Casinos get boost as DeLeo signs on

Joins Patrick, Murray in push for gaming

‘Given the importance of economic development, … I have expanded my thinking,’ Robert A. DeLeo said.

By Matt Viser Globe Staff / September 19, 2009

House Speaker Robert A. DeLeo expressed strong support yesterday for bringing resort-style casinos to Massachusetts, one of the clearest indications yet that lawmakers are poised to expand gambling as they seek fresh revenues in a down economy.

In a separate speech yesterday morning, Senate President Therese Murray also made the case that Massachusetts should legalize casinos, asserting that they would bring hundreds of new jobs and capture money currently going to Foxwoods and Mohegan Sun in Connecticut.

The comments by DeLeo and Murray put the state’s top three political leaders on similar ground in support of resort-style casinos for the first time as the Legislature plans to begin considering a major bill as early as next month.

DeLeo has been a supporter of expanded gambling, but in the past has put an emphasis on installing slot machines at racetracks instead of building resort-style casinos complete with amenities such as hotels, shops, and golf courses.

“Given the importance of economic development, as well as the vital need for revenue, I have expanded my thinking,’’ DeLeo said in an address in Waltham to a meeting of Associated Industries of Massachusetts. “In addition to my backing of slots, I now support resort casinos.’’

At about the same time, Murray, speaking to the Plymouth Area Chamber of Commerce, said: “The reality is that hundreds of millions of dollars are going to Connecticut casinos from Massachusetts residents every year. We need to explore ways how we can capture that revenue.’’

She said building casinos would means hundreds of construction jobs, as well as permanent employment once the casinos open.

In an interview yesterday, DeLeo said House lawmakers are drafting legislation, with hearings likely to begin next month.

A debate before the full House, he said, could begin before lawmakers recess in mid-November, but seems more likely early next year.

Governor Deval Patrick’s plan to license three resort casinos was defeated last year, in large part because of opposition by House Speaker Salvatore F. DiMasi.

With DiMasi now out of office, the debate has shifted dramatically: It is no longer about whether Massachusetts will see expanded gaming, but when and in what form.

“What has interested me all along is the jobs and the revenue,’’ Patrick told reporters yesterday in the Berkshires. “And I think there is a way to do this that maximizes the jobs and revenues and minimizes – not eliminates, minimizes – the adverse impacts.’’

Still, the casino industry has struggled mightily with the economic downturn, forcing many developers to scale back projects and focus on retaining their current properties, rather than on adding new ones.

The Globe reported Sunday that Foxwoods in Connecticut, which has long been a success story in the casino industry, laid off about 6 percent of its workforce last year and saw its revenues from slot machines plunge 13 percent in July, compared with the previous year.

Nonetheless, DeLeo cast the plan yesterday as a ministimulus package for Massachusetts, one he said would bring in new revenues and create jobs as the state seeks to recover economically.

“I’m still trying to formulate my ideas, but I’m hoping this will not just be a gaming bill, but also an economic development one,’’ DeLeo said in the interview.

“I’m just really concerned about the future,’’ he said. “I think the only way we’re going to get out of this economy is jobs, jobs, and more jobs.’’

He also said that lagging state revenues are an incentive to find a new source of money.

That argument may have more urgency after Patrick announced yesterday that he expects to make further spending cuts this year because of falling revenues.

“I don’t see an appetite for new taxes, and we don’t have much left in the rainy day fund,’’ DeLeo said. “We need to bring in new revenue.’’

He also argued that slot machines could be installed quickly at the racetracks, bringing in new revenues, while giving casino companies more time to build resort casinos, which would create new construction jobs.

DeLeo said one option that may be considered involves the licensing of two casinos, one in Eastern Massachusetts, one in Western Massachusetts, and then allowing slots at Plainridge and Raynham Park racetracks.

But when asked about installing slots at racetracks, Murray said she is “not hot on that, but I’m going to listen.’’

“That’s fast money,’’ she said in an interview. “But is it sustainable?’’

She cited Twin River in Rhode Island, which relies on slots and filed for bankruptcy in June.

She said several senators have been working on different proposals over the summer, but added that it will take time to put together the regulatory framework that would allow casino developers to begin building.

“It’s really a three-year process,’’ she said. “If we’re going to do it, we need to start.’’

