Finance and Economic

U.S. bank regulators are expected to propose on Tuesday that banks prepay three years of regular assessments to replenish the dwindling deposit insurance fund, according to a source familiar with the matter.

Such an option would give the Federal Deposit Insurance Corp more liquidity to deal with the sharp increase in bank failures, while banks would not be required to report the expense of the fees until they would normally be due.

The source, speaking anonymously because the regulator discussions have been private, said the FDIC would likely propose for the banking industry to prepay $12 billion per year in assessments, for a total of $36 billion.

The board of the FDIC is meeting on Tuesday to propose alternatives to charging the banking industry hefty emergency fees to avoid having the balance of the insurance fund hit zero.

The industry has said such upfront fees could hurt banks just as their balance sheets are starting to recover from the recent financial crisis.

FDIC Chairman Sheila Bair has said the agency is considering alternatives to the upfront “emergency” fees, including prepayments of regular assessments, tapping the FDIC’s $500 billion line of credit with Treasury, and borrowing from healthier banks to rebuild the fund.

It is unclear what combination of options the FDIC board will propose to put out for public comment on Tuesday, as it seems regulators have narrowed the menu of options.

An FDIC spokesman declined to comment.

The source said the total amount of prepaid assessments could reach higher than $36 billion if the FDIC decides to ask the bank industry to also prepay special assessments.

The FDIC is exploring ways to replenish the insurance fund that safeguards bank deposits after a sharp increase of bank failures has been draining the fund.

So far this year 95 U.S. banks have failed, compared with 25 last year and only three in 2007.

Those failures have whittled the balance of the insurance fund down to $10.4 billion at the end of the second quarter from $45 billion a year earlier. The FDIC notes it has an additional $32 billion in reserves to handle failures over the next year.

(Reporting by Karey Wutkowski; editing by Carol Bishopric and Andre Grenon)

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Several big airlines this week have added $10 surcharges for most of their tickets for travel on three busy days around Thanksgiving and New Year’s holidays.

American and United airlines added the charge for travel on Nov. 29, the Sunday after Thanksgiving, as well as Jan. 2 and 3. On Friday, US Airways Group Inc. matched the surcharge, and FareCompare.com said Delta Air Lines Inc. added it, too.

Spokespersons for Southwest Airlines Co. and Continental Airlines Inc. said they had not added the surcharge.

Rick Seaney of FareCompare.com noted that the Sunday after Thanksgiving is one of the busiest travel days of the year, and that the two dates in January are heavily traveled as well.

He said the airlines probably added the charge rather than raise base fares because it was a quick, targeted way to charge more on busy travel days no fax cash loans.

"The bottom line this year for consumers is that it’s pretty clear that if you procrastinate on your holiday travel, you’re going to get stung," he said.

He said holiday fares are still running 15 percent to 20 percent lower than last year, with prices to bigger cities carrying the bigger discount from a year ago.

American added the charge on Wednesday, and United matched on Thursday.

Shares of American parent AMR Corp. rose 28 cents, or 3.6 percent, to $8.02. United parent UAL Corp. added 47 cents, or 5.3 percent, to $9.30, and US Airways Group Inc. was up 5 cents to $4.96. Delta Air Lines Inc. rose 13 cents, or 1.5 percent, to $9.05.

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New orders for long-lasting U.S. manufactured goods fell in August and sales of new homes rose below expectations, government data showed on Friday, fanning fears that recovery from recession would be anemic.

The Commerce Department reports overshadowed a jump in consumer confidence this month to its highest since January last year and were the latest indication that growth could taper off once the government stimulus expired.

Durable goods orders tumbled 2.4 percent in August, the largest percentage decline since January, after rising 4.8 percent in July, the Commerce Department said. That was well below market expectations for a 0.5 percent rise in August.

In another report the department said sales of newly built single-family homes rose 0.7 percent in August for a fifth straight month, to a 429,000 unit annual pace, the highest since September last year. However, the increase was below market expectations for a 440,000 unit rate.

