Financial bonanza

With the price of crude oil dropping for the second time this month, expect retail gasoline prices to be lower this week, AAA said, adding that the downward trend should continue with the possibility of lower prices by Memorial Day weekend.

Crude oil closed Friday at $71.61 a barrel on the New York Mercantile Exchange.

“Motorists may be very happy this Memorial Day weekend since retail gasoline prices will most likely be lower than expected,” said Jessica Brady, manager of AAA public relations. “The economic uncertainty in Europe coupled with a strong U.S. dollar and ample supply of crude equal a formula that lowers both the price of crude oil and retail gasoline.”

The national average price of unleaded regular gasoline is $2.87 per gallon. Florida’s average price is $2.86 per gallon, both reflecting a four-cent decrease from last week.

In Orlando, a gallon of self-serve regular currently is $2.79, down 6 cents from a week ago.

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Macy’s intense focus on tailoring its merchandise to local markets helped push the department store chain to profitability in the first quarter.

More customers who had defected to rivals returned to its stores, the chain said, helping drive better-than-expected sales.

However, the department store operator, which boosted its annual outlook last month, said it’s too early to further raise its guidance for the year because of economic uncertainty.

"We are off to a great start this year, and we have every expectation that it will continue," Karen Hoguet, Macy’s chief financial officer, told investors during a conference call.

But while Macy’s continues to see strong sales, "We don’t want to get ahead of ourselves," she added. "While the economy has been stronger than we anticipated, it is unclear how strong it really is," she said.

Macy’s Inc., based in Cincinnati, posted net income of $23 million, or 5 cents per share, for the quarter. That compares with a loss of $88 million, or 21 cents, a year ago. Revenue rose to $5.57 billion. Revenue at stores open at least a year rose 5.5 percent. The measure is a key indicator of a retailer’s health because it excludes the effects of expansion.

"With major changes now behind us, the Macy’s organization has settled in and is hitting a stride in capitalizing on the advantages of (localization)," Terry J. Lundgren, Macy’s chairman, president and CEO, said.

Hoguet said that aside from its flagship store in New York, its smallest-volume stores — those in small markets or small in size — enjoyed the biggest sales increases, confirming that its plans to tailor its merchandise to local markets is working. In the past, those stores’ business was overlooked and was the toughest to reignite, she noted.

Macy’s localization plan, dubbed My Macy’s, concentrates on putting decisions on what merchandise to stock closer to customers. It seeks to focus top talent in local markets and stay on top of trends by grouping Macy’s stores into districts of 10 to 12. That approach has allowed Macy’s to react better to local needs by putting more experienced workers on its sales floors.

The chain is making plans to expand both the Macy’s and Bloomingdale’s brands, including investments in integrating its online business with its stores.

Online sales surged 34 percent, helping to lift revenue at stores open at least a year by 0.9 percentage points during the first quarter.

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BGK Group, the largest holder of commercial real estate in New Mexico with 2 million square feet, has been acquired by New York’s Rosemont Real Estate, a subsidiary of Rosemont Capital LLC.

Rosemont has acquired a 51 percent controlling interest and will rename the company Rosemont Realty LLC, but its headquarters will remain in Santa Fe. Daniel C. Burrell has relocated from New York to become the new CEO, succeeding BGK founder Eddie Gilbert, who turns 88 this year. Also relocating to Santa Fe is Michael E. Mahony as chief operating officer.

The acquisition price was not disclosed.

The deal gives BGK a needed cash and management infusion. BGK lost one property in Milwaukee in 2009 to its lenders, and its profitability dropped last year, according to Robin Smith, vice president of investor relations.

The new structure will allow BGK to reduce mortgage balances and make new acquisitions. Smith said acquisitions later this year are a possibility. Any deals most likely will not be syndicated limited partnerships, but will have institutional backing. Many BGK deals involved 50 to 200 partners for a single building, shopping center or multi-family complex.

“This was not a desperation move, but driven by management, as Eddie Gilbert is nearly 88. The new partnership helps with our succession issue, and the cash infusion was part of it, but we would have continued operating anyway,†Smith said.

There were other companies seeking to buy BGK, Smith added.

