Archive for April, 2009

Police investigating death of Freddie Mac official (AP)

Wednesday, April 22nd, 2009 | Finance News

VIENNA, VA. – The chief financial officer of Freddie Mac, one of the mortgage giants at the heart of the nation's financial meltdown, was found dead in his basement early Wednesday morning in what police said was an apparent suicide. David Kellermann, 41, apparently hanged himself in his suburban Washington home, said a law enforcement official familiar with the investigation. He asked not to be identified because the investigation was ongoing.

Kellermann was promoted last September when the government seized the mortgage company and ousted its top two executives. Neighbors said Kellermann had lost a noticeable amount of weight under the strain of the new job. Some neighbors said they suggested to Kellermann should quit to avoid the stress, but Kellermann responded that he wanted to help the company through its problems. The neighbors did not want to be quoted by name because they didn't want to upset the family.

Kellermann oversaw a staff of about 500 at Freddie Mac's McLean, Va., headquarters and was working on the company's first-quarter financial report, due by the end of May. Federal regulators closely oversee the company's books and sign off on major decisions.

That relationship has been tense and stressful, with Kellermann working long hours, a colleague said. Freddie Mac executives recently battled with federal regulators over whether to disclose potential losses on mortgage securities tied to the Obama administration's housing plan, said a person familiar with the deliberations who was not authorized to discuss the matter publicly.

Freddie Mac, which owns or guarantees about 13 million mortgages, has been criticized for financing risky loans that fueled the real estate bubble and are now defaulting at a record pace. The company lost more than $50 billion last year, and the Treasury Department has pumped in $45 billion to keep the company afloat. Last month, David Moffett, the government-appointed chief executive, resigned in frustration over strict oversight.

Kellermann worked for Freddie Mac more than 16 years, starting out as a financial analyst and auditor.

Freddie Mac and sibling company Fannie Mae have both come under fire from lawmakers because they plan to pay more than $210 million in bonuses through next year to give workers the incentive to stay in their jobs. Kellermann got $170,000 and was to receive another $680,000 over the next year.

Federal prosecutors in Virginia have been investigating Freddie Mac's business practices. But two U.S. law enforcement officials, who spoke on condition of anonymity because they were not authorized to discuss the Freddie Mac investigation, said Kellermann was neither a target nor a subject of the investigation and had not been under law enforcement scrutiny.

Police responded to a 911-call at 4:48 a.m. at the suburban Virginia home Kellermann shared with his wife Donna and 5-year-old daughter Grace.

Paul Unger, who lives across the street from the Kellermanns in the Hunter Mill Estates community in Fairfax County, called the family a "solid, salt-of-the-earth kind of family" that hosted the neighborhood's Halloween party. "He was just a nice guy ... You cannot imagine what kind of pressures he must have been under," Unger said.

Kellermann graduated from the University of Michigan and was such a fan of the school's sports teams that he named his boat the "Wolverine Dream 2." He later went to business school at George Washington University and started at Freddie Mac in 1992.

Jeffrey Martin, a lawyer and high school classmate from Bay City, Mich., recalled that Kellermann wanted to be "Alex P. Keaton," the television character played by Michael J. Fox on the 1980s sitcom "Family Ties."

Kellermann "knew he wanted to climb the corporate ladder, and he climbed the corporate ladder," Martin said.

This is at least the fifth high-profile executive suicide in as many months.

In January, German billionaire investor Adolf Merckle, who lost a fortune in shorted Volkswagen stock, threw himself under a commuter train. Patrick Rocca, an Irish property investor who lost millions when the real estate market bottomed out, waited until his wife took their children to school before he shot himself in the head. Outside Chicago, real estate mogul Steven Good was found dead in his Jaguar, apparently from a self-inflicted gunshot wound.

And three days before Christmas, Rene-Thierry Magon de la Villehuchet killed himself in his 22nd-floor office in Manhattan. He'd lost his entire savings, and his clients' money, to Madoff's alleged Ponzi scheme.

News of Kellermann's death came as a shock to employees of the McLean, Va.-based company, with those who knew Kellermann tearing up on Wednesday morning and a quiet mood prevailing. Senior executives at the company heard the news on local radio before going to work.

Freddie Mac canceled a bond offering on Wednesday and top executives visited the family's home to offer condolences. John Koskinen, the company's interim chief executive, spoke to workers at an 11 a.m. staff meeting mourning Kellermann's loss, telling employees that they could use the company's counseling services and take time off if necessary.