“The trend is continuing to be positive, but not gigantically robust for growth because we don’t have a lot of consumer spending going on,” said Kurt Karl, head of economic research and consulting at Swiss Re in New York.

U.S. stocks fell on the data, which, coming a day after a survey showed a drop in existing home sales in August, served as a reminder that recovery from the worst recession since the 1930s would be protracted and bumpy.

Government bond prices rose on the news.

“While the recovery is gaining momentum, there are a number of major speed bumps on the horizon,” said Brian Bethune, chief U.S. financial economist at Global Insight in Lexington, Massachusetts.

“These include the expiry of fiscal stimulus measures supporting the housing market in November and uncertainty about the potential impact of the Federal Reserve’s ‘exit strategy’ availability of credit to critical areas such as auto and mortgage finance.”

Federal Reserve Chairman Ben Bernanke said on Friday consumer and small business loans remained in great need of the U.S. central bank’s support even as use of other financial backstop programs tapered off as markets regained balance.

Leaders from the Group of 20 rich and developing countries meeting in Pittsburg pledged to keep emergency economic support in place until sustainable recovery was in place, according to a draft communique obtained by Reuters.

AIRCRAFT HIT DURABLE GOODS

The drop in durable goods orders, a leading indicator of manufacturing activity, was largely caused by a decline in new orders for commercial aircraft — likely reflecting a drop in orders received by Boeing.

Still, new durable goods orders excluding transportation were flat in August after rising for three straight months, the Commerce Department report showed. The market had expected a 1 percent gain after a 1.1 percent rise in July.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, unexpectedly fell 0.4 percent in August — confounding market forecasts for a 1.3 percent rise. Core capital goods fell 1.3 percent in July. 

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The U.S. Federal Reserve is studying the idea of borrowing from money market mutual funds as part of eventual steps to withdraw stimulus, the Financial Times reported on Thursday.

The Fed would borrow from the funds via reverse repurchase agreements involving some of the huge portfolio of mortgage-backed securities and U.S. Treasuries that it acquired as it fought the financial crisis, the newspaper reported, without citing any sources.

This would drain liquidity from the financial system, helping to avoid a burst of inflation as the economy recovered.

The FT said Fed officials had in recent days held discussions with market participants on how it might implement such a scheme.

The Fed is considering whether to conduct a pilot scheme, but worries such a test might be seen as a signal that the central bank was about to drain liquidity on a large scale, the newspaper said. In the near term, a big drain remains unlikely, it added.

The central bank held interest rates at close to zero on Wednesday and upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession.

The Fed also said it would slow its purchases of mortgage debt to extend that program’s life until the end of March, in a move toward withdrawing the central bank’s extraordinary support for the economy and markets during the contraction.

The idea of the Fed using reverse repos to help unwind policy is not new; Fed chairman Ben Bernanke identified them as a potential means of soaking up liquidity in July. But the market had previously expected the repos to be done with primary dealers, including former Wall Street investment banks.

The central bank is now considering dealing with money market funds because it does not think the primary dealers have the balance sheet capacity to provide more than about $100 billion, the Financial Times said.

Money market mutual funds have about $2.5 trillion under management so they could plausibly provide between $400 billion and $500 billion, it said.

The newspaper added that the Fed did not think it would need to drain liquidity all the way to where it was before the crisis, because it was confident it could raise interest rates even with a much larger amount of reserves in the system than existed before the crisis.

(Reporting by Andrew Torchia, editing by Mike Peacock)

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Bank of America Corp CEO Ken Lewis has survived troubled acquisitions, massive credit losses and two government bailouts, but experts question whether he can survive a series of investigations.

Lewis and other senior bank executives face intense scrutiny from regulators, state attorneys general and the U.S. Congress over whether they failed to disclose key information about Merrill Lynch’s financial health and bonus plans before Bank of America bought the brokerage.

“It comes to a point that the company is so completely distracted by the legal fight it can’t focus on the business,” said Tony Plath, banking professor at UNC-Charlotte who follows the bank closely. “This is becoming a significant impediment to management’s job.”

