Thursday, May 13, 2010
California plans to upgrade Cash For Appliances
The California Energy Commission is considering expanding and extending its Cash for Appliances program, which has gotten off to a slow start.
While some states blew through their federal cash-for-appliance money in a matter of days, three weeks after its launch, California still has at least 83 percent of its rebate pot available.
That's mainly because California offered rebates on fewer types of appliances than many states, imposed higher energy standards and required consumers to have their new appliance installed and their old one carted away for recycling before they could mail in the five-piece rebate application. In some states, consumers could reserve a rebate before they even purchased the appliance.
California is offering $200 back on qualifying refrigerators, $100 on clothes washers and up to $50 on room air conditioners.
Some retailers have had a hard time getting eligible refrigerators because they are in short supply, high demand or no longer manufactured. Jeff Moir, vice president of sales and marketing with Western Appliance in San Jose, has access to only three or four models for his chain's six stores.
Don Cherin owner of Cherin's Appliance in San Francisco, has also had trouble getting eligible refrigerators. Some states launched their programs late last year or early this year. "Manufacturers exhausted their supplies on those first states," he says.
The energy commission says it is considering steps "to address severe supply chain issues present in the appliance marketplace."
On May 19, it will consider adding 27 refrigerator models and 31 clothes washers to its list of eligible appliances. Today there are 96 refrigerators, 221 washers and 300 air conditioners on the list.
On May 27, it will meet again to consider extending the deadline for purchasing an appliance from May 23 to whenever the funds are depleted and giving consumers 120 days after purchase to submit a rebate application. Today they have only 30 days. That is hurting sales because some retailers can't guarantee delivery within 30 days.
John Yacono of Benicia went to a small appliance store to buy a refrigerator the first day of the program. When the store said it couldn't get the fridge until May 15, he cancelled the order because he was afraid the money would be gone. Instead, he bought it at Home Depot. "As it turns out, I could have stuck with the first store and still been fine," says Yacono, who found the process "somewhat frustrating."
After an initial flurry of activity, retailers say interest in the program has subsided, in part because the big chains can't advertise a one-state program in their national advertising.
California received $35.2 million in federal TARP funds for the appliance program, of which 10 percent can be used for administrative costs, leaving $31.7 million for rebates. Since the program began April 22, the state has received about 28,500 rebate applications. The commission estimates those rebates total $5.7 million, but that assumes every application was for the biggest rebate -- $200 on a refrigerator.
Of the applications processed so far, roughly 4,800 were for refrigerators, 4,200 were for washers, and 60 were for air conditioners. That means the amount of rebates claimed is considerably less than $5.7 million. "We are being conservative until we get more data," says Amy Morgan, a spokeswoman for the energy commission.
No rebate checks have yet been issued to consumers. The state plans to begin issuing them in one to three weeks.
Moir says the program was more popular in states that offered rebates on more types of appliances, such as dishwashers.
While many states offered rebates on appliances that carried the Energy Star label, California requires refrigerators and clothes washers to meet a higher standard known as CEE Tier 2. The new models being considered for addition to the program also must meet the higher energy standard but they were not yet certified when the program began, Morgan says.
Moir says the program is also going slowly here because California utilities have been offering rebates on appliances for many years and because the real estate slump has weakened demand for appliances. Even so, he's happy for the boost it gave his stores. He figures they have sold 1,200 eligible appliances since the program started.
For more on the program, see Cash4Appliances.org.
| May 13 at 05:34 PM
Tuesday, May 11, 2010
Dr. Doom on crises to come and his Hollywood cameo
In a chilling interview with the German news outlet Spiegel Online, economist Nouriel Roubini, nicknamed Dr. Doom for predicting the financial crisis, says there will be more and bigger crises in the future as government debt soars.
"Today the markets are very worried about Greece, but that's only the tip of the iceberg. Increasingly, bond market vigilantes have woken up in places like the UK and Ireland. Even the US and Japan will have problems because of their huge budget deficits. Maybe not this year, but they will eventually. In the US, states like California, Nevada, Arizona, New York and Florida have immense fiscal problems. The growing budget deficits and the huge government debts are really what worry me most," he says.