Many specifics have to be worked out, including how many casinos would be licensed, whether there would be any preference given to a Native American tribe, and how potential developers would secure the rights to build.

Casino developers have been closely monitoring the gambling debate in Massachusetts and have scoured the state for land and partnerships.

Mohegan Sun in Connecticut has been laying the groundwork to build a casino in Palmer, a small community near Springfield. Several developers have looked at land in neighboring Warren.

Suffolk Downs in East Boston has been jockeying for the past two years, securing key political backing and trying to ensure that it has the inside track on a Boston-area casino. Wonderland Greyhound Park in Revere has joined with Suffolk Downs to compete for one casino license.

One potential wrinkle is the Mashpee Wampanoag Tribe, whose attempt to use its federal rights to open a casino in Middleborough has been derailed by a US Supreme Court ruling.

There are several other developers who have hired lobbyists and expressed interest in Massachusetts previously, but have not announced specific plans.

Andrea Estes of the Globe staff contributed to this report. Matt Viser can be reached at maviser@globe.com.

Uneasy times for the Shapiro family

Ties to Madoff could spur effort to recover investment gains

Ruth and Carl Shapiro, in an undated photo. (The Nourses)

The festive affair belied the uneasy times for the Shapiro family. Three days before attending the party, Shapiro son-in-law Robert Jaffe was accused by federal regulators of delivering $1 billion in client funds to Madoff, reaping $150 million in improper payments in return. Jaffe denies the charges.

If you sketch it, they will build:
Rally Fighter from Wareham

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

Ryan & Wood Distillery Gloucester MA – Beauport Vodka

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.

By IAN HURLEY

By Barbara Taormina

GateHouse News Service

Fri Dec 14, 2007, 11:38 AM EST

---

Hannah Jumper knew how to work a crowd.

On the morning of July 8, 1856, she rallied 200 wives and mothers and convinced them to follow her on a town-wide raid of all the rum in Rockport.

Legend has it that the women met in Dock Square with little hatchets hidden in their lace shawls. After a short speech from Jumper, a 31-year-old redheaded seamstress with some Oprah-style star power, the crowd began patrolling the streets smashing every cask and jug they could find. Five hours later, after every drop of known liquor had been spilled, the women went home to cook dinner.

Jumpergate is interesting for a couple of reasons. The Rockport rum dealers took the women to court but a judge ruled the crowd had a right to take action against a public nuisance. Who knows what effect that legal decision had on families with barking dogs, loud kids and over-the-top lawn ornaments.

But it’s also kind of interesting to imagine what Jumper would do today if she happened to wander over to Gloucester’s Blackburn Industrial Park, where the first licensed microdistillery in eastern Massachusetts is cooking up its first batch of premium vodka. Bob Ryan and his nephew, Dave Wood, are tending a big-bellied copper still imported from Germany that looks like something right out of Wonka’s chocolate factory. Even Hannah might be impressed.

Ryan and Wood are blazing the way with the latest trend aimed at satisfying our love for gourmet and our reverence for all things local and, of course, our fondness for top-shelf liquor. There are about 100 microdistilleries now up and running across the country. A lot of them have sprung up in the Midwest, where farmers with long family histories of moonshining have plenty of grains and fruits to spare.

But there’s also a good number of guys like Ryan and Wood who have set up small designer distilleries as a second career because it’s interesting, profitable and, probably most important of all, because it’s fun.

“We’ve run through the microbrewing trend, and this is kind of a natural progression of that,” says Wood, a lawyer by day and a state-of–the-art moonshiner by night. “People want a locally produced artisan product made with local ingredients and with attention to quality.”

Ryan figures the market for locally produced sprits is an extension of the Martha Stewart phenomena that has triggered a popular appreciation of quality and attention to detail in all things culinary and domestic.

“And, this is a little bit of ego, but we think Gloucester deserves us,” says Ryan with a smile.

Beauport Vodka, the first batch of spirits created by Ryan and Wood Distilleries, is ready to go. All they are waiting on now is the bottles, which will be hand-filled and corked — probably by someone in Ryan’s enormous extended family.

Beauport Vodka should hit store shelves in January. Next up will be Folly Cove Rum, which Ryan and Wood hope to begin selling sometime next summer. But that’s just the beginning. There are all sorts of ingredients to tinker with, endless combinations of flavors to try. And all sorts of niche markets to tap.

