Finance topics

So many times when the big credit-rating companies have embarrassed themselves, the world has sighed and chalked it up to a business model that by design invites corruption and incompetence. Perhaps never before have the public’s expectations for the industry been lower.

The fundamental flaw is that the major rating companies, led by Moody’s Investors Service and Standard & Poor’s, typically are paid by the issuers of the securities they rate, or by other deeply interested parties, such as Wall Street underwriters. Too often the raters seem to be the last to know that a company they dubbed investment grade was going broke, or that a mortgage bond once deemed AAA was about to default. The public sees these things and naturally draws a link between what the raters say and how they are compensated.

Although the government can’t make the credit raters more capable, it can make them more transparent. Here’s a good place to begin: Start requiring disclosures of how much the raters’ clients pay them for their services.

Consider some of the boilerplate in Moody’s reports on MF Global Holdings Ltd., whose credit ratings were the subject of a congressional hearing last week. Moody’s Oct. 27 report — in which it downgraded MF Global to junk, only four days before the futures broker filed for bankruptcy — said most issuers of debt securities pay “fees ranging from $1,500 to approximately $2,500,000″ for “appraisal and rating services.”

It’s anyone’s guess whether the fees MF Global paid to Moody’s fell within or outside this range. The companies know how much money changed hands. They’re just not telling us.

The disclosures in Standard & Poor’s reports are just as useless. The company’s Oct. 26 report on MF Global said “S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors.” Coincidence or not, S&P maintained an investment-grade mark on MF Global until the day it failed.

There’s no such secrecy about the fees other types of opinion vendors charge their clients. For more than a decade, U.S. public companies have been required to disclose the annual fees they pay their outside auditors. Similarly, when companies hire stock promoters or other firms to publish research reports profiling their shares, federal securities laws require disclosures in the reports showing who paid for them, as well as the amount and form of compensation.

The auditor-fee disclosures have been useful. Fannie Mae’s proxy statement for 2003, for instance, showed the housing financier paid KPMG $2.7 million to audit its books that year.

The fee was so tiny, for a company with $1 trillion of assets, that it served as a red flag for investors, signaling that KPMG’s audit quality couldn’t have been all that robust. The next year Fannie Mae had a huge accounting scandal.

At the other extreme, in its first annual report as a public company, Blackstone Group LP said it paid its auditor, Deloitte & Touche, total fees of $159.1 million for 2007, mostly for nonaudit work. The fees were so huge — Blackstone’s total assets were $13.2 billion at the time — it would be reasonable for investors to wonder what influence they might have had on Deloitte’s judgment.

The parallels for credit-rating companies are obvious. Like auditors and stock promoters, they’re paid to express opinions to investors. Whatever their fees are, the public should be told. The credit raters would have us believe there’s nothing wrong with collecting cash from the same customers whose securities they grade, and that this doesn’t cloud their independence or objectivity. If that’s true, they should have no problem with us knowing the actual dollar amounts.

Unfortunately this isn’t the path the government has chosen. The Dodd-Frank Act, passed in 2010, included 19 pages of new provisions governing how credit-rating companies operate.

Numerous federal banking and securities laws were amended to remove statutory references to credit ratings, for instance, so that regulators would reduce their reliance on them. Dodd-Frank didn’t mandate disclosure of the raters’ fees, however.

A rule proposed last year by the Securities and Exchange Commission would require companies such as Moody’s and S&P to disclose in a form accompanying each credit rating whether the grade was paid for by the issuer, underwriter or sponsor of the security being rated — or if it was purchased by someone else, such as an investor. The rating company would also have to disclose if the purchaser had paid it for any other services, such as consulting or advisory work.

Most important, though, no dollar amounts would have to be divulged.

This is a mistake. A big reason that the public doesn’t trust credit ratings is because of the money that changes hands.

What matters most, obviously, is how much. It makes little difference whether the amounts are disclosed by the rating company or by the issuer of the securities as part of its own disclosures, as long as it’s made public somewhere.

The most dubious penny-stock promoters have to disclose what they get paid for their opinions. Credit raters can at least be held to the same standards.

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ST. LOUIS • The money to renovate the Edward Jones Dome could come partly from higher fees for tickets and parking.

Those are among the possible sources of public funding listed in a financial plan the St. Louis Convention and Visitors Commission has sent to the Rams. The plan is meant to explain how to pay for $124 million in renovations to the Dome.

It lists a ticket surcharge and the creation of a new parking district, with a vehicle surcharge, as options. The plan also lists bond refinancing, tax credits and tapping the reserves of the Dome’s owner as other options.