BGK’s portfolio includes 12.5 million square feet of commercial office property, 500,000 square feet of retail space and more than 2,000 multi-family units quick pay day loan. The New Mexico holdings include 19 Albuquerque office buildings, six properties in Santa Fe and one in Hobbs. The company will retain its Albuquerque management office.

Gilbert remains a significant shareholder in the new company, and will continue to work in an advisory capacity. There will be no reductions in the Santa Fe headquarters staff, and there are no plans to sell the portfolio off in the foreseeable future. BGK is the first major acquisition Rosemont has made in real estate.

“The BGK-Rosemont partnership enters the market at a time when traditional leaders in commercial property are severely limited by financial distress, mortgage obligations and lack of access to debt or equity financing. This has resulted in an opportunity for Rosemont Realty to benefit from an environment of reduced competition, historically higher cap rates, more conservative capital structures and improved deal terms in the market,†said Burrell.

“Rosemont is a strategic partner that will enable BGK to grow out of its historical reliance on a retail-based model,†Paul Gerwin, formerly with BGK and the new executive vice president of Rosemont Realty, said. “To move toward an equity capital market strategy for the business and put into place more permanent financing structures, Rosemont Capital’s relationships, expertise and track record will be critical.â€

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Lance Inc. swung to a net loss of $770,000, or 2 cents per diluted share, in its first quarter ended March 27. In the same period last year, the snack producer earned nearly $6.5 million, or 20 cents per diluted share.

Revenue rose to $221.6 million in the latest quarter from $215.8 million a year earlier. Lance says sales were hampered by increased promotional pricing.

However, sales of branded products to grocery stores, dollar stores, mass merchandisers and distributors increased because of Lance’s acquisition of Stella D’oro, new product offerings and the growth of existing products.

Those increases were offset by double-digit revenue declines from convenience stores, street customers and food-service establishments.

“We are taking steps to reduce our operating costs, making changes to our promotional approach to improve productivity and taking actions to support our volume growth,” Chief Executive David Singer says. “We believe these measures will drive a rebound in our profit margin, especially as we move into our seasonally stronger quarters.”

Lance has lowered its full-year earnings per diluted share estimate to between $1.10 and $1.25, excluding special items. The company had previously forecast earnings per diluted share of $1.41 and $1.53, excluding special items.

Lance (NASDAQ:LNCE) manufactures and markets snack foods throughout North America. The company’s products include crackers, cookies, potato chips, sugar wafers, nuts and candy. Lance has manufacturing facilities in North Carolina, Georgia, Florida, Iowa, Massachusetts, Texas, Ohio and Ontario, Canada.

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The easy money has been taken off the table to pay for health reform. But Congress and the White House still have a lot they want to accomplish.

With tax receipts near their lowest level in 60 years, lawmakers are looking for new sources of revenue — and Wall Street tops the hit list.

Among the upcoming efforts that there will be pressure to pay for: Extending expired tax breaks that typically are renewed every year. Efforts targeted at creating jobs. And a long-term extension of unemployment and health benefits for those out of work.

"The government is desperate for cash, and banks — which are suddenly becoming profitable — are attractive targets," said Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group, in a research note.

Two measures in particular have gotten a lot of attention recently: a bailout tax and an increase in the tax bite on hedge-fund managers.

The bailout tax, officially called a "financial crisis responsibility fee," would raise an estimated $90 billion over 10 years, and was included in President Obama’s 2011 budget proposal. It would be paid largely by major financial institutions that contributed to the financial crisis, and were the biggest beneficiaries of extraordinary government actions.

The bailout tax would be based on a financial institution’s size and liabilities, and firms could be subject to it even if they never received money from the Troubled Asset Relief Program (TARP) or if they did but repaid it.

The tax would be in place for a minimum of 10 years, or longer if need be, to ensure that taxpayers in the president’s words "recover every single dime" of the federal bailout.

While no one argues with that sentiment, some lawmakers question why financial institutions should pay back the losses incurred by the automakers and AIG.

Moreover, some say if a bailout tax is imposed, it should be used to reduce the deficit. If the bailout tax revenue is instead used to pay for other spending, taxpayers would still be on the hook for paying back the money Uncle Sam borrowed to fund TARP.

Hitting up hedge funds

The tax on hedge-fund managers would come from upping the take on what’s called carried interest, the portion of a fund’s profits paid to managers. Currently, those managers are taxed at the low capital gains rate. Some argue they should be paying the income tax rate, which will be twice as high.

