Tag Archives: Coverage
by Liz Hester
It looks like William Ackman is winning in the war with Herbalife. The supplement company said the Federal Trade Commission is now investigating its practices.
Here are some of the details from the New York Times story by Alexandra Stevenson:
The nutritional supplement company Herbalife said on Wednesday that it had received a civil investigative demand from the Federal Trade Commission.
The company has been the focus of a 15-month crusade by the hedge fund billionaire William A. Ackman, who has accused the company of being a pyramid scheme and has wagered $1 billion on its collapse.
Mr. Ackman’s campaign, which began with a public presentation in December 2012 during which he disclosed his huge short position against Herbalife, has turned into an acrimonious battle between a number of hedge fund titans who have taken different positions on the viability of the company.
Mr. Ackman has lobbied members of Congress to press state and federal regulators, specifically the F.T.C., to investigate Herbalife. He has also hired consultants to help organize news conferences, protests and letter-writing campaigns in four states to drum up support for regulators to step in.
While investigators at the Securities and Exchange Commission moved quickly, opening an inquiry into Herbalife just a month after Mr. Ackman’s public presentation, the F.T.C. remained quiet until Wednesday. The commission confirmed the investigation only after Herbalife said it had received a letter.
Bloomberg’s Duane D. Stanford and David McLaughlin reported that shares fell on the news, making money for Ackman, who is short the stock:
Herbalife fell 7.4 percent to $60.57 at the close in New York. The shares have gained 43 percent since Ackman first made his accusations.
The probe marks an achievement for Ackman, who in 2012 made a $1 billion bet against Herbalife’s shares and started working to persuade regulators to shut the company down, saying it misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices. Herbalife has repeatedly denied Ackman’s allegations while winning over allies including billionaire Carl Icahn and Post Holdings Inc. (POST) Chairman William Stiritz.
The New York Times reported this week that Ackman had donated $10,000 to the advocacy group and hired a former aide to Markey as part of his anti-Herbalife campaign.
The civil investigative demand disclosed today isn’t an indication of wrongdoing and is essentially a subpoena requesting information, Michael Swartz, an analyst at SunTrust Banks Inc. in Atlanta, said today in a note. Swartz, who recommends buying Herbalife shares, said the probe may take six to 12 months to be completed and doesn’t change his views on the company.
Gary Strauss wrote in USA Today that Ackman isn’t backing down from his claims, despite Herbalife’s rising sales:
In a Tuesday webcast, Ackman repeatedly called Herbalife’s multilevel marketing and sales practice a pyramid scheme and charged that the company was violating Chinese labor laws. Herbalife denied Ackman’s accusations in a statement Tuesday.
Ackman’s efforts to bash Herbalife have drawn criticism and protracted exchanges from activist investor Carl Icahn, who aligned himself with management and amassed a 13% stake in the company last year. Icahn has said Herbalife is undervalued.
Herbalife had 2013 sales of $4.8 billion, up from about $4.1 billion in 2012. It markets energy and fitness snacks, drinks, vitamin supplements and skin-care products through 3 million distributors in more than 90 countries.
Among other personal care marketers with similar sales and distribution channels, USANA Health Sciences lost $3.10 (4.3%) to $69.82, while NuSkin Enterprises gained $4.78 (6.5%) to $77.89.
The Wall Street Journal story by Sara Germano and Brent Kendall added this background on the saga, which has been going on for nearly two years:
Herbalife had 3.7 million distributors worldwide at the end of December. The company has repeatedly defended its operations and has won the support of a number of Mr. Ackman’s hedge fund rivals, including Carl Icahn, who have bet the company’s stock would rise. So far it has. Herbalife’s shares are up more than 40% since the days before Mr. Ackman made his presentation, though they have lost nearly a quarter of their value this year, amid increasing scrutiny of its operations.
In January, Massachusetts Senator Edward Markey sent letters to the FTC and Securities and Exchange Commission, as well as Herbalife Chief Executive Michael Johnson, calling for an investigation of the company. The FTC has previously made public batches of complaints against Herbalife through Freedom of Information Act releases.
The FTC has the authority to bring civil cases against companies engaged in unfair or deceptive trade practices. It can ask a court to halt an alleged pyramid scheme, order consumer refunds, and force a company to forfeit ill-gotten profits.