A Bank of America spokesman said the board fully supports Lewis, but did not elaborate further.

At a Monday meeting, the bank’s directors were expected to discuss legal options if he is charged with civil fraud, The Wall Street Journal said.

In the latest in a series of investigations and lawsuits, a U.S. House of Representatives panel gave the bank until noon Monday to provide additional information about its purchase of Merrill Lynch. The panel said the bank cannot use attorney-client privilege to withhold details of the deal from Congress.

And New York Attorney General Andrew Cuomo’s office is considering filing civil charges against Lewis,

Whatever Cuomo and other investigators decide, legal issues can drag on for years, and companies often cut ties with executives to minimize such distractions, according to corporate governance experts free insurance quotes.

“Whether a management change happens depends on the size of the distraction,” said Karen Brenner, a business professor at New York University specializing in ethics and corporate governance. “Legal issues can ebb and flow, but the company is dealing with a great deal of pressure now.”

Brenner said while it is early to assume the pending legal issues will quickly force wholesale management change, such changes are not unprecedented.

Some investors are already getting restless.

Michael Nix, co-chief investment officer for Greenwood, South Carolina-based Greenwood Capital Associates, said the firm is considering selling its 100,000 Bank of America shares because of short-term performance and long-term litigation worries.

“We’ll still be talking about these lawsuits three to five years from now,” Nix said. “A lot of people will get pulled into this thing.”

Bank of America shares were down 2 percent at $17.28 in Monday afternoon trading.

ABRUPT ENDS 

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GlobalGreen Insurance Agency and Great Wall Insurance Agency are partnering to offer brand-name insurance products and services.

The Mid-America Chapter of the National Academy of Television Arts & Sciences announced that Sharon Stevens of KSDK-TV, Tom O’Neal of KTVI-TV, Dan Bowser of WDAF-TV of Kansas City, Randy Dixon of KATV-TV of Little Rock, Ark., and Dr. Michael Murray of UMSL will be inducted into the Silver Circle of the NATAS.

Gourmet to Go on Monday will open a downtown location at Broadway and Olive Street in St. Louis Place across from Metropolitan Square. The new location will open at 7 a.m. on weekdays and will provide carry-out dinner entrees after 3 p.m. each afternoon.

Enterprise Holdings has received LEED certification from the U.S. Green Building Council for its St. Louis Contact Center, the company’s second LEED-certified project.

The Nutrition Clinic has moved to Holloway Center, 116 Holloway Road, Suite B, Ballwin, Mo. 63011. Its telephone number is 636-386-3333.

Hanley’s Grille and Tap has opened a location at 315 St. Clair Square in Fairview Heights. Hanley’s is a full-service restaurant and bar featuring a complete menu of moderately priced American food.

Byrne and Jones Construction recently turned two grass football and soccer fields into turf fields for the St. Charles School District. The district invested $1.1 million in the project.

Diestelkamp Construction has completed construction and renovation of four elementary schools in the Hazelwood School District. Each school received a new or renovated library, classrooms, student service areas and main offices. Diestelkamp provided 27,800 square feet of new construction and the project cost was about $8.8 million.

Inc. magazine named Brentwood-based Argent Capital Management one of America’s fastest growing companies. Argent focuses on large and small capitalization stocks.

The current issue of Remodeling Magazine ranks Mosby Building Arts of Kirkwood as the No. 8 full-service remodeling company in the United States.

The Engineering News Record named the Korte Company of St. Louis to its list of the nations top 100 green contractors.

Tess Niehaus of St. Anthony’s Medical Center in south St. Louis County has been elected president of the board of directors of the American Hospital Association’s Society for Healthcare Strategy and Market Development.

Modern Healthcare named St. John’s Mercy Health Care one of the top 100 places to work in health care, one of only 34 employers to make the list twice.

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UPDATED: 10:32 a.m. Thursday

ST. LOUIS — American Airlines said Thursday it will dramatically slash its remaining St. Louis flight schedule next year as part of a dramatic restructuring.

