Tag Archives: Company Coverage
by Liz Hester
Bloomberg’s recent coverage of Wal-Mart Stores Inc. and its problems with keeping stock on the shelves has the retail giant on the defensive. But Wal-Mart customers aren’t buying the company’s denials that there are problems.
Bloomberg reporter Renee Dudley received more than 1,000 responses to her March 26 story.
Let’s take a look at the story, which ran with the headline “Customers Flee Wal-Mart Empty Shelves for Costco, Target.”
Margaret Hancock has long considered the local Wal-Mart Stores Inc. (WMT) superstore her one- stop shopping destination. No longer.
During recent visits, the retired accountant from Newark, Delaware, says she failed to find more than a dozen basic items, including certain types of face cream, cold medicine, bandages, mouthwash, hangers, lamps and fabrics.
The cosmetics section “looked like someone raided it,” said Hancock, 63.
“If it’s not on the shelf, I can’t buy it,” she said. “You hate to see a company self-destruct, but there are other places to go.”
It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company’s website. In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart employs about 1.4 million U.S. workers.
A thinly spread workforce has other consequences: Longer check-out lines, less help with electronics and jewelry and more disorganized stores, according to Hancock, other shoppers and store workers. Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot. The dwindling level of customer service comes as Wal- Mart (WMT) has touted its in-store experience to lure shoppers and counter rival Amazon.com Inc.
Obviously, Wal-Mart wasn’t pleased with the coverage. Here’s the company’s statement in the March 26 piece.
“Our in stock levels are up significantly in the last few years, so the premise of this story, which is based on the comments of a handful of people, is inaccurate and not representative of what is happening in our stores across the country,” Brooke Buchanan, a Wal-Mart spokeswoman, said in an e-mailed statement. “Two-thirds of Americans shop in our stores each month because they know they can find the products they are looking for at low prices.”
But Bloomberg wasn’t convinced after reporting on an officers’ meeting.
Last month, Bloomberg News reported that Wal-Mart was “getting worse” at stocking shelves, according to minutes of an officers’ meeting. An executive vice president had been appointed to work on the restocking issue, according to the document.
Wal-Mart’s restocking challenge coincides with slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending April 26 will be little changed, Bill Simon, the company’s U.S. chief executive officer, said in a Feb. 21 earnings call.
While Wal-Mart was enraged, Bloomberg was inundated with emails from across the country saying the story lined up with shoppers’ experiences, according to a follow-up published April 2.
More than 1,000 e-mailed complaints signal that Wal-Mart Stores Inc.’s (WMT) restocking challenges are more widespread than the world’s largest retailer has said.
Wal-Mart customers from Hawaii to Florida and from Texas to Vermont wrote to express their frustration after Bloomberg News reported March 26 that there aren’t enough workers in the stores to keep shelves stocked, cash registers manned and shoppers’ questions answered. In response to the original article, Brooke Buchanan, a Wal-Mart spokeswoman, said in part: “The premise of this story, which is based on the comments of a handful of people, is inaccurate and not representative of what is happening in our stores across the country.”
The e-mails began arriving shortly after the article was published and were still coming a week later. Most were from previously loyal Wal-Mart customers befuddled by what had happened to service at a company they’d once admired for its low prices and wide assortment. Many said they were paying more and driving farther to avoid the local Wal-Mart. Some had developed shopping strategies, including waiting until the last minute to grab ice cream, lest it melt in the lengthy checkout lines.
Wal-Mart founder “Sam Walton must be rolling over in his grave to see what has become of his business,” said Tony Martin, a 54-year-old forklift driver who once frequented a Wal- Mart store in Glen Carbon, Illinois.
Wal-Mart’s restocking challenges stem from a thinly spread labor force struggling to keep up with all the work that needs to be done, said Colin McGranahan, an analyst at Sanford C. Bernstein & Co. in New York. The Bentonville, Arkansas-based retailer’s workforce at its namesake and Sam’s Club warehouse chains in the U.S. fell by about 120,000 employees between 2008 and Jan. 31, according to a securities filing on March 26. The company now has about 1.3 million U.S. workers. In the same period, it has added about 455 U.S. Wal-Mart stores, bringing its total to 4,005.
