What to do with Wall Street’s gluttonous gatekeepers?
By all accounts, the major credit rating agencies — Standard & Poor’s, Moody’s and their smaller rival Fitch — played a significant role in inflating the credit bubble. The firms raked in huge fees by blessing bonds based on mortgages of poor quality. Then Wall Street dumped the highly rated bonds on suckers around the globe.
When homowners couldn’t make their mortgage payments, the bonds turned toxic — touching off a financial sector meltdown that that torched investors everywhere.
Washington has promised reform. But leading plans under discussion would do little to address two longstanding structural problems.
First, the firms earn most of their money taking fees from bond issuers, creating a thorny conflict of interest.
Second, investors and regulators use the ratings for everything from investing decisions to capital requirements — yet the accuracy of the ratings isn’t even officially tracked, much less subject to meaningful scrutiny.
So as regulatory reform season kicks into high gear, there is little sense that serious change is imminent.
"The role of a rating agency is to provide a fair, unbiased assessment of value in order to improve the efficiency of credit markets," Jerome Fons, a former Moody’s managing director, told the National Association of Insurance Commissioners last month.
"But powerful interests prefer inefficient markets so that they can extract returns from the less informed," said Fons, who now runs a risk consulting business. "It takes heroic discipline to stand up to these interests, and in my view, for-profit rating firms are not up to the task."
To be sure, the rating firms stress that they aren’t standing still. S&P notes that it has hired new executives and adopted new rules for rating housing-related securities and preventing conflicts of interest. Moody’s has pointed out its efforts to improve transparency and boost ratings consistency.
Nice ratings, big profits
The rating agencies have performed poorly many times before. Notably, they were just as tardy in flagging the problems at Enron and WorldCom in the downturn at the start of this decade as they were last year at Lehman Brothers and AIG.
Yet despite this uneven track record, the ratings firms’ profits were growing at a rapid clip until the bottom fell out of the housing market.
Moody’s (MCO) saw its profits grow sevenfold between 1997 and 2006, when U.S. house prices topped out. Financial services accounted for three-quarters of profits at S&P parent McGraw-Hill (MHP, Fortune 500) that year.
But the profit gusher at the major firms have eased off in recent years, as the financial markets teetered. And threats stemming from the loose practices of the go-go days are starting to emerge. Take a suit filed in July by Calpers, the giant pension fund.
The firm sued all three big rating agencies, blaming them for $1 billion in losses on debt issued by so-called structured investment vehicles, or SIVs, a favorite tool of Wall Street during the boom. The ratings agencies said the suit lacked merit.
Calpers claimed the rating agencies were negligent in giving high ratings to some bonds that have since gone sour quick pay day loan. The suit also said the firms were "actively involved" in creating these questionable investments, arguing they "would help the arrangers structure their deals so that they could rate them as highly as possible."
The rating firms, without commenting specifically on the Calpers claims, reject the notion that they would ever cross the line into structuring or selling bonds.
"We don’t structure deals — our policy prohibits that," an S&P spokesman said. "We do not structure, design or market securities of any kind," Moody’s said.
Still, some observers contend that the agencies’ actions in structured finance may have compromised a favorite legal defense. The rating agencies say they are merely publishers, and that their ratings are opinions that are shielded by the First Amendment.
But with the lion’s share of revenue coming from the firms whose bonds they rate, "Really they’re more like vanity publishers," said Daniel Alpert, managing director at investment bank Westwood Capital. "There’s no way the First Amendment defense will survive this wave of litigation."
Regulatory underreach?
If the current situation is less than satisfactory, the fixes being pursued on Capitol Hill and at the Securities and Exchange Commission are nothing to write home about either.
The Obama administration this summer called for new rules that would strengthen SEC oversight of the rating agencies and demand that they manage their conflicts of interest better. It also said rules should be rewritten to reduce investors’ and regulators’ reliance on ratings.
But that may be easier said than done. Americans got an inkling of that last fall after AIG faltered and was propped up with taxpayer funds that eventually ran to more than $180 billion.
AIG’s Achilles heel turned out to be the billions of dollars of credit default swaps it wrote to help European banks reduce their capital requirements. In essence, the European banks paid AIG for triple-A ratings that allowed them to lend out spare funds rather than holding them against possible losses.
While the ratings agencies obviously didn’t cause AIG’s implosion, the insurer’s woes show just how integral the big three firms have become to the financial system.