The commission brought such a case last year against a Kentucky-based marketing outfit called Fortune Hi-Tech Marketing Inc. The case is pending in court, and the parties are engaged in settlement negotiations, according to court documents. In 2012, the FTC won a court order against an alleged pyramid called BurnLounge that ordered the company, which marketed online music downloads, to pay more than $16 million in consumer refunds.
BurnLounge is no longer in business but continues to fight the case on appeal. A lawyer for the company, Larry Steinberg of law firm Buchalter Nemer, said BurnLounge wasn’t a pyramid because it only paid commissions on the sales of products to consumers, not for recruiting new members.
Ackman’s nearly two-year campaign is paying off. While he personally is winning, investors in his fund may be the biggest winners. As Herbalife’s stock drops, their returns climb. It will be interesting to see exactly what the investigation reveals and if Herbalife will survive.
by Chris Roush
Wednesday’s top stories:
The Associated Press
Airlines lower forecast for record 2014 profit by John Heilprin
Candy Crush maker King sees up to $7.6 billion IPO valuation by Aman Shah and Neha Demri
The Wall Street Journal
Energy XXI agrees to acquire EPL Oil & Gas by Tess Stynes
Russian debt deal could haunt Ukraine’s economy by Stephen Gandel
To sell minor league merchandise, just add bacon by Ira Boudway
Stock market surge bypasses most Americans, poll shows by David J. Lynch.
Today in business journalism
This date in business journalism history
2007: Trish Regan joins CNBC
by Liz Hester
Jos A. Bank has finally consented to being bought by Men’s Wearhouse after months of back and forth over valuation and management.
Here’s the story in the New York Times by David Gelles and Michael J. de la Merced:
Men’s Wearhouse agreed on Tuesday to buy its rival Jos. A. Bank Clothiers for $65 a share in cash, ending months of hostilities between the two retailers.
The companies and their advisers worked through the weekend and finally agreed on a deal that values Jos. A. Bank at $1.8 billion, and will bring together the two leaders in affordable menswear.
Among the terms of the deal, Jos. A. Bank will terminate its agreement to acquire Eddie Bauer.
Despite months of public bickering between the two companies, Douglas S. Ewert, the Men’s Wearhouse chief executive, welcomed his new colleagues in a statement. “All of us at Men’s Wearhouse have great respect for the Jos. A. Bank management team and are eager to work with Jos. A. Bank’s talented employees,” he said.
Robert N. Wildrick, the chairman of Jos. A. Bank’s board who had led deal talks for the company, said that after months of negotiations, he had obtained the best possible deal for shareholders.
The Wall Street Journal story outlined the background of the often contentious negotiations between the two retailers in a story by Dana Mattioli and Dana Cimilluca:
Together, Men’s Wearhouse and Jos. A. Bank will have more than 1,700 stores in the U.S., with about 23,000 employees and annual sales of $3.5 billion on an adjusted basis. The Jos. A. Bank stores won’t be rebranded or remodeled under the deal.
Should shareholders approve the plan, it would put an end to a takeover saga that began roughly six months ago when Jos. A. Bank launched a bid to buy its larger rival. That approach was rebuffed and ultimately led to a counteroffer by Men’s Wearhouse, which now is set to succeed – but only after Men’s Wearhouse was forced to increase its bid multiple times and Jos. A. Bank shares shot up roughly 50% in the period.
Men’s Wearhouse’s initial offer in November was worth $55 a share, or about $1.5 billion.
The two companies have been working feverishly to complete a deal over the past few days, said a person familiar with the matter.
The deal which isn’t contingent on financing, is expected to close in the third quarter and add to Men’s Wearhouse’s earnings in the first full year after it closes. The combined company’s management will consist of the “most qualified” individuals from both organizations.
Reuters reported that the deal has been a good one for shareholders as stock prices have climbed, according to a story by Siddharth Cavale and Olivia Oran:
The increased offer price of $65 per share announced on Tuesday is a premium of 5.1 percent to Jos. A. Bank’s Monday closing price. But it is 56 percent more than the stock’s price in October before the merger battle began.
Men’s Wearhouse, which had previously offered $63.50 per share, said the deal would create the fourth-largest men’s apparel retailer in the United States with annual sales of about $3.5 billion.
Men’s Wearhouse shares were up 6 percent in midday trading at $58.53. Jos. A. Bank shares were up 3.75 percent at $64.15.
