My finance view

Roughly 9 million U.S. households have no checking or savings account while many who do have bank accounts struggle to build credit histories, according to a Federal Deposit Insurance Corp. survey released Wednesday.

An additional 21 million households with checking accounts are considered "underbanked" because they use problematic alternatives such as payday loans or overdraft programs that provide quick cash but carry fees or triple-digit interest rates.

"In addition to paying more for basic transaction and credit financial services, these households may be more vulnerable to loss or theft and often struggle to build credit histories and achieve financial security," according to the report.

According to the survey roughly 7.7 percent of U.S. households have no bank accounts, or are "unbanked," while 17.9 percent are underbanked.

For the St. Louis metro area, the percentage was 7.5 percent and 22.4 percent, respectively.

The survey also reported that minorities were more likely to have no checking account or use problem alternative services. Approximately 21.7 percent of U.S. black households are unbanked, while 19.3 percent of Hispanic households are unbanked. Roughly 3.5 percent of Asian and white households have no checking or savings accounts payday loans.

An estimated 31 percent of black households are underbanked, while 24 percent of Hispanics are underbanked.

The disparity was greater in St. Louis: 31 percent of the area’s black households are unbanked, while 34 percent are underbanked. In contrast, the figures were 1.1 percent and 19.2 percent, respectively, for the area’s white, non-Hispanic households.

St. Louis’ unbanked percentage among black households was the highest among 20 metro areas studied by the FDIC, though seven areas didn’t report a breakdown on black households. Detroit was the second-highest at 30 percent, followed by Chicago’s 25.5 percent.

"The report shows that banks in the St. Louis region have done a poor job reaching out to African Americans," Mira Tanna, assistant director of the Metropolitan St. Louis Equal Housing Opportunity Council, said in an e-mail.

"It is time for banks to offer equitable access to credit to African Americans in the St. Louis region."

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A key measure of consumer confidence gained slightly in November, snapping a two-month declining streak, a research group said Tuesday.

The Conference Board, the New York-based research group, said its Consumer Confidence Index rose to 49.5 in November from an upwardly revised 48.7 in October.

Economists were expecting the index to dip to 47.5, according to a Briefing.com consensus survey. The figure, which is based on a survey of 5,000 U.S. households, is closely watched because consumer spending makes up two-thirds of the nation’s economic activity.

The overall index remains at historically low levels. A reading above 90 indicates the economy is solid, and 100 or above signals strong growth.

Despite the modestly upbeat figure, Lynn Franco, director of the Conference Board, said "consumers are entering the holiday season in a very frugal mood."

The index component that evaluates consumers’ judgment of the present situation was virtually unchanged, slipping to 21 in November from 21.1 the previous month. The measure stands at the lowest level since the 17.5 measured in February 1983.

Consumers’ assessment of the job market also continued to deteriorate. The percentage of those claiming that jobs are currently hard to get reached a new high of 49.8%, while the number of consumers claiming that jobs are "plentiful" hit a new low at 3.2%.

Employers continued to cut jobs from their payrolls in October, as the unemployment rate rose to 10.2% and hit another 26-year high last month, according to a report from the Labor Department.

The percentage of consumers expecting their incomes to increase declined to 10% from 10.7%.

Despite their current outlook, however, consumers are optimistic about a recovery.

The expectation index, which measures consumers’ outlook over the next few months, climbed to 68 payday loan no fax no credit check.5 from 67 last month.

Franco said the "moderate improvement was a result of a decrease in the percent of consumers expecting business and labor market conditions to worsen, as opposed to an increase in the percent of consumers expecting conditions to improve."

While the percentage of those expecting the job market to improve edged down to 15.2% from 16.8%, the percentage of consumers expecting fewer jobs dropped to 23.1% from 26.1%.

Likewise, the percentage of consumers expecting an improvement in business conditions over the next six months dropped to 20% from 20.8%, but those expecting conditions to worsen decreased to 15.1% to 18.2%.

But even the "underlying data is abysmal," said Mark Vitner, senior economist at Wells Fargo.

"Fewer people think things will get worse, which isn’t very comforting. You’d have to be a real pessimist to think things will get worse than they already are," said Vitner, adding that the consumers’ assessment of the economy might be "overly bleak."

Given the amount of stimulus the government has pumped into the economy, Vitner said he is "disappointed that this is all we’re getting in consumer sentiment for economic recovery."

For a healthier reading, Vitner said consumers need to believe jobs will be created and incomes will rise so they will increase spending.

The data followed a government report that said GDP, the broadest measure of economic activity, rose at an annual rate of 2.8% in the third quarter of this year, less than the 3.5% it originally reported. 

