Finance and Economic

Centrue Financial Corp. cut its dividend in half to 7 cents per share as it announced a $1.6 million loss for the fourth quarter of 2008.

The loss of 27 cents per share in the quarter compares with a profit of 49 cents per share, or $3.1 million, a year earlier. Revenue was $10.5 million, down 24 percent from 13.8 million a year ago.

The St. Louis-based company, parent of Centrue Bank, added $5 payday loans for bad credit.2 million to its reserve for possible loan losses. About $850,000 of that reflected a loss the company blamed on fraud by an unnamed Illinois customer. Centrue also took a $2.7 million impairment charge to reflect the lower value of its investment securities.

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British confectionery group Cadbury Plc took a relatively upbeat view on Wednesday on demand for its products ranging from Dairy Milk chocolate to Trident gum, helping boost its shares more than 3 percent.

Announcing a 30 percent rise in 2008 pretax profit, in line with expectations, the maker of Halls cough drops said it expects sales to grow between 4 percent and 6 percent this year, toward the lower end of its medium-term target but still enough to reassure jittery investors.

Chief Executive Todd Stitzer said he was “confident but realistic” looking into 2009 as other consumer goods companies around the world were forecasting lower growth this year.

“We are recession resilient not recession proof, with our own performance set to be resilient in a world of reduced growth,” Stitzer said in a conference call after the 2008 results.

By 1000 GMT (5:00 a.m. EST), Cadbury shares were up 3.2 percent to 525 pence in a London market that was up 1.8 percent.

Analysts said the group saw good growth and had cut costs as confectionery markets around the world started to slow over the last six months.

“We believe Cadbury has better growth prospects and a higher chance of corporate activity than Hershey, and indeed the food sector as a whole, and as such reiterate our buy recommendation,” said analyst Graham Jones at Panmure Gordon.

The London-based group posted 2008 pretax profits of 559 million pounds ($814 million), in line with an analyst range of 525 million to 580 million and compared to a consensus of 552 million. Earnings per share rose 30 percent to 29.8 pence.

“In the current market environment, we find it unlikely that there are many companies continuing to grow earnings at these enhanced levels guaranteed high risk personal loans… and also doing it consistently, which Cadbury should over the next few years,” said Andrew Wood at Bernstein.

Stitzer said the group had seen good growth across all its businesses with chocolate sales up 6 percent, gum up 10 percent, and candy up 6 percent. Its emerging markets, nearly 40 percent of its business, saw growth of 12 percent.

The group also reported higher 2008 margins, up 1.8 points to 11.9 percent, with underlying margins up 1.5 percentage points and the rest of the increase coming from currency. It stuck by its goal to see mid-teen percentage margins by 2011.

“The key element of the results seems to us to be the continued margin progress … this has been achieved despite mounting fears of some form of input cost related disappointment,” said Rob Mann at Collins Stewart.

Cadbury is facing higher cocoa prices, which hit a 24-year high in late January, and also other dollar-dominated commodities as well as the threat from a new industry leader Mars-Wrigley on top of the slowdown in world markets.

Cadbury shares trade on 13.9-times 2009 earnings, reflecting the defensive nature of confectionery and its margin gains, putting it ahead of Swiss-based Nestle on 12.8-times, but still behind Hershey on 17.3-times, which gains from its big share of the U.S. confectionery market.

Cadbury, which spun off its North American beverage business Dr Pepper Snapple last May, agreed in December to sell its Australian beverage business to complete its exit from soft drinks and to focus exclusively on confectionery. 

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Outside advisers to the U.S. Treasury are lining up contingency financing options for General Motors Corp. and Chrysler LLC as part of a review of restructuring options for the automakers, a Treasury official said on Monday.

The official commented to Reuters after the Wall Street Journal reported that outside advisers to the Treasury were talking with lenders about financing of at least $40 billion for the car companies, in case the two automakers needed it.

People involved in talks with senior administration officials told the paper that the administration believes that the option of Chapter 11 filings by the two automakers needs to be seriously considered.