"The system has been set up to rely heavily on ratings," said Matthew Richardson, a finance professor at New York University. "It’s hard to put that genie back in the bottle."
But if Washington hasn’t come up with a workable fix yet, there’s no reason to despair. There are plenty of proposals to change the so-called issuer-pays model and to improve the procedure for approving and overseeing nationally registered rating firms.
It may simply take a while for policymakers to sort through all of them, Richardson adds. After all, massive bank failures and funding crises have up till now taken priority.
"This was part of the crisis, but it wasn’t the heart of the crisis," he said. "It’s going to take some time to get this piece of the puzzle right."
The U.S. unemployment rate may rise above 10 percent as employers cut payrolls further, Federal Reserve Bank of St. Louis President James Bullard said.
“Unemployment is leveling off but we still may be headed toward double digits,” Bullard told reporters today after a speech in St. Louis. The rate was 9.8 percent in September, the highest since 1983.
“Labor markets are very weak,” Bullard said. “It is disturbing, and I find it upsetting that we are still losing jobs payday loan company. We would like to see nonfarm payrolls turn positive before the end of the year. I don’t know if we will get there or not.”
The economy lost 263,000 jobs in September, more than economists forecast. September’s losses brought total job reductions since the recession began in December 2007 to 7.2 million, the biggest decline since the Great Depression.
The possibility of securing a mortgage rate below 5% has greatly improved in recent weeks, in a positive sign for would-be home buyers.
Home mortgage rates fell for the sixth straight week, according to two key measures, with one of them pointing to a sub-5% rate for the 30-year fixed loan for the second week in a row.
Freddie Mac’s (FRE, Fortune 500) weekly report said the 30-year rate slipped to 4.87% for the week ended Thursday, the lowest since May. According to the mortgage backer, last week’s rates stood at 4.94%.
Mortgage tracker Bankrate.com said the average 30-year fixed loan slipped to 5.22% from 5.25% the previous week. The 15-year fixed rate also fell, Bankrate said, to 4.6% from 4.64% the week before.
The 30-year rate is influenced by the benchmark 10-year note’s yield, which moves in the opposite direction of its price. Treasury prices have risen over the past week as $78 billion worth of auctions received above-average demand.
"Another disappointing employment report had investors questioning the strength and sustainability of the economic rebound," the Bankrate report said. "The resulting uncertainty drove investors into the safety of government and mortgage-backed bonds."
"Not even a substantial auction of government debt has been enough to derail the streak of declining mortgage rates," the Bankrate report said.
Rates are returning to levels not seen since the spring when, in an effort to cap mortgage rates, the Federal Reserve began a campaign to buy back $300 billion in Treasurys easy pay day loans. The Fed hoped that it would spark demand and keep yields — and therefore, mortgage rates — in check.
Mortgage rates fell as refinancings abounded. But those benefits seemed to wear off, as rates started on a tear in the summer. By June, the benchmark 10-year bond’s yield had increased steadily to hover around 4%.
Now the central bank has less than $15 billion left to spend on its buyback program, which led some investors to worry that yields would soar again. So far, that’s not the case.
On Wednesday, reports said Democratic congressional leaders were working to extend a $8,000 tax credit for first-time home buyers past the Nov. 30 expiration date and could even make it available to current homeowners who buy a new house.
Homeowners have received a boost from both the tax credit and the lower rates — last year, the average 30-year fixed mortgage rate was 6.2%, according to Bankrate.
To translate the difference in mortgage rate into dollars, consider a $200,000 loan. At last year’s rate of 6.2%, the monthly payment would be $1,224.94, or $124 higher than the monthly payment at the current rate.
The low rates helped mortgage applications surge by 16.4% last week, according to a separate report.
For General Motors, the road out of bankruptcy isn’t proving to be as smooth as its quick trip through it.
In the past week, the company’s plans to sell its Saturn brand to auto retailer Penske Auto Group fell through, forcing GM to start winding down a network of about 350 dealerships.
But that’s not the only post-bankruptcy problem for GM. Its plans to sell Hummer to a Chinese industrial company missed a target date of closing by Sept. 30.
GM is also trying to close a deal to sell two-thirds of GM’s European Opel brand to a joint venture between Canadian auto parts maker Magna International (MGA) and Russian automaker GAZ Group. Despite ongoing losses at Opel, the decision to sell that stake was a difficult one for GM. Many experts are concerned that the Opel sale will weaken GM by limiting its global reach.