The proposal, estimated to raise $25 billion over 10 years, is not new. But lawmakers are looking at it again to help pay for the tax extender legislation.

That’s because the two biggest measures expected to offset the cost of those extenders were instead used to pay for health reform: a $25 billion measure that will close a tax loophole for paper companies; and a $5.4 billion provision that makes it harder for companies to engage in tax dodges.

"With more than half the revenue raisers gone from [lawmakers’] tax extenders’ bill, carried interest is looking more and more like the only thing that can plug the gap," said Anne Mathias, director of research at Concept Capital’s Washington Research Group, in a research note.

If not now, later

Mathias adds, however, that a deal to tax carried interest as income is not yet done, and the final provision is likely to be narrowed and watered down.

Likewise, it’s not clear whether there will be sufficient political support for the president’s bailout tax as proposed.

But that doesn’t mean financial institutions will be off the hook.

Rep. Sander Levin (D-MI), chairman of the House Ways & Means Committee, said Monday that lawmakers will consider some sort of tax on financial institutions. "There are various ways to go," he noted at a National Press Club luncheon.

The Joint Committee on Taxation recently put out a report laying out some of the alternatives. Among them, lawmakers could opt to impose an "excess" profits tax on financial institutions that have profits exceeding a given level. Or they could boost the income tax on such firms.

Separately, the International Monetary Fund is expected to propose two financial sector taxes later this week at a G20 meeting to pay for future bailouts and deter excessive risk taking, according to Tax Analysts.

As with any tax, though, there can be a number of unintended consequences: increased tax avoidance by an institution, the risk that a company would pass the tax burden along to its clients, a lower return for its investors or a reduction of a company’s ability to compete globally.

Lawmakers will weigh such potentially negative effects. But over time, Seiberg expects support will build for higher taxes on financial institutions.

"Congress is out of low-hanging fruit to fund spending programs, and deficit reduction will become the new political mantra. Of all industries, the financial sector is in the weakest position to defend itself." 

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WASHINGTON — The people in charge of putting out the news are thrilled that technology is giving them new tools for their craft. But they are still searching for ways to slow the erosion of revenue that threatens many media companies.

That was the message that came across at the American Society of News Editors annual conference this past week.

To cap four days of sessions on everything from e-readers to nonprofit news groups, the organization had a panel of media executives who tried to answer the question: Where do we go from here?

"There has never been a better time to tell the story of the news," Reuters Managing Director Christoph Pleitgen said. Community Newspaper CEO Donna Barrett added: "From a content point of view, we’re kids at Christmas."

Even as the Web upends the business models newspapers used to rely on, it has opened up possibilities. The Internet lets newspapers get news to their readers all day instead of waiting for the next morning’s edition — after television and radio reporters have already had their say.

It also offers new ways to tell stories, with video and graphics that readers can manipulate, for instance. A new pool of sources, expert and everyman, are available on Twitter and Facebook and in blogs.

But, said Barrett, "Revenue is a different story. It is extremely difficult and challenging because the economics of it are different than what we’re used to in print."

Indeed, as Associated Press CEO Tom Curley pointed out, the newspaper business’ annual ad revenue is expected to be $30 billion lower in 2013 than it was in 2007. That means "Where we go from here?" is largely a question of trying to win at least some of the revenue back.

Newspapers have tried to make the transition to the Web largely by relying on advertising, which traditionally covered most of the costs of doing business in print. But advertisers have been willing to spend just a fraction of what they used to pay for print promotions on digital ads.

That daunting reality, plus the recession, has put a tremendous strain on most newspapers.

Opinions differ on how to reverse things.

Executives at ASNE were split, for instance, over how much money news websites could bring in by charging readers for access. Some specialized newspapers, such as The Wall Street Journal, or locally focused publications such as the Arkansas Democrat-Gazette have done well by restricting Web access to subscribers. But the move risks driving readers — and then advertisers — away. The New York Times plans to begin a "metered" Web system, with nonsubscribers getting only so many articles for free.

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Ray Hickey, who turned Tidewater Barge Lines Inc. into one of the nation’s largest inland marine transportation companies before becoming a renowned Vancouver, Wash., philanthropist, died Wednesday morning. He was 82.

