- Created on 30 November 2012
CNNMoney) -- A federal bankruptcy judge finalized the liquidation of Hostess Brands on Thursday and approved a bonus plan for senior executives involved in the wind-down of the company.
Union representatives had opposed the plan, which offers $1.75 million in bonuses ranging from $7,400 to $130,500 for 19 executives provided they meet certain benchmarks in managing the liquidation. But Judge Robert Drain said the plan was appropriate, citing testimony that it had been independently vetted and was below market value for firms in similar circumstances.
He said the liquidation would call for work "significantly beyond the type of jobs that [the executives] were doing at the start of this case," and called the incentive plan "an exercise of proper business judgment."
He noted that the over 3,000 rank-and-file employees assisting in the liquidation were also getting paid beyond their regular salaries, and that new Hostess CEO Greg Rayburn had already ruled out a bonus for himself.
Drain declined to appoint an independent trustee to oversee the liquidation, saying it was not necessary but could be later if circumstances change.
On Nov. 21, Drain gave preliminary approval for the company to shut down after 82 years in business, after a failed attempt to mediate a dispute between the company and its bakery workers' union over wage and benefit cuts imposed through the bankruptcy court.
The union said its membership was overwhelmingly opposed to the concessions agreed to by other Hostess employees, including the majority of the 6,700 members of the Teamsters' union at Hostess. The bakers walked off the job on Nov. 9, and Hostess filed for liquidation a week later.
The bakers' union has repeatedly said that mismanagement and the debt placed on the company were responsible for the company's failure, not the strike. This is Hostess' second trip to bankruptcy court since 2004; it emerged from restructuring in 2009 before filing for bankruptcy again in January.
Paul Carroll, 60, a former fleet mechanic for Hostess from Fort Thomas, Ky., drove 12 hours to be heard at the hearing. He said every move the company's previous management made "brought us down further," calling for Hostess to make good on its millions in outstanding pension obligations to employees.
The bakers' union has also criticized Hostess' previous management for demanding benefit cuts while allegedly providing raises for the CEO and other top executives. Drain said this incident "will definitely be looked at" as the case progresses.
Going forward, Joshua Scherer, an investment banker from Perella Weinberg who is advising Hostess, told the court there'd been huge interest in the company's brands and assets from potential buyers.
It's possible that some buyers would rehire ex-Hostess staffers and reopen the company's plants, though others could simply produce former Hostess products with their own resources.
In the mean time, Carroll is looking for work.
"It's really sad that a lot of people in these bakeries aren't going to find good jobs from here on out," he said outside the court.
- Created on 29 November 2012
(CNNMoney) -- The overall rankings didn't change, but AT&T scored a surprising coup in the annual Consumer Reports survey of the top cell phone service providers.
AT&T, ranked dead last in the customer satisfaction survey for the third straight year, topped all wireless carriers in the magazine's 4G network ratings.
Verizon has by far the largest 4G-LTE network, serving more than 400 markets, compared to just over 100 for AT&T and more than 40 for Sprint. But AT&T customers reported the fewest 4G-related problems of any carrier, including service interruptions, slow speeds or lack of service.
Still, Verizon once again topped the charts in the overall rankings of national carriers -- and it's pulling away from the rest of the pack. Verizon outscored Sprint by 6 points in Consumer Reports' customer satisfaction ratings, a gap that widened since last year. T-Mobile came in third, trailed slightly by AT&T, which got worst-in-class rankings for value, voice quality and customer support.
A year ago, Sprint trailed Verizon by just a point in the rankings, but the carrier's satisfaction rating fell by a dramatic six points over the course of the year.
What happened? In its survey, Consumer Reports noted that 4G customers are generally more satisfied than those with 3G service. Sprint's significantly smaller 4G could play a role in its customers' lower ratings.
Though 4G customers are generally happier, faster data connections can lead to higher cell phone bills, Consumer Reports pointed out. Verizon and AT&T both recently introduced shared data plans that encourage higher data usage. The nation's two largest carriers have reported that they are making more money on the new plans as customers ramp up their gigabytes.
For many customers, there are other options. Smaller, regional carriers like Consumer Cellular, U.S. Cellular, and Credo all ranked ahead of their larger national rivals in Consumer Reports' survey.
Prepaid carriers Tracfone and Straight Talk also performed better than the national players, winning high marks for both quality and value. Two-thirds of Consumer Reports' survey respondents who switched to prepaid plans said they saved at least $20 a month.
- Created on 27 November 2012
A once-robust minority banking scene in Chicago soon easily could shrivel down to just a few lenders. That's because the recession has had a disproportionately devastating effect on these niche players.