Roubini adds that Greece, "more likely than not, isn't just illiquid, but insolvent," and that the Greek bailout "is only kicking the can down the road for a year." He calls for a "pre-emptive debt restructuring" for Greece and "fiscal adjustments for other euro zone countries like Portugal or Spain."
Roubini, a professor at New York University, calls for a "radical" breakup of the big financial supermarkets but says it won't be considered until after the next crisis.
Roubini also comments on his cameo in the upcoming Oliver Stone movie Wall Street: Money Never Sleeps.
| May 11 at 09:05 AM
Tuesday, May 04, 2010
Vanguard enters price war with free ETF trades, cheap commissions
Responding belatedly to moves by Charles Schwab and Fidelity, Vanguard said today it will let brokerage customers trade its own exchange-traded funds for free and slashed commissions on stocks and non-Vanguard ETFs.
Beginning today, Vanguard brokerage clients can make commission-free transactions in all 46 Vanguard ETFs. These are index funds that trade throughout the day on a stock exchange.
To buy or sell stocks and non-Vanguard ETFs, most customers will now pay $2 or $7 per trade, down from $20 to $45. Customers with less than $50,000 in Vanguard funds and Vanguard ETFs will pay $7 for the first 25 trades each year and $20 per trade thereafter. Those with $50,000 to $500,000 will pay $7 per trade. Those with $500,000 to $1 million will pay $2 per trade. Those with $1 million or more get 25 free trades and $2 thereafter.
The lowered commissions apply to online trades and those executed with the help of a Vanguard rep, the Valley Forge, Pa., company said.
San Francisco-based Charles Schwab started the price war in November, when it launched its own line of ETFs and offered them commission-free to online customers. At the same time, it chopped commissions on stocks and non-Schwab ETFs to a flat rate of $8.95.
In February, Fidelity's brokerage arm fired back: It began offering free online trading in 25 ETFs from market leader iShares, a division of BlackRock based in San Francisco. Fidelity also cut its commission on stocks and other ETFs to a flat rate of $7.95 per online trade.
Around that time, Vanguard quietly offered 100 free trades per year to certain high-net-worth brokerage clients, which caused a "kerfuffle" when other customers found out, according to Dan Wiener, editor of the Independent Adviser for Vanguard Investors, a newsletter not affiliated with Vanguard.
Wiener wrote that the new offer "should not be seen as a license to day-trade." He says Vanguard told him that "if someone makes more than 25 trades in a given ETF over a one-year period, they reserve the right to block the investor from trading in that ETF again for 60 days."
In other ETF news, Lee Kranefuss, a key player behind the growth of iShares, has resigned from BlackRock. Kranefuss was chairman of the board of trustees of iShares Trust and the board of directors of iShares Inc.
BlackRock named George Parker, a professor of finance, emeritus, at Stanford University, to replace Kranefuss.
BlackRock acquired iShares in December when it bought parent company Barclays Global Investors from the British bank Barclays. Barclays acquired iShares in 1995.
Kranefuss joined BGI in 1997 and eventually became chief executive of iShares. In April 2009, he stepped back from that role to become more of an adviser. Today, the business is run by co-CEOs Michael Latham, who heads the domestic business out of San Francisco, and Rory Tobin, who oversees the international business from London.
| May 04 at 03:09 PM
Monday, May 03, 2010
Government announces new savings bond rates
The Bureau of the Public Debt today announced new earnings rates for Series EE and Series I savings bonds issued from May through October 2010. The rate on inflation-linked I bonds dipped from the rate that was in effect for the prevous six months, while the rate on newly issued EE bonds edged up slightly.
The new rate on inflation-linked I bonds will be 1.74 percent. That combines a fixed rate of 0.2 percent, which will apply for the life of the bond, and a 1.54 percent annualized inflation rate, which will apply for the first six months after the bond is purchased. After that, the inflation portion of the rate will change every six months based on the Consumer Price Index, but the fixed portion will not.
By comparison, the rate on I bonds purchased during the past six months was 1.83 percent, which combined a fixed rate of 0.3 percent and an inflation rate of 1.53 percent. For more information on I bonds including historical rates, see here.
Series EE bonds issued from May 2010 through October 2010 will earn a fixed rate of 1.4 percent for the life of the bond. By comparison, EE bonds purchased during the previous six months will earn only 1.2 percent for the life of that bond. Series EE bonds issued since May 2005 earn whatever fixed rate was in effect when the bond was issued.