“It’s a second Christmas for Jos. A. Bank shareholders,” Jerry Reisman, an M&A expert at law firm Reisman Peirez Reisman and Capobianco LLP, told Reuters.
Men’s Wearhouse will be able to close stores duplicated in the same mall, reducing costs in the long term, he said.
Men’s Wearhouse did not mention any plans to close stores in its statement.
In a piece for MarketWatch, Andrea Cheng reported that the deal would be remembered for its maneuvering and as one that maximized shareholder value:
Jos. A. Bank’s maneuvering is being called a brilliant move. Let’s recap: the company launched its initial bid in October, which Men’s Wearhouse rejected and then countered with its own offers. Each party launched its own poison pill, and Jos. A. Bank JOSB agreed to buy Eddie Bauer to up the game — an “amazing” piece of boardroom maneuvering, analysts said.
Men’s Wearhouse’s final $65 per-share offer marked a 56% premium over Jos. A. Bank’s closing price on Oct. 8, a day before it first made a move on its larger rival.
“This has been, assuming everything stays on track, a master class example of how to maximize value for your shareholders,” Customer Growth Partners President Craig Johnson told MarketWatch, adding the premium was far richer than the 30% premium Saks got in its sales to Hudson’s Bay Co. in a high profile recent acquisition. “I can’t think, within retail, of a similarly well-choreographed value-creation waltz like we’ve seen here.”
In his over 40 years as a mergers and acquisition lawyer, Jerry Reisman, a partner at Garden City, New York-based law firm Reisman, Peirez, Reisman and Capobianco, said the deal marked an unusual example of a successful ‘Pac Man’ defense engineered by Men’s Wearhouse.
“Each one was strategically moving to take steps to block the other,” he said in an interview. “A Pac Man defense is unusual. Ultimately Men’s Wearhouse succeeded. Jos. A. Bank (also) got a fantastic offer. I’d give them a 10 for what they accomplished. They did well for Jos. A. Bank shareholders. They might have reached this price long term on their own, but not in the short term. Men’s Wearhouse paid a top price.”
It’s been a wild ride for both companies and the outcome should make those on both sides of the deal happy. Now, the true test will be if they can create enough cost savings and keep men coming to their retail locations to make the deal worth it in the long term.
by Chris Roush
Tuesday’s top stories:
The Associated Press
Bid of $1.8 billion suits Jos. A Bank just fine by Anne D’Innocenzio and Michelle Chapman
Fox exec raises questions on Comcast-Time Warner Cable merger by Liana B. Baker
The Wall Street Journal
Congress to investigate GM recall by Jeff Bennett and Joseph B. White
A star rises from Britain’s tech scene by Jonathan Weinberg
With Keurig 2.0, Green Mountain wants its monopoly back by Vanessa Wong
Facebook’s share rally leaves analysts racing to catch up by Sarah Frier
Today in business journalism
This date in business journalism history
Business journalism birthdays
March 11: Robert Thomson of News Corp.
by Liz Hester
In the wake of revelations that General Motors Co. had waited 10 years to recall 1.6 million vehicles with faulty ignition switches, new CEO Mary Barra is feeling he heat
Jeff Bennett had this story in the Wall Street Journal:
General Motors Co. moved Monday to confront mounting questions over why it took nearly a decade to recall 1.6 million vehicles for faulty ignitions linked to 13 deaths, hiring a high-profile lawyer to lead its internal investigation and stepping up warnings to customers.
GM is bringing in Anton Valukas, the Chicago lawyer who led the court-ordered investigation of the Lehman Brothers collapse in 2008, as it tries to persuade consumers, regulators and lawmakers that it is responding rapidly. GM wants to avoid the kind of costly, damaging scandal that engulfed Toyota Motor Corp. in 2010 after the Japanese auto maker recalled millions of vehicles for problems related to unintended acceleration.
GM initiated a recall on Feb. 13, saying a faulty ignition switch could partially turn off certain vehicles while they were being driven, disabling their air bags. Drivers have since claimed the cars could become difficult to steer when the switch malfunctioned, resulting in accidents.
On Monday, GM launched a website to provide customers with information about the recall, warning owners of the affected vehicles to remove extra weight off their car ignition keys. The National Highway Traffic Safety Administration has given the auto maker until April 3 to answer 107 questions about its handling of the problem.