Hickey died unexpectedly at his home from heart-related complications, said his daughter, Linda Hickey.

Hickey had what his daughter referred to as “the American dream story.”

A Montana native, Hickey had been laid off from a job in an Idaho ore mine in 1951, when a sibling directed him to a newspaper ad advertising work on the Columbia River.

He moved to Vancouver, where he became a deckhand for Tidewater, working his way up through the ranks to president before eventually buying the company.

During his time with Tidewater, the company grew to become the largest inland marine transportation company west of the Mississippi River.

Hickey sold Tidewater in 1996, feeling “like he had really built the company into not only a successful company, but a company with a lot of integrity,” his daughter said. “He felt it was time to move onto other things cheap pay day loans.”

His focus shifted to philanthropy, both as an individual and through the Ray Hickey Foundation, of which Linda Hickey is the director.

Between personal donations and contributions through his foundation, Hickey gave more than $20 million to a host of regional organizations including the YWCA of Clark County, Columbia Land Trust, Doernbecher Children’s Hospital, and the Jack, Will, and Rob Boys and Girls Club in Camas, Wash.

In 2002 he gave $1.5 million to what would be come Vancouver’s first inpatient hospice center, developed by Southwest Washington Medical Center. It opened in May 2004 bearing his name: the Ray Hickey Hospice House.

He is survived by his daughters Linda Hickey and Cindy Nesbitt; a son, Wes Hickey; and seven grandchildren.

A memorial service will be held Friday, April 23, at the Vancouver First Church of God, 3300 N.E. 78th St., Vancouver. Wash. A time for the service was not finalized by early Thursday afternoon.

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In more than two years covering WaMu, Puget Sound Business Journal Staff Writer Kirsten Grind has chronicled the inside story of the bank’s demise.

Her award-winning series revealed that the bank was “well-capitalized” when it was seized, that regulators undercut its efforts to find a buyer and that JPMorgan Chase had a plan to buy it from the government months before the bank was seized.

Read the PSBJ's prior coverage of WaMu:

The downfall of Washington Mutual

The Washington Mutual decision

The deal for Washington Mutual

Grind also broke the inside story on how Killinger’s management of the bank led it toward disaster by expanding its exposure to risky subprime loans.

Insiders detail reasons for WaMu's failure

Recent developments in the WaMu story include a proposed settlement in the bankruptcy case.

Read recent coverage here

WaMu holding company reaches settlements with FDIC, Chase

JPMorgan says ‘sell’ — Washington Mutual shares must go

Cantwell reveals another WaMu inquiry

FDIC’s WaMu role under investigation by Senate subcommittee

The downfall of Washington Mutual continues to reverberate and generate news more than a year and half after it was seized and sold to JPMorgan Chase by the FDIC and OTS."

Former executives Kerry Killinger and Steve Rotella are testifying in Congress on April 13 about the bank’s exposure to subprime loans. Killinger’s prepared remarks will say that the bank was seized prematurely by regulators, a move that cost investors billions of dollars, according to people familiar with the testimony.

Follow the coverage here:

Live Blog from Capitol Hill

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Alan Greenspan acknowledged Wednesday that mistakes were made during his long tenure as chairman of the Federal Reserve, but he argued that the low interest rate policy he championed at the central bank didn’t inflate the housing bubble.

In testimony before the Financial Crisis Inquiry Commission, Greenspan said the recent financial meltdown was possibly "the most severe in history." He admitted that regulators failed to grasp the severity of the crisis, but he maintained that his policies and predictions were correct most of the time.

"When you’ve been in government for 21 years, as I have been, the issue of retrospect and what you should have done is a really futile activity," Greenspan said. "I was right 70% of the time. But I was wrong 30% of the time, and there were an awful lot of mistakes in 21 years," he added.

Greenspan, who was chairman from 1987 to 2006, has been criticized for not increasing the Fed’s benchmark interest rate in time to prevent the housing market from becoming overheated. The housing bubble eventually burst in 2008, giving rise to a wave of foreclosures, which roiled the financial markets and plunged the economy into a deep recession.

The commission, which was established last year to examine the causes of the financial crisis, is hearing testimony this week from a number of former federal officials, bankers and mortgage industry executives about the near collapse of the housing market.