American’s parent company, AMR Corp. announced it will raise or borrow $2.9 billion and will focus service on its primary hub airports, including Chicago’s O’Hare International Airport and Dallas/Fort Worth International. The moves will leave St. Louis with 36 daily departures to nine cities on American and American Eagle next April.

"Today’s announcement positions our company well to face today’s industry challenges and allows us to remain focused on the future and on returning to profitability," said AMR chairman and chief executive Gerard Arpey.

American St. Louis officials were briefed on this latest round of flight reductions late Wednesday. Since 2003, American has made a series of deep service cuts at Lambert-St. Louis International Airport — once a thriving midcontinental hub for Trans World Airlines.

By the end of November, St. Louis already was being scaled back to 82 daily flights to 20 destinations. St. Louis leaders expressed disappointment with Thursday’s news that American was making even deeper cuts.

St. Louis Mayor Francis Slay called it a "bad business decision."

"By eliminating what was left of the St. Louis hub it took over from TWA, American will be walking away from more than 620,000 passengers a year," Slay said in his blog. "And they will walk away from approximately $108 million in system revenue."

Lambert Director Richard Hrabko said a major concern is that the move will eliminate nonstop service to a dozen U.S. cities from Lambert. St. Louis travelers looking for nonstop service already had seen their choices plummet from more than 100 cities reachable by nonstop flights to about 70.

There will no longer be nonstop air service between St. Louis and the following cities: Austin, Texas; Nashville; Indianapolis; Wichita, Kan.; Jacksonville, Fla.; Madison, Wis.; Norfolk, Va.; Raleigh-Durham, N.C.; Richmond, Va.; San Antonio, Texas; San Francisco; and Des Moines, Iowa.

"If you look at this history since 2003, it has been a steady downturn," Hrabko said. "They have continued to cut consistently down to this ultimate cut, which I consider to be the ultimate cut."

American spokeswoman Mary Frances Fagan said the new daily St. Louis flight schedule will include two American Eagle flights to Boston and two to JFK International Airport in New York, and American Airline flights to New York’s LaGuardia (4), Washington, D.C.(4), Miami (2), Dallas-Fort Worth (9), Chicago O’Hare (9), Los Angeles (3), and Seattle (1).

Earlier story:

American Airlines has announced that St. Louis will lose 46 American and regional flights and end service to 20 cities.

American said this morning that it will be cutting all but 36 flights to nine destinations from St. Louis.

St. Louis will lose lose 46 American and regional flights and end service to 20 cities. While the airline is getting a $2.9 billion boost, it is using it to add flights to other cities like at hubs in Dallas/Fort Worth, Chicago, Miami and New York. Those cities, and Los Angeles, are key parts of the company’s plan to benefit from closer cooperation with British Airways, Iberia and other partners.

The company said it will reduce operations at St. Louis and Raleigh/Durham, N.C.

St. Louisans were already finding it tougher to get where they’re going on a nonstop flight.

When Lambert-St. Louis International Airport served as the midcontinental hub for Trans World Airlines Inc., air travelers could book a flight from St. Louis to more than 100 cities. But no more.

Nonstop air service has shrunk to about 70 cities — and St. Louis to San Diego will fall out of the mix in November when cuts to American Airlines’ domestic flight schedules take effect. The airline eliminated flights from Lambert to Cedar Rapids, Iowa, and Springfield, Mo., last month.

Blame the ongoing metamorphosis of Lambert to a midsize hub airport, last year’s fuel price increases and — most recently — the sputtering economy, which has taken a big bite out of business travel budgets.

"It’s unfortunate that they would reduce their direct flights to a city that’s well visited from the St. Louis area," business traveler Linda Jacobs said before boarding an American flight for San Diego last week. "It’s understandable that American is doing what they have to do … to continue to be profitable personal loans for people with bad credit. But it’s inconvenient to the traveler."

The biggest wave of flight reductions occurred in the fall of 2003, when American slashed half of its St. Louis schedule — including nonstops from St. Louis to 27 cities. Most of the remaining flights were on smaller planes flown by American’s regional airline partners.