"It hurts their global capabilities," said Tom Libby, president of the Society of Automotive Analysts. "They can’t draw on this major source of engineering resources that they’ve used for years. If they had had the money they needed, they wouldn’t have done it."
Libby said it’s not surprising that the Saturn deal fell through, that Hummer is behind scheduled, or that the Opel deal has raised questions. But he said these are all signs that turning around GM for the long run will be a significant challenge.
"They made assumptions during the bankruptcy process and that’s why the process was so quick," he said, referring to the company’s six-week trip in and out of bankruptcy court. "But it was always going to be difficult to meet those expectations."
Saturn closure comes with costs
The Saturn deal with Penske (PAG, Fortune 500) was never going to raise a large amount of money for GM. But it would have allowed GM to supply a Penske-run Saturn with vehicles for two years while it found a new contract supplier. That plan would have helped GM keep factories running more efficiently.
In addition, GM will now have to pay Saturn dealers between $100,000 and $1 million each to wind down, which will cost the company more than $100 million. Libby said those payments, while modest in comparison to the company’s ongoing losses, still will hurt GM.
"They have no excess funds. It’s going to affect something in the organization significantly," he said.
GM spokesman John McDonald said that the company never counted on avoiding payments to dealers through a Saturn sale. So the collapse of the Saturn deal is not a setback, he said.
McDonald added that the company hopes to produce the same number of vehicles for its other brands that it would have if it was still making Saturns no fax pay day loans. GM has Chevrolet and Buick offerings that are similar to most Saturn models.
Saturn’s industrywide market share has fallen to a record low of less than 1% this year as buyers avoided the endangered brand and GM cut back on marketing efforts. But Saturn still accounted for about 4% of GM’s total sales in 2009. So any slip in sales could hurt GM at a time when it is struggling to end a period of market share declines in the U.S.
Opel deal critical. Hummer? Not so much.
The Opel deal could affect GM’s competitiveness not just in Europe but in North America as well. Some of GM’s most critically acclaimed vehicles in recent years, including the Chevrolet Malibu and the Buick Lacrosse, are built on an Opel platform.
The Opel sale was temporarily put on hold by GM’s new board as it studied whether it was the best move for the company following bankruptcy. But the need for short-term cash and political pressure from the German government, which had loaned the company money to keep Opel afloat, left GM little choice than to proceed with the sale.
"It wasn’t negotiating from a position of power," said Subroto Banerjee, a partner with business consultant Frost & Sullivan. "In a time of being forced to sell something, you’re in deep trouble. You’re going to give up more than they’d like."
Still, the Opel deal could benefit GM even though some worry about the impact it will have on sales. The keys to whether the deal will be good or bad for GM depends on how much access GM will have to Opel’s engineering resources going forward and the limits on Opel’s new owners being able to compete against GM in markets outside of Europe.
"From GM’s position, those two things are critical," said David Cole, chairman of the Center for Automotive Research, a Michigan think tank.
Then there’s Hummer. The decision to get rid of Hummer, while arguably attracting the most attention because a Chinese company wants to buy the brand, will likely have the least impact on GM. Hummer is small even in comparison to Saturn and it has a much smaller dealer network.
GM’s McDonald insists that missing the target date to close the deal is not necessarily a sign that there are problems. "Especially when dealing with an international buyer, missing a deadline is not uncommon," he said.
Nonetheless, Hummer has been another drain on GM’s limited resources, and experts say they need to resolve the future of the brand sooner rather than later. Libby said that keeping Hummer is not an option for GM.
The stock advance has hit some resistance in the last two weeks and it’s only going to get tougher as the third quarter reporting period gets underway.
Since hitting rally highs nearly two weeks ago, the broad S&P 500 index has lost 4.3% as investors have sorted through a spate of manufacturing, consumer and jobs reports that have missed forecasts.
The standout was Friday’s September jobs report, which showed the unemployment rate spiked to 9.8%, a new 26-year high. On top of that, employers cut a whopping 263,000 jobs from their payrolls during the month.
But the stock market’s decline over the last two weeks was pretty minimal, considering the nearly seven-month run up that propelled the S&P 500 by 51.2%.
That rally was driven by extraordinary amounts of monetary and fiscal stimulus and a spate of "less bad" news as the economy moved from recession to stabilization to the start of a recovery.
