Finance topics

Government-owned mortgage financing firm Freddie Mac reported a larger loss in the fourth quarter, but the company did not need to draw down any additional tax dollars in the period.

The company, which along with rival Fannie Mae (FNM, Fortune 500) was put into a conservatorship under government control in September 2008, lost $6.5 billion in the quarter, up from a loss of $5.4 billion in the third quarter.

Including $1.3 billion in preferred dividend payments to the federal government, the loss came to $7.8 billion in the fourth quarter of 2009. But that’s still much better than the $23.9 billion it lost in the year-earlier period.

The company lost $21.6 billion for the year, an improvement from 2008 losses of $50.1 billion.

Freddie charged off $2.4 billion in bad loans during the quarter, nearly triple the $863 million from a year earlier. That brought full-year charge-offs to $7.6 billion in 2009.

And the worst is clearly not behind it, as Freddie raised its reserves for loan losses to $33.9 billion at the end of the quarter, up from $30.6 billion three months earlier.

About 3.9% of its $1.9 trillion in loans are now delinquent, well below the national average for late payments. But Freddie’s delinquency rate has been rising steadily for the past two years.

Freddie (FRE, Fortune 500) said it ended the quarter with a positive net worth of $4.4 billion, which means that for the third straight quarter it did not need another injection of government cash make quick cash. Net worth compares a company’s assets to the value of its liabilities.

A year ago Freddie needed $30.8 billion in federal cash as mounting foreclosures on the mortgages Freddie owns or guarantees hurt the company’s finances. Since the start of the conservatorship, Freddie has received $50.7 billion in taxpayer dollars, while Fannie has received $60.9 billion.

That injection of tax money to keep the companies afloat gave the Treasury Department an 80% stake in both companies. Fannie and Freddie both pay dividends to Treasury. Freddie has paid $4.2 billion so far.

But despite those dividends, future injections of taxpayer dollars are likely. At the end of the fourth quarter, Treasury lifted a $100 billion limit on the amount of money it could pour into each of the firms.

Fannie and Freddie are the primary source of mortgage funding in the nation. They bundle home loans that conform to certain standards into securities, attach a guarantee that they will be paid, and sell them to investors. The process gets money back to the banks and other lenders that originate the loans.

Freddie, which has about $1.9 trillion in its loan portfolio, purchased or guaranteed approximately one out of every four U.S. home loans originated during 2009. 

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Otterbein Homes has acquired Pioneer Home Health Care, a Medicare-certified home health agency with operations in the Wilmington area.

Pioneer Home Health Care was established in 2005 by licensed physical therapists Tim McCormick and Kimberly Neikirk. Neikirk has been named executive director for the new venture for Otterbein, and McCormick will assume the position of therapy supervisor.

All of the other current employees will remain with the company, according to a press release.

Otterbein’s five full-service retirement communities in western and northern Ohio are located in Lebanon, St. Marys, Cridersville, Pemberville and on the Marblehead Peninsula on Lake Erie. Avalon by Otterbein neighborhoods, which offer skilled nursing and rehabilitation, are located in Perrysburg and Monclova in northern Ohio and Springboro and Middletown in southern Ohio Same day payday loans.

Avalon in Hamilton Township is under construction.

Jill Hreben, CEO of Otterbein Homes, said: “Extending the Otterbein brand to include home health services was critical to our continuing strategic goals, and we recognized an outstanding alignment with the level of care and the values displayed by Kimberly and Tim and the other partners at Pioneer.”

Otterbein Homes serves nearly 1,700 people and is related to the East Ohio and West Ohio Conferences of the United Methodist Church.

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If you want to buy a house, the state of Missouri wants to give you $1,250.

And if you make the place more energy-efficient, it will give you $500 more.

State officials are poised to pass a measure next week that would give a sizable break on property taxes to most people who buy a house in 2010. It is Jefferson City’s latest bid to boost the state’s weak housing market, and the newest item on a growing menu of sweeteners to make buying a house more appealing, sweeteners that some warn could eventually cause a hangover.

The measure was pitched last month by Gov. Jay Nixon and state Treasurer Clint Zweifel as a way to spur housing sales and spur the state’s economy.

