SAN FRANCISCO – The NYSE Group Inc. said late Tuesday that short interest rose to 13.49 billion shares the end of Jan. 29 from 13.34 billion shares at the end of Jan. 15. A short sale is a bet by an investor that the stock’s price will fall. The 1.1% gain in short sales is the second rise in the past three bi-monthly counts and the highest level since late October 2009 faxless pay day loans.
January 30, 2010
Fair Game: All Those Little Stuyvesant Towns
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WHEN money grew on trees during the late great credit boom, private equity firms plunged headlong into New York City real estate. Not only did these companies snag dazzling Manhattan office towers, they also paid up for thousands of mundane rental apartments across the five boroughs.
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Sure, they had taken on monumental debt to buy these properties, but they had a potent strategy. If they were able to jack up the apartments’ rents, even on those that had much lower, regulated rates, they’d have no trouble profiting mightily.
The most famous such bet was the $6.3 billion purchase in 2006 of Stuyvesant Town and Peter Cooper Village on the East River in Manhattan. The buyer was a partnership that Tishman Speyer Properties and BlackRock Realty oversaw. But last week, the properties — now valued at less than $2 billion — went back to the banks that had financed this top-of-the-market deal. The investors in the project had defaulted.
Stuyvesant Town is a high-profile deal, to be sure. But there were many others like it in the mania, struck by lesser-known companies with private equity backing. They bought rent-regulated apartments in Manhattan, Queens and the Bronx. Some of these deals are now vulnerable, too.
When the transactions took place several years ago, private equity chiefs were riding high. Loading debt onto the companies they bought, managers dismissed workers, cut customer services and sold off assets to pay themselves and their investors and to meet their debt payments.
The private equity firms took a similar approach to rental apartments. But instead of dumping workers, they hoped to jettison low-revenue renters so their units could be renovated and leased out at much higher prices.
Private equity firms have financed the purchase of 100,000 units of rent-regulated housing across New York City since 2005, according to the Association for Neighborhood and Housing Development, a coalition of nonprofit housing groups in New York. These owners account for almost 10 percent of the city’s rent-regulated housing.
UNDER pressure to turn over apartments to meet their financial obligations, some of these properties’ managers have run roughshod over tenants and the regulations intended to protect them. Last fall, for example, New York State’s highest court ruled that Stuyvesant Town’s owners had improperly raised rents on 4,400 apartments in the complexes, forcing the rents to be rolled back.
On Thursday, Andrew M. Cuomo, the New York attorney general, said he was preparing to sue Vantage Properties, a private-equity-backed owner of 9,500 mostly rent-regulated apartments in working-class neighborhoods across New York City.
In a letter warning Vantage of impending litigation, Mr. Cuomo’s office contended that Vantage, which has bought more than 125 buildings in Queens, Harlem and other areas since 2006, had engaged in a “systemic pattern of harassment” to generate significant tenant turnover. Increasing turnover was central to Vantage’s business strategy, the attorney general’s office said, so that it could charge much higher rents after renovating the newly vacant apartments.
“Vantage’s ability to satisfy its projected profits largely depends on its ability to evict rent-regulated tenants and raise rents to market levels,” wrote Alphonso B no fax payday loans. David, chief of the Civil Rights Bureau in the attorney general’s office, in a letter to the company last week. Vantage tried to force out long-term tenants “by serving baseless legal notices and commencing frivolous housing court eviction proceedings,” he wrote.
A spokesman for Vantage and for Neil L. Rubler, its president, said the company was “genuinely committed to serving its residents and to the future of affordable housing in New York City.”
“We look forward to demonstrating this to the attorney general,” the spokesman added.
They will have to work hard. According to Mr. David’s letter, Vantage routinely tried to evict tenants by sending them notices that their leases were not being renewed. Vantage justified the letters, known as Golub notices, with phony claims, like contending that the tenants didn’t have the right to live in the rent-regulated apartments, Mr. David’s letter said. In the company’s business plans and annual reports to its investors, the attorney general’s office said, Vantage even named its business model the “Golub program.” One of the company’s business plans said that its “legal efforts are starting to bear fruit and rent prices continue to exceed plan, all contributing to what should be a strong year to come.”
IN a 2007 regulatory filing, Vantage had a different name for its model. Calling it a “recapturing” strategy, Vantage said it expected to turn over 20 percent to 30 percent of units in a property during its first year of ownership — a rate five times the norm.
One Vantage tenant cited in the attorney general’s letter had lived in his apartment without incident for 14 years. After Vantage bought his building, the company put the tenant through three unfounded eviction proceedings in one year, the attorney general’s office said.
