Citi raises card rates on millions

By Francesco Guerrera and Saskia Scholtes in New York and Tom Braithwaite in Washington

Published: June 30 2009 23:59 | Last updated: June 30 2009 23:59

Citigroup has sharply increased interest rates on up to 15m US credit card accounts just months before curbs on such rises come into effect, in a move that could fuel political anger at the treatment of consumers by bailed-out banks.

People close to the situation said that Citi, which is about to cede a 34 per cent stake to the US government as part of its latest rescue, had upped rates on between 13m and 15m credit cards it co-brands with retailers such as Sears and Macy’s.

Citi’s rate increases emerged on the day the government proposed legislation to create a new regulator with sweeping powers on consumer protection and a week after the bank was attacked by some politicians for raising employees’ salaries.

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent – or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

Citi declined to comment but people close to the bank said the figures were in line with internal data. Citi’s move came as the economic downturn caused record defaults among US card users and prompted many issuers to raise rates, both to cushion their losses and pre-empt the new restrictions set to come into effect in February.

However, Citi’s increases have been larger than those of its main rivals, according to Lightspeed, which tracks about 12,000 US credit card accounts.

Carolyn Maloney, Democratic representative for New York, the author of the new rules that will sharply constrain lenders’ ability to raise rates for risky borrowers, criticised Citi’s move. “It’s hard to tell if rate hikes on existing balances being put in place now are the result of prior bad business decisions or getting in under the wire of the new law,” Ms Maloney told the Financial Times.

Copyright The Financial Times Limited 2009

Atlanta council raises taxes, ends furloughs

ATLANTA

By ERIC STURGIS

The Atlanta Journal-Constitution

Monday, June 29, 2009

Atlanta’s tax bills are going up, but it will feel like there are more police officers and firefighters on the job.

Many Atlantans will see their new tax bills before they vote for a new mayor in November; plus, all 15 City Council seats and the council presidency are up for grabs.

With the council voting 8-7 Monday to increase the property tax rate for general operations from 7.12 mills to 10.12 mills, Atlanta is one of the few big cities nationwide to raise property taxes this year. Locally, Gwinnett County commissioners decided against a tax hike this month after a near revolt by homeowners. Clayton County is mulling a tax increase.

“It will be interesting to see if the eight people who voted for the increase will be seen as the heroes or the villains,” said Councilwoman Felicia Moore, who voted for the tax hike.

Mayor Shirley Franklin’s proposed $541 million budget, adopted Monday, will end employee furloughs, beginning July 9.

One of the lingering questions is how the tax increase will impact Atlanta in the coming months. City officials say the average Atlanta property owner will pay an additional $240 in taxes. That’s based on the average appraised value of an Atlanta home, about $240,000.

Franklin said the increase was necessary to close a $56 million gap in her proposed budget.

Many of the council members who voted for the increase represent districts with large pockets of low-income residents who said they wanted more cops and firefighters in their areas. Council members representing the city’s most affluent neighborhoods, which were among the most vocal critics of a tax hike, voted against it.

Many property owners were not pleased.

“There’s no way to recover that in sales because you can’t charge your customer more for it … and we’re not getting more services for it,” said Warren Bruno, a Virginia-Highland business owner and commercial broker.

However, Cousins Properties, one of the region’s biggest developers, said it supported the increase to maintain public safety in Atlanta.

“Nobody ever wants to increase taxes, but in this case, we supported it because it was for the right reasons,” said Tad Leithead, the company’s senior vice president.

The lines in the political battle weren’t always clear-cut. Many of the council members who voted against the increase said they were swayed by homeowners already under pressure in this recession.

“[My constituents] can’t afford it,” said Councilwoman Cleta Winslow, whose southwest Atlanta district includes the West End and Oakland City, two communities ravaged by the foreclosure crisis.

The mayor told reporters the increase shows the council thinks “the investment in city services is essential to the economy’s recovery in Atlanta.” City finance officials warned of street repair delays and the closure of some recreation centers if the tax increase was not adopted.

Atlanta officials defended the tax increase, noting the new budget, which begins July 1, includes major cuts to the corrections department and a plan to lower pension payments this fiscal year.

Monday’s decision was an about-face from last June’s vote by the council against a property tax increase pushed by Franklin. The mayor subsequently ordered public safety cuts and imposed 10 percent pay cuts through the furloughs on city workers to balance the budget.

C.T. Martin, who voted against the budget last year, voted Monday for the tax increase because of better communication and information from the mayor’s office.

The budget debate likely will be a factor in the mayoral race.

Councilwoman Mary Norwood, the only major mayoral candidate who had a vote on the budget, sided against the increase. She’s often said she doesn’t trust the city’s numbers, but she did not return calls for comment Monday. Candidate Jesse Spikes accused Norwood in a statement of being a “politics-before-people” elected official.

