percent of our life savings invested in equities,” he said.

Assets in U.S. retirement plans fell 22 percent in 2008 or nearly $4 trillion, with almost 75 percent of the drop in the second half of 2008, the Investment Company Institute found.

“These folks need to be resold on the idea that a 401k is a long-term investment,” said Smith, who oversees a profit-sharing plan for his firm and advises younger investors.

LONG-TERM CONCERNS

Financial advisers have long suggested that those further from retirement invest more heavily in equities, then switch to less risky assets as they near their golden years.

But the portfolios of those in their early 20s don’t reflect that advice. At Fidelity Investments, those 20-24 years old invest 31 percent of their 401ks in equities, compared to those 50-59 years old with 35 percent equities investments.

Overall, those saving for retirement have pulled back from stocks. In June, 48 percent of all Fidelity 401k participants were in equities, down from 53 percent a year ago.

Those in the investment industry say young investors should buy stock early and often.

“The key message is that it’s not a bad time for everybody,” said Christine Fahlund, senior financial planner at T. Rowe Price.

Ita Mirianashvili, a 35-year-old fellow at Massachusetts Institute of Technology’s Sloan School of Management, has confidence in long-term stock market prospects.

“I know the downturn cycle we are in will continue for some time but it will come back,” she said outside a MIT class that simulates a stock trading room.

But concerns about inflation, heavy government spending and rising bankruptcies has left many young investors uncertain.

“It’s still difficult to be bullish … for the long-run,” said Ashan Walpita, a 2009 Boston University graduate and former president of the school’s finance club.

Other short-term obstacles may hold young investors back. Employer-sponsored retirement plans often give people their first market exposure but with many graduates not finding work, they are yet to get started on making investments.

(Editing by Mark Egan and Cynthia Osterman)

Buyers trying to beat hike in state sales tax

Retailers of big-ticket items from refrigerators to cars are preparing for shoppers to come in droves this weekend and make purchases before the sales tax jumps to 6.25 percent on Aug. 1.

Area car dealers say they already have seen an increase in customers and sales this month.

“This is the best month we’ve had in 45 years,” said Don McEwen, general manager of Lundgren Honda in Auburn. “It’s completely unexpected. It’s amazing.”

Herb Chambers, who owns 46 car dealerships in Massachusetts and Rhode Island — and seems to be the only dealer opening new locations this summer — said sales have picked up month after month this year.

“If somebody was planning on purchasing a car in August or September, it’s probably worthwhile for them to buy it in July and save that tax,” Mr. Chambers said. “If you weren’t planning on buying a car this year, then there would be no incentive.”

A customer buying a $25,000 Honda Accord would pay $312.50 more in tax if the purchase was after July 31. For a $44,000 BMW sedan, the tax would be $550 higher after the end of the month.

The sales tax increase is on people’s minds, said Mark Wagner, president of Wagner Motor Sales, which has dealerships in Shrewsbury and Boylston. “This weekend will be the tell-tale, I believe,” he said.

“(Sales) have been touch and go. It’s tough to forecast … People are waiting a little bit longer and seeing what’s out there.”

Bob and Sylvia Myhal walked into the Wagner Kia showroom in Shrewsbury yesterday afternoon, and a little while later, they walked out as the owners of a new Kia Amanti, a $32,000 sedan.

Mr. Myhal said he was pushing to buy a new car before the sales tax hike. “On small purchases, it won’t matter, but on large purchases, it’s going to hurt a lot of people,” he said.

The incentive of a lower sales tax is not the only thing motivating car shoppers. Perhaps the bigger incentive is the federal government’s Car Allowance Rebate System, better known as the cash for clunkers program, which rolls out today.

The program allows owners of old, inefficient “clunkers” to trade them in for a $3,500 or $4,500 rebate toward purchases of new, fuel-efficient cars. The old gas guzzlers get scrapped. Details are at www.cars.gov.

The staff at Lundgren Honda has written more than 20 advance orders for customers taking advantage of the federal program. The Honda Fit, which gets 30 miles per gallon, highway and city combined, is one of the most popular sellers, according to Mr. McEwen.

Dennis P. Pietro, Internet sales director at Harr Toyota on Gold Star Boulevard in Worcester, said customers are looking for economical cars, like smaller SUVs, or pre-owned rather than new vehicles. Business has increased 20 percent over last month.

“By the weekend we’ll probably see 30 to 35 percent more,” he said.

He’s not happy about the sales tax increase. “I think the government is a bunch of (expletive) morons,” Mr. Pietro said. “It is what it is, I guess.”

Lawmakers have said raising the sales tax was necessary to avoid steep budget cuts to important services, including public transit. Retailers say higher taxes will drive more shoppers to the Internet and to New Hampshire.

Jon B. Hurst, president of the Retailers Association of Massachusetts, said retailers have been struggling because of the recession, and because of poor weather in May and June. “Now we’re staring down the barrel of a 25 percent sales tax increase,” he said. “A lot of (retailers) are somewhat shell shocked by the tax increase.”

Although support for another summer sales tax holiday is hard to find on Beacon Hill, retailers are pushing for it. Mr. Hurst said that the holiday did not spur as much spending last year as it did in 2007, but, he said “More than any year prior, we could really use it this year.”

The state said it lost $15 million in sales tax revenue during the tax holiday last year, but Mr. Hurst said that money is made up in other ways: more people working on the weekend means more income tax revenue, and more people shopping means more meals tax and gas tax revenue.

Bernie Rotman, vice president of Rotmans Furniture & Carpet in Worcester, said he’s expecting many customers to make purchases over the next week to beat the sales tax hike. “I think it’s going to be a good thing, but it’s short-lived, and it’ll be a bump,” he said. “Far more impressive would be a sales tax holiday.”