The one-page financial plan, however, is short on specifics and does not list how much money each source of public funding would generate. It lists only the total they would bring in: $59.5 million.

The lack of specificity is highlighted by one of the listed sources: “Other City, County and State money as may be provided.”

And at least one of the listed items — refinancing of bonds issued by the Regional Convention and Sports Complex Authority to build the Dome — is not currently allowed, according to the authority’s website.

The CVC, which manages the Dome for the authority, wants the Rams to pay for $64.5 million of the renovation costs.

The CVC released the document late Thursday after a public records request from the Post-Dispatch. The CVC released its renovation plan on Wednesday but declined to release the financial document, and St. Louis and St. Louis County officials also initially declined to discuss funding details.

Officials said they did not list specifics or dollar amounts because the document was not meant to be a detailed financial analysis. The idea was simply to show the Rams that there are a variety of public funding options available, they said.

“All of them might be used or some of them might be used,” said Mike Jones, a senior policy adviser to St. Louis County Executive Charlie A. Dooley. “It’s all going to depend on what improvements end up being made.”

No decisions have been made on what area would make up the parking district, what the charges would be, and whether they would be levied only on game days or year-round. Also, no decisions have been made on how much a ticket surcharge would be. The city already charges a 5 percent amusement tax on Rams tickets.

Jeff Rainford, St. Louis Mayor Francis Slay’s chief of staff, pledged that proposals to levy new fees or taxes would go before city voters — if those proposals go beyond what is generated as part of the “game day experience.”

“People who don’t go to Rams games or take part in the NFL experience don’t have to worry about being nicked for this without a vote of the people,” he said short term personal loan. “They will not pay any more for this facility without a public discussion and a public vote.”

Rainford also said a referendum would be needed if the city were to eliminate the 5 percent amusement tax or redirect the revenue to help pay for construction costs.

Dooley’s office has similarly pledged to give voters final say on some issues.

“Anything related to increasing a current tax or creating a new revenue source (in the county) would need to be voted on by the people,” Jones said.

The Dome, which opened in 1995, was largely financed with $256 million in revenue bonds, and the repayment of that 30-year debt will be $720 million. Every year, Missouri spends $12 million to pay off the debt, and St. Louis and St. Louis County each pay $6 million annually.

Highlights of the Dome renovation plan include adding large window panels and a 96-foot-wide video screen and scoreboard; building a three-story pavilion connected to the Dome via a bridge over Broadway; and replacing four luxury suites and 1,800 regular seats with 1,500 club seats.

The CVC is required to come up with a plan that, by March 2014, would make the Dome a “first-tier” facility. The Rams have until March 1 to accept or reject the CVC plan, and until May 1 to make a counteroffer.

“Until we know exactly how much we need, there’s no point in going through a financial analysis,” Kathleen “Kitty” Ratcliffe, the CVC’s president, said in explaining the lack of funding specifics.

The one-page financial plan, however, lists estimated costs for the proposed renovations. The biggest cost, $24.5 million, would be for improvements to entrances, bathrooms and common areas, followed by $21.5 million for changes to box suites and concourses.

Many of the proposed improvements would increase revenue at the Dome, but the Rams — not the CVC — likely would reap the biggest rewards from those upgrades. That could be why the CVC wasn’t shy in asking the team to front 52 percent of the bill.

Under the terms of the lease, for example, the Rams keep all ticket receipts, so the team will benefit most from the addition of pricier club seats.

The improvement plan would upgrade concession areas and increase food and beverage sales outside of the Dome. The lease gives the team all net revenue from concessions sold on game days.

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The director of the International Monetary Fund said Monday that Europe needs a stronger financial firewall to stop the spread of debt contagion in the eurozone.

Speaking in Berlin, IMF chief Christine Lagarde supported a plan to fold the resources of the European Financial Stability Facility into its permanent replacement, known as the European Stability Mechanism, which has yet to be fully established.

The EFSF is valued at €440 billion, while the ESM is expected to have €500 billion in lending capacity. Combining the funds could result in a total firewall worth €1 trillion, according to eurozone officials.

The goal is to shield larger euro area economies from the debt crisis that has pushed Greece to the brink of default and resulted in bailouts for Ireland and Portugal.

"We need a larger firewall," said Lagarde. "Without it, countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs."

European recovery? Wait till 2013 (at least)

Lagarde stressed that the ESM should be funded with "real tangible capital," as opposed to the loan guarantees that make up the EFSF.