First, it said, Vantage improperly claimed that his rent was delinquent, then incorrectly contended that he had another primary residence, which is not permitted for those living in rent-regulated apartments. Finally, it said, Vantage made another baseless claim that he hadn’t paid his rent.
None of this surprises Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development. He says that harassment is central to rental real estate investments backed by private equity firms because the onerous debt they have taken on requires significantly higher revenue than can be generated in rent-regulated buildings.
And, he argues, even if these properties go into bankruptcy, the pattern of harassment may continue. Distressed-debt investors interested in buying them may continue trying to force out tenants, he said.
“Vulture funds are lining up to buy the debt at what is still a speculative price,” he added. “The question is, will they recognize that in a rent-regulated building, you need to pay a price that the current tenants can support? Paying any more eventually leads you to a business model that is based on harassment, as the attorney general’s action has shown.”
Bullying as a business model? Unfortunately, it seems to work all too often.
January 29, 2010
Senate, Weakly, Backs New Term for Bernanke
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WASHINGTON — The Senate gave Ben S. Bernanke a second four-year term as the head of the Federal Reserve on Thursday after critics excoriated the central bank’s conduct in the years leading up to the financial crisis.
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The Senate voted to leave Ben S. Bernanke at the helm of the central bank for another four years.
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The 70-to-30 vote was the weakest endorsement ever extended to a chairman in the Fed’s 96-year history.
The confirmation was a victory for President Obama, who had called Mr. Bernanke an architect of the recovery, but also signaled the extent to which the Fed, once little known to the public, has become the object of outrage over high unemployment and Wall Street bailouts.
In several hours of debate, senators said that the Fed had abetted, then ignored, the housing and credit bubbles and allowed banks to keep dangerously low capital reserves and to make reckless lending decisions that ruined consumers. Some even blamed Mr. Bernanke for the falling dollar and questioned his commitment to free enterprise.
In contrast, Mr. Bernanke’s supporters were muted. They reiterated that the Fed had made mistakes but said that Mr. Bernanke had helped save the economy from a far worse recession.
After a week in which top White House officials and Mr. Bernanke himself met with Democratic leaders in the Senate to secure support, the Senate first voted 77 to 23 to end debate, with more than the 60 votes needed to overcome the threat of a filibuster.
On a second vote, to confirm, the 30 dissents came from 18 Republicans, 11 Democrats and one independent, Bernard Sanders of Vermont.
On Thursday evening, Mr. Obama congratulated Mr. Bernanke in a statement. “As the nation continues to face the consequences of the worst recession in a generation, Ben Bernanke has provided wisdom and steady leadership in the midst of the financial and economic crisis,” he said.
While an arm-twisting campaign by the administration limited the opposition, the outcry against the Fed will most likely continue rippling through economic policy generally, and Mr. Bernanke’s leadership of the Fed in particular. The effects could be felt first in the debate over how to reform financial regulations. The Obama administration has proposed consolidating risk regulation under the Fed, while some in Congress want to strip away its oversight authority.
“The institutional prestige of the Fed, even apart from this vote, had taken a hit, and it started back around the disaster of September 2008,” said Stephen H. Axilrod, who worked at the Fed for 34 years and wrote a history of its monetary policies. “I don’t think it has recovered. This is a low point in the Fed’s recent history, that’s for sure.”
The vote also made clear Congress’s insistence on transparency from a historically secretive institution that has made extraordinary interventions in the market since 2008.
“The Fed is going to have to work hard, for a long period, to regain the public confidence of the sort it enjoyed during the halcyon days when everything was going so swimmingly,” said Barry Eichengreen, professor of economics and political science at the University of California, Berkeley.
Senators from opposite ends of the spectrum formed unlikely alliances. After Mr. Sanders, who calls himself a socialist, finished denouncing Mr. Bernanke, Jeff Sessions, a conservative Republican from Alabama, rose to do the same.
Another Alabaman, Richard C. Shelby, the top Republican on the banking committee, which approved the nomination last month by a 16-to-7 vote, laid out a bill of particulars, saying Mr. Bernanke’s handling of the financial crisis did not make up for his failings before that time business cards.
“Considerable economic devastation occurred as a result of Chairman Bernanke’s loose monetary policy and weak regulatory oversight,” Mr. Shelby said. “If we don’t hold Chairman Bernanke accountable, what precedent are we setting for future regulators?”