"Everything is on the table right now," one person involved in the matter told the paper, adding that President Barack Obama does not want to see more massive job losses in the auto industry.

The Treasury official told Reuters that the action is not an indication of future plans for the companies, but is aimed at ensuring all options are properly considered and made available.

The administration also does not want to anger the United Auto Workers union by appearing to push for bankruptcy, the Wall Street Journal report said, citing the person involved in the matter guaranteed high risk personal loans.

The initial discussions call for private banks to provide the financing known as a debtor-in-possession (DIP) loan with the government guaranteeing or backstopping the loan, the paper said.

In this scenario, some of the financing would be used to pay back the $17.4 billion the government lent GM (GM, Fortune 500) and Chrysler late last year, the paper said.

Treasury advisers are handling the effort and keeping GM and Chrysler informed of the steps through back-door channels, the paper said, citing people familiar with the matter.

Recently, government advisers have aggressively courted big lenders Citigroup Inc. (C, Fortune 500) and J.P. Morgan Chase & Co. (JPM, Fortune 500), which have also received government aid, to participate in any bankruptcy financing, the paper said, citing people familiar with the matter.

Last week, GM and Chrysler requested nearly $22 billion in U.S. government loans, on top of $17.4 billion received so far, and said they had reached tentative deals with the United Auto Workers union to reduce labor costs. 

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The future of the North American-based auto industry, the underpinning of the southern Ontario economy, has never been less clear than today.

General Motors Corp. and Chrysler LLC, each on the brink of bankruptcy, yesterday submitted their long-awaited Canadian turnaround plans to Ottawa and Queen’s Park, three days after filing their global restructuring scheme with the U.S. Congress and the Obama administration.

It would be an exaggeration to say these plans aren’t worth the paper they’re printed on. But with their lack of detail – the Canadian plan doesn’t even place a dollar figure on the bailout sum sought from Ottawa and Queen’s Park – they betray the automakers’ own uncertainty in how they propose to rescue themselves.

Ottawa’s response yesterday was a sigh of relief that GM and Chrysler don’t plan any further Canadian plant closings or layoffs, beyond the thousands of jobs they’ve already lost in the past two years.

That’s false hope. GM and Chrysler also say they expect a further drop in North American vehicle sales this year, on top of the stunning 18 per cent drop in 2008 sales. How much bigger a drop?

 

They don’t say. Because no one can say. For a Canadian vehicle industry overwhelmingly reliant on U.S. exports, everything depends on a recovery in U.S. consumer confidence. Americans have to start buying cars again. The speed with which that happens depends greatly on the impact of the $787 billion (U.S.) economic stimulus package and the $275 billion homeowner-rescue plans President Barack Obama signed into law this week.

To be sure, there is a revolutionary government intervention in the U.S. economy underway that in some respects is even more ambitious than Franklin Roosevelt’s New Deal. But with U.S. jobless numbers rising at an accelerating rate, and housing prices continuing to plummet more than a year after the collapse of an unprecedented U.S. housing bubble, there’s simply no telling when Obama’s bold moves will take effect.

We do know that if this year’s projected sales of only 11 million North American vehicles becomes the new normal, down from the average annual level of 18 million or so units earlier this decade, the industry will have to shrink by at least 20 per cent to become viable again.

Detroit still doesn’t seem to understand that.

GM said earlier this week it was trying to sell its Saab brand, but events are moving too quickly: Saab abruptly filed for bankruptcy protection yesterday. The dealership network for Saturn, another brand GM vowed this week to shed, is scrambling to find a foreign buyer for the division, and GM is promising to help secure one.

The Hummer brand GM pledged this week to dump has in fact been on the auction block for months. And Pontiac, the fourth brand GM now says it will abandon, it can’t seem to part with, insisting it wants to retain the name for a lineup of vehicles, even though Pontiac has long since lost its showroom appeal.

What all that says is GM and its divisions are still in denial about their grim prospects. GM persists in its ludicrous plans to revive the 1970s muscle car Camaro, to resume production in Oshawa no teletrack payday loan lenders.

