Archive for January, 2009

Freddie Mac to rent foreclosed properties (AP)

Friday, January 30th, 2009 | Finance News

WASHINGTON – Mortgage finance company Freddie Mac said it will allow some borrowers to rent out their homes after losing them to foreclosure.

The goal of the new policy, announced Friday, is to prevent properties from becoming vacant so they won't fall into disrepair.

Freddie Mac also said it will allow renters to remain in their homes even if their landlord enters foreclosure. The McLean, Va.-based company currently has about 8,500 properties in the foreclosure process, but many of those are vacant.

"Keeping foreclosed properties occupied and in better repair will support local property values and promote a faster recovery in the housing market," said Freddie Mac Chief Executive David Moffett.

Fannie Mae, which announced similar plans earlier this month, said it has stopped about 20,000 foreclosure sales and halted 6,300 evictions of owners or renters this winter.

Under Freddie Mac's new policy, tenants and former property owners need to demonstrate that they have enough income to pay the rental bill. Freddie Mac also said it would consider reinstating a mortgage for those borrowers who can qualify for a modified loan.

Washington-based Fannie Mae and Freddie Mac were taken over by the government in September after mounting mortgage losses put them in distress that was a prelude to the broader financial crisis that hit Wall Street last year. Fannie and Freddie combined own or guarantee about half of the $10.6 trillion in outstanding U.S. home loan debt.

Both Fannie Mae and Freddie Mac also said Friday they would extend a previously announced suspension of evictions through the end of February.

However, Freddie Mac hasn't explained how tenants will be notified of the policy and hasn't committed firmly enough to halting evictions, said Amy Marx, a staff attorney at Connecticut-based New Haven Legal Assistance.

"The only thing that Freddie Mac has agreed to do is to not send the sheriff to forcibly remove tenants," Marx wrote in an e-mail.


Amazon Sales Jump 18 Percent Despite a Retail Slump (NewsFactor)

Friday, January 30th, 2009 | Finance News

Brick-and-mortar stores may have had a terrible 2008, but Amazon thrived. The giant online retailer said its sales in the fourth quarter were up 18 percent to $6.7 billion, compared to $5.67 billion in the same quarter a year ago.

The company's free cash flow increased 16 percent to 1.36 billion. Net income rose 8.7 percent, to $225 million, and Amazon reported its best holiday season ever. Net sales for the full year increased 29 percent to $19.17 billion, and operating income for the year increased 28 percent to $842 million.

Strong Demand for Kindle

Founder and CEO Jeff Bezos said his company will remain focused on "serving customers with low prices, great selection, and free shipping offers." He added that Amazon is "grateful for the unusually strong demand for Kindle in the fourth quarter." Kindle is Amazon's e-book reader.

In the fourth quarter, Amazon said the Kindle Store increased its selection of titles by 45,000 for a total of 230,000. Nearly all The New York Times best-sellers are available at $9.99 or less.

The company noted that, except for a $26 million unfavorable impact from year-over-year changes in foreign exchange rates during the quarter, its operating income would have grown 10 percent compared to a year ago. Operating income was $272 million, compared with 2007's $271 million.

Amazon scored increases across territories. North American sales, for instance, were up 18 percent in the fourth quarter, and international sales, including the United Kingdom, German, Japanese, French and Chinese sites, were up 19 percent to $3.07 billion for the quarter.

The fourth quarter's worldwide media sales grew nine percent, and worldwide electronics and other general merchandise sales were up 31 percent.

'As Perfect a Storm'

The company said highlights for 2008 included its introduction of frustration-free packaging, which it described as an initiative to make it easier "for consumers to liberate items from their packaging by eliminating hard plastic clamshell cases, plastic binds, and plastic-coated wire ties."

The MP3 music service at the United Kingdom site of Amazon launched with more than four million DRM-free songs from the four major labels and hundreds of independent ones. There was also the launch of Amazon CloudFront, a pay-as-you-go content delivery Web service, and the expansion of the Amazon Elastic Compute Cloud so that it can run Microsoft Windows Server.