But lately there’s been a change, with the trend going from ‘less bad’ to ‘less better’ economic news, said Karl Mills, president and chief investment officer at Jurika Mills & Keifer. "The market is trying to understand that switch."
Although he says the recent trend doesn’t undermine signs of a recovery, it does indicate that the road ahead is a lot more twisty than the stock market rally would imply.
Investors are now moving into a sorting period, he said, where they are separating the wheat from the chaff, in terms of good and bad assets. He said that the period of more speculative, so-called lower quality names leading the rally will end as higher quality names start to take over.
"We are moving into a new phase, from collapsing to rebounding to recalibrating," he said.
Financial results: The week ahead is pretty mild in terms of economic reports, with a reading on the services sector of the economy and Treasury’s $60 billion in debt auctions the big standouts.
But it also brings the start of the third-quarter reporting period, albeit a very small start, with only one notable company due to report.
Dow component Alcoa (AA, Fortune 500) is the unofficial start to the quarterly reporting period, as per usual. The aluminum maker is expected to report a loss of 12 cents per share versus a profit of 37 cents a year ago.
The weakness in Alcoa is indicative of a materials sector that is expected to take it on the chin in the third quarter. The sector is expected to see earnings fall 68% from a year ago, followed by energy, down 64% from a year ago. Financials, by default, are expected to show the best results, as the companies bounce off dismal results accrued in the third quarter of 2008. Financials are expected to post earnings growth of 59%.
Overall, "we’re looking for another down quarter, the ninth in a row and the longest streak since we began calculating the growth over a decade ago," said John Butters, senior research analyst at Thomson Reuters.
Overall S&P 500 profits are expected to have dropped 24.8% from a year ago, he said.
On the docket
Monday: The Institute for Supply Management (ISM)’s services sector index is due shortly after the start of trading. Last week, the ISM’s manufacturing index showed a surprise decline that rattled investors. The services sector report is expected to show growth, rising to 50 from 48.4.
Treasury is auctioning $30 billion in six-month bills and $30 billion in three-month bills, with results due in the early afternoon. Wall Street will be looking to see what kind of demand the auctions draw, particularly from international investors, as the government seeks to fund trillions in economic stimulus projects.
Federal Reserve Vice Chairman William C. Dudley is due to speak.
Tuesday: The World Business Forum runs Tuesday and Wednesday in New York, with participants including Bill Clinton, T. Boone Pickens, Jack Welch, George Lucas and Paul Krugman.
The IMF and World Bank Group annual meeting in Istanbul runs through Wednesday.
Wednesday: August consumer credit, the September Treasury budget and the weekly oil inventories report are all due throughout the session.
Thursday: The weekly initial claims report from the Labor Department is due before the start of trading. No analyst estimates were available as of Friday.
Wholesale inventories are expected to have fallen 1% in August, after declining 1.4% in the previous month. The Commerce Department report is due shortly after the start of trading.
Federal Reserve Chairman Ben Bernanke is due to speak on the Fed’s balance sheet.
Also Thursday, Federal Reserve Governor Daniel K. Tarullo is due to speak.
Friday: The August trade balance is due before the start of trading. The trade gap is expected to have widened to $32.9 billion from $32 billion.
Federal Reserve Governor Donald L. Kohn is due to speak.
The bond market closes early ahead of the Columbus Day holiday.
Stocks meandered Friday, at the end of a second straight week of losses, as investors worried that a worse-than-expected jobs report was further evidence that the rally has gotten ahead of the recovery.
The Dow Jones industrial average (INDU), the S&P 500 (SPX) index and the Nasdaq composite (COMP) all lost a few points.
"The [jobs] report was a disappointment, but a recovery is not going to go in a straight line," said John Wilson, chief technical strategist at Morgan Keegan.
Since the rally highs were hit last week, stocks have lost about 5%. Wilson said stocks may need to ease another 5% lower over the next few weeks, but that a 10% pullback would be sufficient to bring buyers back in to push the market higher.
Stocks got hammered Thursday after weaker-than-expected readings on manufacturing and jobless claims sparked worries about the pace of the economic recovery. The Dow closed down 204 points.
Stocks are also vulnerable to a bit of selling after a strong July through September period in which the Dow and S&P 500 both jumped 15%, their biggest quarterly gains in more than a decade. The Nasdaq gained 15.7%, its best quarterly performance since 2003.