Dudley should be commended for her work. This is an excellent example of company coverage and reporting. As any former journalist knows, it can be difficult finding the right anecdote to illustrate a point.
I can’t imagine shifting through 1,000 emails. But she obviously got the story right, despite what the company is saying. It’s important to hold a company accountable for their mistakes, especially when it could cost them customers.
by Liz Hester
Tesla, maker of the coolest car you rarely see on the road, posted its first profitable quarter sending the stock up and giving hope that electric cars are a viable alternative to gas.
Well, they’re an alternative if you have $70,000 to spend on a luxury car.
Here’s the story from the Wall Street Journal:
The Palo Alto, Calif., maker of $70,000 vehicles, lifted its forecast for the quarter after delivering more Model S electric vehicles than it previously forecast. Tesla has a backlog of 15,000 orders and books revenue for the vehicles as soon as they are shipped to customers.
The company, which has reported a loss every quarter since it went public in 2010, said its Model S deliveries reached more than 4,750 units in the quarter ended March 30, compared with Tesla’s February outlook for 4,500.
Analysts polled by Thomson Reuters recently had projected a loss of seven cents a share for Tesla’s first quarter.
The disclosure, made late Sunday, came a few days after Chief Executive Officer Elon Musk used Twitter to foreshadow news coming from the Silicon Valley car maker.
“I am incredibly proud of the Tesla team for their outstanding work. There have been many car startups over the past several decades, but profitability is what makes a company real. Tesla is here to stay and keep fighting for the electric car revolution,” Mr. Musk said in a statement.
Apparently, the automaker has no plans to cater to the lower-end, mass market. According to NPR, they’re discontinuing their lower model:
Tesla also said it will discontinue its entry-level option, which was equipped with the smallest battery available, a 40-kilowatt hour version with a much shorter range (about 160 miles). The company said only 4 percent of customers chose the smaller version.
“Customers are voting with their wallet that they want a car that gives them the freedom to travel long distances when needed,” the statement said.
The company will stick with its 60-kilowatt hour option, which offers an estimated range of 230 miles per charge.
Reuters adding this information about the company’s strategy going forward:
The automaker has focused in recent months on building and selling high-end versions of the Model S, with larger battery packs that provide more range.
The top-of-the-line Tesla Model S Performance model costs nearly $96,000. The base Model S, which Tesla is dropping, has a starting price of just over $60,000.
Tesla said only 4 percent of customer orders were for the base Model S, which was to be equipped with a 40 kWh battery pack. Those customers instead will receive a 60 kWh battery pack, with the output and range limited by software to 40 kWh, at no additional cost.
The carmaker went public in 2010 and has narrowed its losses as production of the Model S sedan ramped up late last year.
Bloomberg Businessweek pointed out four things about earnings that should have investors smiling. Writer Kyle Stock was excited about the focus on the high-end market, the company’s pricing power and these:
Good publicity: A controversial review in the New York Times in early February may not have dinged the firm as badly as it seemed. Musk conceded on Bloomberg Television that the write-up (and the subsequent weeklong back-and-forth in the press) wiped out “a few hundred orders.” Unless that dip in demand is manifest in future quarters, it looks like Tesla has moved on.
Research restraint: If profit is indeed in the cards, investors should be as thrilled about cost control as they are about revenue. Specifically, Tesla’s research and development costs seem to finally be falling in line. Last year, for example, the share of total operating expenses going to R&D steadily fell, from 69 percent of costs in the first quarter to 60 percent in the final three months of the year. Tesla’s engineering wizards made a Motor Trend “Car of the Year.” Now the company needs to get some serious mileage out of that stunning and expensive feat before doubling down on future models.