The comments came as finance ministers from the 17 nations that use the euro currency, known as the Eurogroup, met to discuss ways to speed up implementation of the ESM. They are also expected to hash out the details of the fiscal pact European leaders proposed in December.

In addition to calling for a stronger firewall, Lagarde said eurozone officials need to do more to boost economic growth, which could include additional action by the European Central Bank.

Lagarde also said the eurozone needs to move toward greater "fiscal integration." She pointed to a number of options for "fiscal risk-sharing," including the creation of so-called euro bonds, an idea that has proved controversial.

She welcomed steps the ECB has taken so far, including a long-term lending program that has already pumped nearly €500 billion into the banking system payday loans in one hour.

"That has helped enormously," Lagarde said, adding that "there is a role for the ECB to play in terms of monetary policy."

European banks need to raise more capital, but they must do so in a way that will not cause credit conditions to contract, cautioned Lagarde.

She said governments with large deficits need to continue to tighten public finances, although she warned the aggressive budget cuts could increase the risk of a deeper recession. However, nations that are in better financial shape should contribute to the "common effort" by scaling back fiscal consolidation, she added.

World Bank warns on risk of global recession

Separately, Lagarde said the IMF will lower its growth forecasts for "many part of the world" when it releases an update to its World Economic Outlook early Tuesday.

She called on global policymakers to do what is necessary to prevent a deeper decline, saying last year’s economic problems were driven "by a lack of a collective determination to reach a cooperative solution."

"Now the world must find the political will to do what it knows must be done," she said.

While the debt crisis in Europe is the biggest threat, Lagarde also pointed to the challenges facing the U.S. economy.

"The United States, as the world’s largest economy and the center of the global financial system, has a special responsibility," she said.

Despite signs of a modest recovery, the U.S. economy remains hindered by high unemployment and a weak housing market.

In addition, U.S. policymakers need to get past the "partisan impasse" on how to reduce the nation’s long-term debts, without stifling economic growth, she said. 

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Vancouver displaced Sydney as the least-affordable housing market after Hong Kong among large English-speaking cities, as home prices rose faster than incomes, a study of 325 metropolitan areas worldwide showed.

Vancouver

Prime Minister Mario Monti

Manufacturing in the New York region expanded in January at the fastest pace in nine months, reflecting improving orders, sales and employment.

The Federal Reserve Bank of New York

Don’t toss out that full carton of orange juice sitting in your refrigerator just yet.

The U.S. Food and Drug Administration is testing all orange juice and orange juice concentrate shipments as well as products at domestic manufacturers, but the regulating agency says "consumers can be confident that the orange juice in their refrigerators is safe."

Here’s what you need to know.

Why is the FDA testing OJ? Last month, Coca-Cola alerted the FDA that it detected low levels of a fungicide in its own and in competitors’ orange juice and in juice concentrates from Brazil following routine tests.

As a precautionary measure, the FDA has halted imports of orange juice and orange juice concentrates from all over the world, and is testing each shipment for the fungicide carbendazim. The FDA said it will deny entry of any imported orange juice products that test at 10 parts per billion or higher for carbendazim, which is still a very low level.

As of Friday, the FDA said it has collected samples from 31 shipments. Twenty-eight are still pending analysis, but three shipments of orange juice and orange juice concentrates were negative for carbendazim, and will be released by the FDA.

What is carbendazim? Carbendazim is a chemical fungicide that is legal in most parts of the world, including Canada, Japan, Europe and Brazil.

The FDA said that industry reports indicated the carbendazim was in orange juice products from the 2011 crop in Brazil, where the fungicide is used to combat a type of mold that grows on orange trees known as black spot.

In the United States, however, the Environmental Protection Agency has not approved the use of carbendazim as a fungicide, and under U.S. law, it’s considered an unlawful pesticide chemical residue.

Is carbendazim dangerous? The EPA has conducted a preliminary risk assessment on carbendazim and determined that levels under 80 parts per billion (ppb) in orange juice do not raise safety concerns.

In the original tests, Coca-Cola (, Fortune 500) detected between 10 ppb and 35 ppb in orange juice products of its own and those of its competitors. Coca-Cola makes Minute Maid, Simply Orange and Odwalla.

However, the EPA is continuing to conduct risk assessments, and said it will have more results next week.

How much orange juice comes from Brazil? About 75% of all orange juice consumed locally is supplied domestically, and the rest is imported, according to the U.S. Department of Agriculture.

However, of the remaining juice that is imported, Brazil is the largest contributor. In 2010, the South American country shipped over 171 million gallons of orange juice to the United States, accounting for more than 56% of all orange juice imports that year.