Some stores, including Rotmans and Percy’s, a Worcester TV and appliance store, are offering a 5 percent discount as another incentive to customers.

“They all say the same thing, ‘We want to buy it before August 1,’ ” said Alan Lavine, sales manager at Percy’s, where shoppers are looking for refrigerators, TVs, washers and dryers.

As for what happens in August: “There could be a backlash,” he said. “I’ll worry about that when it happens.”

Contact Priyanka Dayal by e-mail at pdayal@telegram.com.

Spirits of Cape Ann – Ryan & Wood Inc. – Beauport Vodka Launch

Gloucester distillery brings craft approach to alcoholic beverages

By Joel Brown, Globe Correspondent | July 2, 2009

GLOUCESTER – Beauport, Knockabout, Folly Cove. The names have historic meaning on Cape Ann.

Beauport – “good harbor’’ in French – was an early, poetic name for Gloucester. A knockabout was a type of fishing boat without a bowsprit, designed in Essex. Folly Cove is an inlet on the Rockport shore that lends itself to navigational errors and, by some accounts, rum-running during Prohibition.

But the names are about to get new meanings. As in, “I’d like a Beauport Martini, please.’’ “Pour me a Knockabout and tonic.’’ “Can you make a Folly Cove and cranberry?’’

In a bland industrial park just off a Route 128 rotary, Bob Ryan and his nephew Dave Wood are running what they believe is the first still in Gloucester – the first legal one, anyway – since the start of Prohibition in 1919. Their hand-crafted, premium-priced Beauport Vodka is hitting the shelves of a few Cape Ann package stores and bars. Knockabout Gin and Folly Cove Rum will follow in coming weeks, and wider distribution is planned.

“You don’t want to ramp up and burst on the scene too large and have a pipeline you can’t fill,’’ Ryan said. “You want to take advantage of being a bit exclusive, something that people want to have, maybe the rare baseball card of the industry type of attitude, and be sure that you put out what you want to put out.’’

From the front, Ryan & Wood Inc. Distilleries headquarters looks like a regular strip-mall office. But the building drops down a slope at its rear, creating a warehouse-like space three stories high. It’s there that the two men and still operator Jim Cook work amid pallets of grain and other raw materials, tanks of vodka and barrels of rum and whiskey spirits stacked to the ceiling.

The centerpiece of their efforts is the 152-gallon alembic pot still, a wonderful contraption out of Jules Verne or “Willy Wonka,’’ with a giant hammered-brass pot and “helmet’’ beside two 17-foot towers dotted with portholes, all connected with pipes and tubes. Made in Germany and heated by steam, the still was a $90,000 investment.

Inside it, American barley, wheat, and rye are the raw materials for a carefully monitored double distillation that delivers an eye-watering 95-percent-alcohol spirit that will then be diluted with local spring water down to 80-proof (40 percent alcohol) vodka. The gin is made much like the vodka, but with the addition of botanicals, including dried citrus peel that gives it a bright, summery taste. There’s also an all-rye whiskey in the works. The rum starts as molasses instead of grain.

“We get a lot of people come in and ask if there’s anything local. I think the Gloucester people will try it, and he has a good product,’’ said Louis Linquata, who owns Seabreeze Liquors and Railroad Avenue Liquors in Gloucester, where he’ll stock Ryan & Wood products.

It’s an interesting project for the 56-year-old Ryan, who worked as a commercial banker in town, and the 37-year-old Wood, a real estate lawyer in Beverly.

“I have been accused of this being my red convertible at age 50,’’ Ryan said, his smile showing no signs of midlife crisis. “It’s an adventure.’’

For Ryan and Wood it’s also about crafting a product they are proud of and staying connected to their roots. Before selling their first bottle, Ryan was honored earlier this month as the 2009 small-business person of the year in Manchester by the Cape Ann Chamber of Commerce.

“I can’t imagine doing it with anyone else,’’ said Wood. “He wants to make his mark on history with this, and I think he will. To be part of that is a heck of a lot more gratifying than making junior partner at Hale & Dorr, if that’s the analog to the distilling business. It’s the reason for getting out of bed. Otherwise, looking at a future of closing loans, it’d just be a little more bleak, I guess.’’

************************************************************

Bob Ryan and his nephew, Dave Wood, have launched the new Ryan & Wood micro-distillery in Gloucester.

They’re using the copper Arnold Holstein still above to make designer vodka and rum.

Springfield’s overseers leave a city in the black

But as state control ends, some fear return of fiscal woes

By Sarah Schweitzer, Globe Staff  |  July 1, 2009

SPRINGFIELD – It got so bad here that even the trees were falling – their dead limbs crashing onto parked cars and into houses, spurring lawsuits against the city that couldn’t afford to cut the trees down.

How bad was it, five years ago? Springfield’s debt was relegated to junk bond status, its budget $41 million in the hole. Street lights were extinguished to save money. Taxes on thousands of properties were left uncollected. When federal agents launched an investigation into public corruption, 33 local officials were eventually convicted.

This was 2004, the nadir for the state’s third-largest city, a once storied manufacturing hub famous as the birthplace of Dr. Seuss and the game of basketball, still home to four colleges, a major hospital, and one of Massachusetts’ largest Fortune 500 companies.

“We had devolved into chaos,’’ said Jim Couture, a project specialist for MassMutual Financial Group.

At the stroke of midnight this morning, a grand experiment in local governance came to an end when the Springfield Finance Control Board, the state-appointed officials who took over the city five years ago to head off bankruptcy, handed the reins back to elected city officials. By many accounts, the city that the state control board returns is a much improved one, on solid financial footing, its operations streamlined, and with checks and balances to prevent another financial crisis.