Michael Gartenberg, a technology analyst, said that, "if you look at Amazon's numbers, it certainly feels this was a year when shopping online, in particular at Amazon, trumped brick-and-mortar stores." He added that in 2008, with value- and time-oriented shoppers, and high gas prices for at least part of the year, "the whole Amazon experience was about as perfect a storm as you can get."

Amazon, he said, offers depth, convenience and value, and this past year may have marked a turning point in what kinds of products people are willing to buy online. For instance, Amazon has said that big-screen TVs were a big seller, whereas such big-ticket items traditionally have been the domain of brick-and-mortar stores.


CEOs say overhaul of bank bonuses on the cards (Reuters)

Friday, January 30th, 2009 | Finance News

DAVOS, Switzerland (Reuters) –
Top executives meeting in Davos say the bonus culture that drove financial investments on Wall Street faces a major overhaul as bankers humbled by the financial crisis prepare to curb excessive pay.

U.S. President Barack Obama on Thursday voiced outrage at lavish pay checks after the New York comptroller revealed that a staggering $18.4 billion of bonuses payout were made in 2008.

In Europe, banks that have had to go cap in hand to governments for state help are also under pressure to change the way they compensate managers and introduce disincentives to take too much risk.

"It is quite clear that at least some of the compensation models at these firms have to be not just incrementally changed but completely overhauled," NYSE Euronext Inc. (NYX.N) Chief Executive Duncan Niederhauer said on Thursday, on the sidelines of the World Economic Forum.

Senior executives say the drive toward the end-year bonuses has pushed some bankers to take increasingly high risks in the hope of getting the high profit that would yield a marked top-up to their basic pay at the end of the year.

"Increasingly (the focus) is moving away from the short into periods of time of three to plus years," Mark Tucker, chief executive of insurer Prudential (PRU.L), told Reuters.

The short-term approach can be eliminated, executives said, by introducing a mechanism that allow banks to spread bonuses over a number of years and potentially claw back money.

"You are going to see a move where the overwhelming majority of those individuals is paid in deferred stocks or other deferred methods," Niederauer said.

"It gives the company the ability to have a claw back mechanism that does not exist today."


Banks across the world have started to cut down on executive pay, and bonuses in Wall Street were down on average 44 percent from the year before. But now the focus is on shifting to create permanent disincentives within the payment system.

"People who had a major and instrumental role in bringing to this crisis seem to be walking away without too much pain," said Philip Thorpe, chief executive of the Qatar Financial Center Regulatory Authority.

"Going forward, we need a regulatory structure which creates sufficient disincentives - an old carrot and stick approach."

Swiss bank UBS (UBSN.VX)(UBS.N), which agreed to change its compensation system when it received a Swiss government bailout in October, has already introduced a system whereby variable pay is locked over a number of years and can be raised or cut back depending on effective performance.

The bank axed its top managers' bonuses for the year and slashed those for its investment bank by more than 80 percent.

Credit Suisse (CASGN.VX), which already has a claw-back system in place, announced in December it would pay some senior executives with illiquid assets, forcing them to take on some of the risk that had been put on the bank's books.

Some banks are mulling the introduction of a "say on pay" system for shareholders so as to give them more control.

Executives stressed, however, that incentives were not always a bad thing, and they tended to differentiate between Wall Street banks and other segments of the financial services industry.

"We are a consulting group, effectively, so bonuses have always been an appropriate part of what we do," Brian Duperreault, president and chief executive of insurance broker Marsh & McLennan Cos Inc (MMC.N) told Reuters.

"The Wall Street world and our world are different."

"Were they really making the kind of money they supposedly were making? It turns out no. If no value is being created then there shouldn't be any compensation at all," he added.

(Editing by Simon Jessop)