City Council President Lisa Borders, who votes only if there is a tie, said she supports the increase as “the only choice” to maintain basic services. Another mayoral candidate, state Sen. Kasim Reed (D-Atlanta), wanted a 1 mill increase and the council to make cuts, but was satisfied that the budget will end the furloughs. Candidate Glenn Thomas, a former city employee, said in a statement the tax increase is “irresponsible.”

Chief Financial Officer Jim Glass warned despite Monday’s vote that more cuts may be necessary in the next 90 days, depending on the economy.

Staff writers D.L. Bennett and Rachel Tobin Ramos contributed to this article.

No recovery for U.S. property markets until 2017

Mon Jun 22, 2009 3:29pm EDT

By Ilaina Jonas

NEW YORK (Reuters) - The U.S. urban commercial real estate markets probably will not recover until 2017, the head analyst of commercial mortgages for Deutsche Bank Securities (DBKGn.DE: Quote, Profile, Research, Stock Buzz) said on Monday.

"The froth is still working itself out," Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities Synthetics Research said at the Reuters Global Real Estate Summit in New York. "We are currently in something which is comparable to what we saw in the 1990s and potentially worse."

U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said.

Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus said.

"Rents will be back to where they were in 2017," Parkus said. Building prices also will take six to eight years to recover, he said.

The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their monthly mortgage payments.

"The number of new loans that are becoming delinquent each month are defaulting at rates between 5 percent and 8 percent per year, with the most loosely underwritten loans of 2007 defaults at 8 percent per year, Parkus said. That puts accumulated losses at about 4 percent this year, and 12 percent over the next four years.

Loans loses ranged between 7 and 11 percent a year during the commercial real estate crash of the early 1990s.

"We are not only not approaching stability, we are at a period of maximum deterioration," Parkus said.

Spanish banks to get €90 billion bailout

From Times Online

June 25, 2009

Graham Keeley, Madrid

A €90 billion (£76.9 billion) bailout fund for healthy as well as struggling Spanish financial institutions is expected to be approved tomorrow.

The fund, to help banks to restructure, is likely to be supported by the Spanish Cabinet at one of its regular Friday meetings, according to reports.

Cadena Ser radio, which cited a copy of the proposal, said that banks without capital shortages may have access to the fund if they need extra liquidity to improve efficiency.

The bailout plan is not expected to encounter opposition in the Spanish Parliament.

If banks use the fund, they should be open to possible mergers. Government approval to use the fund would be called for only if more than €27 billion were necessary.

As financial institutions crumbled around the world in the credit crunch, Spanish banks managed to avoid toxic debt thanks to careful regulation by the Bank of Spain.

But Spain’s Socialist Government has been forced to launch a rescue fund to save its ailing savings banks, whose bad loans have risen after the collapse of Spain’s decade-long building boom.

Spain’s savings banks have suffered most from the collapse of the property sector after years of lending to property developers and homeowners.

With the construction sector stagnating, many savings banks cannot access private markets and their options for raising capital are limited.

Unusually, local authorities own a large stake in savings banks which critics say stops mergers.

The bailout fund will start with a war chest of €9 billion (£7.6 billion) but could receive an extra €90 billion if necessary.

The move comes after Moody's Investors Service recently downgraded the ratings of 30 Spanish banks and savings banks, citing Spain's economic downturn and a big rise in non-performing loans.

The country's two largest banks, Banco Santander and BBVA, retained their B rating in financial strength and Aa1 rating for long-term debt, but both were placed under review for a possible downgrade in both categories.

Elena Salgado, Spain's Economy Minister, said: “The fund will allow the State to temporarily buy holdings with voting rights.”

Mrs Salgado said that under the rescue plan, the Bank of Spain would have the final say in how public money was handed out and local authorities could not veto mergers.

“This fund would be a last resort,” she said. “First we would call on the banks to use private means to boost capital. Failing that, they would need to use the [private] guarantee fund. Only then would public aid be available.”

Mrs Salgado said no financial institutions were in immediate need of help.

In March, the Bank of Spain was forced to takeover the Caja Castilla La Mancha.

Francisco Gonzalez, the chairman of BBVA, Spain’s second-biggest bank, said that the move was long overdue, with many “zombie” institutions being kept alive artificially, harming the country’s economic growth. “Any short term recovery in lending is made more difficult while in the medium and long term there is a lower potential for economic growth,” he said.

Spain is struggling to cope with its worst recession in decades. The Organisation for Economic Cooperation said this week that the Spanish economy will shrink by 4.2 per cent this year with unemployment rising to 20 per cent in 2010.

Unemployment stands at 17.4 per cent and the Government predicted the economy will contract 3.6 per cent this year.

Profits in the banking sector fell 21.5 per cent in the first quarter of 2009, compared with the same period last year.

Moody's said the non-performing loan rate stood at 4.27 per cent at the end of the first quarter, compared with 0.9 per cent in December 2007.

Maria Jose Mori, Moody's assistant vice-president, said: "The extra cushion ... which has so far protected their earnings and capital bases is becoming increasingly thin."