GM employees knew about the defect as early as 2004. The company has released a chronology sketching out in broad terms how the faulty switch was discovered and how the issue bounced around within its engineering division. The company’s disclosures to date don’t reveal who was responsible for the timing of the recall.
Meanwhile, the NHTSA hasn’t said why it didn’t take action after one of its own officials pointed out the potential problem during a March 2007 meeting. NHTSA officials have declined to comment on the meeting or provide any documentation about it.
The issues prompted a House committee to begin an investigation into what General Motors knew and when. Matthew L. Wald and Bill Vlasic had this story in the New York Times:
A House committee has started an investigation into the response by General Motors and federal safety regulators to complaints about faulty ignition switches that have been linked to 13 deaths, officials said on Monday.
An Energy and Commerce Committee subcommittee will hold hearings that will include the automaker and the National Highway Traffic Safety Administration, although the date has not been set, said Charlotte Baker, a committee spokeswoman.
The congressional investigation is not the first time the committee’s chairman, Fred Upton, has looked into the issue of consumer complaints going unheeded over defective cars.
In 2000, Mr. Upton, Republican of Michigan, led a subcommittee that investigated the rollovers of Ford Explorers with Firestone tires, a problem that followed years of complaints and was eventually linked to 271 deaths.
In response, Congress passed the Tread Act, a law that required automakers to report complaints of defects to the National Highway Traffic Safety Administration, to make it easier to spot trends.
Mr. Upton is particularly interested in how an automaker and safety regulators, despite the added oversight, again had trouble recognizing defect trends.
General Motors has said that it was first alerted to the problem in 2004, and despite twice considering fixes, declined to do so. The safety agency has received more than 260 complaints over the last 11 years about cars shutting off while being driven, according to a New York Times analysis, but never started a broader investigation. The agency repeatedly said that there was insufficient evidence to warrant one.
Writing for Reuters, Ben Klayman said the recall marked the first big test for Barra and how she handles it would set the tone for her tenure:
In her first big test as General Motors Co’s chief executive, Mary Barra has taken a hands-on approach behind the scenes in directing the automaker’s response to ignition-switch problems that have been linked to 13 deaths.
On Monday, GM said the team conducting an internal probe ordered up by Barra of the recall of more than 1.6 million vehicles is being led by the lawyer who investigated Lehman Brothers after the financial services firm collapsed in 2008.
Barra has been heavily focused on the recall since she learned of the issue in late January, about two weeks after she took over as the industry’s first female CEO.
The No. 1 U.S. automaker has said the recall to correct a condition that may allow the engine and other components, including front airbags, to be unintentionally turned off will begin next month when it has the replacement parts. Most of the affected vehicles are in North America.
Barra apologized for the recall and sent a letter last week to employees promising an “unvarnished” look at the recall that is occurring 10 years after the issue first came to light. She has not granted any interviews on the matter.
“Mary believes that her time is best spent on making the recall work as smoothly as possible for our customers,” GM chief spokesman Selim Bingol said in an email. “Meanwhile, GM is keeping our customers informed about the recall while working to provide timely responses to questions from regulators.”
While recalls are not unusual, the number of fatalities involved and the way GM handled this one stretching over the past decade has the potential to cost the company hundreds of millions of dollars in fines and possible legal damages, in addition to tarnishing its reputation.
The public relations nightmare of ignoring a problem for 10 years isn’t Barra’s making, but it’s her problem to fix. She’ll have to contend with employees, the government and consumers. It’s a big task and the future of the company is riding on her.
by Liz Hester
Conor Dougherty reported in the Wall Street Journal that construction of new homes is focusing on apartments. Some of this is in anticipation of an improving job market and more millennial workers finally being ready to move out of their parents’ homes.
Here’s the top of his story:
The share of new homes being built as rental apartments is at the highest level in at least four decades, as an improving jobs picture spurs younger Americans to form their own households but tighter lending standards make it more difficult to buy.
Residential construction—a pillar of the economy and employment—is starting to ramp up again overall, but in previous years the growth was driven by single-family homes. Last year, according to census data, construction was started on a little less than one million new residential units, and about one in three of those was a rental in a multifamily building, the highest share since data began in the mid-1970s. Single-family homes accounted for about two-thirds of housing starts last year, down from their peak of 87% in 1993 and about 80% in the years leading up to the recession, the census data showed.