GM has told Washington and Ottawa it will approach European governments for funds to bail out its Adam Opel division in Germany and its Vauxhall operations in Britain. But the reaction to that notion in both Berlin and London this week was tepid at best.

The problem, in a nutshell, is that Detroit has made these same promises for at least two decades. That it will cut an overcapacity of brands, plants, employees and dealers that has only grown as the North American market share of GM and Chrysler has relentlessly shrunk – in GM’s case, from 28 per cent in 2000 to a current 19 per cent.

This makes a repetition of these familiar vows, even now with the two firms’ backs to the wall, lack credibility.

Much depends on Obama, who in his Ottawa press conference with Prime Minister Stephen Harper acknowledged the "integrated" nature of the North American auto business, and that his actions on this crisis will be taken "in concert with" Canadian officials. That’s encouraging, since a Motown renaissance overseen by the Obama administration would likely retain the Detroit’s Canadian operations, which boast above-average productivity and quality.

Obama will almost certainly approve a Detroit bailout rather than put hundreds of thousands of workers at GM, Chrysler and their suppliers and dealers out of work amid a downturn that already has cost 3.6 million U.S. jobs. But the task force Obama has created to oversee a Detroit bailout will likely impose a reinvention of a century-old industry that has long proved itself incapable of changing with the times.

That might mean, for starters, a folding of Chrysler into GM. During its nine-year ownership by Daimler AG, Chrysler was stripped of most of its design and engineering abilities.

One U.S. auto analyst, who said yesterday that GM shares are overpriced even at the 1934 level they dropped to yesterday, pronounced GM’s rescue blueprint "worthless" for its failure to deal with reduction of debt, legacy costs (retiree pensions and other benefits) and labour costs higher than those of foreign automakers operating in the U.S.

The Obama task force, in protecting the total $30 billion of taxpayer funds that GM has received and is seeking, would impose on GM a more rapid resolution of those issues. There has long been no cachetin owning a vehicle made by a North American-based firm. That could change if the Obama administration uses its bailout leverage to force a transformation of Motown’s mission.

GM – and Detroit – could re-emerge as a global leader in fuel-efficient vehicle technology if Obama’s task force clears out its senior and much of its nostalgia-enslaved middle management. The precedent was set when FDR threatened a Detroit reluctant to convert to war production with nationalization unless it did his bidding.

Once again, the heavy hand of outside intervention is Detroit’s best, and perhaps only, hope of salvation.

Star columnist David Olive writes on politics and business. He can be reached at dolive@thestar.ca.

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Worries that weakening Eastern Europe economies will undermine Western banks weighed on markets Tuesday, while U.S. investors awaited details of restructuring plans from two of Detroit’s Big Three automakers.

U.S. President Barack Obama prepared to sign an economic stimulus plan into law, but questions over the effect emerging markets will have on the global recession were in the spotlight.

With concerns growing over the deterioration of emerging markets, U.S. stocks followed European markets lower. The Dow fell more than 3 percent while an index of leading European shares dropped 2.5 percent.

The euro fell to a two-and-a-half-month low against the U.S. dollar after a Moody’s Investors Service report said the recession in Eastern Europe will be more severe than elsewhere.

A combination of higher provisions for bad debt, a rise in bank borrowing costs and falling Eastern European currencies will weigh on banks’ profitability and erode their capital base, Moody’s said in a statement released overnight.

“Investors are focusing on bad news from Eastern Europe … (which) is playing a very important role in the weakness of the euro,” said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

The report showed the market believed “emerging Europe is the subprime of Europe and now everybody is running for the door,” one analyst said.

Much of the world has been pushed into recession by a credit crisis, prompted by the collapse in the U.S. housing market and high default rates on subprime mortgages, housing loans made to borrowers with low credit ratings no fax needed payday loans.

Governments have employed a mixture of measures — from stimulus packages to bank bailouts — to try to ease the deepening recession, but some have been criticized for putting national interests before trade commitments.

Later on Tuesday, U.S. President Barack Obama is expected to sign a $787 billion stimulus bill that has been criticized for its “Buy American” clause, which says companies must use U.S. steel and other U.S.-made goods. French and Italian auto bailouts have also been criticized by European policymakers.