The advance was part of a bigger run up that has propelled the leading indexes for roughly 7 months straight. The advance has been driven by slowly improving economic news and tremendous amounts of fiscal and monetary stimulus.
But lately, a number of the reports have been missing expectations, including readings on jobs, manufacturing and consumer confidence earlier this week.
Since bottoming at a 12-year low March 9, the S&P 500 has gained 51.2%, and the Dow has gained 45% as of Friday’s close. After hitting a six-year low, the Nasdaq has gained nearly 61%.
Economy: Employers cut 263,000 jobs from their payrolls in September after cutting a revised 201,000 in August, the Labor Department reported Friday morning. Economists were expecting 175,000 jobs cuts, on average, according to Briefing.com.
The unemployment rate, generated by a separate survey, rose to 9.8%, a 26-year high. That was in line with economists’ forecasts and up from the 9.7% rate in August. Most economists expect the national unemployment rate to hit 10% by year end, although in a number of states it is much higher.
A separate government report showed that factory orders plunged in August versus forecasts for a rise. The Commerce Department said factory orders fell 0.8% versus forecasts for a flat reading. Factory orders rose 1.4% in the previous month.
Company news: Troubled lender CIT (CIT, Fortune 500) launched a debt-exchange plan as part of its efforts to restructure and avoid bankruptcy. But the company said if the plan is not successful, it will likely file for Chapter 11 protection.
Apple (AAPL, Fortune 500) shares gained after both Morgan Stanley and UBS issued bullish notes on the company’s forecast.
Market breadth was positive. On the New York Stock Exchange, losers beat winners two to one on volume of 1.4 billion shares. On the Nasdaq, decliners topped advancers two to one on volume of 2.47 million shares.
World markets: Global markets tumbled. In Europe, London’s FTSE 100 lost 1.2%, France’s CAC 40 lost 1.9% and Germany’s DAX lost 1.5%. Asian markets declined as well, with the Japanese Nikkei losing 2.5%.
Currency and commodities: The dollar tumbled versus the euro and the yen, resuming its recent plunge against a basket of currencies.
U.S. light crude oil for October delivery fell 87 cents to settle at $69.95 a barrel on the New York Mercantile Exchange.
COMEX gold for December delivery rose $3.60 to settle at $1,004.30 an ounce. Gold closed at a record high of $1,020.20 two weeks ago.
Bonds: Treasury prices tiptoed higher, lowering the yield on the benchmark 10-year note to 3.21% from 3.18% late Thursday. Treasury prices and yields move in opposite directions.
In the 1980s, when stocks mostly surged, a few mutual fund managers became the equivalent of rock stars.
Tops among them: Peter Lynch, who racked up average annual returns of a remarkable 29 percent over a 13-year run.
Lynch did it at Fidelity Magellan, which continued to grow after he left in 1990. What once was the world’s largest fund swelled from $13 billion to nearly $110 billion a decade later. Assets peaked three years after the fund shut its doors to new investors because it became so big it was hard to manage effectively.
So where is Magellan now? It’s at $24 billion, and struggling to draw investors who fled in droves after years of mediocre performance. Magellan is still big by any standard, but it’s merely Fidelity’s fourth-largest stock fund.
"I don’t worry about too many assets now," says current manager Harry Lange, who took over in late 2005.
Magellan reopened to new investors early last year, but those who gave it a try were disappointed. The fund’s 2008 plunge? Forty-nine percent — steeper than the market’s nearly 39 percent decline. Blame bad bets on dogs like AIG and Wachovia — financial companies that Lange held on to for too long.
But Lange is turning things around, thanks to a sharp departure from his predecessor’s style. Where Robert Stansky was criticized for too closely mirroring broader markets, Lange has tilted the fund heavily in favor of growth stocks — companies whose comparatively steep share prices are backed by expectations that earnings will keep growing rapidly. He’s eased out of cheaper value stocks with steadier earnings, and takes a go-anywhere approach in keeping with the fund’s namesake 16th century explorer. Nearly one-quarter of Magellan’s holdings are international stocks.
Many of the same bets on riskier stocks that weighed Magellan down last year are lifting it in 2009. It’s up 35.6 percent, easily topping the nearly 17 percent gain for its benchmark, the Standard & Poor’s 500, and beating nearly nine of 10 of its peer funds.
So is it time to climb back aboard Magellan? Only if you’re willing to commit to a fund whose penchant for racy stocks makes it unusually volatile.