“Drastic situations call for drastic intervention,’’ said Michael Goodman, director of economic and public policy research for the University of Massachusetts Donahue Institute. “Springfield would not be in a position to step forward but for the state’s decision to step in.’’

Even local elected officials who initially chafed under the control board’s authority say the work of the board was needed.

“The control board was able to accomplish a number of things in getting the finances straightened out,’’ said William Foley, the City Council president, who serves on the five-member control board. “I think they did a good job.’’

Around the city, from the gorgeous Victorians in Forest Park to the dilapidated storefronts of the North End, many residents said this week that they feared the control board’s departure. The roster of city officials hasn’t changed dramatically since Springfield’s financial troubles came to a head in 2004, they said, and they worry that old practices will hold sway.

One woman, who declined to give her name as she watered the garden beside her Forest Park home, said some city officials were already backing off the control board’s $90-per-barrel annual trash fee – a sign, she added, of wrongly bowing to popular pressure.

“It’s the same old knuckleheads who are afraid to make the hard decisions,’’ she said.

Philip Tarpey, an attorney and resident for more than half a century, expressed a common sentiment as he lunched with his daughter downtown: “I am sorry to see the board go.’’

Yet, other locals said they were eager to see the out-of-towners return to Boston and elsewhere and leave governance to the officials elected by the people of Springfield. Unions say the five-member control board stripped their workers of fair wages and outsourced jobs in unfairly negotiated contracts.

Still other residents question the long-term effectiveness of the board’s work, saying the board failed to get at the root cause of the financial meltdown – grinding poverty born of decades of economic stagnation.

“They never engaged in a serious conversation about the way to grow jobs,’’ said Robert Forrant, a professor of regional economic development at the University of Massachusetts, Lowell, who grew up in Springfield and worked at the now-shuttered American Bosch factory, a machine toolmaker.

Control board officials say job creation was a constant current in their discussions. They point to jobs created on their watch – 300 Liberty Mutual call center positions, and 232 jobs at Performance Food Groups, for example – and the tapping of surplus funds for college counseling and financial aid, which they say will expand the educated base of the city and lure employers.

“We need more industry, long-term,’’ said Chris Gabrieli, the former gubernatorial candidate who was named chairman of the control board by Governor Deval Patrick in 2007. “But short-term, we’ve turned the corner from a sense that nothing positive was happening in town.’’

Mayor Domenic Sarno, a control board member, put it this way: “It’s been tough because we were stuck in triage or stabilization and we couldn’t get to that vision part of where you want the city to go. That’s what we are working on now with a good financial base.’’

Located an hour and a half from Boston, Springfield was once an epicenter of manufacturing, turning out machine parts, cars, guns, motorcycles. Its boulevards boasted Queen Anne Victorians, mansions rose on bluffs overlooking the Connecticut River, and the grand, columned Symphony Hall opened.

In the 1960s, the factories began moving to the South and overseas, taking the jobs that had made Springfield a regional powerhouse. Much of the middle class filtered away, leaving behind a population whose poverty grew more entrenched as new jobs failed to take root.

These were daunting challenges for any community. But Springfield was a city whose government had run amuck. When Governor Mitt Romney appointed the control board in 2004, more than 8,000 residents and businesses owed property taxes. The city was on the verge of not being able to make payroll. The Housing Authority’s executive director was under indictment, accused of spending public money on chandeliers, ceramic tile, carpets, and other items for his family’s homes.

When the control board came to power, much of its initial work was basic governance, but tough decisions were less fraught because they didn’t need voter approval. The board collected $31.6 million in outstanding property taxes, including some debts dating to the 1950s. The city began issuing parking tickets more aggressively, then collecting the fines – a novel idea at the time. Board members renegotiated 28 union contracts with city workers. They also changed the city’s health insurance purchasing mechanism, realizing an estimated $96 million savings over five years.

With that foundation, the board embarked on a more sophisticated agenda. It implemented a system that carefully tracks and compares departments and agencies’ performances. It put into place a citizen service line, 311, that uses a computerized tracking mechanism.

Today, the city budget is in the black. Officials report a surplus of $89.3 million, enough to repay the $52 million loan the state made to the city along with the creation of the control board.

Still, more than a third of Springfield’s children live below the poverty line; 9 percent of families rely on public assistance, according to a report by MassINC and UMass Dartmouth’s Urban Initiative, two nonprofit think tanks. The city’s teen pregnancy rate is the second highest in the state and growing, the report says. Shootings and gang violence remain news staples, although FBI statistics show that violent and property crime has dropped in the last five years. The city has an estimated 10.9 percent unemployment rate for May, higher than the statewide rate.

Travis Wray, 39, was laid off from his job in financial services. While he looks for work, he’s been volunteering with groups like the Urban League and helping to launch a group of young Springfield professionals, the sort of effort that he says will bring the city back.

“You have to believe in the city,’’ he said. “I see a foundation being laid for a rebirth.’’

Sarah Schweitzer can be reached at schweitzer@globe.com.

By DAMIAN PALETTA

WASHINGTON — Documents unearthed by congressional investigators reveal disagreements among senior Federal Reserve officials about how to handle Bank of America Corp.’s acquisition of Merrill Lynch, fueling concern on Capitol Hill over giving the central bank even more power to regulate the financial system.

The glimpse inside the regulatory machinery provided by emails, memorandums and handwritten notes show a Fed that wrestled with how tough it should be on Bank of America, one of the biggest U.S. banks. It also shows Fed officials questioning more broadly their response to the financial crisis months earlier.