To an extent, the rhetoric against Mr. Bernanke reflected a spilling-over of frustration at two of his collaborators: the former Treasury secretary, Henry M. Paulson Jr., and the current one, Timothy F. Geithner.
And looming over it all was the role of Mr. Bernanke’s predecessor, Alan Greenspan, whose once-sterling reputation has been diminished as his decisions to keep interest rates low after the 2001 recession have been brought into question.
Mr. Bernanke, 56, was a member of the Fed’s board for part of that period, from 2002 to 2005, when President George W. Bush named him to lead his Council of Economic Advisers. He rejoined the Fed, as chairman, in 2006, and Mr. Obama renominated him last year. Mr. Bernanke is a Republican economist and an authority on the Depression.
“I knew that he would continue the legacy of Alan Greenspan, and I was right,” said Senator Jim Bunning, Republican of Kentucky, who was the lone vote against Mr. Bernanke in 2005.
Mr. Bunning cited a half-dozen statements from 2007 to 2009 in which Mr. Bernanke expressed optimism about the housing market, bank capital ratios, the capitalization of Fannie Mae and Freddie Mac and the unemployment rate. Saying that Mr. Bernanke had been repeatedly wrong, he declared, “We shouldn’t be paying the Fed chairman to learn on the job.”
Senator Sheldon Whitehouse, Democrat of Rhode Island, echoed that, saying Mr. Bernanke had shown “a troubling pattern of false confidence.” Senator Jeff Merkley, Democrat of Oregon, went further, saying the Fed had “helped set the fire that destroyed our economy.”
While less passionate, supporters of Mr. Bernanke said he had acted deftly and decisively, at least since the collapse of Lehman Brothers in September 2008.
“He basically allowed the Fed to become the lender of the nation,” said Senator Judd Gregg, Republican of New Hampshire. “Nobody had ever done that. The way he did it was extraordinary in its creativity, and the results were that the country’s financial system did not collapse.”
The last time any nominee for chairman faced such opposition was 1983, when the Senate confirmed Paul A. Volcker to a second term on an 84-to-16 vote. Mr. Volcker, too, had served under presidents of opposing parties and had navigated the Fed through a difficult recession.
But while Mr. Volcker sharply raised interest rates to tame runaway inflation — actions that were initially unpopular but were later praised — Mr. Bernanke faces a different challenge. The Fed has held short-term interest rates near zero since December 2008, a policy reaffirmed on Wednesday. And while analysts expect rates to start rising later this year, the scale and timing of that rise will be a challenge. So, too, will be the unwinding of the Fed’s emergency lending programs and its purchase of $1.25 trillion in mortgage-backed securities.
Many politicians will not want the Fed to put the brakes on recovery by raising rates. Indeed, the Senate majority leader, Harry Reid of Nevada, offered only a lukewarm endorsement last week after telling Mr. Bernanke that the Fed must do more to ease lending to households and small businesses. While the Fed says Mr. Bernanke gave Mr. Reid no specific commitments, the central bank will continue to face close scrutiny.
“Their independence from political pressures has been tarnished,” Mr. Axilrod said. “And if the market believes the Fed will not control inflation, there will be more inflation.”
Barclay Walsh contributed research.
January 27, 2010
Fitch Downgrades U.S. Steel Ratings To Junk
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SAN FRANCISCO — Fitch Ratings said Wednesday that it downgraded ratings of U.S. Steel Corp. to junk status because of a lack of visibility into the company’s return to profitability. Fitch lowered the steelmaker’s issuer default rating and senior unsecured notes rating to BB+ from BBB-. The agency revised the company’s ratings outlook to stable from negative payday advance online. Fitch also lowered U.S. Steel’s the senior secured credit facility to BBB- from BBB.
January 25, 2010
McConnell Says He Expects Bernanke to Win New Term
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Jan. 24 (Bloomberg) — Senate Republican leader Mitch McConnell said he expects Federal Reserve Chairman Ben S. Bernanke will win a second term, indicating enough Republicans will join Democrats in backing the central banker.
“He’s going to have bipartisan support in the Senate, and I would anticipate he will be confirmed,” McConnell, a Kentucky Republican, said today on NBC’s “Meet the Press.” McConnell, 67, declined to say how he would vote.
Assurances during the past two days from Republican and Democratic lawmakers and White House officials have eased concerns about Bernanke’s confirmation, and online traders today put near-certain odds on approval. On Jan. 22, the two top Senate Democrats had signaled they were undecided, while other Democrats announced their opposition.
