Finance topics

At the start of each workday, Sanjiv Das reads the comments from CitiMortgage customers to employees who are trying to answer a question or fix a problem through one of the company’s websites.

A website CitiMortgage launched in December allows customers facing foreclosure or having difficulty making mortgage payments to post questions or comments to the company’s support team.

“There’s instantaneous feedback on what’s working and not working,” Das, CitiMortgage’s president and CEO, said in an interview. “Sometimes it’s painful.”

Painful certainly describes the condition of U.S. residential housing market and mortgage industry since Das was named to lead CitiMortgage in July 2008.

Based in O’Fallon, Mo., CitiMortgage is the mortgage lending subsidiary of Citigroup Inc., parent of the nation’s third-largest bank.

The subsidiary also has been buffeted by accusations of wrongdoing and increased regulatory oversight.

Despite the troubles, Das says CitiMortgage remains an important piece of Citigroup.

“Now it’s all about execution,” he said about moving CitiMortgage forward. “The team is in place. The structures are in place, and the strategy is in place.”

And righting the ship has meant more local jobs.

Das came from Morgan Stanley, where he was a managing director of its Institutional Securities Group. Das previously worked for Citi for eight years in the 1990s, overseeing product development and marketing, among other duties.

He returned to Citi to lead its mortgage business on the eve of the financial collapse of 2008.

“We knew we were in the eye of the storm,” Das said. “We didn’t know how big the storm would be.”

As the economy soured, Citigroup, its parent company, lost a combined $40 billion in 2008 and 2009. The credit crisis prompted Citigroup to accept $45 billion through the federal government’s Troubled Asset Relief Program, which it has since repaid.

The housing market has yet to recover, and Citigroup executives expect mortgage delinquencies to rise slightly this year.

While CitiMortgage’s parent reported a $11.3 billion profit last year, challenges remain.

On Tuesday, Citigroup received disappointing news in the Federal Reserve’s annual stress test results for 19 major U.S. banks.

The Fed wouldn’t allow Citigroup to increase payouts to investors. It said this would cause the bank to fail the test, which evaluated whether the financial institution has enough capital to withstand another crisis.

Other clouds facing the company include allegations of misdeeds related to its mortgage business and foreclosure practices dating back several years.

Last month, Citigroup agreed to pay $158 million to settle a civil fraud lawsuit against CitiMortgage for what the U.S. attorney’s office in New York called “reckless” mortgage practices over several years.

The U.S. attorney’s office alleged CitiMortgage pressured its quality control staff to reduce or downgrade findings of defects in government-backed loans, which led to losses. As part of the settlement, CitiMortgage admitted that it failed to comply fully with government requirements on FHA loans.

Also last month, CitiMortgage was one of five of the country’s largest mortgage servicers that agreed to a $25 billion settlement related to allegations of deceptive foreclosure practices lodged by the federal government and the attorneys general of 49 states.

The other banks included in the settlement are Bank of America, Wells Fargo, JP Morgan Chase and Ally Financial Inc.

The mortgage servicers, including CitiMortgage, “were engaged in widespread questionable foreclosure practices involving the use of foreclosure ‘mills’ and a practice known as ‘robosigning’ of sworn documents in thousands of foreclosures throughout the United States,” according to the U.S. Department of Housing and Urban Development.

NEW OPPORTUNITIES

While declining to comment on specific allegations, Das said CitiMortgage is working hard to comply with the new regulations it must follow stemming from the consent orders it signed with the government.

“Regulatory pressures have been top-of-mind,” he said. “It’s caused us to build out (our operations) to make sure foreclosure and loss mitigation is now very, very robust in terms of dealing with operational controls.”

What that means for O’Fallon’s headquarters and a CitiMortgage office in Dallas is new employees added over the last year to handle the extra oversight, Das said.

As mortgages and refinancings dropped in early 2011, CitiMortgage laid off 400 employees in four states, including dozens locally, to pare costs. Now, with the added staff to meet the new regulatory requirements, CitiMortgage’s workforce is 3,800 employees locally, which includes some contract employees, and 2,800 employees in Dallas.

The O’Fallon facility focuses on the front end of the mortgage business, including processing mortgage refinancings. Refinancings make up the majority of its current business.

Das’ office is in New York, but he said CitiMortgage’s headquarters remains firmly planted in the St. Louis region.

“It’s anchored in O’Fallon,” Das said. “We have a great tradition of being in Missouri. We have employees with long tenures here.”

A CitiMortgage initiative launched last summer included creating a support team of several hundred CitiMortgage employees — split between here and Dallas — that provides a single point of contact for customers.

If a homeowner has a question about a mortgage refinancing, each time they call Citi, the same representative who took their call in the past answers the phone, said Mark Danahy, CitiMortgage’s managing director based in O’Fallon.

Danahy was hired last July from PHH Mortgage, one of the largest U.S. originators of residential mortgages, as part of Das’ reorganization of top senior management at CitiMortgage.