Series EE bonds issued from May 1997 through April 2005 will continue to earn market-based interest rates equal to 90 percent of the average yield on 5-year Treasury securities for the preceding six months. The new interest rate for these bonds, effective as the bonds enter semiannual interest periods from May 2010 through November 2010, is 2.16 percent, the bureau says. Market-based rates are announced effective each May 1 and November 1. The previous market-based rate was 2.19 percent.
For more on Series EE bonds, including the new rates rates for older bonds, see here.
| May 03 at 03:08 PM
Some IRS offices will open May 15 for Saturday open house
Update: This entry was corrected to include additional Bay Area open houses.
The Internal Revenue Service will host another Saturday "open house" from 9 a.m. to 2 p.m. on May 15 at about 200 offices across the country.
Four Bay Area IRS offices are participating in this month's open house: the San Francisco office at 450 Golden Gate Ave., the San Jose office at 55 S. Market St., the Santa Rosa office at 777 Sonoma Ave. and the Walnut Creek office at 185 Lennon Lane. For open houses in other areas,see here.
This is the second of four Saturday open houses the IRS is holding for people who can't get to an IRS office during the work week to speak with a live person. These locations can handle issues including notices and payments, return preparation, audits, installment agreements and offers-in-compromise. The IRS says 88 percent of the people who attended the March 27 open house had their issues resolved the same day.
The next two are planned for Saturday June 5 and Saturday June 26. Locations for those dates will be announced later.
| May 03 at 12:30 PM
Wednesday, April 28, 2010
Treasury says GM loan repayment was proper
A U.S. Treasury Department official acknowledged that General Motors repaid loans from the U.S. and Canadian governments with funds from those same governments, but said that was always the plan.
Last week, Sen. Charles Grassley, R-Iowa, said in a letter to Treasury Secretary Timothy Geithner that the loan repayment GM is touting in ads "appears to be nothing more than an elaborate TARP money shuffle."
Herbert Allison, assistant treasury secretary for financial stability, responded to Grassley on Geithner's behalf. In a letter, he said the loan was repaid from an escrow account at GM, not at the Treasury as Grassley had stated.
However, "The money used to fund the escrow account came from a portion of the proceeds of a loan made by both the Treasury and the Canadian goverment. The escrowed funds were expected to be used for extraordinary expenses, and a portion of the funds were so used," Allison wrote.
He pointed out that, "It has long been public knowledge that GM would use these specific funds to repay the Treasury and Canadian loans, if it did not otherwise need them for expenses."
Allison added, "In making its April 20 loan repayment, GM determined that it did not need to retain the escrowed funds for expenses. The fact that GM made that determination and repaid the remaining $4.7 billion to the U.S. govenrment now is good news for the company, our investment and the American people."
Allison did not say whether GM, in its ads touting the loan repayment, should have disclosed that it was repaying the government with government funds or that GM is still sitting on about $50 billion in taxpayer money that was originally a loan but later converted mostly to stock.
Allison did write, "As is widely known, Treasury continues to hold $2.1 billion in preferred stock and 60.8 percent of GM's common equity that it received in the restructuring in July 2009."
| Apr 28 at 07:56 PM
Wednesday, April 21, 2010
Employees ignoring their 401(k) plans
In case there was any doubt, a new study confirms that when it comes to their 401(k) plans, most employees are inert.
Neither an epic financial implosion nor a spectacular stock market recovery could rouse most workers into taking action. That's according to a study of nearly 3 million participants in 120 large-company plans by Hewitt Associates.
In 2008, as the markets were collapsing, only 19.6 percent of participants made any transfers in their 401(k) plans. In 2009, as the stock market was soaring, only 16.2 percent took action, according to the study, which Hewitt conducts annually.
Participation rates and contribution rates remained virtually unchanged from 2008, at about 74 percent and 7.3 percent, respectively.
"Most workers are disengaged and don't know what to do, so they do nothing," says Pam Hess, Hewitt's director of retirement research.
On the bright side, the average 401(k) balance rose sharply in 2009, to $70,970 from $57,150 in 2008. The gains were primarily from market appreciation. That suggests that people who hibernated through through the market's convulsions would have done well.
