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NEW YORK — A federal judge said Monday he needs more information before he can decide whether to approve a $33 million settlement between Bank of America Corp. and the Securities and Exchange Commission over executive bonuses.

“I am concerned that we have not yet ferreted out all that the court needs to know,” U.S. District Judge Jed Rakoff said at a hearing in New York Monday afternoon. Adding that he is looking for “the truth, not the spin,” Rakoff ordered both sides to provide additional details to the court within the next two weeks.

Bank of America, without admitting or denying the allegations, agreed last week to pay the fine to settle charges that it misled investors about Merrill Lynch’s plans to pay bonuses to executives even as it prepared to report billions in losses. Those losses affected Bank of America’s bottom line after its takeover of the troubled investment bank was completed.

The SEC alleges that Bank of America promised its shareholders that Merrill would not pay year-end bonuses without getting the Charlotte, N.C.-based bank’s prior consent, but in fact had already given Merrill authorization to pay up to $5.8 billion in extra compensation.

In back-and-forth questioning, Rakoff probed the allegations, describing the SEC’s filing as “a fairly uninformative, bare bones complaint.” He asked SEC officials who exactly approved the year-end bonuses.

“Was this some sort of ghost that performed these actions?” Rakoff asked David Rosenfeld, the associate regional director in the SEC’s New York office. “Or were there human beings who wrote these documents?”

Rosenfeld demurred, but Rakoff pressed on, asking if former Merrill CEO John Thain and Bank of America CEO Kenneth Lewis were responsible for the bonuses. Rosenfeld said that both men had been advised by their lawyers, but that Thain and Lewis had not been a focus of the SEC’s investigation.

Another key issue centered on just how the SEC came up with the $33 million price tag for the settlement, and if that money would be paid out of the billions in federal aid that Bank of America has received.

Rosenfeld, speaking so softly at times that both Rakoff and a court reporter had to ask him to speak up, said the amount was “fair and reasonable,” based on a limited number of prior cases. But Rakoff called it a “tiny, tiny fraction of what was disclosed,” if in fact, Bank of America was not truthful with its shareholders.

Bank of America, along with Citigroup Inc. and insurance giant American International Group Inc., is among the largest recipients of government aid online instant cash advance. It has received $45 billion from the federal government’s $700 billion bank rescue program.

In a statement, Bank of America spokesman Scott Silvestri said that taxpayer money would not be used to pay the settlement. He also said that the SEC complaint does not allege that anyone intentionally did anything wrong.

Rosenfeld, in a statement, said the agency will continue to present the facts of the case as well as the additional information the judge has requested.

Both the SEC and Bank of America will submit additional paperwork by an Aug. 24 deadline. Each side will then have time to review the new materials, and the judge could then rule or order additional hearings.

Bank of America agreed to purchase Merrill in a deal that was hastily arranged Sept. 13-14, 2008, the same weekend that Lehman Brothers collapsed. Bank of America CEO Ken Lewis and Merrill Lynch CEO John Thain announced the deal Sept. 15.

The acquisition came as Lehman’s collapse caused panic in the financial markets and investment banks such as Merrill faced billions of losses on soured mortgage investments.
Merrill ended up paying $3.6 billion in bonuses in 2008, the SEC said, even though it lost $27.6 billion that year, a record for the firm. The bonuses amount to nearly 12 percent of the $50 billion that Bank of America paid for Merrill.

During the hearings Monday, Bank of America attorney Lewis Liman defended the bonuses. He said the average award amounted to $91,000, which he described as “not a lot of money,” a point Rakoff quickly contested. Liman also said the bonuses were a “retention tool” needed to prevent employees from deflecting to competitors.

But Rakoff questioned the reality of such a threat, given the state of the financial industry.

“How many banks were hiring new people at this time?” he asked. “Or how many brokerage firms, assuming any were left, were hiring at this time?”