The loss of nonstop flights has included a mix of big city destinations and smaller regional markets in Missouri and central Illinois.

"That is really indicative of what happened to Lambert after TWA went away," said Kent Boyd, spokesman for the Springfield-Branson National Airport. "When TWA was in existence, I would hazard to guess half our passengers went to Lambert to make connections."

By the time American eliminated the single daily American Eagle flight between St. Louis and Springfield, Mo., last month, Boyd said, the planes were flying less than one-third full.

Boyd said American added a seventh flight to Dallas-Fort Worth International Airport at that time.

"We certainly understand that given the choice, people would prefer a nonstop," said American Airlines spokesman Tim Smith. "But if we can make connections reasonable, convenient and timely, it is the next best thing."

Smith said the majority of travel itineraries these days involve connecting flights. American serves 250 cities worldwide.

Lambert Director Richard Hrabko said St. Louis flight losses actually have stabilized somewhat in the past couple of years and the airport is served by a healthy mix of airlines. The presence of low-cost carriers Southwest Airlines, AirTran Airways and Frontier Airlines have helped keep fares in check, he added.

There still are 270 departing passenger flights each day, and other hub airports also have lost some air service.

"We’re not in this deal alone," Hrabko said.

American’s latest round of Lambert cuts may already have touched off some competitive maneuvering.

After American officials decided to reduce nonstop service to Boston in November, Southwest said it will add two daily nonstops from Lambert to Boston’s Logan International Airport beginning Jan. 10.

Southwest also added two new nonstop flights to Minneapolis/St. Paul but reduced its daily flights between St. Louis and Baltimore, Cleveland, Detroit and Las Vegas.

"This growing airline has seen this as a growth market," Southwest spokesman Brad Hawkins said of St. Louis.

Southwest now offers nonstop flights to two dozen cities from Lambert.

Despite its loss of flights in recent years, Lambert appears "ripe" for Southwest to increase its presence because its location in the middle of the country and its excess capacity make it a good candidate for connecting traffic, said George Hobica, founder of Airfarewatchdog.com.

"I think it is an underutilized airport (since) TWA pulled out and after American … basically implied they would maintain the service and didn’t," Hobica said.

Direct air service to a multitude of cities can brighten a region’s prospects for growth, economists say, and is one factor a company would consider when locating a new facility. Lambert officials say St. Louis remains a strong travel market compared to similar-sized metropolitan areas.

Brian Hall, chief marketing officer for the St. Louis Convention and Visitors Commission, agreed that St. Louis is well served by air service based on its population, and the loss of some direct flights hasn’t been a barrier to meeting planners or leisure travelers.

"I think our expectation is that of when TWA was hubbed out of Lambert," Hall said. "We had extraordinary service, including a lot of international nonstop travel to Europe. We never had the population base to support that. But the fact that they chose St. Louis as a hub, we were very fortunate to have that robust service."

But Tina Garcia Arras, president of the Travel Desk Inc., said frequent business travelers are having to spend more time making flight connections than they once did.

"It’s become a real pain," she said.

Before the recession, passenger boardings had grown from a baseline of 6.3 million in 2004 — the first year after American’s significant schedule reduction — to 7.7 million in 2007.

"I don’t dwell on the past much," Hrabko said. "I look at the future. Seventy nonstop destinations. That’s pretty good."

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St. Louis County residents now have greater shopping choices as Schnuck Markets Inc. and Wal-Mart Stores Inc. add bigger stores this week.

On Tuesday, Schnucks opened its new 74,000-square-foot flagship store at 12332 Manchester Road, near West County Center in Des Peres. It replaces the original Schnucks store in Des Peres, which has been closed.

The new Schnucks store, which includes the grocery chain’s first cooking school, offers a Kaldi’s coffee shop, a walk-in beer cooler, an aged beef cooler, a cheese room and wine display.

Meanwhile, a new Walmart Supercenter opens today at Manchester Highlands, located at the northeast corner of Highway 141 and Manchester free credit report instantly. It replaces a Walmart store in Town and Country’s Manchester Meadows shopping center.