This year, the fund expanded its already substantial stake in recently hot technology stocks — its second- and third-largest holdings are specialty glass maker Corning Inc. (up 62 percent this year) and semiconductor maker Applied Material (up 34 percent). It’s also favored hard-hit fare like home builder Toll Brothers (down 8 payday loan.8 percent) and big banks — Magellan’s most recent list of top 10 holdings included Bank of America, J.P. Morgan Chase, Wells Fargo and Goldman Sachs.
Lange has turned Magellan into "a fund for optimists," according to Morningstar’s lead Fidelity analyst, Christopher Davis.
"If you look at its portfolio, it’s positioned for an economy that’s improving," Davis says, noting an absence of such defensive favorites as Wal-Mart and Procter & Gamble.
Lange says this year he’s slightly eased off his leaning toward growth stocks but still heavily favors the category. Though value stocks outperformed growth for an eight-year run after the dot-com bubble deflated early this decade, the pendulum swung back to growth last year — financial stocks that were hit so hard last year are mostly in the value category. Growth’s ranks include plenty of tech names that have recently fared well.
Lange still likes tech because of its big stake in emerging markets, where consumers in countries like China and India continue to drive growing demand for gadgets including mobile phones from makers like Nokia, Magellan’s top holding. He figures that trend will continue giving growth an edge over value. "I’m pretty confident that growth will be as strong in the next six to 12 months," Lange says. "There are a lot of people out there who think after that, it will be a sluggish recovery. I’m more bullish than that."
As for his fund’s choppiness, Lange acknowledges that with his growth-oriented style, "it’s pretty tough not to have volatility in these unusual times."
Even with this year’s strong results, winning back investors who fled Magellan has proved tough. Lange is still trying to shake the cumulative record of the last 10 years, a period when Magellan posted an average annual loss of 1.2 percent, slightly worse than most of its peers.
"This is not your grandfather’s Magellan fund," says Jim Lowell, a former Fidelity employee who runs an independent newsletter, FidelityInvestor.com, that evaluates the company’s funds.
Lowell currently recommends Magellan but says it’s no longer appropriate as a core retirement holding for investors who are looking for the broad exposure it once offered. Instead, Magellan is geared toward those seeking more growth exposure in an otherwise diversified portfolio.
For a third time this week, TD Bank’s 6.5 million U.S. customers cannot see real-time updates on their account transactions and balances. And even that’s an improvement.
In a statement released Thursday, TD Bank (TD) said customers can only see their account balance and transactions as of Wednesday evening because the bank is "experiencing an unusual delay in [its] overnight batch postings."
Earlier Thursday, customers couldn’t even log in to their online accounts. But TD Bank spokeswoman Jennifer Carlson said that access was restored as of 3 p.m. ET.
TD Bank, which holds $80 billion in deposits, said it expects to complete processing transactions and have current balances later in the day, and will reverse fees, charges or interest incurred because of the disruption.
The system first malfunctioned Monday night when the Toronto-based bank tried to integrate its operating system with New Jersey-based Commerce bank, which it acquired last year. TD Bank said the problem was resolved Tuesday, resurfaced Tuesday night, was resolved again Wednesday, and then recurred.
Carlson said that "higher-than-normal transaction volumes are compounding and having to play catch up" and ultimately causing a "computer glitch."
She added that the bank, which has more than 1,000 branches along the East Coast, is "posting transactions as fast as we can using the system we have in place" and hopes customers will be able to see real-time transactions and balances later Thursday no teletrack payday loans.
Carlson said that "a vast majority of customers" can still access their funds, including Thursday’s deposits, continue to make transactions, and have their automatic payments completed. She couldn’t say exactly how many customers have that access.
Last week, the bank’s New England and upstate New York branches changed their name from TD Banknorth to TD Bank, bringing more than 1,000 of its units between Maine and Florida under the same name.
Lauren Ventola, 23, who started using the bank seven years ago when it was still called Commerce Bank, hasn’t found the bank to be as convenient as its "America’s Most Convenient Bank" slogan. As a medical student on the Caribbean island of Grenada, she relies on online banking to manage her finances.
"With the TD Bank Web site down I can’t check statements, make sure rent money has cleared or determine my credit card balance," Ventola said when she couldn’t log in at all.
Chevron Corp’s David O’Reilly will hand Vice Chairman John Watson the reins as the second-largest U.S. oil company brings several big projects online and navigates through a massive, potentially damaging lawsuit in Ecuador.