But Hess points out that the average balance remained 11 percent below where it was in 2007. Employees who rebalanced at the end of each year probably would have come out ahead, she says.
Rebalancing involves changing your investments each quarter or year to maintain the same ratio of stocks to bonds and other fixed-income funds. A worker who rebalanced at the end of 2008, following the stock market's sharp decline, would have added more stocks. They likely would have made more money when stocks rebounded in 2009 than employees who did nothing.
Other results of the Hewitt study:
Pre-mixed portfolios, such as target-date funds, now make up the largest portion of employees' asset allocations -- almost 25 percent compared to 23 percent in 2008 and 8 percent in 2007. The next most popular investments are stable value funds and guaranteed investment contracts (17.1 percent) and large-cap U.S. equity funds (15.3 percent).
Hewitt attributed the high concentration in pre-mixed funds to an increase in the number of employers who are automatically enrolling employees in 401(k) plans and directing their investments into target-date funds. Employees can always opt out of their plans or redirect their investments, but lethargy reigns. Hewitt did a study a few years back of employees who were automatically enrolled in their 401(k) plans and most didn't even know they were in it, Hess says.
Last year, 28.2 percent of employees did not contribute enough to their 401(k) to get a full employer match, the same as in 2008.
Hess says she is concerned about the growing "leakage" from 401(k) plans, as employees take loans or make outright withdrawals. During 2009, 7.1 percent of participants withdrew money, the highest level since 2002. And 25.6 percent had a loan outstanding at the end of 2009, up slightly from 23.1 percent in 2008.
| Apr 21 at 04:18 PM
Tuesday, April 20, 2010
Schwab settles YieldPlus suit for $200 million
Charles Schwab has agreed to settle a federal class-action suit related to its Schwab YieldPlus fund for $200 million. Last week, Schwab said that plaintiffs were asking for up to $890 million in damages.
The preliminary settlement "was favorable to Schwab," says Richard Repetto, an analyst with Sandler O'Neill + Partners. "It's a pretty good deal for them."
Steve Berman, the lead attorney representing YieldPlus investors, said the original damage estimate was $650 million to $890 million but that the most recent estimate, based on a judge's ruling in the case, was $650 million to $700 million.
The suit was scheduled to go to trial May 10. "We evaluated the risks in the case with the help of two mediators and we felt that the settlement is a fair settlement," Berman says. "It is one of the largest settlements in a securities case in the northern district of California."
Based on a preliminary estimate, Berman said that shareholders, on average, will recover 25 to 27 percent of their losses before attorneys' fees, or 23 to 25 percent after fees. "The average settlement for securities class actions in this size range is about 4 percent of damages," he said.
The federal case was the biggest potential liability facing Schwab from YieldPlus. The ultra-short-term bond fund, marketed as an alternative to money market funds, surprised investors when it suffered losses on mortgage-related securities. Shareholders responded by yanking their money out, which led to additional losses when the fund had to sell investments in a downward spiralling market.
Schwab has already paid about $48 million to resolve individual arbitration claims, some of which was covered by insurance. Schwab still faces 194 individual arbitration claims seeking $34 million in damages and a class-action suit filed in California state court on behalf of California investors.
In the first quarter, Schwab reserved $11 million to cover potential damages from the state case. Berman previously said damages in the California case could reach $140 million.
To cover the federal-suit settlement, Schwab increased that reserve by $172 million before taxes, which is net of expected insurance coverage. The settlement will reduce Schwab's first-quarter net income by approximately $105 million, or 9 cents per share. That nearly wipes out the brokerage firm's first-quarter earnings reported last week of $119 million or 10 cents per share.
The preliminary settlement is subject to a definitive agreement and final approval of the court. It allows Schwab, without admitting liability "...to avoid the distraction and uncertainty of a trial, and the further possibility of a protracted appeals process," the company said in a press release.
Plaintiffs in the federal case alleged that Schwab misrepresented facts in the YieldPlus prospectus. The federal case includes two classes of investors: those who acquired shares in the fund from Nov. 15, 2006 through March 17, 2008 and those who acquired shares between May 31, 2006 and March 17, 2008.
Shareholders who held onto their shares during this period will recover a certain price per share, which has not yet been determined, Berman says. "If you sold and suffered a loss you get a different amount based on a mathematical formula that will make everyone equal. If you sold during the class period and didn't sustain a loss you are not eligible for recovery."