Anytime a company posts its first profit is worthy of noting. The fact that it’s a maker of exclusive, high-end, environmentally friendly cars is enough to warrant even more coverage.
by Liz Hester
Covering new technology and the companies behind them is one of the better parts of being a business reporter. Who doesn’t want to go to the conferences where Apple, Samsung, or Nokia show us the latest gadget that we simply can’t do without and will make our lives so much better?
One of the better earnings stories is that of Blackberry maker Research in Motion. It has been struggling to make a profit as customers and business clients turned to smart phones from other makers, upending its long-time hold on the market.
Here’s Thursday’s story from the Wall Street Journal, which chose to focus on some of the board changes toward the top:
Research In Motion Ltd. reported a surprise profit Thursday and a comfortable cash pile for its fiscal fourth quarter, bolstered by the first sales of its new BlackBerry Z10 device.
Underscoring still-formidable challenges, RIM also said it lost about three million subscribers in the period. And Chief Executive Thorsten Heins said he expected to see service fees decline as RIM works through a transition with carriers over those payments.
RIM also said one of its founder and its former, long-time co-chief executive, Mike Lazaridis, would step down from the board. That ends Mr. Lazaridis’ formal ties to RIM, which go back about 30 years to when he started the company with a loan from his parents. Mr. Lazaridis said, however, he had no plans to sell down his sizeable RIM holdings, which amounts to about 5.7% of the company’s shares.
The results were encouraging for many investors, who bid up shares. In late morning trading in New York, RIM was up 46 cents, or 3.2%, to $15.03. The quarterly profit, RIM’s second, consecutive profitable period, comes a little over a year after Mr. Heins took the reins from Mr. Lazaridis and Co-Chief Executive Jim Balsillie.
The New York Times took a more traditional earnings story approach, putting the company’s full year losses in the second paragraph:
The annual loss, which tax benefits reduced from an operating loss of $1.2 billion, compared with $1.16 billion in net earnings a year earlier.
In the latest quarter, which ended March 2, the company lost $18 million from operations. But recovery of income taxes transformed that into a $98 million profit for the quarter, or 19 cents a share.
BlackBerry has struggled with declining sales. Revenue in the latest quarter was $2.6 billion, compared with $2.7 billion in the same period a year ago. Annual revenue fell to $11 billion, from $18.4 billion a year earlier.
For about one month of the quarter, the first of its new phones, the BlackBerry Z10, was on sale in Canada, Britain and some other markets, but not the United States. BlackBerry said that it shipped about a million of the handsets during that time.
It nevertheless reported that there were 76 million BlackBerry subscribers worldwide at the end of the period, a loss of about three million users. Until the third quarter of the fiscal year, BlackBerry, formerly known as Research in Motion, had consistently increased the number of subscribers.
While the decline in subscribers is troubling, investors seemed to focus more on the company’s return to the black. But the Associated Press pointed out that one good quarter didn’t meant the company was back where it should be:
It will take several quarters, though, to know whether RIM is on a path toward a successful turnaround. RIM just entered the crucial U.S. market with the new phone last week. And despite selling a million BlackBerry 10 phones in other countries, RIM lost subscribers for the second consecutive quarter.
Thursday’s earnings report provided a first glimpse of how the BlackBerry 10 system, widely seen as crucial to the company’s future, is selling internationally and in Canada since its debut Jan. 31. The 1 million new touch-screen BlackBerry Z10 phones were above the 915,000 that analysts had been expecting for the quarter that ended March 2. Details on U.S. sales are not part of the fiscal fourth quarter’s financial results because the Z10 wasn’t available there after the quarter ended.
Investors appeared happy with the financial results. RIM’s stock rose 34 cents, or 2.4 percent, to $14.91 in afternoon trading Thursday after the release of results. Many analysts had written RIM off last year, but now believe the Canadian company has a future.
“I thought they were dead. This is a huge turnaround,” Jefferies analyst Peter Misek said from New York.
Misek said the Canadian company “demolished” the numbers, especially its gross margins. RIM reported gross margins of 40 percent, up from 34 percent a year earlier. The company credited higher average selling prices and higher margins for devices.