Before the financial crisis that hit in 2008, the Chicago area was home to 17 banks owned by or focused on lending to minorities. Six since have failed, and five are saddled with so much in troubled assets that their futures are in question. That leaves six, plus newly created Urban Partnership Bank, the successor to failed ShoreBank, that appear to be survivors.
The banks still standing serve a variety of ethnic groups. Today, there are five catering to African-Americans, one to Hispanics and six to Asian-Americans. Two black-owned banks (Covenant Bank on the West Side and Highland Community Bank on the South Side) and one Asian lender (American Metro Bank on the North Side) are desperately trying to raise capital to survive. The one remaining Latino bank (Aztec-America Bank in Berwyn) and another Asian bank (United Trust Bank in Palos Heights) carry levels of troubled assets that indicate likely failure without an equity infusion.
Minority banks "are critical now," says Norman Williams, chairman and CEO of the black-owned Illinois Service Federal Savings and Loan Association of Chicago on the city's South Side. "I think it's an incredible, tragic loss that the minority-owned banks have dwindled."
Among the casualties so far: $2 billion-asset ShoreBank, one of the most active lenders on the South Side, catering mainly to African-Americans; $191 million-asset Second Federal Savings & Loan, a mortgage lender to Hispanics in the Little Village and Back of the Yards neighborhoods on the Southwest Side; and $1.6 billion-asset Mutual Bank of Harvey, an Indian-American-owned bank that lent aggressively to business owners in the Devon Avenue corridor on the North Side.
Minority banks whose futures are under imminent threat include Covenant, the West Side lender owned mainly by members of the Forest Park megachurch run by the Rev. Bill Winston; Highland, launched in 1970 to combat red-lining on the South Side; and American Metro, a 15-year-old bank based in Chicago's Uptown neighborhood.
Some Chicago banking observers say minority banks aren't as needed today as they were decades ago. While most bankers and business leaders in minority neighborhoods of Chicago believe that loans are hard to obtain in those areas, both for businesses and consumers, they don't all see the minority banks moving aggressively to provide that credit.
Many minority banks were launched in the 1960s and 1970s, when nonwhite borrowers had trouble getting loans from downtown banks no matter what their financial circumstances. Few would argue that's the case now, in no small part because of the federal Community Reinvestment Act, which requires banks to lend in less-advantaged areas in their locales.
Minority banks "may be symbolically important," says Paul O'Connor, founder of Chicago-based Angkor Strategic Advisors, an investment banking firm specializing in community banks. "But when it comes to the African-American borrowing community, they don't need them anymore."
Case in point: John Griffin Jr.'s AGB Investigative Services Inc., a South Side firm providing security services to government, university and private clients and employing 115 people, recently negotiated a $350,000 line of credit with $17 billion-asset Wintrust Financial Corp., three years after having its credit line slashed by Charlotte, N.C.-based giant Bank of America Corp.
Mr. Griffin also was approved for a loan by Urban Partnership Bank, which caters to minority borrowers, but he went with Rosemont-based Wintrust because it approved his loan faster, he says. The credit line enabled him to take on new business that will mean $750,000 in additional revenue.
"The only way to grow your business is access to capital," he says.
The 44-year-old native of Chicago's Englewood neighborhood allows that he worried at times that he wouldn't make payroll over the past three years and went without pay himself in some lean months. The company suffered its first net loss in years in 2010 but is profitable again.
"Prior to (August, when the bank loan came through), it's been hell," he says.
Minority bankers express frustration both that economic circumstances haven't improved more in their neighborhoods and that the regulatory clampdown following the credit crisis has hampered their ability to be flexible on lending criteria.
"There still are no jobs," says Walter Grady, president and CEO of Seaway Bank & Trust Co., Chicago's largest black-owned bank, with $565 million in assets. "How are (consumers) going to make their mortgage payments and so forth? In the commercial area, things are starting to pick up, but not to the point where you feel you're in the clear."
Mr. Grady, who with 32 years of experience running Seaway is Chicago's longest-tenured bank CEO, laments the thinning ranks of minority lenders.
Majority banks, he says, started lending in Seaway's neighborhoods during the housing boom. Now, he says, "they're backing off, stepping down. . . . They're not as prepared to make the kind of loans we have made and continue to make."
Seaway is one of the healthy minority banks, having grown through the recession largely by acquiring assets and deposits of two failed banks, one a black-owned lender in Milwaukee.
Seaway's size should help it in the future, since higher capital standards are making it tougher for small banks to survive, says Craig McCrohon, partner at Burke Warren MacKay & Serritella P.C. in Chicago.
"I think operating any kind of small niche bank is more difficult than it was 10 years ago," he says. "If there genuinely are underserved niche businesses, the challenge will be to create a large enough bank to find and exploit those opportunities."