“I think we’ve dodged the bullet on this one,” said Greg Valliere, chief policy strategist at Potomac Research Group in Washington. “If the markets sold off on Friday because of Bernanke, I think the markets will be relieved Monday morning.”
The Standard & Poor’s 500 Index dropped 2.2 percent on Jan. 22 to 1091.76, reversing gains so far in 2010.
Traders on Intrade, a Web exchange for futures contracts based on political outcomes, today saw a 93 percent chance Bernanke would be confirmed, up from 88 percent yesterday. The contract traded as low as 65 percent on Jan. 22 before starting to rebound after Senate Majority Leader Harry Reid announced his support.
Vote Planned
Reid plans a Senate vote this week, said Jim Manley, a spokesman. Bernanke’s term expires Jan. 31. President Barack Obama announced the nomination in August.
Bernanke’s critics, including some who support him for a second term, have said the Fed failed to regulate banks before the credit crisis and questioned its involvement in the $182 billion bailout of New York-based insurer American International Group Inc.
The Democratic Party’s loss of a Senate seat in Massachusetts last week has added to pressure on those senators facing re-election at a time of rising voter anger over the economy.
Three White House officials, in appearances on Sunday morning talk-shows, said that they’re confident Bernanke will be approved. “We believe he will be confirmed,” White House Press Secretary Robert Gibbs said on “Fox News Sunday.”
White House senior adviser Valerie Jarrett said on NBC that Obama received assurances from Reid over the weekend that Bernanke will be confirmed, after support among Democrats ebbed in the wake of an upset victory by Republican Scott Brown in the Jan. 19 Massachusetts special election.
‘Steady Hand’
Obama “is getting readings from his conversations” with Senators “that Chairman Bernanke will be confirmed,” David Axelrod, a senior White House adviser, said on CNN’s “State of the Union” program payday loans. He called Bernanke a “steady hand in the crisis.”
Senator John McCain, the Arizona Republican who lost to Obama in the 2008 election, said he is leaning toward voting against Bernanke, while being “worried” about the impact from rejecting the Fed chief.
“The fact is that Chairman Bernanke was in charge when we hit the iceberg,” McCain said on CBS’s “Face the Nation.” “His policies were partially responsible for the meltdown that we experienced, and I think he should be held accountable.”
Cornyn, Hatch
Separately, Senator John Cornyn, a Texas Republican, said on “Fox News Sunday” he would vote against Bernanke, while Republican Orrin Hatch of Utah and Democrat Robert Menendez of New Jersey told CNN they would support the 56-year-old Fed chairman, a Republican economist first appointed by President George W. Bush four years ago.
Bernanke may get as many as 70 votes in favor and 30 against confirmation, Valliere said. “After Massachusetts, nothing’s certain, but I think it’s very likely that he’ll win,” Valliere said. Still, “with Bernanke surviving, there’s still a need for a scapegoat,” and a main candidate is Treasury Secretary Timothy F. Geithner, Valliere said.
Of senators who released statements or were contacted by Bloomberg News over the past two days, 30 said they would vote for Bernanke or were leaning in his favor, while 16 were opposed or leaning against him and 31 were undecided.
Support for Bernanke yesterday came from Richard Durbin, the second-ranking Senate Democrat who earlier was undecided. Christopher Dodd, a Democrat who chairs the banking committee, and Judd Gregg, the top Republican on the budget committee, said they are confident that Bernanke will be confirmed.
‘Some Misgivings’
“I have some misgivings about Fed policy and the economic policy, but this man has guided us through a crisis,” Durbin said today on CBS.
Richard Shelby, the senior Republican on the Senate Banking Committee, dismissed Dodd’s assertion on Jan. 22 that rejecting Bernanke risked sending the “worst signal to the markets” and triggering an economic “tailspin.”
Any decline in financial markets wouldn’t “last very long,” Shelby, of Alabama, said on CNN. Bernanke will see “a lot of tough votes against him,” and that would be a “strong message,” said Shelby, who reiterated his opposition to the Fed chief.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net ; Angela Greiling Keane in Washington at agreilingkea@bloomberg.net .
January 22, 2010
Airline Stocks Climb With Continental, Southwest
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NEW YORK – Airline stocks climbed Thursday after Continental Airlines and Southwest Airlines reported swings to fourth-quarter profitability. At last check, the NYSE Arca Airline Index rose 1.8% to 36.05 points with all but two of its 13 components trading up. Shares of Continental rose 3.4% to $21 payday loan companies.31 and Southwest added 1% to $11.47. Trading down, U.S.-listed shares of Gol Linhas fell less than 1% to $14.66 and Tam Sa slipped nearly 4% to $21.37.