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Hitachi Ltd, Japan’s biggest electronics firm by revenues, plans to raise up to 400 billion yen ($4.5 billion) by issuing new shares and convertible bonds to shore up its battered capital base, two sources familiar with the matter said.

The sources, who asked not to be identified ahead of an official announcement anticipated as early as Monday, said Hitachi plans to sell about 300 billion yen worth of shares and another 100 billion yen in convertible bonds.

The public share offering would be its first in 27 years.

No one could be immediately reached at Hitachi for comment.

Faced with its fourth straight year of losses, Hitachi’s shareholders’ equity ratio has slipped to just below 11 percent, roughly half that of rival NEC Corp, which earlier this month announced it would raise up to $1.5 billion.

The ratio is calculated by dividing shareholders’ equity by total assets and is a measure of financial strength.

Issuing 300 billion yen worth of stock at Friday’s closing price of 294 yen would boost Hitachi’s shares outstanding by about 30 percent.

Hitachi, a sprawling conglomerate with more than 900 group firms, is trying to restructure unprofitable businesses while shifting resources to its power operations, which include nuclear power plants, railway systems, elevators and batteries for hybrid cars.

Some of the funds raised would help pay for this group restructuring, the sources said.

Hitachi launched a $3 billion bid earlier this year to make five listed units, including magnetic tape maker Hitachi Maxell

and plant engineering firm Hitachi Plant Technologies Ltd, wholly-owned.

Hitachi also must shoulder an investment of about 80 billion yen to pave the way for a merger of Renesas Technology — its chip venture with Mitsubishi Electric — and chipmaker NEC Electronics next year.

Massive losses have also taken their toll. Hitachi lost 787 billion yen in the past business year ended in March, a record for a Japanese manufacturer, and is forecasting a loss of 230 billion yen in the current year to March 2010.

The share and convertible bond offering will mark the first major step by Takashi Kawamura, a veteran of the power business who took over as president in April, to shore up the finances.

Hitachi will be joining a rush of Japanese companies raising money from the stock market following a recovery in the benchmark Nikkei average, which has rallied some 40 percent since hitting a low for the year in March. 

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The unemployment insurance bill that President Obama signed Friday won’t just help the jobless and the homebuyer. It also includes a long-awaited break for businesses that will let them quickly turn their recent losses into cold cash.

The bill will let all businesses apply their losses from either 2008 or 2009 to any five years prior to 2008. By doing so, they can get a refund from the IRS on the taxes they paid for those five years.

A loss is defined as the amount by which a company’s tax deductions exceed its gross income.

Under current law, the so-called "net-operating loss carryback" is only allowed for two years.

There are only two restrictions to the new provision. The first is that no business that has accepted funding from the Troubled Asset Relief Program (TARP) would be eligible for the break. And the second is that any refunds for taxes in the fifth year would be reduced by 50%.

The provision is estimated to cost $10.4 billion over 10 years, according to the Joint Committee on Taxation.

Businesses have been angling for this break throughout the recession. And they expected it to come a lot earlier. A similar measure was proposed for inclusion in the $787 billion stimulus package passed in February. But it ended up being watered down so that only small businesses with gross revenue of $15 million or less could qualify.

While those small businesses represent about 98% of companies, they only represent roughly 5% of taxable income, said Clint Stretch, managing principal of tax policy at Deloitte, at the time.

Not surprisingly, the estimated cost of that provision in the stimulus bill was considerably lower, just under $1 trillion.

Who is likely to benefit most

While most businesses have suffered during the downturn, those in the hardest hit industries are going to enjoy the biggest break.

"The homebuilders and banks that have never taken TARP money are the most obvious beneficiaries," said Anne Mathias, director of research at Concept Capital’s Washington Research Group, in a research note.

But she also noted others in line to benefit include semiconductor companies, materials companies, retailers and print media companies.

While an overwhelming majority of lawmakers voted for the overall bill, not all lawmakers are happy with the provision.

Calling it a "corporate giveaway, Rep. Lloyd Doggett, D-Texas, said, "This is a textbook example of how not to deal with the economic challenges facing our country," according to a CongressDaily report on Thursday.

A supporter of the provision, House Ways and Means Select Revenue Measures Subcommittee Chairman Richard Neal, D-Mass, said it would help businesses hard up for cash. "It will provide quick capital at a time when it is nearly impossible to find," Neal said.

The quid pro quo

One way the legislation seeks to pay for the cost of the tax breaks is to delay the implementation of a tax relief provision for multinational companies that was supposed to be enacted in 2011. Under the bill, it will now be enacted in 2018.