"This is so vital to our state’s economic growth," Nixon said. "We want to do everything feasible to encourage people to buy homes."

So next Friday, they will ask the Missouri Housing Development Commission — which Zweifel chairs and to which Nixon appoints most of the members — to set aside $15 million of its reserve funds for one-time property tax reimbursements for Missourians who buy a home in 2010. To qualify, St. Louis-area households must earn $95,060 or less; if they do, they can get up to $1,250 in property taxes reimbursed by the state.

Home buyers who add energy-saving appliances, new windows or other "green" improvements, can qualify for another $500. With a $15 million cap for the program, the state expects to write between 9,000 and 11,000 such checks — roughly one for every 10 homes sold in Missouri this year.

It comes on top of the $8,000 federal tax credit for first-time home buyers, which many economists say has helped prop up home sales this year. Last month, Congress voted to extend that program through April and expand it to include $6,500 for some repeat buyers. States from California to Delaware have thrown in their own incentives, too, and in January the Missouri housing commission launched a program to give an advance on the $8,000 credit, a program more than 1,200 people have used so far. Illinois launched something similar in July.

Now, Missouri plans to up the ante. If the housing commission approves, the agency will put much of its reserve funds — separate from the state’s cash-strapped general budget — toward the waivers.

"This hopefully is another tool in the toolbox," Zweifel said. "It’s important to put our dollars to work."

Still, given Missouri’s record-high foreclosure rates and a job market that is giving pause to many would-be buyers, some housing advocates wonder if the $15 million might be better spent in other ways no faxing payday loan.

"In terms of the level of need, it strikes me as a little strange," said Chris Krehmeyer, president of Beyond Housing, a St. Louis-based group that provides mortgage counseling and builds affordable housing. "We’re not seeing folks who are buying homes saying ‘I wish someone would pay my taxes next year.’ People are saying, ‘I need help to stay in the home I own.’"

Typically, the state’s housing commission finances affordable housing projects and will issue nearly $100 million in tax credits for those projects in early 2010. But, Zweifel said, the broader housing industry is a big pillar of Missouri’s economy, and supporting it, too, means creating jobs. This provides a fast way to do it.

"The goal was partially to spur home purchases, but also to find a way to quickly put $15 million to work for Missourians," he said. "We wanted to create a program that helps spur economic development and job creation, not something that’s permanent in nature."

The temporary nature of this and the $8,000 federal tax credit has some housing economists warning of trouble when the programs end. Such props must be taken down eventually, and critics point to a plunge in auto sales after the end of the government’s "Cash for Clunkers" program as a warning for what might happen to the housing market.

Then there’s the question of just how much impact it will have. Most people aren’t going to make a decision on whether to move based on $1,250, said Carlos Garriga, an economist who studies housing at the Federal Reserve Bank of St. Louis.

"It’s just kind of a bonus," he said. "Even at the margins, how many people will move because of this? It’s not that big."

Still, said Mark Stallmann, chief executive of the St. Charles County Association of Realtors, it’s the sort of thing that makes it easier to buy a house. And with the real estate market as weak as it is right now, every little bit — even a $1,250 check from the state — helps.

"Anything that reduces the cost of homeownership, that’s an incentive to help families get in a home, that’s a good thing."

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A return to lavish bonuses for Wall Street’s top earners could be just the tonic that the Swiss watch industry needs this Christmas after months of austerity depressed sales.

The country’s watch sector, which makes up around 7 percent of exports, has been grappling with a sharp drop in demand over the past year after the worst economic crisis in decades killed consumers’ desire and ability to splurge on pricey treats.

But watchmakers are eyeing a modest rise in sales over the key festive period — the fourth quarter accounts for some 30 percent of sales — as a recovery in Wall Street earnings could lift bankers’ bonuses by up to 50 percent.

“The consumer mood between the continents varies, but on average it is better than last year,” said Philippe Merk, chief executive of privately owned Audemars Piguet, whose watches cost around $20,000 to $30,000.

“Luxury consumers, who are bankers, are better off now as this is the sector that has recovered the fastest. These are the indicators that tell us that this year’s Christmas sales will be better,” he said.