In December, Bank of America approached top U.S. officials about abandoning a deal, forged in the heat of the crisis, to buy investment bank Merrill Lynch. In the end, the government arranged a $20 billion rescue package for the bank to cover growing losses at Merrill.

In between, the documents show areas of disagreement within some of the Fed’s 12 regional reserve banks.

The Federal Reserve Bank of Richmond, where supervision of Bank of America’s parent company is based, pushed for a tougher approach than other regulators, emails suggest. Bank of America officials appealed more than once to the Fed’s Washington headquarters to intervene.

Bank of America CEO “Ken [Lewis] may also raise his favorite perennial issue — that is, is the Richmond supervisory team on the same page as the [Fed] Board,” Fed governor Kevin Warsh wrote in an email Dec. 30 to Fed Chairman Ben Bernanke and other senior officials. “Richmond staff was on our call today, but prior to the call, it sounds like they may have threatened a little more than ideal…”

On Jan. 10, Fed General Counsel Scott Alvarez wrote to Mr. Bernanke and others that Richmond Fed President Jeffrey Lacker was raising some issues over the final deal. Mr. Lacker wanted the entire Federal Open Market Committee to vote on any loan to Bank of America.

Mr. Bernanke responded at 2:01 a.m.: “Thanks. If we are nimble we can manage this.”

Whether or not Mr. Bernanke threatened Mr. Lewis’s ouster over the rescue remains a source of contention. Mr. Lewis suggested in testimony to New York Attorney General Andrew Cuomo that the Fed chief did just that. Mr. Bernanke has denied making such a threat to Mr. Lewis.

On Jan. 16, just days before government aid for the deal was supposed to be announced, Federal Reserve Bank of Boston president Eric Rosengren sent Mr. Bernanke an email saying that the Fed shouldn’t dismiss too hastily the idea of tossing management at Bank of America.

Mr. Rosengren suggested such a shake up might be necessary, “particularly if we believe that existing management is a significant source of the problem.”

Mr. Bernanke, at a contentious hearing Thursday, defended the Fed against suggestions it had been too lenient with management.

“The supervisory process is not a onetime thing. It’s an ongoing process, and in an ongoing supervisory process, we have made demands of the Bank of America on terms of their board and management,” he told Rep. Dennis Kucinich (D., Ohio).

The documents reveal Fed officials questioning the central bank’s response to the financial crisis even before negotiations began on the effort to aid Bank of America’s acquisition of Merrill Lynch.

“At this point I have [the] sense that the hearts and minds war in Iraq was handled better than it has been in this crisis, particularly within the Fed system,” wrote Meg McConnell, a top Federal Reserve Bank of New York official, on the day the House of Representatives voted down the Bush administration’s first financial-rescue package, sending the Dow industrials down almost 800 points.

The Obama administration earlier this month proposed giving the Fed powers to oversee and examine the largest companies in the financial system.

The disclosures could bolster the central bank’s argument that it needs more power to manage future crises. One reason for the government’s lurching response last year, officials say, was that it didn’t have the needed tools.

The Fed has been dealing with a steady stream of criticism from Republicans. Democrats have recently joined in, and the disclosures being aired through the congressional inquiry have put the central bank on the defensive.

Write to Damian Paletta at damian.paletta@wsj.com

Prez targets finance system

Seeks to prevent Wall St. abuses

President Obama’s plan to overhaul the nation’s financial regulatory system received support yesterday from key Massachusetts congressional members who said changes are long overdue.

Saying America had allowed a “culture of irresponsibility” to grow within the financial industry, Obama proposed giving the Federal Reserve more regulatory powers and creating a new consumer watchdog agency to review new financial products peddled by firms.

“This was a failure of the entire system,” Obama said at a White House event, referring to last fall’s near collapse of the nation’s financial system. “An absence of oversight engendered systematic, and systemic, abuse.”

U.S. Rep. Barney Frank (D-Newton), chairman of the influential House Financial Services Committee, said the plan is an important step toward overhauling the regulatory system. He predicted Congress will have a bill on Obama’s desk before the end of the year.

Frank, who has parted with the administration over some issues, said there will be changes to Obama’s plan, but he said Democrats agree with the “fundamental” thrust of the package.

U.S. Sen. Edward M. Kennedy (D-Mass.) and Rep. William Delahunt (D-Quincy) won a major victory when Obama agreed to create a new Consumer Financial Protection Agency, something the two Bay State pols have pushed for in recent months.

“The plan announced by the president today will protect consumers and investors by restoring much of the regulatory oversight of our financial system that has been systematically dismantled in recent years,” said Delahunt.

But business leaders and Republicans didn’t like most of the proposals.

David Hirschmann, president of the U.S. Chamber of Commerce’s capital markets center, said the president’s plan adds an extra layer of red tape without really fixing the problems that led to last year’s Wall Street meltdown.

“We can’t simply insert new regulatory agencies and hope that we’ve covered our bases,” he said.

U.S. Rep. Scott Garrett (R-N.J.) said the president’s plan could create a cycle of more bank bailouts.

“It perpetuates what we’ve had in the past, said Garrett,” a member of Frank’s Financial Services committee.

The financial industry, including some of Boston’s most powerful mutual-fund companies, have been wary of too much government intervention in the sector, fearing their interests might be hurt.

Article URL: http://www.bostonherald.com/business/general/view.bg?articleid=1179683

US push to overhaul banking worries some
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State Street fights to put uncertainty behind it

A Boston stalwart fights its way through a crisis that’s putting even its steady strategy to the test

By Beth Healy, Globe Staff | June 14, 2009

Ronald Logue had a nagging suspicion the financial climate was getting dangerous. But he didn’t know where the risks were looming, or how close they would come to his company.