Berman said investors who owned shares during the relevant period were given a chance to opt out of the class and pursue their own claims. Those who did not opt out before the deadline are in the class. Berman hopes to notify investors within 30 days of the damages they stand to receive. Investors will not get to vote on the settlement but those who object to it can ask the judge to disallow the settlement.
In the state case, plaintiffs are alleging that the fund's managers "violated the voting rights of shareholders when they didn't hold a vote when they decided to concentrate more than 25 percent (of assets) in mortgage-backed securities," said Berman, who is with the firm Hagens Berman Sobol Shapiro in Seattle.
That case is also scheduled to go to trial May 10. Members of the class in the state case include California residents who held shares in the fund on Sept. 1, 2006.
Schwab blamed YieldPlus losses on the credit crisis that began in mid-2007, which "led to a decline in the value of a majority of fixed income investments market wide. As a result, certain Schwab clients who chose to invest in the bond fund experienced a decline in their investments, leading to the litigation."
| Apr 20 at 01:09 PM
Friday, April 16, 2010
How to spot a toxic mortgage
New York hedge fund Paulson & Co. made billions of dollars betting against mortgage-related securities. The complaint filed today by the Securities and Exchange Commission against Goldman Sachs gives some insight into how Paulson, early on in the crisis, spotted mortgages most likely to turn bad.
The complaint alleges that Goldman sold a synthetic collateralized debt obligation (CDO) tied to the performance of residential mortgage backed securities (RMBS) without disclosing to buyers that Paulson had a big hand in choosing which mortgages securities went into the CDO. Paulson then effectively shorted the CDO, meaning he bet that mortgages backing it would turn sour. Investors who bought the CDO lost about $1 billion while Paulson made $1 billion, the SEC says.
The complaint says that in 2006 and early 2007, Paulson analyzed recent mortgage-backed securities rated triple-B "and identified over 100 bonds it expected to experience credit events in the near future. Paulson's selection criteria favored RMBS that included a high percentage of adjustable rate mortgages, relatively low borrower FICO scores, and a high concentration of mortgages in states like Arizona, California, Florida and Nevada that had recently experienced high rates of home price appreciation."
To give the CDO "credibility," Goldman hired ACA Management, an independent "collateral manager," to help choose securities for the portfolio, the complaint says.
Paulson allegedly kicked some mortgage securities selected by ACA out of the CDO portfolio, including all Wells Fargo deals. "Wells Fargo was generally perceived as one of the higher-quality subprime loan originators," the SEC says.
The suit does not charge Paulson nor ACA with any wrongdoing.
| Apr 16 at 11:33 AM
Thursday, April 15, 2010
Analysts: Schwab could face up to $1 billion in YieldPlus damages
In a "worst-case" scenario, Charles Schwab could face up to $1 billion in damages and settlements related to its YieldPlus mutual fund, analysts Matt Snowling and Bill Jackson of FBR Capital Markets said in a research note today.
An outcome of that magnitude "would require additional capital," they added.
Schwab disclosed in its earnings release today that it could face up to $890 million in damages in a class-action suit filed in federal court by shareholders of its YieldPlus short-term bond fund. "It is likely that such a liability would exceed available (insurance) coverage," Schwab said. That case is scheduled to go to trial May 10.
Separately, Schwab set aside $11 million in the first quarter to cover possible damages in a separate suit filed by YieldPlus shareholders in state court in California.
The Securities Exchange Commission is considering filing civil charges against the company in the matter.
Schwab also noted that it "remained the subject of 194 individual arbitration claims seeking $34 million in damages" related to YieldPlus, "for which the company has been accruing reserves."
YieldPlus, marketed as an alternative to money market funds, suffered steep losses on mortgage securities.
Earlier this month, a federal judge in San Francisco said the fund's managers violated the investment advisers act when they put more than 25 percent of its assets in mortgage securities without shareholder approval.
Schwab raised $564 million in a stock offering in January, mostly to support growth of its bank. When asked if the company might need to raise more capital, Gable said, "When we sized the offer in January we factored a range of contingencies into the thinking. We can't say we'll never be back in the market, but we did consider the contingencies very carefully at the time of the last offer."
| Apr 15 at 04:58 PM
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