- Created on 28 November 2012
(AP) — A pickup in consumer spending and steady home sales helped lift economic growth from October through early November in most parts of the United States, according to a Federal Reserve survey released Wednesday. The one exception was the Northeast, which was slowed by Superstorm Sandy.
Growth improved in nine of the Fed's 12 regional banking districts, the survey said. Growth was weaker in New York, Philadelphia and Boston — areas where Sandy caused widespread disruptions.
The survey noted that growth was better despite nervousness about the "fiscal cliff." That's the name for automatic tax increases and spending cuts that could kick in next year if Congress and the Obama administration can't reach a budget deal before then.
Hiring increased in more than half of the districts. But manufacturing shrank or slowed in seven regions and was mixed in two others.
"The weakening in the tone of the Beige Book is clearly linked to the massive disruptions and damage related to Hurricane Sandy and there is no evidence of a wider slowdown in the economy," said Terry Sheehan, an analyst at Stone & McCarthy Research Associates.
Sal Guatieri, senior economist at BMO Capital Markets, said the message from the survey was "the economy looks to have improved slightly in the current quarter, led by housing and consumers though businesses remain worried about the outlook."
The report, called the Beige Book, provides anecdotal information on economic conditions around the country from October through Nov. 14. The information collected by the regional banks will be used as the basis for the Fed's policy discussion at the Dec. 11-12 meeting.
Many economists believe the Fed could announce plans to buy more Treasury bonds at that meeting to replace a program set to expire at the end of the year. The goal of the program is to lower long-term interest rates and encourage more borrowing and spending.
The purchases would come on top of the Fed's mortgage bond buying program, which is intended to lower mortgage rates and make home-buying more affordable.
Recent government and private reports show the economy improved in October and early November, even as Sandy halted business activity along the East Coast.
Employers added 171,000 jobs last month and hiring in September and August was stronger than previously thought.
Rising home values, more hiring and lower gas prices pushed consumer confidence in November to the highest level in nearly five years. A better mood among consumers appears to have encouraged businesses to invest more in October after pulling back over the summer. And it could point to a stronger holiday shopping season.
There are already signs that consumer optimism is leading to more spending. A record number of Americans visited stores and shopping websites over the four-day Thanksgiving weekend, according to a survey by the National Retail Federation.
Still, if lawmakers and the Obama administration fail to reach a budget deal soon, the threat of tax increases could make consumers more cautious in the final weeks of the year.
Many economists say worries about the fiscal cliff could be among a number of factors that keep growth in the October-December quarter below an annual rate of 2 percent. That's too slow to make much of a dent in unemployment and could prompt the Fed to take further action at its next meeting.
The Beige Book said that price increases remained modest. The Fed said the prices of some construction materials were rising at a faster pace in Cleveland, Chicago, Minneapolis, Kansas City and San Francisco regions. Chicago Fed officials noted that food prices had eased in that region except for the price of meat.
Wage growth remained modest, constrained by the high numbers of people looking for work. But there were exceptions due to shortages of qualified workers. North Dakota reported rising wages for oil drilling workers. In Kansas City, wages were picking up for specialized workers in transportation, high-tech industries and energy. San Francisco saw stronger wage growth for truck drivers and health care workers.
- Created on 27 November 2012
After a record-breaking Black Friday, retailers may be in for a big Cyber Monday as well. Early results for Cyber Monday, from IBM's Digital Analytics Benchmark, show a 25.6 percent jump in online sales from this same time period over Cyber Monday 2011.
Mobile shopping is also performing well with the current number of consumers using a mobile device to visit a retailer's site at 20.4 percent. The number of consumers using their mobile device to make a purchase is at 10.1 percent.
By device, the iPhone is driving more retail shopping than any other device with traffic reaching 7.9 percent versus 6.7 percent and 5.6 percent for iPad and Android respectively. Shoppers referred from Social Networks have generated .2 percent of all online sales on Cyber Monday.
PayPal is also releasing its stats for Cyber Monday. The payments company is already seeing 196% more mobile payment volume on Cyber Monday 2012 than Cyber Monday 2011.
Traditionally, cyber Monday has been a big spending day, with $1.25 billion spent online last Cyber Monday. But this year, retailers have rolled out holiday online promotions and deal earlier, and thus, more consumers buying online Thanksgiving and Black Friday instead of visiting stores. Consumers spent over $1 billion online on Black Friday (a 26 percent increase from last year), and $633 million on Thanksgiving Day (a 32 percent increase from last year).
With those increases in spending in mind, many have forecasted lower growth for Cyber Monday. However, IBM's early data shows that consumers appear to be shopping today. We'll see how the final numbers turn out.