The United States also hopes a $17.4 billion bailout will help its auto industry. General Motors Corp and Chrysler have been asked to submit survival plans to justify the loans, and are due to present the measures to cut costs later on Tuesday.

German automaker Daimler, a Chrysler shareholder, said on Tuesday swung to a quarterly loss and forecast the global recession would slash auto demand by about 10 percent this year.

NEGATIVE PATTERNS

U.S. banks led North American equities lower as investors questioned the efficacy of government actions and weighed how long the recession will last. The S&P 500 dipped below 800 for the first time since November.

“It’s possible that all four quarters will be negative this year. The data continues a pattern of bad data that will weigh on the markets for the foreseeable future,” said Jim Awad, managing director at Zephyr Management in New York. 

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These days most Americans have abandoned pencils and forms. Most individual tax returns now arrive at the IRS electronically. In Missouri, at least 41 percent of taxpayers last year simply dumped their shoeboxes full of records on a professional tax preparer, who filed the returns electronically.

Others turned to their home computers. About 17 percent of taxpayers filed electronically from home using tax software, while other software users printed out their returns and mailed them in.

Both options can be pricey. But 70 percent of taxpayers this year can get their federal taxes done online for free, or almost free. If you make $56,000 a year or less, and your return is fairly simple, the IRS offers "Free File" through it’s website, www.irs.gov. The program connects you to dozens of private companies offering free online preparation and free electronic filing of your federal return.

The companies are approved by the IRS, and the website includes a program to help you select one. Three companies offer help in Spanish.
What’s the catch? Expect pitches for the company’s paid products, and some charge a fee to file your state return.

The Missouri Department of Revenue lists websites that will let taxpayers prepare and file electronically their federal and Missouri state income taxes for free. However, all have income or age restrictions that rule out many taxpayers. You can connect through the state’s website at www.dor.mo.gov/tax. Click "electronic filing," then "free online filing."

Most Illinois residents can file state returns through the state website: www.tax.illinois.gov. You’ll need an Illinois PIN number. If you didn’t get one in the mail, the website has instructions for obtaining a number.

A war is raging between tax preparation software companies. One of the benefits is that people with higher incomes, but fairly simple returns, can get their federal taxes prepared for free online, or through free software downloads.

TurboTax, the king of the tax software business, offers a free version online. But you can’t use it if you owned a business or rental property or had capital gains. Lesser-known rivals, such as TaxAct, also have free versions.

If you don’t have a simple return, you have three choices. Pull your hair out over the paper forms, hire a tax preparer or buy software.

If you go to a commercial tax preparer, you may hear a pitch for a refund anticipation loan, sometimes called "rapid refunds," or "fast cash refunds" or "express money." Consumer groups generally call these a bad deal payday loan lender. You may pay $30 to $100 in fees for immediate access to money that the IRS would send in about 10 days anyway.

"A refund anticipation loan is a wolf in sheep’s clothing," says Jim Campen, director of Americans for Fairness in Lending, a group that crusades against predatory lending.

All is not lost for those without computers or money. If you make less than $42,000 per year, the Gateway EITC Coalition will help you prepare your taxes for free and in person. EITC stands for the Earned Income Tax Credit, a tax refund available to low-income people with jobs. You can dial 211 for the United Way’s help line for more information.

The coalition is offering help on Feb. 21 and Feb. 28 from 9 a.m. to 1 p.m. at MET Center, 6347 Plymouth Avenue in Wellston, and at the Five Star Senior Center, 2832 Arsenal Street in St. Louis. Other locations are available by appointment. Bring a photo ID and your tax information.

Information on other tax preparation events for qualified taxpayers can be found online. In Missouri, you can find these events at www.extension.missouri.edu/hes/taxed/vitasites.htm. In Illinois, visit www.revenue.state.il.us/app/freetaxpreparer.