The tax relief measure is intended to create more of an incentive for multinationals to invest in the United States. And the way it is structured it would benefit financial services companies the most.

The delay in implementation is expected to raise $20.1 billion over 10 years, the JCT estimates.

Multinationals aren’t happy about it but they haven’t fought the measure because "they have bigger fish to fry," such as the potential loss of their ability to defer paying U.S. tax on income they haven’t brought back to U.S. soil, said Joanne Thornton, director of international research at Concept Capital, in her research note.

There is also a possibility that the delay in the measure could become permanent in part because it will be a tempting revenue raiser to pay for other legislation.

The House health reform bill, for example, already calls for a full repeal of the multinational tax relief measure for a savings of $26.1 billion over 10 years.

Now, Thornton said, "there will be a $20.1 billion hole in the health care bill."

Anticipating that the unemployment bill would pass, House lawmakers have already proposed another measure to compensate, which potentially could raise nearly $24 billion. But they’re still negotiating the legislative language and that could reduce how much the measure raises.

– CNN’s Deirdre Walsh contributed to this report 

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Kraft faces a tougher task winning over Cadbury shareholders in its bid battle after disappointing results late Tuesday cut analyst estimates of what it could afford to pay for Cadbury.

Kraft’s results, released after the market close, reinforce the view it will rubber stamp an original offer and turn the bid hostile, before using a $9 billion bridge loan to sweeten the cash element of its offer at a later date, they added.

Pablo Zuanic at broker JP Morgan said Kraft’s results were likely to cap any improvement in its offer.

“Re: the Kraft bid, we now assume a lower price on lack of competing bids, lower synergy assumptions and our growing belief Kraft could walk away… We doubt Kraft will go over 780 pence,” he added.

Kraft launched a cash-and-shares offer for the British confectionery group in early September which Cadbury promptly rejected, and by late September the UK Takeover Panel ruled that Kraft had until November 9 to make a formal binding bid for Cadbury.

The initial approach was priced at 745p a Cadbury share, or 10.2 billion pounds ($16.8 billion), but the fall in Kraft shares make it presently worth around 733p, against a current Cadbury share price of around 776p.

VALUE MAY DIP

The value of Kraft’s offer - some 60 percent in new Kraft shares - is likely to dip further when Kraft shares open later on Wednesday. Kraft shares were off 2.7 percent at 18.23 euros in early European trading.

For current values based on the latest share prices, click on.

One Cadbury top-ten investor has indicated to Reuters that a Kraft bid of 820p “certainly stacks up” and would be looked at seriously, while some brokers such as Credit Suisse still see Kraft having to pay 850p to win Cadbury.

“We believe Kraft and Cadbury are still far apart on valuation, so that offer when it comes will be hostile,” said analyst Graham Jones at broker Panmure Gordon.

He added that Kraft will be able to raise the cash level of its bid to 400p a Cadbury share from 300p after raising $9 billion of bridge finance, but its lower share price is unlikely to help its cause.

Although Kraft beat earnings expectations, it reported weaker than expected third-quarter revenue and cut its full-year 2009 sales growth forecast to about 2 percent, from 3 percent previously, pushing its shares down in after-hours trading.

Panmure’s Jones point out Kraft’s results disappointed on sales growth for the fourth quarter in a row, with underlying sales only up 0.5 percent compared to Cadbury’s impressive 7 percent third-quarter growth, as reported last month.

Other analysts said this reflected the description of Kraft by Cadbury Chairman Roger Carr as a “low growth conglomerate business model,” in a September letter to Kraft’s CEO Irene Rosenfeld emphasizing why Cadbury was rejecting Kraft approach. 

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Bank of New York Mellon Corp Chief Executive Robert Kelly was recently approached about taking the CEO job at Bank of America Corp, but he has shown no interest in the job, The Wall Street Journal reported.

Citing people familiar with the matter, the Journal reported on Sunday that Kelly has been approached more than once about being a potential successor to Kenneth Lewis, who will retire at the end of this year.

Some Bank of America stakeholders and regulators are pushing the board’s search committee to look outside the company for the next CEO, but potential candidates have fallen short of the board’s hopes or were not interested, the paper reported on its website easy online payday loans.

The search committee could also hire an insider, and Bank of America Chief Risk Officer Gregory Curl and small-business banking head Brian Moynihan are the two top candidates in that case, sources told the Journal.

The search committee is not expected to make a decision until the end of this week at the earliest, these sources told the paper.

Spokesmen for Bank of America and BNY Mellon did not immediately return calls seeking comment on the Journal report.

(Reporting by Anupreeta Das; Editing by Bernard Orr)

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Stephen Schwarzman is rapidly becoming the king of the thrill ride.