“We have significantly transformed our connectivity with customers,” Das said. “Customers can literally speak to us online. On blogs, we’re answering customers’ questions.”

Das is now looking ahead at what’s next for CitiMortgage. He said he sees growth opportunities internationally where Citi’s credit card and other bank customers are already located. CitiMortgage’s international business has grown to equal its business in North America.

“With the rapid economic growth in Asia and Latin America … we can offer a full package of consumer services from credit cards to home loans,” he said. “The team is in place, the structures are in place, and the strategy is in place.”

Tom Lewandowski, a financial services equity analyst at Edward Jones, which has a “buy” stock rating on Citigroup, said Citi’s global reach should provide opportunities for CitiMortgage to grow outside of the U.S.

“If you look at Citi and its peers, you won’t find a more global business,” Lewandowski said. “I think growing in emerging markets is a good strategy in the long term.”

But some analysts aren’t convinced CitiMortgage has yet turned the corner.

“The settlement does not protect the banks from other enforcement actions, including securitization-related litigation or claims by borrowers,” Morningstar analyst Jim Sinegal wrote in a research note last month about the $25 billion settlement. “We do not expect these risks to subside anytime soon, creating headline risk for all of the major banks, and potentially significant financial risk for the most vulnerable institutions.”

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Gasoline prices have finally dropped after 27 days.

The nationwide average for regular unleaded slipped less than a penny to $3.764 per gallon on Tuesday. That ended a streak of price hikes that began on Feb. 8. Pump prices rose by more than 28 cents per gallon in that period, making gasoline the most expensive ever for this time of year.

Gasoline already tops $4 per gallon in California, Alaska and Hawaii. It’s near the $4 mark in several other states, including Connecticut, Illinois, Michigan, New York, Oregon and Washington.

Despite the one-day drop, experts predict that gasoline will continue to rise over the next several weeks. The Oil Price Information Service predicts the nationwide average could peak at $4.25 per gallon in late April.

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The tax bills of Mitt Romney and Warren Buffett raise a long-running question: Why do Americans get taxed less on their investment gains than on their paychecks?

In fact, for much of the past century, long-term capital gains have been taxed at lower rates than ordinary income, although often at levels higher than today’s 15% rate.

And for much of the past century it’s been a contentious issue.

One side says preferential treatment for capital gains is just plain unfair. The tax code, they say, is being used to help the rich get richer, since they make more of their income from capital gains than anyone else.

Their solution: Tax capital gains as regular income.

Then there’s the counter argument — that capital gains, if anything, should be taxed more lightly, or better yet, not at all.

Capital gains are double taxed: One of the principal arguments for taxing capital gains at a lower rate is double taxation.

The corporate tax ’shell’ game

It goes like this: Stock prices are bolstered by corporate profits, which are subject to corporate tax. Therefore, gains made on stocks have already been taxed.

Tax experts like Len Burman and Martin Sullivan say that double taxation is dumb — actually, they’re more likely to use the term "inefficient."

But they also note the limitations of the double-taxation argument: Some capital gains really are only taxed once.

For instance, some assets that produce capital gains are not subject to a corporate tax. Think real estate, art or a pass-through business.

And some capital gains escape taxation altogether. A beneficiary of an estate does not owe tax on the capital gains accrued on an asset during the lifetime of the person who died.

Many gains are just inflation: One reason to keep capital gains rates lower is inflation. That is, some portion of one’s gains can be attributed to inflation between the purchase and sale of an asset. And sometimes it’s the whole kahuna.

Tax expert Bruce Bartlett, in a 2001 paper, cited research showing that after accounting for inflation investors booked a real investment loss of $231 billion on nominal gains of $3 trillion between 1946 and 1977.

Where the candidates stand on capital gains

To help mitigate the inflation hit, lawmakers have typically taxed capital gains at a lower rate than ordinary income or let investors exclude some portion of their gains from taxation.

A lower rate spurs the economy: The most common argument for a lower gains rate is that it spurs investment and risk-taking, which can lead to economic growth and higher federal revenue.

Burman doesn’t doubt a lower rate might spur investment and risk-taking. But there’s no proven correlation with economic growth, he said. "It doesn’t prove there’s not a relationship. It’s just not the silver bullet it’s made out to be."

In part that may be because it’s hard to quantify risk-taking, Bartlett noted in his new book about tax reform, "The Benefit and the Burden." But he also asserts that that impact of a lower gains rate on growth is "ambiguous."

Policy experts worry that a high capital gains rate can cause investors to hold onto assets longer than they otherwise might, preventing them from using their gains to reinvest in other assets.

Then again, some say a higher rate won’t deter investors.

"I have yet to see anyone — not even when capital gains rates were 39.9% in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain," billionaire investor Warren Buffett wrote in a New York Times op-ed.

Possible solutions

A lot of arguments made to justify a low capital gains rate are really about "general flaws with the tax system, not a reason to lower the capital gains rate per se," Burman said.

One argument for not singling out capital gains for special relief: They are not the only kind of capital income that can be double taxed or hurt by inflation. So are dividends.