On the software front, the news is mixed. The biggest player in the business, TurboTax, raised its price this year, but TurboTax and rival TaxCut now offer electronic filing for free. TurboTax was going for $49.99 and TaxCut for $39.99 at Office Depot this week. Both include a state version.

The big boys of the tax business have cheaper rivals. TaxAct charges $16.95 for federal and state versions.

The IRS is beating the drums for e-filing these days, promising refunds in eight to 10 days for electronic returns. Paper filers can expect to wait four to six weeks. The IRS says 80 percent of taxpayers get refunds.

Software programs, like those above, use a simple interview process. The program asks you questions and prepares your return based on your answers. Some never show the actual IRS forms.

But, for the tax-savvy, the IRS website also offers a fillable-forms option. The program will do the arithmetic and let you file electronically for free. But you won’t get the hand-holding that comes with private tax software.

The IRS’s telephone help line is 1-800-829-1040.

jgallagher@post-dispatch.com | 314-340-8390

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A day after Treasury Secretary Tim Geithner said it would be a few weeks before he unveils a solution for the housing crisis, regulators and lawmakers pressed financial institutions to suspend foreclosures until the plan comes out.

Geithner, who laid out a broad overview of the Obama administration’s plan to attack the financial meltdown, said Tuesday that the federal government would commit $50 billion to preventing foreclosures by reducing monthly payments. Details would be forthcoming, he said.

Until that loan modification plan is released, foreclosures should be halted, some say.

"I would ask all of you now to please make sure that we have a moratorium in effect," Rep. Barney Frank, D-Mass., told top bank executives at a hearing Wednesday. "It would be until we get that program, and until you know if people can qualify. Having someone suffer foreclosure because two weeks hadn’t gone by for this program would be unacceptable."

The chief executives of Bank of America (BAC, Fortune 500) and Citigroup, (C, Fortune 500) two of the nation’s largest servicers, told lawmakers they would agree to halt foreclosures temporarily. The head of Wells Fargo (WFC, Fortune 500) said it already has a moratorium in effect for loans serviced by Wachovia, which Wells Fargo acquired last year.

Frank said more banks are likely to comply with his request.

"I believe you will get well over 95% of the banks to hold off," Frank told reporters Wednesday. Banks know foreclosures "are not in their interest."

Meanwhile, the Office of Thrift Supervision urged the more than 800 institutions it regulates to suspend foreclosures until the administration’s plan is finalized.

"OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new plan takes hold," OTS Director John Reich said Wednesday.

Several institutions — including JPMorgan Chase (JPM, Fortune 500), Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) — had put foreclosure moratoriums in place while they’ve gotten their loan modification plans up and running. Some states, including Massachusetts, have instituted short-term foreclosure bans. Even Obama during the transition called for a moratorium. The goal is to give borrowers more time to work out an affordable payment schedule.

These efforts are having an impact, at least in the short-term. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 274,399 properties during January, down 10% from December, according to RealtyTrac, an online marketer of foreclosed homes. RealtyTrac attributed a large part of the decline to foreclosure moratoriums.

Skeptics, however, say the moratoriums merely delay the inevitable.

Taking industry pulse

Treasury and federal housing officials met Wednesday behind closed doors for 90 minutes with industry representatives and community advocates to discuss the housing plan. The administration listened to proposals for how to address the mortgage meltdown.

A number of people at the meeting stressed the need for a standard model for streamlined modifications, according to participants. They also suggested the administration use part of the bailout funds to help delinquent borrowers get into affordable mortgages by subsidizing interest rates or forgiving principal one hour payday loans.

"They are moving at a good clip to get it done, but they want to make sure they get it right," said John Dalton, president of the Housing Policy Council and a founding member of Hope Now, a coalition of servicers, investors and community groups focused on foreclosure prevention.

Officials met Thursday morning with more financial institutions, consumer groups and trade associations to continue the listening session. Geithner was also scheduled to attend a White House meeting with Obama’s economic team to discuss efforts to stem the foreclosure crisis.

Still, many in the industry and on Capitol Hill are surprised at the time it’s taking the administration to announce a foreclosure fix, particularly since Obama blasted the Bush administration for delay on the issue.