“This is a really, really good result,” Misek said. “It’s off to a good start.”
While coverage was mostly favorable, I appreciated the fact that reporters injected some skepticism up high in all the stories to question the results and the company’s ability to repeat it going forward. Obviously we’ll have to wait and see, but the coverage of Thursday’s earnings remains a good example to those just joining the tech beat.
by Liz Hester
Banks in the United Kingdom need more capital, even after new regulations created during the financial crisis.
Here’s the Wall Street Journal story:
U.K. banks must come up with £25 billion ($38 billion) in fresh capital this year, the Bank of England warned Wednesday, piling pressure on partly state-owned banks Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC to step up the pace of asset sales.
The Bank of England’s Financial Policy Committee said banks’ capital buffers need to be higher to withstand the effects of the weak domestic economy and euro-zone crisis. Gov. Mervyn King, a member of the FPC, said the shortfall isn’t “an immediate threat to the banking system and the problem is perfectly manageable.”
Analysts said the £25 billion figure is roughly what they had expected since the FPC in November said banks might be underestimating their potential losses on U.K. commercial real estate and loans to borrowers in weakened euro-zone countries such as Ireland and Spain.
How the capital will be raised wasn’t immediately clear. Bank of England Deputy Gov. Andrew Bailey, who also sits on the FPC, said around half of the £25 billion is already in banks’ plans for the year. The most common ways for lenders to improve their capital positions are to issue new shares, retain earnings or reduce their overall assets.
The New York Times story had good context and a comparison to the U.S. banking sector at the top of its story, information that many shareholders are likely searching for at this point.
The announcement follows a five-month inquiry by British officials into the financial strength of the country’s banking industry. With the world’s largest financial institutions facing new stringent capital requirements, the Bank of England had been concerned that local firms did not have large enough capital reserves to offset instability in the world’s financial industry.
Earlier this month, the Federal Reserve also released the results of so-called stress tests of America’s largest banks, which indicated that most big banks had sufficient capital to survive a severe recession and major downturn in financial markets. Citigroup and Bank of America, after disappointing performance the previous year, now appeared to be among the strongest.
British banks are not so lucky.
The reported released on Wednesday said that local banks had overstated their capital reserves by a combined £50 billion, which authorities said would now be adjusted on the firm’s balance sheets. Many of the country’s banks already have enough money to handle the accounting adjustment, the report said on Wednesday.
Bloomberg’s story did mention that the capital shortfall wouldn’t require more government investment in the banks, which should put some minds at ease.
BOE Governor Mervyn King said the shortfall “is not an immediate threat to the banking system and the problem is perfectly manageable.” He also said the recommendations won’t require additional government investment in banks.
Lenders will have to reach a common equity tier 1 capital ratio of 7 percent of risk-weighted assets by the end of 2013. While some banks already exceed this level, those that don’t will have to boost capital or restructure their balance sheets without hindering lending to the economy, the BOE said.
“It’s a relatively low bar,” said Cormac Leech, a banking analyst at Liberum Capital Ltd. in London. “They’re saying that the banks will continue to build capital to comply with that metric, so it doesn’t sound like there’s a massive pressure on the banks to exceed Basel III requirements.”
It’s clear that the world’s banks are still reeling from bad loans and struggling to maintain capital ratios up to the new standards. Here’s hoping they can figure it out and raise the money from the private market. I doubt that public sentiment anywhere in the world would support another bank bailout.
by Chris Roush
Ted Reed, a former business reporter for The Miami Herald who now works for TheStreet.com, writes about The Herald’s newsroom now that the paper is moving to another location.
Reed writes, “When I first arrived at The Herald, I was assigned to every business section’s worst beat: real estate development. About four months later, in March 1989, three unions struck Eastern Airlines. At the time, Eastern had been covered for ten years by a very talented veteran reporter. He used to walk around the newsroom muttering to himself about airlines. I thought he was very possibly insane. By the time the long-awaited strike took place, his nerves were shot. He requested a different beat, and was assigned to federal courts. Soon afterwards, the trial of Panamanian strongman Manuel Noriega began, because at The Herald there was no place to hide from big stories. I landed the Eastern beat because nobody else wanted it. Within months, I was walking around the newsroom muttering to myself.