Bonuses are expected to be substantially higher this year despite pressure from politicians and regulators to restrain payouts.

Goldman Sachs, for example, has set aside nearly $17 billion for bonuses so far this year and looks well on track to break the $20 billion mark, which could mean higher payouts per employee than in the previous record year, 2007.

This comes after a revival in profits for most investment banks, and contrasts with a bleak year for the financial sector that has seen governments bailing out major banks and nearly 400,000 job cuts.

Richemont’s most important Cartier brand, Swatch Group’s Tissot marque, luxury watchmaker Parmigiani Fleurier and the head of LVMH’s watch and jewelry unit have all said they expect stronger demand this Christmas.

And Tiffany & Co posted better-than-expected quarterly results on Wednesday that showed its upscale shoppers around the world were spending again.

One Swiss banker said he was treating himself to one of Maurice Lacroix’s latest watches this year, adding that some people bought watches and jewelry as a solid investment, especially after this year’s volatile equity markets.

But he cautioned that there would still be many in the financial sector who would have to forego such purchases.

“It will not be as easy as it was in the past. There is a real difference between the winners and the losers. Employees at those banks that are now state-controlled can forget about bonuses this year,” the banker said.

ASIA A BIG FACTOR

Swiss watch exports have tumbled 26 percent so far this year, ending several years of strong growth, but some analysts predict the watch industry will grow 3-4 percent thanks to an easier comparison base next year and thriving demand from Asia. 

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The U.S. Federal Reserve is best equipped to supervise the largest, most complex firms, a top U.S. Treasury official said on Friday.

“No regulator had a perfect record leading up to the crisis,” Deputy Secretary Neal Wolin said in prepared remarks to the American Bar Association’s banking law committee. “But in our view, the Federal Reserve is the agency best equipped for the task of supervising the largest, most complex firms.”

The comments came three days after Senator Christopher Dodd, chairman of the Senate Banking Committee, proposed consolidating bank supervisory powers in a single agency, stripping the Fed of its role as a direct bank supervisor.

Wolin did not mention Dodd by name in his comments, but said the Fed’s supervisory role gave it a deep understanding of and timely access to information about the banking sector, payment systems and capital markets no credit check payday loan.

“Stripped of its supervisory role, the Fed would not have timely and complete information in a crisis,” he said.

The Fed, the U.S. central bank, has drawn sharp criticism from some lawmakers for its handling of the financial crisis, particularly its controversial decisions to extend emergency loans to firms such as AIG, which it did not directly supervise.

(Reporting by Emily Kaiser; Editing by Neil Stempleman)

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Europe’s biggest bank HSBC Holdings Plc said its underlying third-quarter profits were significantly ahead of a year ago and losses on U.S. consumer loans had shown their first fall in three years.

The news sent HSBC stock up over 4 percent to their highest in just over a year. At 0910 GMT (4:10 a.m. EST), the shares were up 3.4 percent at 715.7p.

In a trading statement on Tuesday which lacked detailed figures on its quarterly results, HSBC said its investment banking arm had maintained its record performance in the quarter, following bumper performances by rivals including Britain’s Barclays.

It said margins for the Global Banking and Markets arm were not as good in the quarter as they were in the exceptional first half, which benefitted from pent-up demand after the crisis hit at the end of 2008, but said margins were very good compared with previous years, including 2006 and 2007.

In the United States, which has been the focus of market concern, HSBC said loan impairment allowances for its consumer finance business declined, representing the first quarterly fall since the start of 2006 and their lowest level for over a year.

But the bank cautioned it was still too soon to call a turn in U.S. consumer impairments, which hit around $3 billion in the third quarter, though there were positive signs.

“Consensus forecasts (for unemployment, house prices) are moving down from some of the more pessimistic figures bad credit payday advance… if these things all play out, those would be reflective of turning points. But I don’t think anyone is confident to call those yet,” Finance Director Douglas Flint told reporters.

Overall loan impairment charges and other credit risk provisions declined in the quarter and were at their lowest quarterly level since the second quarter of 2008.

“I believe the biggest jolt has now passed through the global economy,” said HSBC Chief Executive Michael Geoghegan. “The world will likely see a two-speed recovery,” he said, adding that emerging markets are likely to drive the recovery.