And creating special tax breaks for capital gains gives people a reason to seek out tax shelters.

One proposed solution is to tax capital gains and dividends as ordinary income but significantly lower ordinary income tax rates.

That was the recommendation of President Obama’s bipartisan debt commission and the Bipartisan Policy Center’s Debt Reduction Task Force. And it’s what President Reagan and Congress did when they reformed the tax code in 1986.

"If you tax capital gains as ordinary income it raises a lot of revenue to cut other rates," said Burman, who worked on the 1986 reform and was a member of the Bipartisan Policy Center task force.

"It maintains high progressivity while lowering rates and it closes down the biggest opportunity for tax shelters." 

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The European Central Bank

Lincredible! Linsanity! Divine Lintervention!

Whatever pun you choose to describe it, the Jeremy Lin phenomenon is shaping up to be a big win for many retailers.

Lin, an unheralded Asian-American player from Harvard, has turned in a string of sensational performances since coming off the bench in a game earlier this month, leading the New York Knickerbockers to a surprising winning streak.

"The demand has just been unlike anything we’ve seen," said Rich Lampmann, a spokesman for Modell’s Sporting Goods, a chain based in New York City. Modell’s has sold roughly 10,000 Lin jerseys and t-shirts in the past week, and has over 160,000 more hitting shelves within the next few days.

"It’s really been sort of a catch-up game," Lampmann said. "We were literally pulling product off the presses to get it into the city."

Lin’s jersey has been the top seller for the NBA’s online store since his breakout game on Feb. 4, NBA spokeswoman Amanda Thorn said. She declined to provide exact sales figures, but said nine of the top ten sellers in the store this week are Knicks jerseys, and that Lin merchandise has been shipped to 23 different countries.

A Lin replica jersey retails sells on NBAStore.com for $59.99. Some possible counterfeits, meanwhile, seem to have already made it online — Lin jerseys were available on eBay (, Fortune 500) Friday for $29.99.

Given the Harvard grad’s recent emergence, many retailers are still scrambling to catch up with the demand for Lin apparel. Monty Marks, a senior buyer at the New England-based Olympia Sports, said Thursday that the chain was just receiving its first shipments of Lin gear after a number of inquiries from customers.

"We do expect it to be pretty good," Marks said. "The build-up has been crazy."

Matt Powell, an analyst with sporting goods industry tracker SportsOneSource, said there was still "very little product" associated with Lin in most stores nationwide.

"It’s just barely getting started," he said.

Given Lin’s Taiwanese heritage, his marketing potential in the Far East is tantalizing as well. The NBA said this week that Lin had become the number-one search on Baidu, China’s Google equivalent.

For now, Lin has a Nike (, Fortune 500) endorsement deal that he signed when he turned pro back in 2010. Brian Strong, a spokesman for Nike, noted that Lin had done a two-city promotional tour for the brand in Taiwan last summer, but was tight-lipped about future marketing plans.

"He seems to be inspiring people through his play, and we’ll continue to look at ways to celebrate that," Strong said. 

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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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Turnout was low as Egyptians voted on Sunday for the upper house of parliament, in elections that are the latest step in the country’s planned transition from military to civilian rule.

Few voters showed up to cast their ballots at polling stations in Cairo, one of 13 provinces where the first stage of elections for the largely advisory Shura Council are taking place. A second stage will take place on Feb. 14-15.

“We now feel we have a role in shaping the country’s future,” said Mohammed el-Hawari, a professor at Cairo’s Ain Shams University and one of those who did vote.

The Shura Council is composed of 270 members. Only two-thirds are elected while the rest are appointed.

Islamists dominated elections for the People’s Assembly, the more powerful of the two houses of parliament, in voting that ran from Nov. 28 through January. Turnout was heavy in these elections, which were the first since the Jan. 25-Feb. 11, 2011, mass uprising that ousted Hosni Mubarak.

One secular party, the Free Egyptians, had announced that it was boycotting Shura Council elections to protest what it described as violations of Egypt’s election laws by Islamist parties during the People’s Assembly vote.

The secularists say that that Islamists made heavy use of religious slogans and campaigned too close to polling stations. Islamist spokesmen have denied using slogans inappropriately, and said that all groups campaigned too close to the stations.

Secular and liberal alliances, including youth parties which led the anti-Mubarak uprising, have performed poorly in elections.

Once the Shura Council elections are complete, according to Egypt’s transition plan, the parliament is tasked to select a 100-member panel to draft the country’s new constitution. The ruling military council which took power after Mubarak’s ouster is then scheduled to transfer power to an elected civilian president by the end of June.

The army generals have been accused of mismanaging the transitional period, of not carrying through sweeping reforms, and of keeping Mubarak’s regime intact.

The voting comes a few days after hundreds of thousands of Egyptians poured into the streets to mark the first anniversary of their uprising and to press the military council to step down.

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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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Prime Minister Mario Monti

iBooks 2 will be a