January 19, 2010
On the Road: For Travelers in Danger, Someone to Swoop In
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“There is no place in the world where there are no business travelers,” said Patrick Deroose, the manager of the corporate assistance division of the worldwide crisis response company International SOS.
Skip to next paragraph Related Thousands Flee Wrecked Haitian Capital (January 19, 2010) Times Topics: Haiti
That includes Haiti, of course. Last week, when the calamitous earthquake devastated Port-au-Prince, workers at the company’s international alarm center in suburban Philadelphia counted more than 100 clients from private companies, government agencies and nonprofit groups — with about 2,500 individual travelers — in Haiti. Within hours, a crisis team was on the move.
“We keep a deployment kit in the office, everything we need to go on a moment’s notice,” said Alex Puig, the regional security director. Mr. Puig, a former agent for the Central Intelligence Agency who later worked as an international corporate security chief, said he dispatched two crisis specialists to the Dominican Republic less than two hours after the first news flash went out about the Haiti earthquake.
“They always have their documents and their flyaway travel bags ready,” he said. A phone call to an airline yielded two hard-to-get seats from Philadelphia to Santo Domingo, the capital of the Dominican Republic, the nation that shares the Caribbean island of Hispaniola with Haiti. Within 24 hours, the two-man advance team was on the ground establishing communications in devastated Port-au-Prince as a vanguard for medical and other emergency teams that followed.
International SOS started out 25 years ago as a corporate medical crisis response company in Asia. It offers, among other services, clinics for clients evacuated from danger spots or for routine emergencies. It now covers 70 countries. In 2008 the company formed a joint venture with the global security firm Control Risks because many international medical emergencies, especially those occurring in civil disruptions like terrorist attacks or natural disasters, are entwined with security challenges.
Moving fast is crucial, Mr. Puig said. “We knew it would be a fairly easy deal to get my team into Santo Domingo,” he said. The hard part would be crossing into Haiti. “One of the team members knows the region very well. He knew that moving over by road would take forever and would be dangerous,” he added. The men chose to hire a helicopter and knew where to get one.
Both men (Mr. Puig said he could not give their names) have experience in the military special forces and “have operated in some of the worst places in the world,” he said. They carried satellite telephones and depended on already-established contacts on the island to set up a base in Port-au-Prince for the medical specialists and others who arrived in the next day or two.
A key to effective response on the ground is establishing a network of local contacts in advance throughout the world, he said. Among relief workers in Haiti and the adjacent Dominican Republic, “there are a lot of people right now scrambling for a car, scrambling for guards, but those things become very scarce very quickly,” he said. In the Dominican Republic, “We put this guy we have on notice. He’s waiting for us. He’s got cars, he’s got guards with guns — all the things that you need to operate.”
By Monday, with teams now operating out of Port-au-Prince and Santo Domingo, International SOS said it had coordinated 52 evacuations from Haiti. Among the victims were corporate employees, humanitarian group workers and students. Clients needing help included 60 companies, 25 nonprofit organizations and universities, 10 government bodies and 10 private travelers from the United States and elsewhere.
“We have reached out to all of the clients” to establish priorities for getting people out of Haiti, Mr. Deroose said. Those who leave are being flown by helicopter or private plane to the Dominican Republic for medical treatment before being sent home.
Mr. Deroose, who was trained as a nurse, added: “The medical issues, in a catastrophe like this, are major trauma — broken legs, head injuries, punctured lungs. So speed of evacuation is critical.”
“But there is another category: the missing,” he said. “Some clients have told us, we have people here and we can’t get in contact with them.”
More than 7,000 companies around the world are clients of International SOS, which charges an annual membership fee and then bills for specific services, like emergency medical care and evacuations.
Meanwhile, despair is mounting among the millions in Haiti who do not qualify for rapid- response assistance under foreign corporate contracts. Already, angry denunciations are being heard from the island, among them charges that foreign citizens, especially Americans, are getting priority treatment while the poor, or the not-well-connected, languish in misery.
In response, Mr. Deroose says the company strives to leave behind “humanitarian support” after its corporate work is done. For example, he said, International SOS workers in Jakarta established a relief fund that still exists, after the earthquake and tsunami that struck Sumatra, Indonesia, in late 2004.
“We have an obligation to our clients, that’s our primary responsibility,” he said. “However, as a principle in the company culture, we never say no. We try to assist as much as possible.”
E-mail: jsharkey@nytimes.com