The acquisition and bonus payments have caused Bank of America internal issues and angered some shareholders. Lewis’ management ability has been questioned and shareholders stripped him of his chairman’s title in April.

For the SEC, the outcome of today’s hearing may slow down the agency’s efforts to quickly make settlements, said Robert Heim, a former SEC attorney and a partner of Meyers and Heim in New York.

The agency, under Chairman Mary Schapiro, has been investigating cases at a rapid clip in the past few months.

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News that the U.S. unemployment rate fell for the first time in 15 months propelled the Toronto stock market to a strong gain today, despite worse-than-expected jobs data for Canada.

The S&P/TSX composite index added 91.96 points to 10,885.33 on a report that U.S. employers sharply scaled back layoffs in July while the unemployment rate fell one-tenth of a percentage point to 9.4 per cent.

Toronto's main index was up 98 points or 0.9 per cent on the week, its fourth consecutive week of gains in a row.

A net total of 247,000 jobs were lost in the United States last month, the fewest in a year and a sign that "the worst may be behind us" according to U.S. President Barack Obama. Analysts had forecast job losses of 320,000.

North of the border, Canada's labour market shed another 45,000 jobs in July, almost triple the rate expected by analysts, although the national unemployment rate stayed steady at 8.6 per cent as more people stopped looking for work.

Full-time employment and private sector jobs – the two most reliable indicators of labour market strength – both continued their downward trajectory.

The weak Canadian jobs data helped send the loonie tumbling 0.48 cent to 92.40 cents US.

Fred Ketchen, manager of equity trading at Scotia Capital, said the disappointing Canadian jobless numbers were somewhat offset by the unchanged unemployment rate.

"Sure, we lost 44,000 jobs, three times the forecast. However, our unemployment rate is unchanged at 8.6 per cent," Ketchen said.

"There are still… economists forecasting that the jobless rate in Canada could climb as high as 10 per cent. So the fact that we're not there yet and we've still got a fair ways to go to get there, I think that ought to be a positive."

Oil prices were lower, with the September crude contract on the New York Mercantile Exchange losing $1.01 to US$70.93. The Toronto energy sector fell 0.1 per cent.

The gold sector 1.7 slipped per cent as the December bullion contract lost $3 free online credit report.40 to US$959.50.

The financial sector regained 1.8 per cent after plunging 5.6 per cent Thursday on news that Canada's largest insurance company, Manulife Financial Corp.(TSX: MFC), cut its dividend in half.

Shares in CIBC (TSX: CM) jumped $2.75 or 4.2 per cent to $68.75 on the strength of the sector.

The TSX Venture Exchange added 4.46 points to 1,192.58.

In New York, all the major indexes surged by more than one per cent on hopes that the better-than-expected unemployment rate is a sign that the economic recovery is already well underway.

The Nasdaq composite index added 27.09 points to 2,000.25, while the Dow Jones industrial average gained 113.81 points to 9,370.07.

The S&P 500 increased 13.40 points to 1,010.48.

It was another heavy earnings day on Bay Street, with several major companies from a variety of sectors reporting.

Telus Corp. (TSX: T) said the effects of the recession continued to bite into its earnings, with profits down nine per cent and revenues stalled with little growth. Shares in the telecommunications company gained $1.87 or 6.1 per cent to $32.63.

Investment giant Brookfield Asset Management Inc. (TSX: BAM.A) says its profits in the second quarter increased by 33 per cent from a year ago on the strength of its office property portfolio even as revenue declined. Brookfield's shares added 12 cents to $21.86.

Meanwhile, Magna International Inc., (TSX: MG.A), the Canadian auto parts giant that's bidding for General Motors' European Opel business, said it lost US$205 million in the quarter, reversing a year-earlier profit as the global recession depressed demand for its products.

Magna's shares added $1.92 or 3.7 per cent to $53.30.

Air Canada (TSX: AC.B) said foreign exchange gains led to a 27 per cent increase in profits for the airline despite a decline in passenger traffic and revenues. Air Canada shares lost three cents to $1.85.