Ryan and Wood are riding the edge of a potentially big shift in the liquor industry, and the edge is often an excellent place to be. Not only could they end up changing what people drink on the North Shore, they may end up changing some of our perceptions about spirits and how we drink them. And that could be some good news for all of us — even Hannah Jumper.

Starting up

Owning and operating a mircodistillery isn’t for everyone. You’ve got to have a lot of time and patience. Having some community good will and a small pile of startup cash also doesn’t hurt.

Ryan has all of that. A lot of people in Gloucester know him from his years on Gloucester’s waterfront running Atlantic Seafood, before declining fish stocks and government regulation forced the fleet and the shore-side fish dealers to do some dramatic downsizing. Other people know him for the role he played in launching Gloucester Bank and Trust. Between Gloucester and his adopted hometown of Manchester, there probably isn’t a volunteer board or commission he hasn’t served on.

After Ryan left the waterfront, he spent some time taking care of his aging parents and helping with community projects, but it wasn’t quite enough.

“I felt maybe I was getting a little too old too quickly,” he says. That changed when Wood happened to mention a story he read about a microdistillery in Vermont. They talked it over and decided, why not us?

They traveled up to Freeport to visit an operation called Maine Distilleries that’s bottling Cold Water Vodka. Sure, there was a side trip to the LL Bean outlet, where Ryan’s wife Kathy picked up lots of new sweaters and fleece, but they liked what they saw at Maine Distilleries and decided to learn more.

They flew out to Flagstaff, Ariz. for a workshop where they learned the ins and out of the microdistillery business — the history of spirits, the secrets of fermentation and the art of distilling.

“I don’t think we knew what we were getting into,” says Kathy Ryan, referring to the equipment, workspace and the long and grueling licensing process. “But after the workshop I was glad Bob found something he was excited about.”

It took about 18 months to get through the paperwork for a state and federal license. There was even a lengthy approval process for the label — it has to include the surgeon general’s warning and you can’t use the American flag or make any claims about health benefits.

But the legwork is done and now, on the ground floor of the meticulous Ryan and Wood Distilleries plant, the enormous shiny copper-pot still is churning and slowly drawing every last drop of alcohol out of carefully fermented batches of mash.

Ryan says people usually have the same reaction when they see the still. It’s an oohh and ahh chorus, a lot like you hear at Fourth of July fireworks. “It’s a piece of old-world style technology right here in Gloucester,” he says.

Wood likes to do the tours. He’ll take you around to several stainless steel vats and explain the chemical process taking place inside each container. He’ll tell you about yeast and enzymes and show all the gauges and tubes and a four-spout hand-operated bottling machine.

There are big sacks of grain in one corner of the plant and in the other corner large wooden barrels, some of which were picked up from the Jack Daniels Distillery, where they were used to store bourbon. Wood says recycling those barrels gives fresh batches of spirits a slightly different taste.

Ryan jumps in with details about the still and all the help the business has gotten along the way from organizations like the American Distillers, local microbrewers and people who stopped by to wish them well. And both guys will talk history and the role liquor plays in American culture.

“This is the second oldest profession,” says Ryan, who adds that throughout history brewers and distillers have all met the need of a particular time and place. “Every farmer and every pioneer had a still,” he says.

And a lot of working families who grew up in cities and towns also tried their hand at distilling. Ryan and Wood say the most common thing they hear from visitors is that their parents or grandparents made small jugs of homemade hooch.

Still, they know there have been plenty of Hannah Jumpers who have long been blaming the product instead of the consumer for a list of troubles that fit under the heading of alcohol abuse.

“People are just getting out of the interruption of Prohibition,” says Ryan. “We’re going to try to fight that and the stigma of spirits.”

A new still in town

While Ryan and Wood hope to be distributing their products throughout eastern Massachusetts, they want to do more than fill and ship orders. They would like to make the distillery a tourist spot where visitors can come in and see the whole process — grains to spirits.

One possibility Ryan has been chewing over is the idea of linking up with Gloucester’s new cruise ship port that will bring thousands of overseas visitors to Gloucester and the North Shore. If those tourists stop by the distillery for a tour and they happen to pick up a bottle of locally distilled spirits as a souvenir, everyone’s happy.