"One thing I’m determined is that if we don’t have a clear focus program for homeowners by the time I take office, we will after I take office," he said on "60 Minutes" in mid-November.

Housing advocates, lawmakers and others want him to stick to that commitment. Elizabeth Duke, a Federal Reserve governor, on Wednesday stressed the need to move quickly.

"It is equally important that the government decide how it wishes to move forward, and then do so," she said in a speech. "As long as uncertainty exists as to the scope and terms of the additional steps that likely will be offered, borrowers, lenders, and servicers will continue to hold out in hope of securing a better deal."

Frank on Tuesday said that he’s concerned about the level of resources the administration is committing and the time it’s taking to debut a plan.

"First, I’m concerned that $50 billion to reduce foreclosures understates the amount that we will need, and we need some assurance that, assuming this works as we hope it will, there will be more money available," Frank said. "Secondly, the secretary said the administration would present details of their foreclosure reduction plan in a few weeks, which is too much time."

Many housing advocates are urging the administration to come out with its fix quickly. They say the economy cannot be revived until the housing crisis is addressed.

"Foreclosures should be Treasury’s number one priority, not something to be done when we get around to it," said John Taylor, president of National Community Reinvestment Coalition. "Within the next few weeks, we will see tens of thousands more homeowners go into foreclosure. Treasury must take control of these toxic loans at a discount and modify them so that people can stay in their homes."

Financial institutions need to be more aggressive about modifying loans en masse, advocates say.

Lenders and loan servicers need to reduce payments to no more than 28% to 31% of a borrowers’ income, which may entail forgiving part of the principal if need be, said Marietta Rodriguez, director of the national homeownership program for NeighborWorks America.

"They need to modify loans so financially the family has room to deal with other expenses in their lives," Rodriguez said.  

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Employees of U.S. Bank will endure pay cuts and unpaid days off as the Minneapolis-based bank tries to cut expenses by 5 percent.

The bank is using such cuts as a way to avoid major layoffs, a spokesman said. "We’re trying to do this without any impact on our business or significant staff reductions," said spokesman Steve Dale.

Executives in each bank division have leeway to decide how to achieve the cuts. Some are imposing 5 percent salary cuts, while others are using unpaid furloughs. Departments are trying to cut other expenses before reducing employees’ income, Dale said.

U.S. Bank has so far fared better than other large banks during the financial crisis saving account payday loan. Still, its profits fell 65 percent in the final quarter of last year as the bank wrote down the value of its securities and set aside money to cover bad loans.
U.S. Bank has the largest market share among banks in St. Louis, with 18 percent of the region’s deposits. It has 116 branches around St. Louis and 3,400 local employees.

The bank had no information on how many local workers will take furloughs or pay cuts.

jgallagher@post-dispatch.com | 314-340-8390

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Post-Dispatch parent Lee Enterprises said Friday that it has received another one-week waiver on a violation of its loan terms as it continues to renegotiate $306 million in debt.

The publisher, based in Davenport, Iowa, has been in technical default since the start of the year, when auditors said the company can’t afford a $142 million payment due in April. Friday’s extension was the fourth granted by lenders this year, while talks continue on restructuring the debt fast cash without a hassle.

Lee also updated its first-quarter earnings to include a $67.8 million writedown in goodwill. That swung the company to a loss for the quarter ended Dec. 31 of $50.4 million, or $1.10 a share. It follows $893.7 million in writedowns in fiscal 2008.

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US Airways Group Inc. reports a nearly 6.2 percent decrease in mainline passenger traffic for January.

The airline flew 4.35 billion revenue passenger miles last month, down from 4.64 billion in January 2007.

The carrier’s mainline passenger-load factor, or percentage of filled seats, was 75.8 percent, up from from 75.2 percent in the year-ago period.

Mainline capacity fell 6 cash advance loans.9 percent to 5.74 billion available seat miles.

Arizona-based US Airways (NYSE:LCC) operates 3,100 flights per day to about 200 destinations in the Americas and Europe, including flights out of Birmingham-Shuttlesworth International Airport.

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