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Citing weak demand for coal used to fuel power plants, Patriot Coal Corp. will shut a mine in southern West Virginia and eliminate 314 jobs.

Employees were notified that they’ll lose their jobs as of Oct. 5, Creve Coeur-based Patriot said in a statement.

The mine being closed produces about 2.5 million tons of coal a year. It is part of a complex that also includes an underground mine.

The recession and cooler weather across parts of the country have led to a decline in electricity demand. In response, coal producers have shut or idled mines and slashed budgets unique business cards.

“Our strategy is to concentrate production at lower-cost mining complexes,” Patriot CEO Richard M. Whiting said in a statement. “By ceasing operations at this higher-cost surface mine, Patriot will keep valuable permitted reserves in the ground until the market yields more favorable pricing and margins.”

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Don’t be surprised to hear about changes to your credit card’s spending limit or interest rate.

I’ve had a few complaints from customers of Sears, American Express and Capital One – all U.S.-owned companies that may be more affected by the credit crisis than Canadian card issuers.

V.P. (I’m using initials for privacy) had a shock when he checked his Sears MasterCard account online.

The credit limit, formerly $10,000, had been reduced to $500.

Chase Canada, which bought Sears’ credit card arm in 2005, said credit limits are reviewed on a regular basis.

"Chase is continuously evaluating whether our customers’ credit lines are appropriate for their needs and will make adjustments accordingly," spokeswoman Gail Hurdis said.

C.M. had a similar experience with her Sears credit card, whose limit was cut to $500 from $9,500.

"I currently have a zero balance on that account," she says.

"I think I was targeted because I was late with a payment of $34.74."

C.M. had moved last May, which resulted in her Sears bill being dropped off at a neighbour’s house. It was caught in transition before the change of address kicked in.

She forgot about the $34.74 balance, which she cleared up shortly after the payment deadline.

"As a careful and responsible lender, we constantly evaluate the risks and costs of funding credit card loans," Chase spokeswoman Laura Rossi said.

"We may lower lines for customers who are showing signs of increased risk or inactivity."

To which CM replied: "In my case, their cost of funding credit card loans has been basically zero for the past few years. Maybe that’s their issue – nothing to gain?"

A.V. has an American Express card with no preset spending limit. But the balance must be paid in full each month cash advances.

After charging $3,663 to her Amex card last April, she got several calls about her spending.

"No preset spending limit doesn’t mean unlimited spending," said Jolene Price, an American Express Canada spokeswoman.

"We suggest to our charge card members that they contact us if they are planning to spend significantly out of pattern.

"In Mrs. V.’s case, her spending patterns changed, and as a responsible lender, American Express followed up to ensure that she could support the increased level of spending."

After more discussion with her lender, AV. told me she will cancel the card and get a partial refund of her annual fees.

Finally, S.H. has a Capital One credit card with an interest rate of prime plus 0.9 per cent. He told me that the rate is going up sixfold.

Capital One will be ending its low prime plus 0.9 per cent rate because of the higher cost of doing business in Canada, spokeswoman Laurel Ostfield said.

"We are switching some of our customers to our best available product (5.99 per cent annual percentage rate, fixed for three years), which is very competitive in the marketplace."

This week, Capital One started notifying customers that the new rate will show up on their October statements.

By Sept. 4, cardholders will have to decide whether to accept the new rate or reject it.

If they reject it, they will have to stop charging new purchases to their cards.

But they can pay off their current balances under the existing terms for as long as they like – as long as they make their minimum payments – until their balances reach zero.

"Then their account will be closed automatically," Ostfield said.

eroseman@thestar.ca

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Avon Products Inc. said second-quarter profit fell 65 percent.

Profit slid to $82.9 million, or 19 cents per share, from $235.6 million, or 55 cents, a year ago. Revenue fell 10 percent.