But overall, only 11% of all orange juice consumed in the U bad credit personal loan lenders.S. comes from Brazil, according to the USDA.

U.S. companies import orange juice from Brazil because of unpredictable weather conditions in Florida — hurricanes and freezing temperatures — which can negatively impact that state’s orange crops.

Is is possible that the orange juice in my fridge has carbendazim? Yes. But because the levels of carbendazim that have been detected are not harmful, the FDA said it has "determined that requiring a recall or the destruction of orange juice products" is not necessary.

In fact, the competitor products that Coca-Cola tested were "currently marketed finished products," meaning they were purchased off grocery store shelves.

Tropicana orange juice, which is owned by PepsiCo (, Fortune 500), contains orange juice from the U.S. and Brazil, according to package labels. But the company said it made an "unrelated decision some months ago" to transition to 100% Florida orange juice for its Pure Premium juices, which do not include orange juice concentrate.

Tropicana said it is already the largest buyer of Florida oranges, so the transition only requires a "minor supply chain adjustment" that will be completed by the end of the month.

Meanwhile, PepsiCo’s Naked Juice products are made only from oranges grown in the United States, the company said.

Similarly, Florida’s Natural, which competes with Coca-Cola and PepsiCo’s orange juice products, prides itself on only using oranges that are grown by U.S. farmers in Florida.

Trader Joe’s said that although its orange juices are only made with oranges sourced from Florida, California and Mexico, its orange juice suppliers are conducting additional testing in light of recent concerns.

The FDA has confirmed that it is also testing samples of finished orange juice products and orange juice concentrates at domestic manufacturers, and said the sampling and analysis will be completed in the next few weeks. The agency said if it identifies a brand of orange juice that presents a public health risk due to levels of carbendazim, it will issue a recall.

How will this affect orange juice prices? On Tuesday, March orange juice futures spiked almost 10%, or 20 cents, to $2.07 a pound on the ICE Futures Exchange, which traders said was the highest level since 1977.

Futures reversed course on Wednesday, 9%, to $1.881 per pound. And on Thursday, orange juice futures retreated another 5.6%. On Friday, futures popped 8%.

Traders say huge spikes in orange juice futures could result in price bumps at the grocery store.

Coca-Cola said it could not comment on whether the discoveries would affect pricing of its orange juice products.  

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President Barack Obama will speak today at the White House at 11:20 a.m. Washington time on steps he plans to make the U.S. government leaner, smarter and more consumer-friendly, a White House official said business card templates.

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Debt-crippled Greece’s budget deficit is expected to hit 9.6 percent of economic output in 2011, about half a percentage point above target, the development minister said Wednesday.

Michalis Chryssochoidis said that an increase in the use of European Union structural development funds had contributed to lowering government overspending from 10.6 percent of gross domestic product in 2010.

“The good news is that absorption of European Union funds has exceeded all expectations,” Chryssochoidis said at an economic forum where the government hopes to attract investment from the United Arab Emirates.

But Greece, which is relying on billions in rescue loans from its European partners and the International Monetary Fund to keep afloat, had pledged to cut the 2011 deficit to 9 percent of GDP.

Greece ran up high budget deficits for years, building a suffocating debt load set to exceed 160 percent of GDP in 2011. In exchange for a vital euro110 billion ($140 billion) international bailout in May 2010, the country implemented a harsh austerity program, slashing pensions and salaries while repeatedly hiking taxes and raising retirement ages.

The country’s interim coalition government is rushing to pass a new batch of reforms and cutbacks, to secure a second, euro130 billion bailout package approved in October but not yet finalized instant personal loans guaranteed.

Fitch Ratings warned on Wednesday that Greece’s financial troubles could still worsen the eurozone crisis if it can’t work out a debt reduction deal with creditors, part of the second bailout package.

Fitch’s head of sovereign ratings David Riley said Greece “still has lots of potential to plunge Europe into crisis” and that “time is running out.”

Greece is in talks with private investors about a voluntary 50 percent reduction in their Greek bond holdings.

It needs to agree the deal before it can get another installment in its rescue loans, which it will need to repay euro14 billion in bonds that come due in March.

Riley said one complicating factor in the private creditors’ deal was the European Central Bank’s refusal to write down its estimated euro45 billion in Greek bonds. That means private bondholders have to be asked to take on more losses to reach a given reduction in Greece’s debt load.

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Swiss (SNBN) National Bank President Philipp Hildebrand will today answer lawmaker questions in Bern as he seeks to end a discussion over controversial currency purchases by his wife.