Ryan and Wood have also reached out in other directions. They recently hosted a distilling workshop run by Bavarian Brewers and Distillers, the company that sold them their still. More than 30 people signed up to learn the craft and possibly follow in Ryan and Wood’s footsteps. And that’s fine with them. Camaraderie seems to be big among small brewers and distillers.

In addition to that, Ryan’s soon to be son-in-law Mark Mancini, a Bentley College student who is finishing up a degree in economics and finance, arranged for the start-up distillery to be a student project. Ryan and Wood opened the plant up to 160 students who got lessons in distilling and then came up with business plans on how to put Beauport Vodka on the map.

“We got a huge benefit from that,” says Ryan. The students did focus groups, devised marketing strategies and critiqued how the distillery was running so far. And they apparently all had a good time doing it.

And that was particularly satisfying to Ryan and Wood, who genuinely enjoy sharing everything they’ve learned. They want everyone to get in on the fun — tourists, the business community, but most of all friends and family.

Ryan’s son, Doug, is graduating this spring from Fordham University in New York and is considering applying to law school somewhere in Boston. The thinking is maybe he can work in the distillery while he earns his law degree.

Ryan likes that idea and he especially likes what his new business has done for his image with his kids.

“My son moved out of the house four years ago to go to college and all of sudden he’s back saying, ‘Hey, my dad’s cool,’” he says with a laugh.

Bottom line

As romantic as it may be to run a funky German-made still in a small plant in a corner of Gloucester, the big question ahead for Ryan and Wood is, will their products sell? Will there be a big enough demand for handcrafted spirits to keep the distillery going?

Ryan and Wood are both pretty confident sales will be good, and they’re not the only ones who are predicting success. Lenny Linquata also thinks Ryan and Wood are on to something, and Linquata should know — he owns two of Gloucester’s largest liquor stores, Sea Breeze Liquors in East Gloucester and Rail Road Ave. Liquors downtown.

“Fishermen’s Brew has done quite well,” says Linquata, referring to Gloucester’s hometown lager, which is made by the Cape Ann Brewing Company.

Linquata says spirits might take a little longer to catch on, but they will. The one question he has is price. And one would think that a handcrafted bottle of vodka is going to be considerably more expensive than even the high-end stuff massed produced in large distilling plants. But Ryan and Wood say that’s not the case.

“We’ll be competitively priced,” says Woods. “We can compete because we don’t have the high-paid directors and staff and all the overhead.”

Linquata does have one suggestion for the new business: If you want to sell something from Gloucester, your surest bet is to make it look like Gloucester. And in this case one of the best ways to do that might be to use an image of the city’s famous Fishermen’s Memorial.

“With the Man at the Wheel on the label, you can’t go wrong,” he says. Ryan and Wood already have a label for Beauport Vodka, one they describe as “pretty vanilla,” but who knows where they’ll go with Folly Cove Rum and the rest of their line as it develops.

Linquata figures they’ll go pretty far, and Gloucester and the rest of Cape Ann will be eager to check out the new hometown drink.

“I can see it in ever bar in the city,” he says.

E-mail Barbara Taormina at btaormina@cnc.com.

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 MA

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.

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.

Ronald Logue - 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.

He seeks to build community and turn a profit

By Jenifer B. McKim, Globe Staff | June 7, 2009

Kirk Sykes, president of the Boston-based Urban Strategy America Fund. (Aram Boghosian for The Boston Globe)

Kirk Sykes, president of the Boston-based Urban Strategy America Fund, strives to create affordable housing and economic development with a solid return to investors. His projects include Olmsted Green, the fund’s first investment and mixed-use development in Mattapan that was built from the ground up. The development started selling condominiums this fall. Sykes’s efforts are being tested during a recession that is pushing buyers and investors to the sidelines. He recently spoke with Globe reporter Jenifer B. McKim.

Considering the difficult economic times, do you wish you got into a different business?

No. For me this is the culmination of a life’s objective of transforming communities. I’m in my third career. I was an architect, I was a developer, and now I’m a fund manager. I have tried improving communities with a pencil, a brick, and a dollar. The dollar was working pretty well until we hit the current financial crisis. What it takes to be rewarding as a life’s vocation is to be able to make that difference. We are continuing to do that although it’s gotten more challenging.

How so?

When debt is less available and not available at all, it is hard to do a project or if you are doing a project, you have to put more equity into it to get a lesser return. You get to do less projects. The guidelines are much more stringent. Each project becomes a project to get it done.