The bank said on a reported basis, including losses on the fair value of its own debt, third-quarter profits were lower than a year ago. The bank said it had seen a further tightening of credit spreads in October, resulting in an additional reduction in the gain from fair-value movements in its own debt.

HSBC also said its U.S. business would announce the sale of its U.S. vehicle loan servicing operations and $1 billion in vehicle loans to Santander’s U.S. operations.

(Editing by David Holmes)

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A U.S.-led group that includes former Ford Motor Co director Michael Dingman is in talks to acquire the automaker’s money-losing Volvo brand, a source familiar with the matter said on Monday.

The group, called the Crown consortium, has been in talks with Ford over Volvo for some time, said the source, who asked not to be named because the discussions are private.

The discussions raise a potential rival bid for Volvo to that of China’s Geely Automotive, which confirmed in September an interest in the Swedish brand.

Ford, the only large U.S. automaker not to restructure under a government-supported bankruptcy this year, in December said it was considering selling Volvo. The automaker has been divesting brands to focus on Ford, Mercury and Lincoln and conserving cash to support a turnaround.

A Ford spokesman said the automaker was in discussions with parties interested in acquiring Volvo. He declined to identify the parties or to comment on the potential timing of any sale.

“We will provide an update as soon as we have something to say,” Ford spokesman Mark Truby said.

The Financial Times first reported the Crown consortium’s interest in the Volvo brand and said the group was fronted by Dingman and former Ford and Chrysler executive Shamel Rushwin.

Dingman served on Ford’s board from 1981 to 2002, when he reached its mandatory retirement age.

The FT said the consortium had fully secured financing from U.S. private equity groups and was seeking additional backing from Swedish investors to signal its intent to keep Volvo in the country, citing people close to the sale.

The FT reported another informed person as saying the U.S. consortium had offered significantly less than Hong Kong-listed Geely, but that both plans involved similar plans for more than $3 billion of additional investment in Volvo.

The FT quoted a person close to the sale as saying Geely had offered just less than $2 billion for Volvo. Other media reports have put the price tag at about $2.5 billion.

The timing of the sale remains unclear. Ford has been restructuring Volvo to cut costs and to separate its operations to run on a stand-alone basis. It started discussions on the sale of Volvo in the first quarter of this year.

The unit was designated as held for sale during the first quarter, meaning that Ford expected to sell it within a year, but the process has moved at a deliberate pace.

Volvo is the last brand left at Ford from the automaker’s former premier auto group. Ford previously sold off Aston Martin, Jaguar and Land Rover, but has continuing relationships with each brand and likely would retain ties to Volvo also.

The process of separating Jaguar and Land Rover from Ford for the sale to Tata Motors required working out continuing relationships that may be even more extensive between Ford and any new owner of Volvo.

As a result, Ford’s interests run beyond transaction price to the long-term financial stability of Volvo. 

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Pipeline giant Enbridge Inc. is pushing further into the renewable-energy market, announcing today a plan to purchase the largest solar power farm in Canada from U.S. solar manufacturer First Solar Inc.

Enbridge, the country’s biggest distributor of natural gas, said it will spend $100 million this year on its solar strategy, and expects its newly acquired Sarnia Solar Project to be fully operational by the end of this year.

"The Sarnia Solar Project is right in the sweet spot of Enbridge’s renewable energy strategy," said Enbridge president and chief executive officer Patrick Daniel. "It has risk and return characteristics which are fully consistent with Enbridge’s low-risk business model, and similar to our crude oil pipeline business."

The projects were originally owned by California solar manufacturer OptiSolar Inc., which had obtained 20-year contracts with the Ontario Power Authority to sell its solar electricity into the provincial grid for 42 cents per kilowatt-hour.

Those contracts were obtained under an older renewable-energy standard offer program (RESOP), which has since been replaced with a new feed-in tariff (FIT) program launched last month.

But OptiSolar ran into trouble during the economic downturn, so in April sold the rights to its Ontario solar projects to Tempe, Ariz.-based First Solar empire payday loans. Since then, First Solar has built more than 65 per cent of the 20-megawatt project, which on sunny days can put out enough power to meet the needs of 3,200 homes.