“I will share just one of my thousands of stories about covering airlines at The Herald. One day I wrote about how American Airlines was seeking concessions from its pilots union. As it happened, on that same day American CEO Bob Crandall came to town. He didn’t care for the story. When I went to a scheduled meeting with him, he called me into a small office, shut the door, and yelled at me, uninterrupted, for about 20 minutes. His general theme was that he was not seeking concessions and that, as he put it, “I hate f….. unions.” I remember thinking, as I stood in that cramped room with the most important executive in the airline industry, perhaps the most important executive in the history of the airline industry, that I was a Miami Herald reporter and I did not remotely care if somebody yelled at me.
“Afterwards, I walked out into a hallway and the station manager, a nice guy named Art Torno, was standing there. He smirked at me. ‘I told him not to do that,’ he said. Commercial aviation is such a small world that last week, maybe 20 years later, I interviewed Art for a story. Also, Bob Crandall was always friendly to me after that.”
Read more here.
by Liz Hester
Recently we wrote about the plan that Dell founder Michael Dell has for taking the company private and some of the backlash he’s facing from current investors about the offer price.
But Sunday, details about additional offers for the computer maker emerged, setting up a three-way race for control.
Here’s the story from the New York Times:
The Blackstone Group and the billionaire Carl C. Icahn have sent preliminary deal proposals to Dell Inc., people briefed on the matter said on Saturday, signaling that a potential three-way race for control of the computer company is underway.
The letters by Blackstone and Mr. Icahn, sent late Friday night, were meant to keep talks going with a special committee of Dell’s board, one of these people said. The special committee is expected to review the proposals and determine whether either or both are likely to lead to an acceptable bid.
In its letter, Blackstone proposed offering more than $14.25 a share for Dell, working with the investment firms Francisco Partners and Insight Venture Partners, one of these people said. The preliminary plan envisioned offering existing shareholders the opportunity to remain investors in the computer company through what is known as a public stub, though those who wish to sell off their entire holdings can do so.
Blackstone didn’t disclose the potential size of the public stub.
Mr. Icahn outlined a plan to pay $15 a share for about 58 percent of the company, this person said. His proposal is likely to allow shareholders to sell only a portion of their stakes.
The Wall Street Journal chose to focus on the derailment of Michael Dell’s plan to regain control of the company he founded. Here are a few excerpts from its story:
Michael Dell‘s plan to gain greater control of his company and take it private began to backfire, as rival bidders for the computer maker floated competing offers that, if accepted, could leave him out of a job.
The thickening takeover plot shows that some of the most influential players in finance see a brighter future for Dell, or at least a way to make money in the bidding war. It comes as shipments of personal computers around the world have entered a tailspin while tablets and smartphones grow in popularity. PCs represent about half of Dell’s revenue.
It was Mr. Dell himself who kicked off the effort last year to take the company private that now has competing bidders circling.
Mr. Dell, 48 years old, founded the company in 1984 out of his University of Texas dorm room, turned it into a personal-computing powerhouse and, after stepping down as CEO in 2004, returned to resume leadership six years ago.
Back at the helm, Mr. Dell’s efforts to revive the PC-maker sputtered amid competition from resurgent rivals such as Apple Inc. and the rising popularity of smartphones and tablet computers—areas where Dell has been weak. Dell’s revenue and PC market share each have shrunk since Mr. Dell returned as CEO.
The Silver Lake buyout would give Mr. Dell majority control in Dell’s equity and a shot at leading efforts to revive the company as a private entity not answerable to shareholders.