Moody's downgraded the financial strength ratings of 30 banks and savings banks, eight of them by a full four notches.

A third of the total are now at the D-level or lower.

ECB pumps €442bn into banking system

By Ralph Atkins in Frankfurt, Krishna Guha in Washington and David Oakley in London

Published: June 24 2009 11:05 | Last updated: June 24 2009 23:12

The European Central Bank on Wednesday pumped hundreds of billions of euros in one-year loans into the eurozone’s weakened banking system, making record amounts of emergency finance available in a bid to unlock credit markets and revive the region’s economies.

The move came as the US Federal Reserve pushed back against expectations of an early rise in US interest rates.

In a dramatic step dubbed “stimulus by stealth” in financial markets, the ECB lent €442.2bn for 12 months to more than 1,100 banks at its current benchmark interest rate of 1 per cent.

The high demand for the funds, in what was the ECB’s first ever auction for one-year loans, reflected a growing realisation by the banks that emergency funding may not be available again on such favour-able terms.

The central bank’s action could boost the eurozone’s recovery prospects by lowering market interest rates and creating more scope for banks to lend to the private sector.

On Wednesday night, the Fed left its key fed funds rate unchanged as expected.

It also made no change to its asset purchase plans, but said it “continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period”.

The US central bank said the recession was easing and noted that energy and commodity prices had increased. But it said “substantial resource slack is likely to dampen cost pressures” and it expected that “inflation will remain subdued for some time”.

The Organisation for Economic Co-operation and Development endorsed the view that the global economy was stabilising, revising upwards its growth forecasts.

It is now forecasting a fall in its 30 member states’ output for 2009 of 4.1 per cent, against its previous forecast of a contraction of 4.3 per cent. It now expects modest growth in 2010, versus a slight fall previously. However, it expects the UK economy to contract by 4.3 per cent this year, down from its earlier prediction of a 3.7 per cent decline, and fail to grow at all in 2010.

The OECD argued that the ECB still had room to cut official eurozone borrowing costs.

Economists said that the ECB’s focus on pumping unlimited liquidity could prove effective in helping engineer a eurozone recovery. The one-year offer at the ECB’s main interest rate of just 1 per cent was “a very smart move in a financial system dominated by banks”, said Elga Bartsch, European economist at Morgan Stanley.

The ECB action, which attracted 1,121 bidders – more than usual in ECB operations – had an immediate impact in driving down overnight and longer-term market interest rates, though the full effects are still to feed through.

Don Smith, economist at inter-dealer broker Icap, said: “The massive scale and undoubted success of this tender almost entirely reflects the cheapness of the funds on offer.”

The previous largest amount injected in a single ECB operation was €348.6bn in December 2007. The economic impact will depend on whether demand for liquidity in future ECB market operations is reduced as a result of Wednesday’s action, as well as whether banks step up lending. “They must pass it along,” Lorenzo Bini Smaghi, an ECB executive board member, said in Rome.

Copyright The Financial Times Limited 2009

Russia Venezuala found new bank

MOSCOW (AFP) — Russia and Venezuela signed a deal Tuesday to set up a new bank with starting capital of four billion dollars (2.9 billion euros) to fund joint projects as Moscow ramps up its role in South America.

The agreement was signed at Russian Prime Minister Vladimir Putin's residence near Moscow by the deputy finance ministers of the two countries.

"We are moving to a high level of political and economic co-operation," Putin said as he greeted Venezuela's Vice President Ramon Carrizalez, who told Putin there was now a "strategic" partnership between their two countries.

The bank will be 51-percent owned by Russia through the state-controlled lenders VTB and Gazprombank, with the rest going to various Venezuelan partners, Russian Deputy Finance Minister Dmitry Pankin told reporters.

The new bank is due to be created by the end of 2009, Pankin said.

Venezuela is a key partner for Russia in South America, where Moscow is trying to expand its reach mainly through arms and energy deals.

Moscow and Caracas signed arms deals worth 4.4 billion dollars between 2005 and 2007 and Russian energy groups are expanding activities in the country.

Speeding crackdown set for Thursday

Read: Revenue Raiser...

By LARRY HARTSTEIN

Wednesday, June 24, 2009

Speeders, beware. Law enforcement agencies are planning a speeding crackdown Thursday on I-85, I-75, I-285 and I-20.

The crackdown is part of a campaign by the governor’s office of highway safety.

Recent headlines:

“Our highway safety data shows speed, impaired driving and unbuckled drivers and passengers are still the top three causes of fatality crashes,” director Bob Dallas said.

Also Thursday, DeKalb County starts a monthlong focus on the “Move Over” law.

The law, passed in 2003, requires drivers to change lanes or slow down below the speed limit when approaching a stationary emergency vehicle with lights flashing on the side of the road.

Officials say at least 169 law enforcement officers have been struck and killed by vehicles along American highways since 1997.