Archive for February, 2009

SEC accuses Idaho businessman of $40M fraud (AP)

Friday, February 27th, 2009 | Finance News

BOISE, Idaho – Federal regulators are accusing an Idaho businessman of conning at least $40 million from investors and using the money to make credit card payments, pay for snowmobiles and a mansion in Idaho Falls.

The Securities and Exchange Commission filed the lawsuit against Daren Palmer and Trigon Group Inc. on Thursday in U.S. District Court in Boise. The commission said in a statement that the court signed an order freezing his assets and appointing a receiver for the company.

Idaho's Department of Finance has already issued a cease-and-desist order to the Idaho Falls investment firm, which is under investigation for what state and federal officials are calling a classic Ponzi scheme.

That's the same kind of fraud that New York money manager Bernard Madoff is also suspected of running, in which money from new investors is used to pay off earlier investors. The scheme falls apart when clients start trying to pull their money out and there aren't enough new investors to provide funds.

Palmer, 40, is president and sole owner of the Trigon Group, a Nevada corporation that is headquartered in Idaho Falls. The SEC filed a civil lawsuit against Palmer saying he defrauded at least 55 investors by promising high returns through an allegedly riskless trading program.

The complaint says Palmer sold securities in the form of promissory notes and investment contracts between 1996 and October 2008 to clients, including friends and neighbors in his eastern Idaho community.

Palmer told his clients he had learned a complex strategy for investing in a way that generated annual returns of 20 percent or greater regardless of how the stock market performed, the lawsuit says.

Palmer prepared and provided investors with quarterly statements bolstered by false profits and used the money generated from their investments to pay fictitious returns to previous investors.

The complaint further alleges that Palmer used investor funds to build a partially completed $12 million home in eastern Idaho and paid himself a salary of $25,000 to $35,000 a month.

Palmer also told investors he was licensed to sell securities, which is not true, the SEC said.

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Citigroup gets new rescue, U.S. may own 36 percent (Reuters)

Friday, February 27th, 2009 | Finance News

NEW YORK/WASHINGTON (Reuters) –
The U.S. government will boost its equity stake in Citigroup Inc to as much as 36 percent, bolstering the bank's capital base in the latest emergency effort to save the banking giant.

In its third attempt to prop up Citigroup in the past five months, the government will convert up to $25 billion in preferred shares to common stock. Existing shareholders could see their ownership of the bank diluted by 74 percent.

While the latest rescue does not inject more money into Citigroup, it gives the government more of a voting stake and far greater influence over the bank's operations, short of outright nationalization. The White House said a higher U.S. stake will help achieve a "better outcome" for the bank.

"The government is the new boss," said Mike Holland, the founder of money manager Holland & Co in New York. "Every major decision is something that is not going to come out of Park Avenue, but is going to come from Washington, D.C."

New York-based Citigroup in October and November received $45 billion of taxpayer money, as well as a government backstop to cap losses on $301 billion of toxic assets.

Shares of Citigroup closed down 39 percent on Friday, and touched their lowest level in at least 18 years. The market value of what was once the world's most valuable bank has fallen to $8.2 billion, Reuters data show, from a peak above $270 billion roughly two years ago.

U.S. Bancorp's market value is more than three times greater than Citigroup's, though the regional bank's asset base is only one-seventh as large.

Moody's Investors Service cut Citigroup debt one notch to "A3," its fourth-lowest investment grade, saying Citigroup is likely to shrink, "which could diminish its relative importance to the U.S. banking system over the long run." Standard & Poor's affirmed its "A" rating, a notch higher.

CEO SAYS STILL IN CHARGE

Friday's agreement calls for Citigroup to offer to exchange common stock for up to $27.5 billion of its preferred shares at $3.25 per share. The government will match the exchange up to $25 billion, provided private investors do the same.

Citigroup will halt dividends on preferred and common stock, but maintain payouts on trust preferred securities.

The agreement could be a template for other lenders that have taken government money. It will boost Citigroup's tangible common equity ratio, a measure of capital, to between 5.4 percent and 8.1 percent from the fourth quarter's 3 percent.

On a conference call, Chief Executive Vikram Pandit said senior executives "completely remain in charge" of day-to-day operations.