Among the features of the almost 204,000-square-foot store will be a bakery, a deli, meat and dairy products, fresh produce, and a full liquor department.

Margaret Gillerman

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Boeing said it’s prepared to enter the next Air Force tanker competition with one of two planes.

The St. Louis-based defense unit of Boeing Co. on Monday offered details of its tanker proposals that would be either a KC-767 or a larger, converted 777. The latter would be comparable in size to the modified A330 offered by competitor Northrop Grumman Corp. and European Aeronautic Defence & Space Co.

"Boeing is ready to deliver maximum capability at the lowest cost," Boeing program manager Rick Lemaster said in a prepared news release Monday.

The Pentagon is preparing draft guidelines spelling out the rules for a new refueling tanker competition. Boeing will review the request before it decides what it would offer, said Bill Barksdale, a spokesman for Boeing Global Mobility Systems.

In February 2008, the Pentagon chose the Northrop/EADS proposal to build aerial refueling tankers that were larger than Boeing’s proposed KC-767 tanker. Boeing protested and was supported by the Government Accountability Office, which found problems with how the contract was awarded.

The Pentagon decided to start over and reopen the $35 billion tanker competition.

"All that matters is the Air Force and what they want," Barksdale said. "If they want a bigger tanker, we have one that is definitely superior" to the A330.

Part of Monday’s message is that "the other guys don’t have a permanent advantage" with respect to the size of its tanker proposal, said Richard Aboulafia, an analyst with the Teal Group in Fairfax, Va. But converting the 777 into a refueling tanker would likely take time and money, he said.

"This is supposed to be an off-the-shelf procurement," Aboulafia said.

Boeing has produced some of the KC-767s already, including three that are in operational squadrons for the Japanese air force, Barksdale said. If it wins the contract, Boeing projects 50,000 jobs will be dedicated to the tanker. The planes would be built in Washington state.

Boeing officials provided the details at the Air Force Association’s 2009 Air and Space Conference and Technology Exposition near Washington, D.C. The company also has launched a website devoted to its refueling tanker options called UnitedStatesTanker.com

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President Barack Obama warned financial firms on Monday to heed the lessons of Lehman Brothers’ collapse a year ago and get behind a regulatory overhaul he wants Congress to pass this year.

Obama, who has focused most of his energy on healthcare reform in recent weeks, went to Wall Street to highlight another top priority of his administration — updating financial rules to prevent another economic collapse.

While the economy and the financial system are showing signs of recovery, Obama said that was not an excuse to avoid reform.

“Normalcy cannot lead to complacency,” he said at Federal Hall in the heart of Wall Street.

“Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we’re still recovering, they’re choosing to ignore those lessons.”

Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy on September 15, 2008, triggering a global financial crisis that also helped propel Obama to the presidency as Americans welcomed his cool response to the problem.

In a television interview later on Monday, Obama said he was not leaning toward a second round of economic stimulus, after the $787 billion package passed earlier this year.

“I have a strong inclination not to do it,” he told CNBC. “We’re monitoring the situation carefully. I think that most folks believe that we’ve now turned the corner where we might actually see some economic growth in the months to come.”

SLOW PROGRESS ON GLOBAL ISSUE

Financial reform will be a central issue at a G20 summit of leading developed and developing nations in Pittsburgh next week but progress on Obama’s agenda has been slow.

Obama’s speech also sought to show other countries his administration is serious about tackling U.S. weaknesses and excesses blamed for setting off the global crisis.

“As the United States is aggressively reforming our regulatory system, we’re going to be working to ensure that the rest of the world does the same,” he said.

Under a proposal put forward in June, the Federal Reserve would get new powers to monitor big financial firms and a new Consumer Financial Protection Agency would be created.

Obama emphasized the CFPA as he outlined his proposals, indicating it has become a top priority.

“This crisis was not just the result of decisions made by the mightiest of financial firms. It was also the result of decisions made by ordinary Americans to open credit cards and take on mortgages,” he said, adding some lenders were deceitful even as some people took on loans they could not afford. 

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