The move toward apartment construction reflects the convergence of several trends. Mortgage credit is still tight. Also, Americans have seen muted wage gains, and others have high student-debt loads, forcing people who otherwise would have bought homes to rent instead.
At the same time, as the job market improves, larger numbers of young adults are leaving their parents’ homes and forming their own households—adding more to the demand for rentals. And the supply of new apartments hasn’t kept pace, especially in some key markets such as San Francisco.
“Builders are betting on more millennials leaving the nest this year,” said Jed Kolko, chief economist at Trulia, a real-estate site. “But young people don’t get a job one day and buy a home the next. The improving jobs picture for young adults will mean more renters this year, not a surge in first-time home buyers.”
Reuters reported on Friday in a story by Lucia Mutikani that job growth increased in February, indicating the economy is on better track than numbers previously indicated:
U.S. job growth accelerated sharply in February despite the icy weather that gripped much of the nation, easing fears of an abrupt economic slowdown and keeping the Federal Reserve on track to continue reducing its monetary stimulus.
Employers added 175,000 jobs to their payrolls last month after creating 129,000 new positions in January, the Labor Department said on Friday. The unemployment rate, however, rose to 6.7 percent from a five-year low of 6.6 percent as Americans flooded into the labor market to search for work.
“It reinforces the case for the economy being stronger than it’s looked for the last couple of months,” said Bill Cheney, chief economist at John Hancock Financial Services in Boston. “It makes life easier for the Fed and feeds into continuing the tapering process.”
The report also showed the largest increase in average hourly earnings in eight months and the payrolls count for December and January was revised up to show 25,000 more jobs created during those months than previously reported.
Writing for the New York Times, Nelson D. Schwartz pointed out that the uptick in the unemployment rate may be a sign that some are returning to the job search after a prolonged absence:
While analysts cautioned that the report on Friday from the Labor Department was hardly cause for celebration, it eased fears of another prolonged slowdown, which had been raised by weak figures for hiring in December and January and mixed signals from recent releases of other data. The improvement last month led some experts to conclude that a hard winter, not a fundamental downshift, was the prime mover behind the economy’s lackluster performance at the end of 2013 and the beginning of 2014.
With employers hiring 175,000 workers, the payroll gain in February was still well short of the pace needed to return the economy to full employment anytime soon or to quickly reduce the ranks of the long-term unemployed. But it was twice the number of jobs added in December, when the cold and snow arrived, and it came against a backdrop of more wintry weather last month.
“The report showed solid job growth in February despite clearly negative effects from the weather,” said Dean Maki, chief United States economist at Barclays. “It suggests the jobs numbers should improve as the weather gets better.”
And even though the unemployment rate rose 0.1 percentage point to 6.7 percent, some economists were actually encouraged, paradoxical as that might seem, because they interpreted the uptick as a sign that more Americans were seeing signs of improving job opportunities and returning to the labor force.
The new data for job creation also made it nearly certain that the Federal Reserve would stick with its plan to ease back its stimulus efforts when policy makers meet later this month. In December, the Fed announced the scaling-back after monthly job gains of more than 200,000 in the autumn, only to watch the pace of hiring quickly shrivel.
So it looks like for now that the economy is plowing ahead. It will be interesting to see if builders’ bets on multifamily construction will pay-off as more people look for places of their own. It will also be telling to see if the growth in jobs is sustainable and employers are really expanding. The short-term boom for construction will also help with employment and economic growth. It’s an interesting trend emerging from the current economy and hopefully business publications will continue to follow these going forward instead of simply reporting the numbers without context.
by Liz Hester
Melissa Daly is the founding partner of MFD Communications in New York.
In the summer of 2011, she started her strategic communications business and has worked to build a niche offering, bringing value to her clients. Prior to starting MFD, she worked in communications at Goldman Sachs and Brunswick Group.
She spoke with Talking Biz News about the challenges of starting her own agency in the competitive world of financial services. What follows is an edited transcript.
Talking Biz News: What was the biggest challenge in starting your own agency?
Melissa Daly: The biggest challenge was navigating all the different steps including setting up the limited liability company, ad placements, email systems and accounting systems. When you’re starting out, you don’t want to invest money in other people doing things for you, so if you can do it yourself, you do. I learned along the way what I could have done more efficiently.