Logue, the chief executive of State Street Corp., a financial services giant in Boston that handles investments around the world, said he first started to worry in 2007, while traveling abroad on business. He feared that markets were becoming so complex and intertwined that the next hedge fund meltdown or foreign currency crisis could threaten the financial system, and ultimately State Street.

He was right about the mounting risks. But they weren’t brewing in some far-flung corner of the world; rather, they were lurking in the US debt markets and right inside the halls of State Street’s downtown offices. By early this year, State Street said it was facing $9 billion in potential losses on seemingly safe debt investments, and shareholders reacted violently, cutting its stock price in half in a single day last January.

“I think the market stepped back and said, ‘Oh my God, even State Street?’ ” Logue said in a recent Globe interview.

Logue has spent the past six months trying to convince investors that a company known as a careful steward of other people’s money had not lost its way. He has repeatedly made the case that State Street stuck to safe kinds of investments. The debt instruments in question were backed by basic consumer loans – for autos and homes, for example. The only real risk with the securities was if, inexplicably, the trading markets were to freeze up.

Which is exactly what happened. When the global credit markets melted down last year, State Street had no way to value those assets and so was forced to acknowledge the potential multibillion-dollar losses. It was something no one could have predicted, Logue said. Still, Wall Street analysts were laying the blame at his feet.

“If there were just 50 percent illiquidity in the marketplace, we would have handled this fine,” Logue said.

On Tuesday, Logue and State Street completed a portion of a tumultuous journey back from those dark days. The company received permission from the US Treasury to repay the government the $2 billion it was forced to accept last October, in the first wave of the bank bailout launched by the Bush administration to prop up the tottering financial system.

Logue had pledged from the beginning to get out of the federal program as soon as possible. At last month’s annual shareholder meeting, he said the company had gone a long way toward completing that effort, by raising $2.8 billion in stock and debt to repay the government. And last week, he declared victory of sorts, saying State Street had “assisted the federal government’s efforts in stabilizing the financial markets.”

It has been a longer road than Logue could have imagined to this place.

How did centuries-old State Street – which made its name as “a stodgy old record keeper,” as Logue says – become ensnared in the subprime mortgage debacle that brought down far racier investment houses? State Street makes its money managing $1.4 trillion for pension funds and other large investors, and handling accounting and record keeping for $12 trillion in mutual fund and hedge fund assets. Since Logue took over as chief executive in 2004, he has pressed the company to grow, including using its vast pools of cash to invest more aggressively.

“You could question whether they went overboard on growing the investment portfolio, and with greater risk,” said Gerard Cassidy, a longtime State Street watcher and banking analyst for RBC Capital Markets in Portland, Maine. Senior management of the bank bears responsibility for that, he said: “They accepted that risk and now they’re paying the penalty for it.”

Logue’s strategy made money for the shareholders, and for himself, as he reaped one of the biggest paychecks in banking. Indeed, even in 2008, while Wall Street titans were crumbling, State Street posted a record $1.8 billion profit. But that success was overshadowed by the uncertainty around the troubled investments.

Nearly half of that looming liability emerged from a surprising place: a small side business that produced just $59 million in revenue last year, a tiny sliver of the company’s $10.7 billion in total revenues. That business was providing mutual fund clients, particularly money market funds, with a way to make a little extra on cash. State Street issued short-term debt for those clients to buy, which financed the purchase of what it deemed to be safe, longer-term debt, such as mortgage loans, car loans, and student loans. These pools of investments, called conduits, never had problems until the debt markets froze, making the underlying assets difficult to sell or even price.

“Two years ago, no one had a clue what a conduit was,” Logue said, weary of having to discuss the issue. While the business was started long before Logue became CEO, it was on his watch that the risks came to far outweigh the modest rewards. Assets in the conduits had grown to $29 billion by early 2008, without any red flags being raised.

“They’re not buying anything different than they were buying in 1992,” Logue said. “What happened is the markets changed dramatically.”

Meanwhile, a similar problem developed in State Street’s investment portfolio, where it had about $5.3 billion in unrealized losses on securities at the end of last year. According to one director during this period, the investment risks the company had accumulated were something of a surprise. “We were aware of it – but not how much risk and the extent of it,” this person said, speaking on condition of anonymity because of the sensitivity of the subject.

But there were warning signs along the way. An early signal came in a presentation by company executives to analysts in November 2004, reproduced in a regulatory filing. An item on the PowerPoint slides told investors of the shifting strategy: “Beginning to reposition investment securities to enhance yield while controlling risk.” That was a cue that the company was taking on more risk, said a former State Street financial executive, who asked not to be named so he would not anger the company. By February 2008, the company disclosed it had $6.2 billion of assets backed by subprime mortgages. Bear Stearns Cos. would fail the next month.

By then, not only was Logue worried about the investments, but so was State Street’s board. In April 2008, Logue hired Maureen J. Miskovic, a member of State Street’s board and a polished British veteran of several Wall Street firms, to be chief risk officer. She was also made a member of the company’s operating committee, or group of senior executives. Logue dispatched Miskovic to make sure there were no other hidden time bombs buried in the business.

Last month, Logue acted to end the negative questions dogging State Street. After months of insisting the conduits would not prove a permanent problem, the company moved the securities onto its balance sheet, effectively taking a $3.7 billion hit even though the assets continue to pay interest. In so doing, State Street said, it would put the uncertainty behind it, but still earn money on the investments.

It was one of several moves that have gone Logue’s way since mid-May. State Street raised $2.8 billion in new capital, and its stock recovered from the January bloodletting, buoyed by news that the company was sound enough to repay the government. Shares closed at $47.56 on Friday.