Bankrate Inc. reported its second-quarter profit was cut in half. Income was $1.9 million, or 10 cents per share, down from $4.1 million, or 21 cents, a year ago. Revenue fell 23 percent.

Brink’s Co. said second-quarter profit plunged 58 percent to $20.3 million, or 44 cents per share, compared with $48.7 million, or $1.05, a year earlier. Revenue in the quarter fell to $751.9 million.
Build-A-Bear Workshop Inc., the Overland-based seller of customized stuffed animals, said its second-quarter loss widened as the recession took a bite out of consumer spending. The net loss was $6 million, or 32 cents a share, compared with a loss of $4.8 million, or 25 cents, a year ago. Sales fell 13 percent to $82.4 million. (Jeff Tomich)

Colgate-Palmolive said second-quarter profit rose 14 percent, largely on price increases. Colgate earned $561.6 million, or $1.07 per share, up from the $493.8 million, or 92 cents, a year earlier. Revenue was down 5.5 percent.

Dow Chemical Co. posted a second-quarter loss on charges related to the buyout of a smaller rival. Dow lost $486 million, or 47 cents per share, compared with $762 million, or 81 cents, a year ago. Revenue fell 31 percent.

Eastman Kodak Co. lost $189 million in the second quarter, its third consecutive quarterly deficit. The per-share loss was 70 cents, compared with profit of $495 million, or $1.62, a year earlier. Sales plunged 29 percent.

Goodyear Tire & Rubber reported a $221 million loss in the second quarter. The tire maker lost 92 cents per share on sales of $3.9 billion. Last year, Goodyear earned $75 million, or 31 cents per share, on sales of $5.2 billion.

International Paper Co. reported a 40 percent drop in second-quarter profit but said the worst appears to be over. Income totaled $136 million, or 32 cents per share, compared with $227 million, or 54 cents, a year ago. Sales edged down to $5.8 billion.

Kellogg Co. reported second-quarter profit that beat expectations. Profit rose 13 percent to $353 million, or 92 cents per share, from $312 million, or 82 cents a year ago cash advances. Revenue fell 3 percent to $3.23 billion.

MasterCard Inc. booked a profit of nearly $350 million during the second quarter, exceeding expectations. The company earned $348.9 million, or $2.67 per share, compared with a loss of $746.7 million, or $5.70, a year ago. Revenue climbed 3 percent.

MetLife Inc. lost $1.43 billion in the second quarter amid a huge spike in investment losses. The per-share loss was $1.74, marking the second quarterly loss in a row, compared with income of $915 million, or $1.26, a year earlier. Revenue dropped 31 percent.

Motorola Inc. posted an unexpected profit for the second quarter. It earned $26 million, or 1 cent per share, up from $4 million, or break-even per share, a year ago. Sales fell 32 percent.

Newell Rubbermaid Inc. said second-quarter earnings rose 14 percent. The company earned $105.7 million, or 38 cents per share, compared with $92.5 million, or 33 cents, a year ago. Sales fell nearly 18 percent.

Reliv International Inc., the Chesterfield-based maker of nutritional supplements, reported lower second-quarter profit and sales. Income dropped to $410,000, or three cents a share, from $569,000, or four cents. Sales fell to $20.1 million from $24 million. However, the company said new distributor enrollments rose 6.2 percent in the quarter.

Walt Disney Co.’s third-quarter profit fell as slow sales pushed its movie studio into the red while the weakening TV ad market stabilized. Income sank to $954 million, or 51 cents per share, from $1.28 billion, or 66 cents, a year ago. Revenue fell 7 percent.

Waste Management said second-quarter profit dropped. It totaled $247 million, or 50 cents per share, down 22 percent from last year. Revenue fell 15 percent.

YRC Worldwide posted a huge second-quarter loss as customers defected and the recession continued to depress demand. The company posted a loss of $309 million, or $5.20 per share, compared with a profit of $35.8 million, or 62 cents, a year ago. Revenue sank 45 percent.

From staff and wire reports

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