Watson, 52, becomes chairman and chief executive at the end of this year, Chevron (CVX, Fortune 500) said Wednesday. He has been at Chevron since 1980, in roles such as chief financial officer and head of exploration and production outside North America. He also led the integration of Texaco after the deal closed in 2001.
The California native, who currently oversees strategy and development, will take the helm at a time when oil majors face increasing competition from state-run oil companies for access to the largest untapped reserves. Two-thirds of the world’s top 20 oil companies are backed by governments.
O’Reilly, a 62-year-old from Dublin, has worked for the San Ramon, California-based company for 41 years and served in the top two roles for the past decade.
A new CEO is just the latest change at the top of Chevron in the past year, which has seen a new chief financial officer take over and the appointment of a new chief in-house lawyer.
While O’Reilly made headlines in June by debating the head of the Sierra Club, an environmental group, his public profile was lower than that of many top executives.
"We really like that O’Reilly wasn’t real outspoken and on a lot of different boards," said Alan Brochstein, senior energy analyst at Management CV, which rates executive teams.
"We sure hope Watson won’t be either because quite frankly we think Chevron has had, over the long term, one of the higher returns for its shareholders," he added, noting that Watson had "major skin in the game" with $30 million of Chevron stock.
Ecuador threat
Watson faces a potential crisis from a $27 billion claim in a lawsuit in Ecuador, where indigenous people blame Texaco for polluting the areas where they live and damaging their health.
A ruling in the 16-year-old case had been due in the coming months, but that is now complicated by the judge’s replacement amid allegations he was involved in a $3 million bribery plot.
The CEO change is a "mild positive" for Chevron shares by setting up a smooth transition, said James Halloran, consultant with Financial America Securities in Cleveland, Ohio.
But he said the road ahead looks tough since oil companies largely occupy a second tier after national oil companies.
"They can no longer show up at the doorstep of countries and get access to the oil," Halloran said.
In the face of this challenge, Chevron in January dropped its target for 3% compound annual production growth from 2005 to 2010, although in July it did bump up its 2009 output growth target to 5% from 4%.
O’Reilly will depart as a number of sizeable projects come online from Brazil to the Gulf of Mexico to Australia, where the $37 billion Gorgon gas project just got the green light.
"He’s left him with a well-stocked pond," said Fadel Gheit, analyst at Oppenheimer & Co, who also identified access to new reserves as Watson’s biggest challenge.
Chevron’s board elected George Kirkland, 59, to succeed Watson as vice chairman. Kirkland will retain responsibility for Chevron’s global oil and gas exploration and production.
Chevron shares were trading 0.8% lower at $70.32, in line with peers. Shares of larger rival Exxon Mobil Corp (XOM, Fortune 500) were down 0.7% at $68.61.
Starbucks unveiled a brand of instant coffee Tuesday that the high-end chain says "will change the way people drink coffee."
The Seattle-based company will begin selling a "ready brew" coffee called Via at all of its U.S. locations in a move designed to tap a growing market for instant coffee.
"With a $21 billion global instant coffee business, and instant coffee representing 40% of overall global coffee sales, we believe Starbucks is uniquely positioned to capture a significant share of this market," said Starbucks chairman Howard Schultz, in a statement.
Starbucks has struggled to compete with lower-priced rivals such as Dunkin Donuts and McDonald’s (MCD, Fortune 500) as consumers have become more price-conscious amid the weak economy.
However, the company could face resistance from coffee purists who generally see instant coffee as inferior to brewed.
Starbucks (SBUX, Fortune 500) said Via is made with 100% natural roasted arabica coffee and that it took 20 years to develop "a proprietary, U.S. patent-pending microgrind technology" that preserves the taste of fresh coffee.
To help get Via off the ground, Starbucks said it will offer customers the chance to taste it at U.S. stores from Oct. 2 to Oct. 5. Customers will also be given a coupon for a cup of brewed coffee on their next visit and $1 off on a purchase of the instant brew.
Via is sold in packs of three cup-sized servings for $2.95 or $9.95 for a 12 pack. That makes for a cost of $1 per cup, which is Starbucks’ cheapest option.
Starbucks has partnered with a number of other companies that could benefit from Via’s portability. The instant brew will be available on United Airlines (UAUA, Fortune 500) flights of more than two hours, and at Omni and Marriott (MAR, Fortune 500) hotels, as well as through outdoor gear retailer REI.
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