On the morning of May 20, 36 floors above the city, Logue faced shareholders at the company’s annual meeting with a remarkably bullish tone. He boasted that State Street was now one of the “most well-capitalized banks in the country.” He talked about finding opportunity in the aftermath of the financial earthquake.

And he allowed himself to show just a glimmer of the frustration he has felt these many months. Times have been tough, he said, but, “We never lost a penny through all of this.”

Beth Healy can be reached at bhealy@globe.com.

With 2 acquisitions, AOL looks to tap local ad market

Boston’s Going Inc. Web firm bought

By Hiawatha Bray, Globe Staff | June 12, 2009

AOL, the troubled Internet company that is being spun off by parent company Time Warner Inc., is buying itself a parting gift. It is acquiring a pair of start-ups, including one in Boston, that run websites featuring neighborhood news.

Going Inc. of Boston, founded in 2006, offers information on local parties and entertainment events. The company runs websites targeting 30 US cities, including Boston, Chicago, Miami, and New York. Patch Media Corp., based in New York, publishes community news online, covering five towns in New Jersey. Patch was launched in 2007 and funded by an investment company owned by AOL chief executive Tim Armstrong. Financial details of the transactions were not released, but the Associated Press reported AOL paid less than $10 million each for the two privately held companies.

“By joining with AOL, we have the opportunity to greatly expand the reach of our platform to more cities both in the US and around the world,” said Evan Schumacherm, Going’s chief executive.

“They want the local advertising dollars,” said Carl Howe, Internet analyst at Yankee Group in Boston. Howe said that small and midsize businesses throughout America spend vast sums on ads, mostly with local newspapers and radio and TV stations. Howe said newspapers alone took in $29 billion in local advertising in 2008, and acquiring Going and Patch will help AOL tap this market. “It lets them approach a different set of customers than the national advertisers,” Howe said.

Last month, Time Warner said it intended to spin off AOL, nine years after the two companies merged in a deal valued at $166 billion. At the time, most users connected to the Internet over dial-up telephone lines, and AOL was the dominant US provider of dial-up Internet service. But over time, millions of customers abandoned AOL and switched to high-speed cable and DSL Internet service. In addition, the company’s Internet advertising business has been unable to gain ground on rivals, including industry leader Google Inc.

Hiawatha Bray can be reached at bray@globe.com.

BlackRock’s Fink engineers biggest deal of career

By Svea Herbst-Bayliss

BOSTON (Reuters) – In the rarefied circles of institutional investors and government officials asking for investment aid, Laurence Fink is known as the go-to man.

Now he may become that to average savers around the world.

As chief executive of BlackRock Inc (BLK.N: Quote, Profile, Research, Stock Buzz), already the largest publicly traded U.S. asset manager, Fink this week engineered a blockbuster deal to buy Barclays Plc’s investment unit BGI. Together they will become world’s biggest money manager with roughly $2.8 trillion of assets.

To analysts and investors the move is typical Fink — a carefully considered deal with a hefty price tag designed to add critical mass, access new products and bring in the retail clients BlackRock has long wanted to attract.

And one the California native, known for keeping top talent happy, is expected to execute on time.

“There is potential there for BlackRock to pull this one off,” said Michael Herbst, a mutual fund industry analyst at research firm Morningstar Inc.

Since 1988 when Fink co-founded BlackRock as a one-room fixed income shop, he has proven his hand at orchestrating a string of acquisitions, including a $8.6 billion deal to buy Merrill Lynch Investment Managers in 2006.

Before that he bought Boston-based State Street Research & Management and after that purchased the funds-of-funds business from Quellos Group.

Fink, who has deep roots in the mortgage markets, has worked hard to diversify BlackRock’s capabilities and make it more than a bond manager locked in a deep rivalry with West Coast competitor PIMCO.

And when Washington needs a trusted player on Wall Street to help calm markets during the financial crisis, BlackRock often gets a call, insiders at the company have said.

The company applied to become one of the Treasury Department’s hand-picked managers assigned to buy toxic assets from banks as part of its Public-Private Investment Program.

The lanky executive is not well-recognized by the public and can walk through midtown Manhattan without creating a stir. Unlike other bank chief executives, Fink is no danger of being pelted with expletives, largely because his company rode out the financial crisis with relative ease.

Since January, BlackRock has returned 36.12 percent, ranking among the best performers in the industry.

Two years ago Fink was in the running to take the helm of Merrill Lynch but was not offered the job after he began asking to tear into the company’s financial documents more deeply, people familiar with the search said.

Merrill Lynch was acquired by Bank of America last year and John Thain, who beat Fink to the position, is out of a job.

Fink apologized to shareholders for any unrest the talk of his leaving might have caused and has been fully devoted to BlackRock ever since.

Famous for the long hours he keeps, Fink is also known for navigating turbulent markets, wooing and keeping top talent, and speaking plainly about all types of topics, according to people who work with him and know him.

The 56 year old is also known to be both diplomatic and plain-spoken. He helped persuade embattled former New York Stock Exchange Chairman Dick Grasso to step down and helped find John Thain to take the top job.

Fink, who traditionally wears a tie to work even as he encourages other BlackRock employees to sport more casual wear, is usually at his midtown Manhattan office by 6 a.m.

He sticks to a grueling but predictable schedule that includes lunch at a favorite Italian restaurant near the office and lots of overseas travel.

Over the years, Fink’s fascination with geology has become well-known on Wall Street, where he and his partners stuck to the rock theme in naming their company, as well as products like the Obsidian and Galaxite hedge funds.

Even in his free time, rocks aren’t far from Fink’s mind. People who know him say the avid outdoorsman enjoys hiking and fly-fishing in the mountainous state of Colorado.