The hearings are aimed at exploring how the issuance of trillions of dollars worth of risky subprime mortgage debt contributed to the financial meltdown. Specifically, the commission wants to explore the Federal Reserve’s authority to regulate unfair and deceptive mortgage practices.

In response to a question from commission chairman Phil Angelides about why the Fed did not move faster to contain the spread of subprime lending, Greenspan said the central bank has limited power to enforce regulations, adding that he did take steps to protect consumers from predatory lending.

"We did do almost all of the things that you are raising," Greenspan responded. "And the consequence of that, I think, is that things were better than they could have been."

Greenspan said the subprime mortgage crisis had its root in the securitization of risky home loans into assets that were divided and sold around the world. He said the market for such securities ballooned to more than $900 billion by 2007 due mostly to strong demand from overseas investors.

The former chairman said investors’ strong appetite for mortgage-backed securities artificially boosted home prices. He said government-sponsored enterprises, such as mortgage lenders Fannie Mae and Freddie Mac, also contributed to the spread of subprime loans.

Greenspan also blamed banks for relying too heavily on the flawed judgment of credit ratings agencies to assess the value of mortgage-backed securities and dropping the ball when it comes to risk management.

While there is no way to fully prevent another crisis from happening, Greenspan argued that increased capital and collateral requirements for financial institutions could help mitigate risks and safeguard the system.

"We did not have enough capital in the system to contain the type of crisis that happens, in my judgment, once in a hundred years," he said.

Greenspan also said regulators could do more to prevent predatory lending and address threats posed by institutions that are considered too big to fail.

Inside Citibank

In addition to Greenspan, the 10-member commission heard testimony on supbrime mortgage origination and securitization from current and former executives at Citigroup (C, Fortune 500), which received a $45 billion taxpayer bailout after suffering huge losses tied to its investments in mortgage backed securities.

Richard Bowen, former senior vice president at CitiMortgage Inc., the bank’s underwriting arm, told the commission that he raised red flags about the quality of the mortgage pools the bank was investing in.

Bowen said he sent an e-mail to members of Citi’s corporate management, including Robert Rubin, then chairman, in 2007.

"In this e-mail, I outlined the business practices that I had witnessed and attempted to address," Bowen testified. "I specifically warned about the extreme risks that existed within the Consumer Lending Group."

Under questioning, Bowen said he received a "very brief phone call" from one of the bank’s lawyers shortly after he sent the e-mail.

He sent two follow up e-mails, but was not contacted until late the following year. When asked if Citi had taken any action based on his warning, Bowen, who left the company in 2009, said he didn’t know.

Susan Mills, who has run the mortgage finance group at Citi’s investment banking division since 1999, defended the bank’s efforts to ensure the mortgages it invested in were sound.

"Our due diligence review served as the primary — and I believe highly effective — means by which we evaluated the loans that we purchased and securitized," she said.

While those practices failed to detect the "unprecedented" downturn in home prices, Mills argued that securitizing and selling home loans to investors is a safe and effective way to facilitate homeownership.

"I continue to believe, despite the financial crisis and the collapse of residential home prices, that securitization of non-agency mortgages plays a vital role in making capital available to institutions to enable individuals to purchase homes," she said.

On Thursday, Rubin and former Citibank CEO Chuck Prince will go before the commission, while former Fannie Mae executives Robert Levin and Daniel Mudd are due to testify Friday. 

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Cassidy Turley has secured $80 million in permanent financing for 901 15th St. NW, also known as the McPherson Building.

The commercial real estate firm arranged a non-recourse loan with an offshore bank on behalf of the owner, an affiliate of ING Real Estate.

The name of the lender was not disclosed.

The 12-story, 252,834-square-foot office building overlooking McPherson Square Park was developed in 1988. It recently underwent a $25.1 million renovation that included a new exterior façade with a glass curtain wall and cantilevered canopy and stone archway. The renovation upgraded the building to a trophy-quality property.

The building is 50 percent leased to a mix of retail, public and private tenants. Last year, law firm Davis Polk & Wardwell signed a 20,407-square-foot, 11-year lease for the top floor.

David Webb, John Campanella and Phil Mudd of Cassidy Turley arranged the financing.

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