In statement e-mailed to employees and the media, Koskinen called Kellermann "a man of great talents .... His extraordinary work ethic and integrity inspired all who worked with him."

Treasury Secretary Timothy Geithner said in a statement that "our deepest sympathies are with his family and his colleagues at Freddie Mac during this difficult time."

And Michael Ferrell, executive director of the D.C. Coalition for the Homeless, where Kellermann was a volunteer board member, described him as a "compassionate, dedicated and committed."

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Associated Press Writers Matt Small, Kamala Lane, Devlin Barrett and Matt Apuzzo contributed to this report from Washington and Fairfax County, Va. Corey Williams contributed reporting from Detroit and Matt Barakat reported from Fairfax County.

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U.S. credit card bill advances on eve of Obama meet (Reuters)

Wednesday, April 22nd, 2009 | Finance News

WASHINGTON (Reuters) –
Legislation to curb credit card fees and limit consumer penalties cleared a congressional panel on Wednesday, a day ahead of a meeting between industry executives and President Barack Obama at the White House.

The bill is an early test of political will for Democrats pushing for regulatory reform amid the economic crisis and would mean sweeping changes for card-issuing banks, many of which have received government bailout money.

Members of the House Financial Services Committee voted 48 to 19 for the Credit Cardholders' Bill of Rights which in practice would codify into law restrictions on deceptive practices issued by the Federal Reserve in December.

The legislation would stop credit card issuers from imposing arbitrary interest rate increases and penalties, and halt certain billing practices.

Nine Republicans, or almost a third of that party's members on the committee, voted in favor of the measure.

Committee chairman Barney Frank told reporters after the vote he was not surprised the measure attracted bipartisan support. "The mood in the country has changed," he said.

Frank said Obama, who campaigned for credit card reforms, wants to make changes to the bill. Frank provided no details.

Later on Wednesday, White House spokesman Robert Gibbs told reporters that Obama wanted to make sure the legislation codified the Fed's rules into law.

Executives from Bank of America Corp, American Express Co, Citigroup Inc, Wells Fargo & Co, JPMorgan Chase & Co, Capital One Financial Corp, Visa Inc and MasterCard Inc will be among 13 credit card executive due to meet Obama early on Thursday afternoon at the White House.

"We are working closely with Congress on legislation that will promote simplicity, require transparency, demand fairness, and ensure accountability -- so that we can strengthen consumer protections against abusive and deceptive practices," White House spokeswoman Jen Psaki said.

Banks say the legislation would hurt fee income at a time when they are trying to climb out of a financial hole created by the collapse of the housing boom.

The American Bankers Association trade group, which represents the biggest credit card issuers, said it is concerned the House bill could reduce the availability of consumer credit and make it more expensive.

Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said consumer groups supported making the Fed rules law, but wanted to go further.

"We hope the president will also support further reforms, such as the... Senate's stronger ban on 'no reason' fee increases and its protection for college students from unfair credit card marketing," Mierzwinski said.

BILLING PRACTICES

"It's a new era in Washington," said Rep. Carolyn Maloney, a New York Democrat and chief sponsor of the House bill. "It's taken three years of hard work, but I'm delighted that we're on the brink of real protections for consumers."

The bill would give companies at least one year or until July 2010, whichever comes first, to comply. However a provision would require them to implement sooner a 45-day period to notify cardholders of higher rates when they are late making payments.

Frank said he plans to introduce Obama's proposals, possibly during a full House vote next week on the bill.

While the reform legislation appears to face clear sailing in the House, it remains unclear whether Democrats in the Senate can muster the 60 votes needed in that chamber to advance their version of credit card legislation amid stiff opposition from the banking industry.

In the Senate, Democrats hold 56 seats and two independents routinely side with Democrats. A win by Al Franken in the undetermined election in Minnesota could give Democrats 59 votes, one shy from the 60 needed to overcome a procedural hurdle that could block a vote on a legislative measure.

"I'm more confident than I've every been," Frank said of chances the Senate will pass its own credit card bill.

BAILED OUT BANKS

U.S. banks that issue credit cards have received more than $120 billion in taxpayer funds since October, money the government has asked them to use to expand lending.

But with U.S. credit card defaults at record highs, lenders are protecting themselves by tightening credit limits and closing accounts, actions angering lawmakers and consumers, and triggered an inquiry by the New York state attorney general.

U.S. lawmakers also are unhappy that the same banks, such as Bank of America, Citi and Chase, with big credit card operations, charge high interest rates and fees while getting bailouts from taxpayers who are credit card users.