The bank will shake up its board and install a majority of new, independent directors. Five of the board's 15 members are either not standing for reelection or will reach retirement age by the time of Citigroup's annual meeting in April.

"Investors want to see heads roll because they're so angry at the entire banking industry," said Marshall Front, chairman of Front Barnett Associates LLC in Chicago, which invests $500 million. "But Citigroup management is as well qualified to deal with the problems the bank faces now as anyone, and would not have the learning curve that new people would face."

Citigroup shares closed down 96 cents to $1.50 on the New York Stock Exchange. Front said the drop was not steeper because "the stock long ago discounted substantial dilution, which is now being formally recognized."

Shares of other lenders also fell, including declines of 25.8 percent at Bank of America Corp and 16 percent at Wells Fargo & Co.

The Standard & Poor's 500 stock index fell 2.4 percent after the government said U.S. gross domestic product fell much more in the fourth quarter than analysts had expected.

Separately, Citigroup said it has recorded more than $8.9 billion of charges to write down goodwill and its Nikko Asset Management unit in Japan. The charges boost its fourth-quarter loss to more than $17.2 billion, and Citigroup's full-year loss to $27.7 billion.

CEO SAYS NO NATIONALIZATION

Citigroup and other large U.S. banks will soon undergo "stress tests" to assess their ability to cope with a severe recession, and whether they might need more capital.

Referring to the new rescue, Pandit said, "This capital should take confidence issues off the table, even in a stressed environment." Asked about nationalization, he added, "This announcement should put those concerns to rest."

The Obama administration has said it prefers to keep banks in private hands, and Federal Reserve Chairman Ben Bernanke this week rejected 100 percent government control of lenders.

The United States already has a nearly 80 percent stake in insurer American International Group Inc, while the British government owns 70 percent of Royal Bank of Scotland Group Plc.

"There is so much going on in terms of trying to manage the continuing and unfolding drama around the credit crisis," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. At Citigroup, he said, the government "didn't want to have to take any more than it had to."

NO PLANS TO SELL BANAMEX

Pandit has split Citigroup into two: Citicorp, which has retail banking and other businesses that Citigroup wants to keep, and Citi Holdings, which includes troubled or underperforming assets it wants to sell or wind down.

A higher government stake could complicate Citigroup's ability to operate in some of the more than 100 countries where it has businesses. Bank executives downplayed speculation that Citigroup might shed all or part of its ownership of Grupo Financiero Banamex, Mexico's second-largest bank.

"We're not open to the idea of offloading assets that we really want to keep," Edward "Ned" Kelly, head of global banking and Citi Alternative Investments, said in an interview. "Banamex is a very important property to us, and we are intent on retaining it and maximizing its value."

He also called the bank's Handlowy business in Poland "an extraordinarily important franchise to us."

Citigroup said the preferred stock exchange could boost its common share count as high as 21 billion from 5.5 billion now. It said investors including Saudi Prince Alwaleed bin Talal, Singapore Investment Corp, Capital Research and Management and others had agreed to swap their preferred stock.

(Reporting by Jonathan Stempel and David Lawder)

(Additional reporting by Elinor Comlay, Joseph A. Giannone and Juan Lagorio in New York; Saeed Azhar and Kevin Lim in Singapore and Rafael Nam in Hong Kong; writing by John Stonestreet; editing by Jeffrey Benkoe, John Wallace and Carol Bishopric)

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Retirement: Test your financial planning IQ (AP)

Friday, February 27th, 2009 | Finance News

The formula for a financially successful retirement used to be straightforward: Work for decades for one employer and then live happily ever after on the pension, Social Security and whatever personal savings you were able to amass.

With regular checks from your company and Uncle Sam, the amount of savings was important but not critical.

Today, with pensions vanishing and an economic crisis withering savings, it's increasingly up to individuals to take charge of their finances to fund retirements that can stretch for up to 30 years because of longer lifespans.

Is your retirement IQ up to the challenge? Take the test and find out. (Answers at bottom):

1. What percentage of your savings can you withdraw annually in retirement without risk of running out of money?

(a) 3 percent (b) 4 percent (c) 7 percent (d) 10 percent

2. Approximately what percentage of pre-retirement income is generally needed to maintain a person's current lifestyle in retirement?