But it’s the shareholders who continue to search for a better deal for the computer maker. Here’s more from the WSJ:
Some Dell shareholders have said Mr. Dell’s buyout offer—about a 25% premium to the share price before news of the deal talks broke—doesn’t fairly value Dell’s business, particularly the cash it generates on a regular basis and its potential to grow in areas like information-technology services. Shareholders including Southeastern Asset Management Inc., T. Rowe Price Group Inc. and Mr. Icahn have lambasted the deal as undervaluing the company.
Now, shareholders might have the chance to get more for their money, or to keep shares. Proposals by New York-based Blackstone, the private-equity giant, and Mr. Icahn both aim to give current Dell shareholders who want to retain some stake in Dell’s future a chance to do so. Their potential deals would have bidders buying controlling positions, but not the whole company, leaving some shares to continue to trade publicly in what’s known as a public “stub.”
And it’s the option to retain some exposure to the firm that might leave some investors pushing for one of the alternative proposals. It’s hard to imagine that Iachan, Blackstone, Michael Dell and Silver Lake are all wrong about the potential upside for the company. This may send Dell and his investors back to the drawing board to come up with another proposal in order to keep control.
Less than a year after the infamous JPMorgan Chase & Co.’s “London Whale” trading scandal that led to a $6.2 billion loss, IR Magazine gave an award to Jamie Dimon, the company’s chief executive officer, for having the best investor relations by a CEO or chairman in the large market capitalization category.
Though perhaps IR Magazine is giving Dimon the award for the way he handled investor relations following the scandal, in April 2012 Dimon described the would-be sweeping trading scandal as a small event that had been exaggerated out of proportion on JPMorgan’s first-quarter earnings conference call.
In response to a question regarding London Whale Bruno Iksil’s large position in credit-default swaps in corporate bonds, Dimon said on the call:
“It’s a complete tempest in a teapot. Every bank has a major portfolio. In those portfolios you make investments that you that you think are wise, the offset your exposures. Obviously it’s a big portfolio, we’re a large company, and we try to run it – it’s sophisticated, obviously complex things, but at the end of the day, that’s our job is to invest that portfolio wisely and intelligently over a long period of time to earn income and to offset other exposures we have.”
This misleading statement along with the lack of transparency provided to investors about trading practices raises eyebrows about IR Magazine’s decision to award Dimon the honor of having the best investor relations as a CEO.
IR Magazine’s Methodology
On its website, IR Magazine says that it conducts in-depth research to identify the best corporate investor relations teams. The magazine canvassed opinions through electronic surveys and telephone interviews of more than 800 sell-side analysts, buy-side analysts and portfolio managers across the U.S. to determine the winners.
Other nominees in Dimon’s category “Best IR by a CEO or chairman” included Covidien’s José Almeida, Danaher’s Lawrence Culp and Coca-Cola Co.’s Muhtar Kent.
“But fundamentally good IR is still a matter of building trust with the investment community – which is what all our award winners and nominees – as well as the IR Magazine US Top 100 – have achieved,” said IR Magazine’s CEO and founding editor Janet Dignan on its website.
Lack of Transparency
In a New York Times Dealbook article last week about the hearing by the Senate’s Permanent Subcommittee on Investigations that summoned Dimon and other current and former JPMorgan officials as it continues to formulate reports, John C. Liu, the New York City comptroller, raised concern on the way Dimon misinformed investors.
“It’s clear from the Senate report and Friday’s hearing that senior executives not only misinformed investors and regulators about the excessive risks the bank was taking, but also withheld this information from their own board. Mr. Dimon’s failure on this score come from the hubris of having too much power placed in his hands.”
Liu has invested in $500 million worth of JPMorgan shares on behalf of public pension funds. Liu is hoping to bolster support for a shareholder proposal that would split JPMorgan’s CEO and chairman roles, The New York Times reported.
Yet on the other side, Joe Evangelisti, a bank spokesman, said:
“Our management always said what they believed to be true at the time. In hindsight, we discovered some of the information they had was wrong…Jamie apologized and took responsibility on live television, multiple analyst calls, and in testimony before Congress and the Senate.”