What is the triple bottom line you talk about?

Make money, make a difference, and make it green, or the three “Ps” – people, planet, and profit.

Is that harder to do now?

This notion of responsible property investing, which is blending financial returns with sustainable and economic development is becoming mainstream. You have seen it with green building. Five years ago, green building was a notion that was somewhat esoteric. Now through legislation, greater social consciousness, and investment, sustainability has become more mainstream.

Do you have any new plans?

We are in the process of executing projects that are in process and awaiting opportunities that will come as the economy continues to recover.

To attract buyers to Olmsted Green, you have dropped prices twice, this time by 20 percent. How many units have you sold, and do you expect another price decrease?

This price decrease just happened, and we’ve seen a significant increase in interest over the last couple of weeks. I don’t anticipate another price drop. With the combination of the price reduction, the federal first-time home buyer tax credit, and substantially lower interest rates, we’ve started to see some yield. We have two units under agreement of 19.

What’s happening with Parcel 24, the mixed-used development slated for Chinatown?

Right now it’s on hold. Parcel 24 is permitted and entitled and waiting for the market and buyers to return.

When will the market return?

It goes up and down every few weeks. In general, I think we are starting to see the bottom. The question is how long is the flat part. I also think it’s regional. I think we are closer to recovery in our own market and in the mid-Atlantic.

What kind of fires do you put out on a day-to-day basis?

The world of real estate is challenged and requires new creativity. It’s about being smarter, learning new ways to finance projects, finding out how to stimulate these public-private partnerships.

Tighter lending regulations have added another challenge to condominium developments. How will this affect new developments in Boston?

The trend is toward urban living and conserving on energy. People are downsizing their footprints and minimizing. All those things support the idea of condominium living. Right now it’s a challenge, but I think it will come back because urban living in space-constrained markets needs this form of ownership.

What advice do you have for other developers?

As a city we have some very unique things going for us. They probably have most to do with our medical and educational environments. I’m an advocate of cities. Suburban development would be more challenging for some time to come. Developers: Be near the city. Be near transit lines. Be near our world-class institutions.

Boston moves ahead in world finance rank

The global recession has actually enhanced Boston’s reputation as one of the top financial centers in the world.

A new report ranks the Hub within the top 10 financial centers in the world, moving from 11th place to ninth place, as many other financial hotspots tumbled along with the global economy.

The “Global Financial Centres Index,” prepared for the City of London Corp., indicates that major investment players across the globe appreciate Boston’s steady environment for financial firms and experts at a time of deep market turmoil.

Previous rankings by other firms usually have Boston in top 20 lists of financial cities – thanks to the large number of mutual-fund, wealth-management, venture capital and private-equity firms based here.

But the City of London Corp.’s study, which was conducted by the UK-based Z/Yen Group, stands out because, in addition to data measuring the amount of funds flowing through a city, it relies on surveys of financial executives who are asked to rate cities.

Those interviewed are also dominated by European executives, confirming that Boston has an international, Old World flare appealing to those on the other side of the Atlantic.

Jim Lowell, editor of Fidelity Investor, an independent print and online newsletter, said Boston is considered a “hidden gem” by some international investors.

“Boston has long been known for being staid, fiduciary (minded) and for its long-term asset management,” said Lowell.

Those somewhat conservative traits have apparently helped Boston during tough financial times.

London and New York remain the unquestioned leaders of the financial world, the index report said.

If anything, London and New York’s leads may have solidified, despite London, in general, and New York, in particular, being epicenters of the current financial crisis. The two cities have maintained their lead partly because many up-and-coming, fast-growing cities in Asia and elsewhere took heavy hits during the current economic crisis, the City of London report said.

Boston was also a beneficiary of the recession, in terms of rankings.

The Hub rated particularly high for its financial “infrastructure” and “market access” to funds and deals, the report said.

How long Boston can maintain its strong, top-tier status is in question.

Cities throughout Asia and the Middle East – such as Shanghai, Beijing and Dubai – are emerging as financial powerhouses that want a larger piece of the funds and jobs flowing to more established financial centers, the report said.

Article URL: http://www.bostonherald.com/business/general/view.bg?articleid=1174535

By Kendra Marr – The Washington Post

May 19, 2009

Lisa Poole/AP Photo

A Hummer is on display at the Herb Chambers GM dealership in Danvers, Mass. Chinese automakers are interested in buying up iconic brands such as Hummer in order to gain technological expertise in the automotive market.

