Archive for June, 2011

Analysis: Weak economy shadows Obama even in bright areas

Thursday, June 30th, 2011 | Finance News

WASHINGTON (Reuters) – A bright spot for President Barack Obama in the bleak U.S. economic picture should be that many of the "swing" states crucial to his 2012 re-election bid are weathering the recession relatively well.

But unfortunately for Obama, voters in those states are just not seeing the light.

Voters in Virginia, Pennsylvania and some other battlegrounds where the election will likely be decided are not optimistic about the economy, even though their rates of unemployment -- the most politically sensitive economic statistic -- are below the 9.1 percent national rate.

Americans tend to blame Washington for nationwide economic problems, so Obama will face a tough fight to turn the economic data to his advantage in states where he and his eventual Republican rival will be focusing most of their attention.

"People tend to vote based on their perceptions of the state of the economy, and the national news dialogue is about the struggling economy and high unemployment, so even in the swing states that are doing better that's reality for most voters," said Mark Rozell, a political scientist at Virginia's George Mason University.

"Americans ... tend to look to presidents as managers of the national economy and if Virginia's doing better, I think (Republican Governor) Bob McDonnell gets the credit in the minds of the voters," he said.

Among states seen as neither firmly Democratic nor Republican ahead of the November 2012 vote, Virginia has a 6.0 percent unemployment rate and Pennsylvania and Wisconsin are both at 7.4 percent.

Obama, a Democrat, won all three -- as he did most of the swing states -- in 2008 when he soared to the White House in a campaign fueled largely by voter unhappiness over the weak economy under his Republican predecessor George W. Bush.

But since that election, Republicans have won governors' races in Virginia, Pennsylvania and Wisconsin, and the states' congressional delegations have turned more Republican. Polls also show voters there are worried about the economy, and view the Democratic president less favorably.

"It's all comparative and it's all relative," said Matt McDonald, a partner at the Republican-aligned Hamilton Place Strategies consultancy in Washington.

"The number that people are exposed to nationally is bad," he said.


Obama is still ahead in most polls against possible Republican challengers, led by front-runner Mitt Romney.

Weak unemployment is only one worrisome economic indicator. U.S. consumer spending failed to rise in May, breaking 10 straight months of gains. And the number of Americans filing new claims for unemployment benefits rose last week, suggesting little improvement in the labor market.

Although the election is 17 months away, Obama will face an uphill battle convincing voters to feel better about the country's prospects if things do not improve.

"At this point, it's awfully hard to see an Obama commercial that says 'It's morning again in America,'" said Charles Franklin, a professor of political science at the University of Wisconsin and a founder of

Pennsylvania -- which has 20 of the 270 electoral votes needed to win the presidency -- is considered particularly crucial for Obama's 2012 hopes.

After reeling in the 1980s and 1990s from the decline of steelmaking and other key industries, the state has lower unemployment than the national average for the first time in modern history, noted Terry Madonna, a political scientist at Pennsylvania's Franklin & Marshall College.

Obama won in Pennsylvania by an unusually large 10 percent margin in 2008, but polls show his job approval rating there -- about 45 percent -- is about the same as it is nationally.

"They still say in my state as well as almost every other state that the country is moving in the wrong direction," Madonna said.

While better economies are not helping Obama much in relatively robust swing states, economic weakness could hit hard in those that are reeling from the downturn, including four states now considered battlegrounds.

Joblessness is at 9.7 percent in North Carolina, where Obama eked out a win with a 0.3 percent margin in 2008. In Michigan, it is 10.3 percent, although the state has benefited from Obama's bailout of the auto industry.

Unemployment in Nevada, which Obama won by 10 percent in 2008, is the country's worst, at 12.1 percent.

And in Florida, the biggest swing state with 29 electoral votes, and where Obama edged his Republican rival John McCain by just 3 percent in 2008, unemployment is at 10.6 percent.

"The last four states are both battlegrounds and economically worse off than the nation, making the political battle over the economy very important there," Franklin said.

(Editing by Alistair Bell and Paul Simao)


Visa, MasterCard "more investable" after new fee rules

Thursday, June 30th, 2011 | Finance News

BANGALORE (Reuters) – The revised Federal Reserve rules governing how much banks charge retailers to process debit card purchases was given a big thumbs-up by some analysts, who expect the rules to be a huge boost to card networks Visa (V.N) and MasterCard (MA.N).

"We believe the most significant threat to Visa and MasterCard profitability has been dramatically reduced," Chris Brendler of Stifel Nicolaus said.

Banks pay card networks like Visa and MasterCard for processing debit transactions, and the softened rule is a victory for big banks like Bank of America (BAC.N) and JPMorgan Chase (JPM.N), and card networks like Visa and MasterCard.

Under the new rule, banks would be allowed to charge as much as 22 cents per debit card transaction, which includes a one-cent allowance for meeting certain fraud prevention standards.

"The final rules are a clear positive as a higher interchange cap could lessen pricing pressure from large bank issuers," Robert W. Baird analyst David Koning said.

"We believe Visa and MasterCard become more investable again, as the regulatory cloud lifts.

The market capitalization of four largest U.S. card networks -- Visa (V.N), MasterCard (MA.N), American Express (AXP.N) and Discover (DFS.N) -- gained about $14 billion on Wednesday after the Fed's vote.

Citigroup said while it was "incrementally more positive on the networks, given the sharp rise in Visa and Mastercard's share prices, it would look for "a better entry point," and would instead be buyers of American Express and Capital One (COF.N).

However, banks still stand to lose billions of dollars in revenue despite the increased cap. Swipe fees in 2009 were $16.2 billion, according to the Fed.

"Banks are still taking a significant 46 percent hit to their debit interchange revenues, which will have an impact on debit programs and drive mitigation efforts such as new customer fees," Citigroup analyst Ashwin Shirvaikar said.

Banks have said they will have to find ways to offset the losses through other fees and have raised doubts that merchants will pass along any savings to consumers.

"Bank and merchant lobbies are sure to push for further changes more to their liking. We view these potential actions as important to monitor, but unlikely to have a truly meaningful impact for the foreseeable future," FBR Capital's Scott Valentin said.

(Reporting by Brenton Cordeiro; Editing by Gopakumar Warrier)


Constellation Brands posts $75M profit for 1Q

Thursday, June 30th, 2011 | Finance News

ROCHESTER, N.Y. – The maker of Robert Mondavi wine and Svedka vodka says its first-quarter profit jumped 52 percent to $75 million on improved wine and spirits sales in North America.

Constellation Brands said Thursday its revenue dropped 19 percent to $635 million largely because the company sold the bulk of its Australian and British wine business in January.

Net income equaled 35 cents per share. A year earlier, the company earned $49.1 million, or 22 cents a share, as sliding sales of wine in the key North American wine market were more than offset by lower restructuring charges.

Wine and spirits sales rose 3 percent in North America in the March-to-May quarter.

Excluding one-time items, the Victor, N.Y., company earned 39 cents per share. Wall Street expected 37 cents, according to FactSet.