The chief executive of Blackstone Group, one of the most powerful private equity firms in the world, is betting that theme parks will deliver strong returns as the economy slowly climbs out of the hole.

Earlier this month, Blackstone bought Anheuser-Busch Inbev’s 10 U.S. theme parks for $2.7 billion, and it has now become the second-largest company in the business behind Walt Disney Co.

Schwarzman isn’t alone in wagering on roller coasters, water slides and animal shows. JPMorgan Chase & Co and a host of hedge funds are among those jostling for ownership of bankrupt regional theme park operator Six Flags Inc, which owns 20 parks in North America.

Schwarzman last week explained why he finds the $10 billion industry so appealing.

“There’s usually room in the theme parks business for efficiencies on the cost side and new investment, which drives traffic,” he said in an interview while attending a conference in Dubai.

“And there’s also a cyclical rebound which occurs when an economy goes from a severe recession to a more normal environment.”

He said Blackstone examines every opportunity to buy theme parks.

Analysts and consultants say the business is a perfect hunting ground for investors. The cash flow tends to be steady when the economy is in reasonable condition and the high initial cost of building a park creates barriers to entry, allowing parks to retain pricing power.

Even in 2008, when traffic fell for many of the world’s 25 top theme parks, more than 185 million people streamed through their gates.

Mind you, the cyclical nature of parks can also be their downfall. Park attendance tends to ebb and flow with the health of the economy and lower attendance, when coupled with the high cost of maintaining the parks, can easily dent profitability.

“Although attendance has held up pretty well thus far, any material slippage in attendance levels can generate quite significant declines in EBITDA (earnings before interest, taxes, depreciation and amortization) or in cash flow,” said Fitch Ratings analyst Mike Simonton.

Dennis Speigel, president of theme park consulting firm International Theme Park Services, forecasts attendance will be down as much as 9 percent in 2009. This will hurt not only sales of admission tickets, which accounts for half of theme park revenue, but also food and beverage revenue, which tends to offer high margins.

That has forced theme park operators to discount heavily to draw guests.

“You see Disney right now and it’s discounting more deeply, more broadly than they ever have in their history,” Speigel said. 

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The pace of hedge fund launches is taking off after a year-long slumber, but the incoming class of start-ups is finding it tougher to beat out established giants and lure money from investors still scarred by last year’s turmoil.

As recently as four or five years ago, star traders could hang a shingle and instantly attract $1 billion from crowds of investors. But last fall’s market meltdown left investors strapped for cash and wary of the hedge fund model; launches slowed to a crawl.

Now, as markets revive and traders see an opportunity to be their own boss, Wall Street’s largest prime brokers expect a spate of start-ups in the next year — just a lot smaller.

“It’s a promising environment for new hedge funds,” said Alex Ehrlich, the former UBS prime brokerage chief who took over as global head of Morgan Stanley’s prime services business last month. “Money is coming in from seasoned investors, many of whom are preparing to redeploy capital.”

A few weeks ago, Morgan Stanley hosted its largest ever capital introduction conference for fund managers and investors. It’s a positive signal even if the meetings took place in suburban Rye, New York, and not Morgan Stanley’s traditional venue in Florida’s Palm Beach.

Still, times have changed. Even the most talented traders and managers will have to accept that $100 million is the new $1 billion when it comes to fund-raising.

“The number of start-up proposals that come by our desk each week is consistent with what we saw in earlier times, but the amount of capital they’re starting with is much smaller,” Goldman Sachs Group global co-head of global securities services John Willian said. “Very few funds will have over $1 billion at their launch.”

NEW CROP

Fund managers are in a more “normalized” environment, UBS AG U.S. prime brokerage chief John Laub said. They have to be satisfied with $50 million, even if the same managers might have attracted nine figures in boom times.

One key reason is that young guns are competing for investment dollars with established fund managers with long track records.

“Some of the biggest funds were closed to investors for a long time, but after last year’s downturn they reopened and people took advantage,” Laub said.

So even as hundreds of managers scour the Street for money, almost no one is hitting their original fund-raising targets, said Louis Lebedin, co-head of JPMorgan Chase & Co’s prime brokerage.

“On average, we’re seeing clients raise roughly half of what they achieved historically,” he said.

According to Hedge Fund Research, start-up activity peaked at 2,073 new funds in 2005 — an average of one every four hours. That sank to 659 last year as investors pulled out record amounts of cash and 1,471 funds were liquidated.

As recently as the first half of 2009, liquidations outnumbered launches 2-to-1. Now Wall Street’s top prime brokerage executives tell Reuters they are gearing up to win their share of a new wave of funds. 