It’s a very personal process to start your own company, and I wanted to make sure everything was done as best as it could be. Even if you farm something out, you want the best person to do that job. But you don’t always know the best web designer or accountant, so it can be nerve wracking.
That was the tactical part. There was also the emotional stress of not having a paycheck. I knew we had some savings to sustain the business for some time, but there was a time when I knew we needed to be profitable.
I’m constantly drumming up new business and networking. In the early days, I knew I had to set up a certain number of meetings and coffees. And I still do. I needed to accomplish certain things everyday because driving the business forward is what is going to get you paid. The fear and embarrassment of failure is a real motivator.
The best piece of advice I got when I started was from someone who has been in the business a lot longer than me and who also started his own firm. He told me it wouldn’t be the people who are your closest friends who will refer or give you business. It’s their connections. You need to broaden your first contact point and network. It will be those people who recommend you and the more people you talk to, the more people who will likely refer you.
TBN: What has been the most rewarding part?
MD: The best part is getting a new client and helping them or their business. It’s rewarding to get a client and each win is getting you closer to your goals and helping to build the business.
We needed to set ourselves apart. We don’t do straight public relations. We do strategic communications. A lot of our business focuses on getting people to develop messages and content, then putting it out to their audience. We work to help define what clients are saying to their audience. A lot of that is media training and executive coaching.
For example, some of our clients are too close to the business or in a complicated field and can’t communicate their message in a simple way, which prevents them from being quoted. We spend a lot of time distilling their messages and helping people understand what they want to tell their audience and reporters. We help them speak intelligently and clearly about a product, initiative or company earnings. We help make sure they’re all telling the same story so clients and everyone else hears the same message.
TBN: How do you balance work with sourcing new business?
MD: You really have to set aside time to do the networking and sourcing your business when it won’t interfere with client work. You have to put in that time and effort, and know will take a lot of both. It won’t just come to you.
That said, you can’t do it at the expense of existing clients. You have to service your existing customer base. It’s easier to keep the client you have than to find a new one. You have to know your schedule and what each day looks like. If you’re out chasing business when a client needs you, then you need to source new business in a different way – maybe by finding evenings to network. Clients always come first.
TBN: Communications is competitive. How do you compete with the larger firms?
MD: A big part is that is having our two partners working closely with each of our clients. They get senior-level attention throughout the process. If you hired a larger agency, you wouldn’t get that all the time. We value and care more about our clients because each one so important. We can’t afford to lose them.
We also don’t track our hours like a bigger agency would do. If I were a senior person at large agency, I may have one to two hours per week for a client. We don’t put a junior person on the account like some larger firms may. We’re navigating the strategic work and the actual execution of the plan. Each of us has more experience than a typical client may experience so ultimately we can add more value to each relationship.
We really target a specific niche that many people can’t do effectively as part of a larger organization. Often, we work with other agencies and help fill in their gaps.
TBN: What advice would you give to someone just getting started in the industry?
MD: The best thing anyone getting into communication can do for herself is to learn about business. If you’re going to talk about or write about business, it’s a good idea to take some classes to learn about business generally and perhaps a specific industry. I talk to a lot of people going into communications who have a writing background. But it’s hard to offer advice if don’t know how an organization typically operates, or how businesses or the economy work.
Having that business perspective will help you learn to speak with executives and offer strategic advice. This would be true for any industry – art, communications, manufacturing. There is a business side to every industry. You need to know how the business side functions so can you can effectively talk about it. Know how to read a balance sheet and an earnings statement, understand how a marketing plan should work.
I was a business major, and my first job was as a financial planner. I learned about financial services by doing that and it enabled me to be a better communicator about financial services specifically, and business broadly. It helped me speak intelligently about financial services products.
Many people go into a major thinking they only need to learn what’s in that discipline, but you need other parts that will round out your career and make you better overall. That is how you can set yourself apart. If you’re going to get into business communications, you should really learn about certain parts of the business and the economy. It can only give you more credibility and confidence.
by Chris Roush
Matthew Von Pinnon, the editor of the Fargo Forum in North Dakota, writes about how the paper is expanding its business news coverage.
Von Pinnon writes, “We’ve noticed it, and you have, too. We’re in a go-go business environment here, one that seems poised to grow exponentially in coming years. More businesses are opening every day, offering more goods and services to the growing number of people who flock to this region for new opportunities and an improved way of life. And that’s compounding the need for more goods and services.