On average, the Sarnia Solar Project will produce 30 million kilowatt-hours annually, equating to revenues of $12.6 million a year for Enbridge. The company already owns four wind-energy projects in Canada totaling 260 megawatts, including a 190-megawatt wind farm in Bruce County.

"Subject to certain conditions, Enbridge may participate with First Solar in future solar energy projects at the Sarnia site," the company said.

First Solar will continue to supply its thin-film solar modules to the Sarnia Solar Project. The RESOP program, unlike the new FIT program, does not have local content rules that make it difficult to use foreign-made solar equipment.

Enbridge won’t be alone in owning a massive solar farm in Ontario. Toronto-based SkyPower Corp. and joint-venture partner SunEdison LLC from Maryland have completed a 9-megawatt project near the town of Stone Mills. It is the first phase of a 19-megawatt solar farm called First Light.

Several other multi-megawatts solar farms in Ontario are under construction or in early development.

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It helped Elizabeth Poelker buy her house.

It probably helped Paul Medler sell his.

But is the $8,000 tax credit for first-time homebuyers really helping the economy all that much? Enough to warrant extending it for another year, at an estimated cost of $15 billion? Enough to maybe even expand it to $15,000 apiece, for everyone?

That’s a question Congress is wrestling with these days, as the program starts to near its Nov. 30 closing date, and the real estate industry ramps up a full-throated campaign to keep the credits flowing. It’s unclear at this point what will be decided.

Nearly everyone agrees that the credits have helped keep the housing market afloat during a tough time. After they were enacted as part of the $787 billion federal stimulus Congress passed in February, existing home sales rose for four straight months, before dipping in August. The rate of sales is up 12 percent since March, according to the National Association of Realtors.

About 1.4 million people have already claimed the credit on their taxes, according to the IRS, with probably more awaiting paperwork or delaying until they file in the spring.

And, along with low prices and historically low interest rates, real estate agents say the credits are sparking interest in home-buying.

"There’s no question it’s had a positive impact on our business," said Jim Dohr, president of Coldwell Banker Gundaker, which has 25 offices in the St. Louis region. That’s especially true at lower price points. Coldwell’s business is up 23 percent from last year on homes sold for less than $100,000 and 16 percent for homes sold for $150,000 or less.

"Much of the action in our business is at the lower end, and it’s really being fueled by the first-time tax credit," Dohr said.

What is less clear is how many of those sales would have happened anyway.

Prices and interest rates are low, after all. And people still need a place to live.

Out of a projected 1.8 million sales that will use the tax credit this year, economists estimate that between 350,000 and 400,000 would not have happened without it. And a recent survey commissioned by real estate tracking firm Zillow found that, if the credit is extended another year, it would be a major deciding factor for 18 percent of first-time homebuyers — spurring an additional 334,000 sales in all.

That’s nothing to sneeze at, said Zillow chief economist Stan Humphries. But at $15 billion, it works out to almost $45,000 for every sale generated.

"It’s an expensive program," he said. "For every five homes, four were going to get purchased anyway."

But there’s still that other one — people such as Poelker.

She’s 25 and works at an accounting firm. Her lease in Maryland Heights was coming up this summer, and she had grown tired of renting but didn’t think she could afford a down payment. When the tax credit passed, she started looking.

Soon, she found a nice townhouse in Manchester, put in an offer, and closed in June.

"It really helped me make it work," said Poelker, who noted that her brother and a friend had also used the tax credit to buy houses. "I probably would have purchased in the next couple of years, but it helped me do it sooner."

Still, that raises another question about the tax credit. Is it just borrowing sales from the future?

Skeptics point to Cash for Clunkers, the government-funded program to help spur auto sales. After a surge of car-buying in July and August, September is expected to be car dealers’ worst month of the year, according to a recent report from JD Power. The same thing, critics say, could easily happen whenever the homebuyer credit expires.

But supporters say that’s all the more reason to prolong it, at least for a few months. The economy is still shaky. Any housing recovery is fragile at best. Winter is typically a slow season in real estate. The timing, said Scott Dettmer, general manager of Dettmer Homes in Cottleville, is bad all around.