(Editing by Steve Orlofsky)

Boston Power Inc.

(Source: Boston Herald) By Jay Fitzgerald, Boston Herald

Jun. 1–About 600 jobs will be created at a new Boston-Power Inc. battery-manufacturing plant in Auburn, contingent on the company securing millions of dollars in defense and federal stimulus money.

Christina Lampe-Onnerud, founder and chief executive of Westboro-based Boston-Power, Gov. Deval Patrick and other dignitaries are expected to appear at an event today to announce that Boston-Power plans to renovate an old 455,000-square-foot Filene’s Basement distribution facility into a manufacturing plant to make state-of-the-art automobile batteries.

Boston-Power, which already makes lithium-ion batteries for Hewlett-Packard notebook computers, still needs to secure federal money, but it’s already signed a tentative lease agreement in anticipation of federal funds eventually flowing into the project.

The state is prepared to invest about $9 million in matching funds, perhaps from its Clean Energy Center, created last year by the Legislature.

Lampe-Onnerud, a native of Sweden and a post doctorate grad from MIT, said her 4-year-old company, which has already received about $125 million in venture capital, is in a sweet position due to the new emphasis on developing alternative energy products.

“It’s almost like a perfect storm,” she said, adding she hopes a retrofit of the Auburn facility can start later this summer, with up to 600 jobs added over the next three years.

The plant, which other states sought to have built in their regions, will make lithium-ion batteries for all-electric, plug-in cars. Lampe-Onnerud declined to say which automakers are interested in her firm’s cutting-edge battery technology.

State officials, who have been pushing to make Massachusetts a center for alternative-energy development and manufacturing, were ecstatic that Boston-Power is expanding here.

“It’s fantastic,” said Ian Bowles, Patrick’s secretary of energy and the environment. “We see it as a cornerstone of our growing clean-energy sector.”

Among other firms, Marlboro’s Evergreen Solar and Tyngsboro’s Beacon Power have recently announced expansion plans in Massachusetts.

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To see more of the Boston Herald or to subscribe to the newspaper, go to http://www.bostonherald.com.

(NECN: Scot Yount, Newton, Mass.) – The man who exposed the largest Ponzi scheme in history is making a rare appearance tonight.

In the financial world he is a kind of geeky hero. Yet Harry Markopolos shuns the worldwide fame he has garnered by blowing the whistle on Bernie Madoff and the largest Ponzi scheme in the world.

Markopolos spoke at the Center For Asset Management’s annual conference at Boston College.

Markopolos and his team began their inquiry into Madoff in 1999. Markopolos was asked to try to reverse engineer Madoff’s investments, so that their Boston based firm could duplicate his results.

Markopolos-loves numbers, and it was enormously simple he says to use formulas to figure out that Madoff’s investment scheme was fraudulent. But what Markopolos found difficult–was convincing the Securities and Exchange Commission to investigate.

For nine years he kept up the quixotic fight-but the SEC wouldn’t take up the case. Now with Madoff having pleaded guilty-and thousands of investors bilked out of billions, the shy man who makes Whitman, Massachusetts his home says he still can’t sleep nights, even though he proved he wasn’t jousting at windmills.

He had done his best-even fearing for his life in the process, but it was not until the worst recession the county has seen in decades took hold–that Madoff was exposed.

Today Markopolos still shuns the cameras and fame. He testified before congress-but told legislators

By Shelley Murphy, Globe Staff

A Wellesley businesswoman apologized to a State Police sergeant today and agreed to perform 200 hours of community service to resolve charges that she nearly ran him down with her Mercedes Benz SUV during a confrontation at Logan International Airport in March.

Margaret Greer, a 57-year-old portfolio manager and former Wellesley school board member, admitted during a hearing in East Boston District Court that there were sufficient facts to find her guilty of two misdemeanor charges of assault and battery on a police officer and failure to stop for a police officer.

“She wanted to get this behind her and she deeply regretted that this situation had ever occurred,” said Boston attorney Carol Starkey, who represents Greer and was at her side in the court. “It has been enormously difficult and traumatizing to her.”

Greer was picking up her husband at the airport March 29 when a trooper ordered her to move because her Mercedes was obstructing a bus lane, and she refused, according to a police report. (See previous coverage.)

Sergeant Daniel Wildgrube was writing Greer a ticket when she gunned her engine and sped off, hitting him with her car’s side mirror and forcing him to leap out of the way, according to his report. Wildgrube said he caught up to Greer, who was stuck in traffic, and ordered her to get out of the car because she was under arrest, but she again refused.

Wildgrube said he stood in front of Greer’s car with his hands on the hood and she continued to drive while he ran backwards for about 15 feet. Greer left the airport and was stopped minutes later by troopers on the Massachusetts Turnpike.

After Greer admitted today that there were sufficient facts to find her guilty of the two charges, prosecutors dropped a third charge of assault and battery with a dangerous weapon (her car), which is a felony.

East Boston District Court Judge Roberto Ronquillo Jr. continued the case without a finding and ordered Greer to write a letter of apology to Wildgrube, perform community service, and remain on probation for six months. If Greer completes those conditions and doesn’t get into trouble while on probation, the case against her will be dismissed in six months.

Jake Wark, a spokesman for Suffolk District Attorney Daniel F. Conley, said, “Her actions that day were dangerous and irresponsible and it is important she be held to account for them.”

But he added that Greer’s decision to resolve the case quickly and apologize “suggests a degree of remorse and responsibility that we don’t often see so soon after arraignment.”