Additionally, JPMorgan’s board have remained largely in support of its CEO and the bank has had its most profitable year ever and its stock rose more than 20 percent in the last four months.
“And above all the din and arguments concerning risky banking practices is the voice of money — if you’re making it, then you’re fine with how it’s being made,” wrote the International Business Times on Monday.
Yet some in the business media have been critical of Dimon and JPMorgan’s actions. Bloomberg News’ Jonathan Weil wrote an article in January about the omissions in JPMorgan’s report about the London Whale trading losses.
“The report also included this bizarre disclaimer: “This report sets out the facts that the task force believes are most relevant to understanding the causes of the losses. It reflects the task force’s view of the facts. Others (including regulators conducting their own investigations) may have a different view of the facts, or may focus on facts not described in this report, and may also draw different conclusions regarding the facts and issues.” In other words, we haven’t been told the whole story.”
What do you think? Did Dimon deserve to receive IR Magazine’s award as ”Best IR by a CEO or chairman” for the way he handled investor relations during and after the London Whale crisis, or does this seem like a suspicious action of the business media cozying up to the CEO of the most powerful banks in the world?
by Chris Roush
Lou Kilzer, Andrew Conte and Jim Wilhelm of the Pittsburgh Tribune-Review received $10,000 and the William Brewster Styles Award for “$hadow Economy” on Friday when The Scripps Howard Foundation announced the winners of its annual Scripps Howard Awards, honoring the best work in journalism and journalism education in 2012.
In this yearlong project, the Tribune-Review reporters explored the legitimate and illegitimate uses of offshore accounts and shell companies. They documented the costs we all pay for wheeler-dealers who game the system.
The idea for the package originated in other investigative reporting about China and its extensive use of shell companies in the Cayman Islands and elsewhere. That led to the wide range of regulations in the United States by which some states – Wyoming and Delaware among them – make it easy for foreigners to hide money here.
It also evolved into a story pointing out to the U.S. government that about 20 companies want to export the bulk of America’s excess natural gas production overseas, where it will fetch far more money. That could cost the government billions in taxes because companies can create offshore shell subsidiaries and sell the gas to them at domestic prices.
Those companies, which exist only on paper, then could sell the gas at the higher international price and avoid U.S. taxes – or any taxes at all. The Trib found that 20 of the 25 largest publicly traded companies in the United States have subsidiaries in countries that the government has identified as tax havens or financial secrecy jurisdictions.
The finalists were Jill Riepenhoff and Mike Wagner of The Columbus (Ohio) Dispatch for “Credit Scars.”
In addition, The Wall Street Journal received a distinguished award for service to the First Amendment and the Edward Willis Scripps Award for “Watched,” an ongoing project that exposes secretive ways personal information is tracked and used by corporate data-gatherers and government trackers.
Read about all of the winners here.
by Liz Hester
The Wall Street Journal had an interesting story about Fidelity and exchange traded fund fees on Thursday. Many ETFs are touted as a way for individual investors to gain exposure to various asset classes.
But according to the WSJ, the fees may make it harder for Fidelity to capture market share:
Some financial advisers said they would stop using Fidelity Investments’ trading platform to buy certain exchange-traded funds because of high fees that kick in when investors sell.
Fidelity on Wednesday announced it would begin offering 65 ETFs from BlackRock Inc.’s iShares unit without charging customers a trading commission. The deal expands a previous agreement involving 30 commission-free ETFs.
But the Boston money manager is tacking on an additional fee of $7.95 a trade to investors who sell the ETFs within 30 days and to financial advisers who sell within 60 days.
Advisers also complained that Fidelity replaced 10 of the commission-free iShares ETFs on its previous menu. Nine of the new ETFs have lower trading volumes, suggesting they are less popular with investors.
The episode is another blow for Fidelity, which has missed out on the ETF boom of the past several years. Investors have favored stock ETFs over actively managed stock-mutual funds—Fidelity’s specialty—since 2006. Last year, investors poured $54.8 billion into stock ETFs and yanked $131.5 billion from actively managed U.S. stock funds, according to investment-research firm Morningstar Inc.