“We’re on the cusp of big things. Not a day goes by that this newspaper is not writing about some new place or new idea seemingly springing up out of nowhere. It’s exciting. There’s a real entrepreneurial spirit taking hold, and we aim to tell that story in bigger and better ways.
“We’re doubling our weekday space devoted to Business. We’re also adding to its reporting power, dedicating three full-time reporters to the beat, as well as any other resources we can throw at it.
“Veteran reporter Sherri Richards is our new Business editor. She’s joined by two other veterans of the area and newspaper: Dave Olson and Angie Wieck.
“Our team aims to cover Business and work more thoroughly than it’s ever been covered here. Oh, and about that popular Saturday Business section, with all those names and faces: It’s not going anywhere.”
Read more here.
by Liz Hester
After a snowstorm pushed back her appearance before the Senate Banking Committee, Federal Reserve Board Chair Janet Yellen answered a variety of questions Thursday about topics ranging from asset purchases to Bitcoin.
Bloomberg’s Craig Torres led with the tapering of asset purchases:
Federal Reserve Chair Janet Yellen said the central bank is likely to keep trimming asset purchases, even as policy makers monitor data to determine if recent weakness in the economy is temporary.
“Unseasonably cold weather has played some role,” she said in response to a question today from the Senate Banking Committee. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”
Yellen repeated the Fed’s statements that the central bank intends to reduce asset purchases at a measured pace, and she said in response to a separate question that the bond-buying program was likely to end in the fall.
At the same time, “if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here.”
Yellen’s testimony to the Senate panel, originally scheduled for Feb. 13, was postponed because of a snowstorm, creating an unusual two-week gap between her appearances before the two committees that oversee the central bank. Since her House testimony, weaker-than-forecast data on retailing, manufacturing and home construction have suggested the economy is slowing, in part because of harsh winter weather.
The New York Times story by Binyamin Appelbaum added some details about the data Yellen was reviewing to make her decision:
Ms. Yellen cited the slow pace of job growth in December and January, weakness in the housing market and disappointing retail sales and industrial production.
The remarks were a shift from Ms. Yellen’s testimony two weeks ago before the House Financial Services Committee. But Ms. Yellen did not change her description of the Fed’s plans, saying that the central bank was still quite likely to keep cutting back on its monthly purchases of Treasuries and mortgage-backed securities.
Senator Charles E. Schumer, Democrat of New York, asked Ms. Yellen whether the Fed would reconsider if it concluded that the cold was not the whole problem.
“Certainly we would be open to reconsidering it,” Ms. Yellen responded, “but I wouldn’t want to jump to conclusions.”
The Associated Press story (via the San Jose Mercury News) by Martin Crutsinger pointed out that Yellen is following in Bernanke’s footsteps:
In both her House and Senate appearances, Yellen sought to emphasize policy continuity with her predecessor, Ben Bernanke, who stepped down last month after eight years leading the central bank.
Yellen said that she, like Bernanke, believed the economy is strengthening enough that the Fed can gradually pull back its monthly bond purchases.
The Fed has cut the pace of bond purchases at both its most recent meetings. It reduced the original $85 billion monthly pace in December and again in January in $10 billion steps to a current level of $65 billion.
Many economists think that as long as the economy keeps improving, the Fed will keep cutting the bond purchases by $10 billion at each meeting this year until ending the program in December.
The Fed has stressed that it’s standing by a plan to keep a key short-term rate at a record low near zero for an extended period. At the past two meetings, it has said short-term rates will remain low “well past” the time unemployment drops below 6.5 percent. The unemployment rate is now 6.6 percent.
Many economists think the first rate hike won’t occur until late 2015. But minutes of the Fed’s last meeting showed that “a few” policymakers felt it might be appropriate to make the first move to raise short-term rates “relatively soon.”
The Fed has held its benchmark for short-term rates near zero since December 2008.
Reuters had a short piece citing Yellen’s remarks that Congress should look into regulating bitcoin:
The U.S. Congress should look into legal options for regulating virtual currencies such as bitcoin, Federal Reserve Chair Janet Yellen said on Thursday.
Japan-based bitcoin exchange Mt. Gox went dark on Tuesday, leaving customers unable to access their accounts. Experts have warned they might not have much recourse to recover their money.