(a) 45 to 60 percent (b) 60 to 75 percent (c) 75 to 99 percent (d) 100 percent or more

3. Working full-time for three years past one's anticipated retirement date and continuing to save 15 percent of salary could raise annual retirement income by how much?

(a) 7 percent (b) 12 percent (c) 17 percent (d) 22 percent

4. At what age will most of today's workers be eligible for full Social Security retirement benefits?

(a) 62 or 63 (b) 64 or 65 (c) 66 or 67 (d) 70

5. How much extra can workers 50 or older contribute to their retirement plans in 2009?

(a) $6,000 extra, for a maximum $21,000 (b) $5,500 extra, for a maximum $22,000 (c) $7,000 extra, for a maximum $24,000 (d) $7,500 extra, for a maximum $25,000.

6. The typical person age 50 and older with a 401(k) account with his or her current employer holds about how much in the account?

(a) $47,000 (b) $97,000 (c) $147,000 (d) $247,000

7. The number of workers age 65 and over is expected to grow by how much over the next decade?

(a) More than 20 percent (b) More than 40 percent (c) More than 60 percent (d) More than 80 percent

8. What percent of homeowners age 50 to 65 plan to use home equity to finance ordinary living expenses in retirement?

(a) 6 percent (b) 10 percent (c) 20 percent (d) 50 percent

9. A job layoff in one's 50s or 60s typically reduces total household wealth by what percent?

(a) 11 percent for married couples and 23 percent for single people (b) 16 percent for married couples and 28 percent for single people (c) 21 percent for married couples and 33 percent for single people (d) 31 percent for married couples and 43 percent for single people

10. What percent of U.S. workers are covered by traditional defined-benefit retirement plans (pensions)?

(a) 10 percent (b) 20 percent (c) 50 percent (d) 75 percent

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ANSWERS:

1. (b) The 4 percent rule advocated by many financial planners holds that if you withdraw no more than 4 percent of your portfolio in the first year of retirement and then increase that amount for inflation each year, your money should last at least 30 years. That rough guideline takes into consideration the role of expected earnings on your portfolio as well as inflation.

2. (c) Most employees will need an average of between 77 and 94 percent, according to Aon Consulting's 2008 Replacement Ratio Study. It's best to plan for the high side since health and medical costs are impossible to predict. Also, people tend to spend more money when they have more leisure time.

3. (d) Investment management company T. Rowe Price says retirement income goes up about 7 percent for each additional year of work, or around 22 percent after three years.

4. (c) Between 66 and 67, depending on date of birth. Retire before that and your benefits will be reduced by 20 to 30 percent. Check retirement benefits by year of birth at the Social Security site (http://ssa.gov) for your specifics. Knowing the right age is essential to making retirement plans that won't leave you short of money.

5. (b) Employees age 50 and up can make up to $5,500 in catch-up contributions in 2009, added to a base contribution limit of $16,500 for a maximum $22,000.

6. (b) $96,809 as of Feb. 26, according to the Employee Benefit Research Institute. Whether you're ahead or behind your neighbors and peers in retirement savings, don't lose sight of the long term — keep saving.

7. (d) The number of workers age 65 or older is predicted to soar by more than 80 percent by 2016 (from 2006 totals), according to the U.S. Bureau of Labor Statistics.

8. (a) 6 percent, according to a 2007 report by the Center for Retirement Research at Boston College. You should try to avoid tapping home equity for routine retirement expenses if possible. The housing crisis has called into question projections that home equity is likely to become an increasingly important source of retirement income.

9. (c) 21 percent for married couples and 33 percent for single people, according to a 2007 report by the Urban Institute. These statistics serve as a warning to build up emergency savings and not cut things too close in case of an unexpected job loss late in your working career.

10. (b) AARP says only 20 percent are covered, meaning most people have to look after their own finances with such vehicles as 401(k)s and IRAs for their nest eggs.

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SCORING SYSTEM:

0-3: Better bone up fast or you'll have to keep working till you drop.

4-5: You need to study some more.

6-7: Not bad, but the road to retirement affluence could still be bumpy for you.

8-9: If your planning matches your knowledge, you should be in good shape.

10: Congratulations! May you live long and prosper.

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