While rivals Vanguard Group Inc. and BlackRock have built big ETF businesses, Fidelity has barely made a dent.
While Fidelity continues to lose ground in this space, some rivals are finding it lucrative, the WSJ said.
Fidelity has much riding on the iShares deal. Investors pulled $24.4 billion from Fidelity’s stock funds in 2012, and its operating revenue dropped 1% to $12.6 billion.
By becoming a partner with BlackRock, the largest ETF provider in the U.S., Fidelity hopes to gain exposure to the fast-growing ETF market.
But a backlash from financial advisers could derail those plans. The additional fees “could alienate their core market,” said Scott Freeze, president of Street One Financial, an ETF trading and advisory firm.
Advisers said they are worried the redemption fee will hit hardest investors with less money. “If you’ve got a million-dollar account, then it’s not going to be huge,” Mr. Tuttle said. “If you have a $2,000 account, that’s massive.”
Rivals such as Vanguard, Charles Schwab Corp. and E*Trade Financial Corp. don’t charge a redemption fee on commission-free ETFs. TD Ameritrade Holding Corp. charges $19.99 a trade if an investor or financial adviser sells within 30 days.
Stories like these are important so investors can evaluate where their money is going to make sure they’re getting the best deal possible. The news follows an announcement about Fidelity ramping up its offerings, according to the Boston Globe:
Fidelity Investments is ramping up its small presence in the growing business of exchange-traded funds by expanding a three-year partnership with BlackRock Inc.’s iShares unit, the largest ETF provider.
BlackRock, in turn, will be able to sell its iShares ETFs to a much broader range of investors, including Fidelity customers and their industry-leading 18.5 million brokerage accounts. BlackRock does not have anything to rival that client base.
Boston-based Fidelity and New York-based BlackRock announced the partnership Wednesday. The companies agreed in early 2010 to cooperate on a smaller scale in a three-year deal that expired. Under it, Fidelity offered its brokerage clients commission-free online trades on 30 iShares ETFs. The commission-free total expands to 65 under the new pact. With $250 billion in assets, those ETFs invest in US and foreign stocks and bonds, as well as commodities.
Fidelity also will create new options for its customers to build investment portfolios using iShares ETFs. And BlackRock agreed to help Fidelity develop new funds that passively track narrow segments of the market, such as stocks of companies in specific industries.
Either way, Fidelity should examine its offerings to see if it can actually capture the market share it is looking to gain.
by Chris Roush
A Charlotte Observer investigative series on North Carolina’s nonprofit hospitals was honored Wednesday with a major national journalism award.
A story on the Observer website states, “‘Prognosis: Profits,’ a 2012 series reported and produced jointly with the News and Observer of Raleigh, won the Distinguished Writing Award for Local Accountability Reporting from the American Society of News Editors.
“The series explored large profits at nonprofit hospitals, highlighted huge salaries for some executives and reported on efforts of the hospitals to sue patients delinquent on their bills or send patients who couldn’t pay to collection agencies. Follow-up stories revealed that hospitals were marking up prices on cancer drugs as much as 50 times over cost, and showed how hospitals’ acquisitions of doctors’ practices has driven up the cost of care.
“Charlotte Observer investigative reporter Ames Alexander and medical reporter Karen Garloch reported and wrote the series, which was edited by senior editor Jim Walser. In Raleigh, investigative reporter Joseph Neff and database editor David Raynor reported and wrote the stories, which were edited by senior editor Steve Riley.
“Judges said the series was ‘grounded in meticulous reporting and presented in elegant and sophisticated form. … This is a model of newspapers holding powerful local interests accountable and has ignited efforts for reform.’
“The series has won three other national awards: the Bronze Medal in the annual Barlett and Steele Awards for Investigative Business Journalism; the investigative reporting award for mid-sized dailies from the Society of American Business Editors and Writers; and second place in investigative reporting from the Association of Health Care Journalists.”