David Procopio, a State Police spokesman, said that Wildgrube didn’t want to comment, but agreed with the resolution of the case. Procopio said Wildgrube could have been seriously injured and the State Police were pleased that Greer “acknowledged that the facts of the case affirm the State Police version of events.”

After the hearing, Greer personally apologized to Wildgrube and shook his hand, according to her lawyer.

Starkey described Greer as a Harvard University graduate and well-respected member of her community, who has held high-powered jobs and created programs to teach young women about finances.

She said she hopes Greer’s accomplishments aren’t overshadowed by the mistake she made at the airport.

“No one was injured, no property was damaged and no one was harmed, except Margaret,who paid an enormous price for her mistake,” Starkey said.

For more coverage of Wellesley, go to boston.com/wellesley.

Deborah Monosson revels in financial risky business

President of Boston Financial & Equity Corp

Deborah Monosson is no shrinking violet. As president of Boston Financial & Equity Corp., she’s accustomed to taking risks while doing business in equipment leasing and asset-based lending. And as chair of the Commercial Finance Association, she’s pushing the dramatic change she initiated last year as the 64-year-old international association’s first woman president.

The risk-taking at BFEC comes in the form of taking on the customers traditional lenders would turn down. As for the change-agent piece at the CFA, whose members range from the likes of GMAC and GE Credit to smaller lenders, Monosson says she has always been candid within the association.

“It never occurred to me not to be outspoken at meetings,” she says. “I wasn’t aspiring to be president, but I was trying to push issues through and wouldn’t let go of them.”

Her “issues” at CFA included loosening the board of directors’ hold on membership in the executive committee – the pathway to the presidency – as a way to open the leadership doors to women, minorities and younger members.

A bylaw change last year allows any employee of a member firm to run for election onto the executive committee, whereas previously only board directors could run. The board is composed of one representative from each member company, typically the CEO, who rarely lets the seat go.

“So all the people who want to hold that board position can hold it for the rest of their lives, but that doesn’t hold back their employees from moving up in the association,” Monosson says.

Monosson is just as bold at BFEC, which her father founded in 1968 and where she has been since 1989. Optimistic about business this year, Monosson nevertheless expects that there will be a few defaults. “As my father would tell me, I’m not taking enough risk if I don’t have at least one or two defaults a year.”

For more than 40 years, BFEC has leased equipment and/or provided working capital loans to challenged companies, such as Federated Department Stores and Rite Aid, and to revenue-lacking venture-backed start-ups, such as The Sports Authority and Earthlink. Based in Boston, BFEC’s customers are nationwide. There are nine on staff.

Monosson didn’t start her career at BFEC but daringly set out as the rare woman commodities broker after graduating from Skidmore College in 1979. One of four sisters, she says she never considered gender a barrier.

“My father didn’t treat us any differently than if he had sons. We took out the garbage. He took us hiking, skiing. I never thought about what you could or couldn’t do,” she says.

Beginning at E.F. Hutton, Monosson moved on to Dean Witter and then left to earn her MBA at Boston University. Her first job out of graduate school ended when the software company where she was in marketing and public relations folded.

“I decided I needed to go into sales because I was lacking sales skills and thought it was the most important skill to learn,” Monosson says. “I went to my father for advice, because he was the consummate sales person, and he happened to have a sales person who was leaving.”

Beginning in the equipment leasing side of the business, Monosson immediately loved the travel and meeting venture capitalists and company CEOs and CFOs. She was not only selling, but also reading business plans and getting involved in the client companies.

“We weren’t just churning out lease contracts like a lot of leasing companies that are just reading through financials and approving them. It was extremely interesting to me that I could work on both sides of the sales and to put on a deal and see the company succeed,” she says.

When her father no longer wanted to deal with marketing and advertising, Monosson took on those roles as well so she oversaw the whole sales cycle. She became president in 2000. Her father stayed involved as chair. “My father decided one day he should do this. There wasn’t a formal succession plan,” she says, “but I knew most of what went on and was fairly involved in the credit decision making.”

Her greatest challenge at the time, Monosson says, was the transition from peer to boss. “It was difficult for me not to joke in the same way and instead to be more careful, to distance myself to some degree. That was hard. For 12 years we worked together complaining about the same things and all of a sudden I realized I couldn’t complain about those things,” she says.

“Those things” were smaller issues such as the procedures that Monosson dropped after her father passed away. “I figured if I didn’t like to do them, no one else liked to do them. They were things I couldn’t change earlier out of respect for someone who started and grew this company,” she says. “A lot of things, though, we still do the way we were doing them 20 years ago because they work and it’s the right way to do business.”

Monosson is upbeat about deal flow this year. January started out well and things are looking good. “This is an optimum time for non-bank lenders because we do lend and we take risk. We’re getting a lot of the deals that the banks don’t want anymore. They’re for the most part good deals, but they’re small deals. The bank can’t take the time to work with a million-dollar deal anymore. It’s not worth it to them.”

A sample deal on the equipment leasing side is the $250,000 worth of test and measurement equipment leased to a company in the alternative energy field with an A round of equity.

On the asset-based lending side, customers are small to medium size businesses with average receivables of up to $1.5 million on a monthly basis that are likely not currently profitable. “If they have strong receivables and I don’t think the company is going to file for bankruptcy in the next 12 months, then, to me, that’s a good deal,” she says.

Monosson is also optimistic about the Commercial Finance Association and her push for a vibrant, up-to-date organization.

“As chair, I’m still breathing down people’s necks,” she says. “I still have a vote at meetings. I am now on the nominating committee and I’m going to try to get on board people who really want to keep change going and be involved and not be afraid to speak their minds.”

Article URL: http://www.bostonherald.com/business/womens/general/view.bg?articleid=1168466