Maloney initially wanted to force credit card companies to adopt the stricter terms within 90 days of the bill becoming law, but a House subcommittee rejected that.

The July 2010 compliance date in the House bill is the same deadline set by the Federal Reserve last December to implement changes to curb what Fed Chairman Ben Bernanke called "unfair and deceptive" practices.

Banks, citing the need for time to develop software, train staff and work with vendors on new printing procedures, say they cannot implement these changes overnight.

"Banks are working aggressively to implement the rules by the date set by the regulators," said Kenneth Clayton, senior vice president for credit card policy at the ABA.

(Reporting by John Poirier; Additional reporting by Caren Bohan and Karey Wutkowski; Editing by Andre Grenon and Tim Dobbyn)

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Apple profit beats expectations on iPhones, iPods (Reuters)

Wednesday, April 22nd, 2009 | Finance News

SAN FRANCISCO (Reuters) –
Apple Inc's second quarter profit soared past Wall Street expectations on strong sales of iPhones and iPods, underscoring the popularity of the company's relatively expensive products even in the midst of a weak economy.

Known for giving conservative outlooks, Apple projected profit and revenue for its third quarter below average Wall Street estimates, but that failed to discourage investors who drove its shares up 3 percent after hours on Wednesday.

"As the world economy began to spiral the big question on investors' minds was if the Apple brand was going to be resilient or particularly susceptible," said Oppenheimer analyst Yair Reiner. "I think that what these results show is that Apple and this brand are relatively resilient."

Net profit rose to $1.21 billion, or $1.33 a share, in its fiscal second quarter ended March 28, from $1.05 billion, or $1.16 a share, a year ago. Analysts had expected a profit of $1.09 a share, according to Reuters Estimates.

Revenue rose 8.7 percent to $8.16 billion, beating the average Street forecast of $7.96 billion.

"I think in a better economy our sales certainly would have been higher but ... we have just reported the best non-holiday quarter in Apple's history despite the economy that we find ourselves in," Chief Financial Officer Peter Oppenheimer told Reuters in a telephone interview.

The company ended the quarter with $29 billion in cash and marketable securities on its balance sheet, but Oppenheimer said there were no plans to announce a stock buyback or other forms of returning cash to shareholders.

Apple forecast earnings for the third quarter of 95 cents to $1.00 a share on revenue of $7.7 billion to $7.9 billion. That compared to Street estimates for earnings of $1.12 a share on revenue of $8.3 billion.

While some analysts said it may be prudent for Apple to be conservative given the economy, Pacific Crest Securities analyst Andy Hargreaves pointed to some worries that sales may slow in the current quarter as consumers anticipate new products coming to the market, including a possible new iPhone [ID:nN20403162].

"There is going to be concern in this quarter due to purchasing delays in front of new June product releases, but outside of that, it's really clean," Hargreaves said of the results.

MAC SHIPMENTS IN LINE

Apple shipped 3.79 million iPhones in the March quarter, better than the roughly 3.3 million units analysts were expecting but down from 4.4 million in the December period.

The company said it was happy with its relationship with AT&T Inc, the exclusive U.S. carrier for the iPhone, and had no plans to change it. Apple also said it would like to begin selling the iPhone in China in the next year.

It sold 11.01 million iPods during the quarter, versus the roughly 10 million units forecast by analysts. Mac computer shipments totaled 2.22 million, down from last year but in line with expectations.

Gross margin rose to a higher-than-expected 36.4 percent in the quarter, from 32.9 percent a year ago, benefiting from favorable commodity and component costs.

"This quarter shows Apple's resiliency in the face of very weak economic conditions. In addition, it shows the popularity of the iPhone worldwide," said Cross Research's Shannon Cross.

Shares of Apple rose to $125.25 in extended trading, after closing the regular Nasdaq session down 25 cents at $121.51.

The stock has gained more than 50 percent since hitting a 52-week low in January, despite some concerns about CEO Steve Jobs, who is on a medical leave of absence until June.

Oppenheimer said on the conference call the company was looking forward to Jobs returning at the end of June.

"Apple is a $30 billion company. It's an institution and clearly Jobs has been an iconic leader but...there is a deep bench of talented people there at all levels," said Barry Jaruzelski, partner at Booz & Co.

(Additional reporting by Gina Keating and Sue Zeidler in Los Angeles; Writing by Tiffany Wu; Editing by Gary Hill and Carol Bishopric)

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