"You’re taking the single biggest impetus for home sales in at least three years, and you’re going to expire it at what is normally a bad time anyway?" he said. "I’d like to see it extended at least through the spring, to give a bridge over what are normally a tough few months."

At least 20 bills have been proposed in Congress to extend the plan, including one co-sponsored by Sen. Majority Leader Harry Reid that would push it into June. Another bill — to extend the credit and make it $15,000 for all homebuyers — reportedly has 15 co-sponsors.

But that measure was stripped from the stimulus bill in February, and there seems to be a limited appetite for it now, as Congress wrestles with health care reform and other pricey legislation. Many observers don’t expect a resolution until the Nov. 30 deadline draws nearer.

And that will probably keep Paul Medler waiting.

He sold his home in Kirkwood in June to a first-time buyer who used the tax credit. It probably helped make the deal happen, Medler said. Now he’s renting, and waiting to find a good deal to buy, but prices in the neighborhoods where he’s looking still seem too high for this market.

Medler’s hoping the credit either gets extended to everybody — so he can use it — or ends in November as planned.

"After this stops I feel like we might have another dive in housing prices," he said.

And, at least in his case, that would be a good thing.

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Hungary’s central bank will probably cut the benchmark interest rate to the lowest in 18 months today to help the first European Union country to secure a bailout last year overcome its worst recession in 18 years.

The Magyar Nemzeti Bank in Budapest will lower the two-week deposit rate to 7.5 percent from 8 percent, a third consecutive monthly reduction, according to 10 analysts in a Bloomberg survey. Two expect a cut to 7.25 percent. The decision will be announced at 2 p.m.

Policy makers have trimmed 1.5 percentage points off the key rate since July and have said they will continue to ease monetary policy as long as financial stability is maintained. The central bank expects the recession to slow inflation to its target next year.

“The current market situation provides sufficient room for the continuation of the easing cycle, without any threat to financial stability,” Gyorgy Barta and Sandor Jobbagy, economists at the Budapest-based unit of Intesa SanPaolo SpA, said in a note to clients.

Twenty of the 53 central banks tracked by Bloomberg eased monetary conditions in the past three months to fight the recession, including east European countries such as Russia, Ukraine and the Czech Republic in August and September.

IMF Bailout

Hungarian policy makers held rates unchanged between January and June to protect the slumping currency. Investors sold off the forint and the country’s stocks and bonds last year, citing concern about the nation’s ability to repay its debt.

Hungary in October secured a 20 billion-euro ($29 billion) emergency loan from the International Monetary Fund, the EU and the World Bank and the central bank lifted the benchmark rate to 11.5 percent from 8.5 percent in an emergency move.

Policy makers rolled back that increase by July, when they resumed rate cuts after a six-month pause as the forint strengthened from a record low against the euro in March. The currency has gained 14 percent since then, making it the fourth- best performer in the past six months of the 26 emerging-market currencies tracked by Bloomberg.

CDS

Hungarian credit default swaps linked to five-year bonds, the cost of protection against a default, fell to 215.5 basis points on Sept. 25 from as much as 638 basis points in March and 408 basis points on April 14, when Prime Minister Gordon Bajnai took over after the recession toppled his predecessor.

Hungary will be able to return to market financing after measures to curb the budget gap regained investor confidence, Bajnai said in an interview on Sept. 23.

“If there’s no sudden downturn in the markets, then I would expect Hungary to be able to fund itself,” he said. “Hungary has understood this crisis, turned around its economy. Hungary will be one of those economies in 2011, 2012 that will come out of this crisis fastest in the region.”

The economy will probably contract 6.7 percent this year and 0.9 percent next year before returning to growth in 2011, according to the central bank. The recession means there is “no inflationary pressure” and the annual rate of consumer price increases is set to fall to the bank’s 3 percent target next year, the central bank said in the minutes of last month’s rate- setting meeting.

The annual inflation rate unexpectedly fell to 5 percent in August from 5.1 percent in July as an increase in the value- added tax rate had a less pronounced impact as retailers were reluctant to pass on the increase to customers because of slumping demand.

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