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The number of high net-worth individuals in Asia Pacific slumped 14 percent in 2008 and they lost over a fifth of their wealth, leading to only cautious moves from cash back into stocks this year, Merrill Lynch and Capgemini said on Tuesday.

The financial crisis spurred a flight to safe assets, with cash holdings higher than in other regions at 29 percent and a surge in demand for gold, especially in China and Thailand, Merrill Lynch and Capgemini said in their Asia-Pacific Wealth Report 2009.

“We expect them to remain cautious,” said Eng Huat Kong, head of South Asia at Merrill Lynch wealth management.

“Allocation to cash has certainly reduced and they have begun to get back into the equity market,” he said at a briefing.

The annual report said despite last year’s setback, the region will be one of the fastest drivers of growth among such millionaires, predicting compound annual growth of 8.8 percent in the wealth of this group until 2018.

The report expected Asian economic growth to be more than double that of world growth next year at 3.5 percent. Many policymakers from South Korea to the United States say growth-supporting policies need to be maintained to avoid the risk of a double-dip recession.

“If there is another crisis, the impact will not be as dramatic as last year,” Kong said.

The report said the region’s wealthy are concentrated in Japan and China, which together made up 72 percent of the total, up slightly from the previous year as they saw milder losses than those in many other countries pay day loan lenders.

QUESTIONS FROM CLIENTS

By the end of last year India only made up 4.2 percent of the $7.4 trillion of wealth held up this group, defined as those with $1 million or more in investable assets.

The high net worth populations in India and Hong Kong saw the biggest pullback in 2008, on sharp falls in market capitalization, slumping housing prices and a drop in global demand for exports.

Overall exposure among the regions’ wealthy to equities shrank to 23 percent at the end of last year and real estate holdings edged up to 22 percent.

Asia’s wealthy are more often first-generation entrepreneurs willing to take on more risk and actively trade for high returns, compared to the older inherited wealth in Europe and North America, private bankers say, but the report said it expected cautious asset allocation in the short term and a more balanced approach in the long run.

The wealth management industry is in the midst of unprecedented change as volatile financial markets and the erosion of bank secrecy challenges traditional business models. “Clients are asking more questions, making sure they are dealing with the right institution and banker,” said Kong.

“International banks will still have the key market share.” 

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As third quarter earnings season takes off, bigger is better.

With the U.S. economy emerging from recession, large cap stocks are set to have a stronger third-quarter earnings season than their mid and small cap counterparts, which are expected to rebound at a slower pace.

This goes against the usual trend when the economy emerges from recession, analysts say. Often, smaller companies recover more rapidly as the economy expands.

This time, large caps have several factors working in their favor. The weakness of the dollar helps multinationals that export product overseas, and also provides them a favorable currency translation.

Government assistance in the credit markets also drove down borrowing costs for big financials, set to report another quarter of strong profits.

And statistical comparisons with year-ago results will be flattering for large caps devastated in the second half of 2008.

So while mid and small cap firms may prove more flexible if an economic rebound takes hold, their bigger brothers appear better equipped to weather a slow-plod recovery.

“Especially in the financials, the small cap space still seems to have its issues in terms of earnings, and so that is going to be a pretty big drag in terms of the profit numbers,” said Steve DeSanctis, small-cap strategist at Bank of America Merrill Lynch in New York. “You’re getting probably more of a recovery in the large-cap earnings.”

BIG COMEBACK

Expectations that small and mid cap companies would recover first is apparent in the performance of the shares easy pay day loans.

Since hitting 12-year lows on March 9, small and mid cap stocks have led the recovery, with the S&P MidCap 400 index .MID rising 72.4 percent and the S&P SmallCap 600 index .SML jumping 76.5 percent. In comparison, the S&P 500 index .SPX has gained 57.8 percent.

But third and fourth quarter estimates favor the large cap names. According to data from Thomson Reuters, third-quarter earnings for large cap stocks are expected to decline 25.3 percent. By contrast, Bank of America-Merrill Lynch researchers predict a decline of 26.6 percent for midcaps and almost 31 percent for small caps.

The earnings collapse in the second half of 2008 hit large cap names harder than smaller stocks. Mid caps, in particular, have a heavy exposure to the energy and materials sectors, which were stronger in the second half of 2008, Bank of America-Merrill Lynch noted.

The majority of the large cap profit recovery is expected to be provided by financial stocks, as analysts project a 56.9 percent increase in earnings from a year-ago, when profits were crippled by the near-collapse of the banking system.

Smaller financials have also been under pressure for their exposure to commercial real estate, which may hamper their quarterly profits. 

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