America’s auto titans are dismantling their global empires. But across the Pacific, it’s as if the global economic forces that have pummeled Detroit never struck. Chinese auto sales are up, and this year China is projected to displace Japan as the world’s largest car producer.

Now, the auto world is buzzing that China’s auto industry may try to pick up the pieces of Detroit — at a bargain.

Chinese companies have tried to dampen speculation, issuing regulatory filings that deny bids to buy Ford’s Volvo or General Motor’s Saab. But there’s little doubt among analysts that Chinese automakers are interested in the United States and that Detroit’s automakers are interested in them.

Chinese Beat Chevy to Electric Car Market with the BYD - E6

Buying up iconic brands such as Hummer or Saturn could supply Chinese automakers with the technological expertise to help them leapfrog past long-established competitors, said Kelly Sims Gallagher, a lecturer at Harvard University’s Kennedy School of Government, who wrote a book on Chinese automakers.

“That’s where Chinese firms are weakest,” she said. “They have world-class business and manufacturing capabilities now. What they still lack is technological know-how, systems integration, being able to design new vehicles from scratch and get them to a manufacturing line.”

China still suffers from its reputation of being a copycat manufacturer. An acquisition could lend clout to some of the nation’s 100 car companies that are largely unknown outside their home country.

Such a deal would be “off-the-shelf legitimacy that you can purchase,” said Aaron Bragman, an auto analyst with IHS Global Insight.

The global auto industry is restructuring. Italy’s Fiat is on the verge of taking control of Chrysler. Last year India’s Tata Motors, already famous for its $2,000 Nano, acquired Jaguar and Land Rover.

And China’s auto sector has emerged as a threat to the long-standing pecking order. This year, Geely Automobile, one of China’s largest private carmakers, purchased an Australian drivetrain transmission supplier, a leading gearbox manufacturer. Another Chinese company, BYD, which counts Warren Buffett as an investor, launched a mass-market plug-in electric car, ahead of GM’s anticipated Chevrolet Volt.

“When we look back 20 years from now, the year 2009 is likely to be viewed as the year in which the baton of leadership in the global auto industry passed from the United States to China,” Jack Perkowski, a Western transplant and former chairman of a Beijing auto parts company, wrote in his blog “Managing the Dragon.”

Originally published at: http://www2.ljworld.com/news/2009/may/19/china-emerging-auto-epicenter/

Boston.com
The Associated Press
AP sources: Obama wants Fed to be finance supercop

By Anne Flaherty, Associated Press Writer | May 9, 2009

WASHINGTON –The Federal Reserve could become the supercop for “too big to fail” companies capable of causing another financial meltdown under a proposal being seriously considered by the White House.

The Obama administration told industry officials on Friday that it was leaning toward making such a recommendation, according to officials who attended a private one-hour meeting between President Barack Obama’s economic advisers and representatives from about a dozen banks, hedge funds and other financial groups.

Treasury Secretary Timothy Geithner and other officials made it clear they were not inclined to divide the job among various regulators as has been suggested by industry and some federal regulators. Geithner told the group that one organization needs to be held responsible for monitoring systemwide risk.

“Committees don’t make decisions,” said Geithner, according to one participant.

Officials from the Treasury Department and National Economic Council, which hosted the meeting, told participants that the Fed was considered the most likely candidate for the job, according to several officials who attended or were briefed on the discussions.

The administration officials said a legislative proposal would likely be sent to Capitol Hill in June with the expectation the House Financial Services Committee, led by Rep. Barney Frank, D-Mass., would consider the measure before the Independence Day recess.

The officials requested anonymity because the meeting had not been publicly announced and they were not authorized to discuss it.

A Treasury Department statement provided to The Associated Press on Friday confirmed Geithner’s position that he wants a “single independent regulator with responsibility for systemically important firms and critical payment and settlement systems.”

A spokesman said Geithner also is open to creating a council to “coordinate among the various regulators, including the systemic risk regulator.”

The Fed itself hasn’t taken a position on whether it should have the job, although Chairman Ben Bernanke has said the Fed would have to be involved in any effort to identify and resolve systemwide risk.

© Copyright 2009 The New York Times Company