Yellen said the Fed had no jurisdiction over bitcoins, which are created using a network of computers that solve complex mathematical problems and are not traded or held by banks.
Bitcoin aside, the Federal Reserve is holding its policy the same for now, something the market expected. It will be interesting to watch the next round of numbers. If economic data continues to weaken, Yellen may be forced to revisit her current policy. But for now, no change is good.
by Liz Hester
Benjamin Lawsky, head of New York’s Department of Financial Services, is looking into the nation’s fourth-largest mortgage servicing company for conflicts of interest. It’s another blow to the image of the industry.
Michael Corkery had this story in the New York Times:
New York State’s top banking regulator said he had new concerns about Ocwen Financial, one of the nation’s largest mortgage servicing companies, creating another regulatory headache for the company.
In a letter to Ocwen released on Wednesday, Benjamin M. Lawsky, supervisor of the state’s Department of Financial Services, said his office had found a “number of potential conflicts of interest” between Ocwen and other public companies with which it has relationships.
Ocwen, which is based in Atlanta, is the brainchild of William C. Erbey and has grown in recent years into a major player in the mortgage industry. Inside Mortgage Finance said Ocwen services 2.3 million home loans.
Mr. Lawsky said he was concerned that potential conflicts between Ocwen and four other publicly traded companies of which Mr. Erbey is chairman could “harm borrowers and push homeowners unduly in foreclosure.” For example, Mr. Lawsky said Ocwen’s chief risk officer also was the chief risk officer of another of the companies, called Altisource Portfolio Solutions, “and reported directly to Mr. Erbey in both capacities.”
Mr. Lawsky said the chief risk officer, who has since been removed from his duties at Altisource Portfolio, “seemed not to appreciate the potential conflicts of interest posed by this dual role, which is particularly alarming given his role.”
The Financial Times reported that Ocwen disclosed the relationships in regulatory filings, which it feels is sufficient:
DFS said his interest in such businesses “raises the possibility that management has the opportunity and incentive to make decisions concerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a result”.
Ocwen said, “These agreements are fully disclosed in our public filings, and we believe them to be on an arms-length basis. We look forward to addressing the matters raised by NY DFS and will fully co-operate.”
Ocwen has expanded rapidly in recent years as it snapped up billions of dollars worth of assets that give the company the right to collect payments on thousands of American home loans. In 2009, it spun off Altisource, which in addition to providing mortgage servicing, also stands to profit by selling and renting homes that have been foreclosed on.
The servicing firm’s practices have been under growing regulatory scrutiny. This month, DFS halted indefinitely Ocwen’s purchase of servicing rights from Wells Fargo, citing concerns about its ability to handle the increased servicing.
In December, Ocwen agreed to provide $2bn in loan modifications to homeowners to settle with the Consumer Financial Protection Bureau, which said it found years of “significant and systemic misconduct that occurred at every stage of the mortgage servicing process” including foreclosures.
Housing Wire’s Trey Garrison added the background that Lawsky (whose name he spells wrong below) is concerned about the company’s ability to service mortgages, which prompted Lawsky to halt a $2.7 billion servicing deal with Wells Fargo:
In addition to information on Ocwen’s officers, directors and employees, Lawskey’s office wants all documents sufficient to show the nature and extent of services provided to Ocwen by each of the affiliated companies, including all agreements for such services, and copies of all agreements between Ocwen and the affiliated companies concerning procurement of third party services. Ocwen is also being probed about its agreements concerning the outsourcing of information management to the affiliated companies.
Regarding the Ocwen/Wells Fargo deal, the DFS says it is concerned about Ocwen’s ability to handle Wells Fargo’s portfolio of mortgage servicing rights, a deal that was announced last month and which would have given Ocwen the right to service some $39 billion in mortgages.
Wells Fargo’s portfolio of residential mortgage servicing rights holds roughly 184,000 loans linked to the transaction. The portfolio represents approximately 2% of the banks total residential servicing portfolio.
While this story might seem small, it’s yet another black mark on the mortgage industry, which has suffered since the crisis. Investors have turned to servicers in the anticipation that housing will post gains and this is an area that will help show some type of returns. But it seems that they may have to look for those, especially if litigation becomes a bigger risk or regulators are putting a stop to deals.